February 25, 2023

Economists, even on the left, disagree about what is causing price increases and what is causing inflation right now.

(Post)Keynesian economists are continuing the narrative that it is greedy monopolists driving price increases. It is very hard to be too annoyed by this narrative as we all like to point at the large corporations that were making out like bandits during the first phase of the large inflation increases. However, the fact that corporate profits are not really growing as fast anymore—and are actually declining in some areas—makes me nervous to join in.

There is no question that mass of profit (the total amount of revenue received from sales) companies are seeing have been sky-high. The growth in these profits is similar to the increased tax revenue of governments that happened at the same time. Higher prices mean that seemingly static percentage of tax or profit seeking results in more money.

At that time, the left rightfully called-out the governments around the world that wanted to give this windfall money "back" to taxpayers. The reason for the concern by public sector labour unions and those who follow public spending is that the windfall mass of money coming into the government was going to be very short-lived as prices to replace goods (and provide services if wages were also to follow the increased costs of goods) also grew.

The money given away by governments during this time also created a situation where increased wages needed for public sector workers to keep pace with the cost of living would be difficult to fight for since the government could say it no longer had that money.

The government was essentially pretending that the mass of tax money receive was free money that it did not need. The confusion about the incoming money provided an opportunity for these governments to private a one-time tax grant to businesses at the expense of public sector workers.

In the private sector, they are not so quick to simply give back money received.

Prices of goods have gone up for good purchased by distributors (like Loblaws) before price increases. This results in a massive jump in the mass of revenue. And, because of the inherent lag in wage rate negotiations (without cost of living allowances in their collective agreements) the profit rate for these companies who sell things did go up.

However, as workers noticed that profits have gone up for these companies and as prices to replace the goods sold also rise, that mass of profit has started to be dragged back down.

The way that some of these companies are dealing with this is to reduce payrolls, actively suppress wage growth, and shift restocking time-frames. This has been made possible with the threat of recession caused by the central banks increasing interest rates.

Increased interest rates also slow investment in future productive capacity, slowing hiring, and make it more expensive to even service current debt.

So, where has that windfall mass-of-revenue gone? Well, Capital wants it to go to their shareholders and that is what we have seen. Share buybacks, dividends, and some (short-lived) stock price increases have meant much of that mass of revenue went directly into profits.

As profit rates come back down, workers should realize that they have been duped. The revenue from increased prices has gone to capital instead of wages to pay for the increased costs of purchasing.

This is the transfer of wealth we see whenever inflation rises faster than expected.

Workers should be going after corporate profits as they return to "nominal" levels—inline with pre-2019 rates. Unless we see a reduction below the nominal rate, we will have simply seen inflation be used in both the public and the private sector as massive shift of wealth to private capital from public and private sector wages.

We should be telling workers that they have a target for wages: the windfall revenue from increased prices. Either workers take these revenues as wage growth so they can make ends meet for their families, or they will go to capital profits.