Gloriously, wondrously, bad economics on greedflation

Greedflation is this idea that recent inflation was driven by Big Business - you know, capital, them, they - upping their profit margins at this time of stress. The usual response to this is that if capitalists - them, they - had this power to push up prices then they would have used it already. If that power was newly arrived in this time of stress then it’s the newly arrived ability which is to blame - so, macroeconomic or monetary conditions again - for their ability to do what they always would. They’re capitalist, those they, them, after all.

But the idea is still attractive to many. After all, it cannot be a failure of government, politics, Modern Monetary Theory or the Magic Money Tree, can it? Those are all nice things and sugar and spice do not lead to puppy dog tails.

Which is what leads to this latest report claiming that, no, really, it’s all them in their top hats and with their cigars:

The report from the IPPR and Common Wealth thinktanks found that business profits rose by 30% among UK-listed firms, driven by just 11% of firms that made super-profits based on their ability to push through stellar price increases – often dubbed greedflation.

Excessive profits were even larger in the US, where many important sections of the economy are dominated by a few powerful companies.

Gosh.

Researchers said the energy companies ExxonMobil and Shell, mining firms Glencore and Rio Tinto, and food and commodities businesses Kraft Heinz, Archer-Daniels-Midland and Bunge all saw their profits far outpace inflation in the aftermath of Russia’s invasion of Ukraine.

“Because energy and food prices feed so significantly into costs across all sectors of the wider economy, this exacerbated the initial price shock – contributing to inflation peaking higher and lasting longer than had there been less market power,” the report said.

Ah. In fact, Snigger, Ahahahaha and even LOL in that non-Call Me Dave sense.

The claim is that commodities prices (those raw foods like grains etc, oils, metals) went up more than inflation thereby boosting the profits of their producers. This must therefore be evidence of that market power to push up prices and so cause that excess inflation. We do agree that’s what they’re saying? Yes?

Excellent - now, what’s the definition of a commodity? “A commodity is a basic good used in commerce that is interchangeable with other goods of the same type.” If it’s interchangeable it’s substitutable. That is, commodity producers have no market power. They have to take the market price, they cannot determine it. It’s right there in the base definition of the thing we’re talking about. Commodity producers take the market price.

IPPR and Commonwealth have decided to use commodity margins - where there is no producer market power, by definition - as proof of producer market power. This isn’t economics this is politics with counting.