It’s all the capitalists trying to rip us off:

And there is more and more evidence that aggressive profit-seeking has contributed significantly to the inflation surge. Research released in March by the trade union Unite showed that for the 350 largest companies listed on the London Stock Exchange, “Profit margins for the first half of 2022 were 89% higher than in the same period in 2019.”

We would note more recent evidence too:

Britain’s second largest supermarket has reported a fall in annual pre-tax profits as it revealed that it had spent more than £560 million on keeping its prices low over the past two years.

To explain all of this we can - even should - look at the original report from Unite which makes that allegation of greedflation.

Economic analysis: Five channels of profiteering

“Free market” economic theory says that prices and profits should come down as firms compete and undercut each other. But across a whole range of markets, this has been failing to happen. The broken economy provides plenty of opportunities for firms to profiteer – that is, take advantage of a crisis.

Specifically, we identify five main economic channels of profiteering:

1. Supply crunch. After a supply chain shock, demand chases reduced supply – this allows companies to push up prices and profits. (Examples: food crops hit

by widespread droughts; semiconductors hit by pandemic production halt, raw material shortages and trade wars.)

2. Demand jump. An increase in demand for a good, while supply remains

constrained, allows companies to lift prices. (Examples: many consumer

products at the end of the pandemic.)

3. Market windfall. Centralised market pricing structures help companies score “windfall” profits – where a market-wide price jumps due to factors unrelated to many companies’ costs. (Examples: oil and gas, wholesale electricity

market.)

4. Market concentration (oligopoly). Where a few large companies dominate

an industry, they can have greater power to increase mark-ups. (E.g., oil and

gas, shipping, ports, supermarkets.)

5. State-licensed monopolies. In some key industries, companies are granted government concessions which give them major power to set prices, encouraged by failing regulation. (E.g., North Sea oil fields, electricity and gas distribution networks, other privatised utilities.)

We’d argue with 4) especially as it applies to supermarkets. Not just that fall in Sainsbury’s latest profits. But the simple fact that margins have collapsed over the past 25 years. Around the turn of the century British supermarkets made perhaps 6% of sales. Now it’s about 2 to 2.5%. What changed was the irruption of Aldi and Lidl - yes, it is that recent at scale. And yes this does prove that markets and competition work to restrict profit making. It might take time, but it works.

Actual oligopolies, with market power, or those state backed monopolies, of course we should kill them off. We’re not going to say different about that. Monopolies are Bad, M’Kay? What they’re calling “market windfall” is just marginal pricing. Of course the price across the market reflects the production price of the last unit to be produced. How does anyone think supply and demand works if not in that manner?

But it’s the 1) and 2) there which needs to be emphasised. Sure, supply and or demand change, prices and profits do. Sure. It’s what happens next that matters. The greedy capitalists see those luvverly profits being made and change their own production patterns. To go steal some of those luvverly profits off the other capitalists. This is how supply increases - or shrinks of course - in order to meet that change in demand. Which is what brings prices back down again as supply and demand move to meet each other.

This is how we gain the resource reallocation to meet those changes in supply and or demand. This is actually the point of the price system itself plus a market with free entry and exit. This is what it’s all about.

It doesn’t work overnight, to be sure, but it does so faster than any other method anyone’s ever discovered let alone tried.

Unite are actually complaining that prices - therefore profits - change when supply and or demand do. When changes in the profits from changing prices as a result of supply and demand changes are the very point of the system in the first place. For they’re the incentives to go change supply and or demand in order to moderate price changes.

That is, they’ve either entirely misunderstood the world they inhabit or are just looking for something to whine about. With Unite we’re not sure but of course that first quote comes from The Guardian - that’s definitely the second reason there. What is a comment page without a whine on it?