Wednesday, June 19, 2024

Government Embraces Fringe Theory To Find A New Patsy

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In case you missed it, there's a term floating around economic circles that seeks to put the blame for squarely on the shoulders of businesses.

It's called “.” On the left, it's a term used to describe, well, theft…the blatant effort of corporations big, small, local and foreign to raise prices while everyone else's attention is focused on other things.

Setting aside the genuine supply and demand shocks that rattled the global economy during the COVID lockdowns, coupled with unprecedented levels of government spending and easy monetary policy (all of which stoked demand…does the greedflation hypothesis have any real-world merit?

The 's Scott Lincicome doesn't think so. His reasons vary but one that's intriguing is how the greedflation hypothesis completely ignores one side of the market equation: consumers.

Profit‐​maximizing firms could only raise prices (and earn higher profits) because consumers let them; consumers let them because they were flush with cash; and consumers were flush with cash mainly because of government policy.

The role that consumers play in companies' pricing decisions isn't exactly groundbreaking stuff; it's a standard part of mainstream microeconomics and frequently mentioned in economic analyses and business reporting—even for essentials like food. For example, a Kansas City Fed report from late last year found that consumer spending and behavior (eating more at home, and then shifting back)—not corporate profiteering—were the primary drivers of higher U.S. food prices during the post‐​pandemic recovery.

Those pesky buyers and their tendency to keep buying things. Only those roasted and basted in the fires of anti- would refuse to admit the essential role of buyers in a market. After all, you can't have a market without them.

Where, then, does the inflation problem originate? Our old friend, the state:

…numerous academic anal