Soaring Profits, Inflation and Businesses Raising Costs on Goods

Instead of management collecting on higher profit margins, certain businesses could raise wages and attract workers during this “Great Resignation” (where many workers are quitting) that American society is having.

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If This is a Wage-Price Spiral, Why Are Profits Soaring?

That’s the question millions are asking, even if economic reporters are not. The classic story of a wage-price spiral is that workers demand higher pay, employers are then forced to pass on higher wages in higher prices, which then leads workers to demand higher pay, repeat.

We are seeing many stories telling us that this is the world we now face. A big problem with that story is the profit share of GDP has actually risen sharply in the last two quarters from already high levels.

The 12.4 percent profit share we saw in the second quarter is above the 12.2 percent peak share we saw in the 00s, and far above the 10.4 percent peak share in the 1990s. In other words, it hardly seems as though businesses are being forced by costs to push up prices. It instead looks like they are taking advantage of presumably temporary shortages to increase their profit margins.

This doesn’t mean that some businesses are not in fact being squeezed. We are seeing rapidly rising wages for low-paid workers. That is putting a strain on many restaurants and other businesses that pay low wages.

That is unfortunate for them, but this is the way capitalism works. The reason we don’t still have half our population working on farms is that workers had the opportunity to work at higher-paying jobs in manufacturing. If workers now have the option to work at better-paying jobs, the restaurants that can adapt to higher pay will stay in business, but some obviously will not.

Letter to Amazon CEO Addressed to an “Insuperable Control Freak”

Amazon’s social responsibility is horrendous given its market dominance, and its CEO is the world’s richest person while many Amazon employees struggle with low pay and terrible working conditions. Amazon received a tremendous public subsidy by exploiting the law to avoid sales taxes in its formative history — it should be doing much more to pay back to the public.

Dear Mr. Bezos:

You’ve come a long way from being a restless electrical engineering and computer science dual major at our alma mater, Princeton University. By heeding your own advice, your own hunches and visions, you’ve become the world’s richest person – at $141 billion and counting.

[…]

Your early clever minimizing of sales taxes gave you a big unfair advantage over brick and mortar stores that have had to pay 6, 7, 8 percent in sales taxes. Your tax-lawyers  and accountants are using the anarchic global tax avoidance jurisdictions to drive your company’s tax burden to zero on a $5.6 billion profit in 2017, plus receiving about $789 million from Trump’s tax giveaway law, according to The American Conservative magazine (see Daniel Kishi’s article, “Crony Capitalism Writ Large,” in the May/June 2018 edition).

[…]

Your expansion into retail stores and warehouses will further highlight the low wages and sometimes hazardous working conditions and assembly line pressures of your corporate model. Other companies are exploiting their workers—as in Walmart (which by the way pays far more income taxes than you do on a percentage basis even under its tax avoidance schemes)— but few companies are as blatant in their planning to replace with robotics the warehouse workers and truck drivers delivering goods.

[…]

So you are on top of the world, hyper-rich, arrogant, with your raucous laugh and your sudden temper, believing that neither antitrust laws, nor labor laws, nor tax laws, nor consumer, nor environmental, nor securities laws will ever catch up with the excesses of your business model.

Don’t bet on it. Relentless greed with overly concentrated power (about the only thing you seem not to be willing or able to control is Alexa whose ambitions may come back to haunt you) sooner or later, faces a statute of limitations.