The Bank of England produced a new blog on its Bank Underground website yesterday, which they used to suggest that there was little evidence of what is called greedflation* having taken place within the UK economy since late 2021.
In my opinion, this is a totally distorted and utterly naive view of the data that was presented. What they actually found was that whilst overall profits may not have changed much within the economy:
The aggregate fall in mark-ups masks significant heterogeneity across sectors: mark-ups rise significantly in the mining and quarrying sector (driven by oil and gas extraction firms), as well as in some other sectors (eg wholesale and retail).
From this they concluded:
This decline has not been uniform across firms, however: firms with higher market power have been better able to increase their margins; others have experienced large declines.
In other words, they found that very many companies undertaking a wide range of activities were subject to significant price pressure pressure as a result of increasing raw material costs and higher energy prices which resulted in a decline in their profit margins. Those companies have to be those most exposed to competitive marketplaces.
In contrast, those companies with significant market power in areas where vertically integrated supply chains are commonplace or there is significant oligopolistic power, who just happened to be in the energy and retail (for which read food supply chain) markets, were able to exploit those market positions to increase their profitability quite considerably.
It was, of course, this exploitation that gave rise to the inflation that we have suffered, but mysteriously the Bank of England wish to sweep the evidence of this under the carpet.
What is it that they are trying to hide, apart from their stupidity in doing so?
* Greedflation is the term applied to companies exploiting their market power to increase their prices above the rate required to cover their increased costs during a period of economic uncertainty, which behaviour on their part then fuels the rate of inflation within an economy whilst significantly enriching their shareholders and (dare I say it) their senior management.
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Companies make bigger profits by ignoring the environment. We all recall water companies giving their shareholders significant dividends, and dumping raw sewage into rivers, and claiming no money to clean it up.
This is a core principle of neo-liberalism: freedom to ignore environmental responsibilities (and any other responsibilities, e.g. health and safety), in order to make a profit.
The quantity surveyors I’m working with in housing development are recording price increases on building materials costs of around 5% – 5.5% so it all rings true to me.
I go back to the Chinese ‘Guanzi’ approach which was a book written by the ancient Chinese about how to manage their country.
They observed over time that it was useful for the state to control/regulate the prices of certain goods/resources – from iron to matchsticks – that caused variations in the prices of key commodities that effectively made the population unhappy. They also knew of the tendency of suppliers and markets to use monopoly power for profiteering.
OK – so the reasons for Chinese society to be kept happy were complex but based on reciprocity – the Chinese government wanted to raise willing armies, wanted peace within its borders to protect its external borders, did not want internal or external opportunists to use domestic disgruntlement to cause internal problems.
But it all seems very advanced to me, and is redolent of the debt jubilees of the near east that Micheal Hudson has explored.
A way of joining society together at the bottom and the top existed by having some sort of equalising process (price controls or debt cancelling). A sort of ‘social security’ system via economics?
Contrast that with our own so-called ‘modern’ western society today.
A society with declining wages and work but punishment if you do not work; a society where the poor are essentially carted off to war; a society ripe and available for exploitation; a society forced into debt slavery for no other benefit other than to make the top of society higher than the top they are already on.
I ask you – what the hell is going on here? The moral vacuity in the West is at all time high. And the BoE offers yet further proof that is the West that is just as evil an empire as anywhere else and in some cases more so!
Except Russia of course – but hey! – they just took our own capitalist model and adapted it for themselves – and since our model was somewhat criminal anyway, it was a perfect fit!
To all the hawks wanting conflict with China BTW, I would say that it’s not wise to go throwing stones near glass houses.
What the Hell is going on here is this is a very short term society. It’s an offshoot, a cul de sac, a dead end, one we’re rapidly approaching. For it to be anything else it would have needed to have some sort of built in stabiliser like debt jubilees, as you say. Instead govt after govt have allowed people or corporations to become wealthier and wealthier, destabilising the culture and precipitating collapse. We lately witness the former leader of the self-styled party for law and order Iain Duncan Smith absurdly stating his support for selective criminal activity. Incredible enough but what’s further incredible is this has led to no response at all (I’m aware of) from his party leader. He remains in position as an MP. What sort of message does this send to anyone thinking of investing in the UK? Nope, we’re done; the fork’s well and truly stuck in.
Michael Hudson writes some interesting stuff although I don’t go with his view on the war in Ukraine. Tim Synder and the journalist Luke Harding give well referenced accounts which i think give a better understanding.
He says that China presents a different economic future and that is why they attract hostility from the west. While I think he has much to offer as a critique of our economic system he disregards the negative aspects of the China. I can accept one without the other. A discussion on the Guardian today about James Cleverly’s visit to China.
For those who are interested this is the last of four short videos on his website. https://www.youtube.com/watch?v=CCMaxnmxaxw&t=440s
Ian
I’m concentrating only on economic issues here, not issues of democracy. I think that we have lost some important lessons from the past about how to manage economics and money.
The ‘problem’ we have with China are over-hyped in my view. The Uyghurs are an obvious thing to mention, but look at the West’s treatment of Muslims and ethnic minorities at home and abroad. We treated Muslim lives so cheaply recently.
I’ve heard the difference between the West and China put forth like this:
In China there is one party and that party has changed things over the years.
In the West, we change our governments often, but nothing really changes.
Is that accurate? Which system do you prefer? Which is more honest or ethical?
The Chinese system certainly does has ethics and it defends these ethics very strongly. I just don’t agree with the ethics of a confusion world view. Even if the Chinese economic system offered a better utility than any western alternative; I would still pick a western economic system. Despite all the flaws of policy and leadership. Deep down I know that western societies can change.
How, why, and when?
Wonderful! I assume that when a Bank of England economist is watering their garden and there is a kink in the hose, it won’t matter, because on average the hose is completely straight.
Naked Class Warfare? Incompetence? Both?
I assume you all read this: ‘Corporate profits responsible for almost half of Europe’s inflation: IMF report’ – ‘Rising corporate profit margins accounted for 45% of inflation in Europe since the start of 2022’.
https://www.investmentmonitor.ai/news/corporate-profits-responsible-for-almost-half-of-europes-inflation-imf-report/?cf-view
‘Some have said that profiteering accusations are simplistic and merely business bashing, but market monopolisation of these key industries has precipitated record profits, reaching highs not seen since 1950.
In combination with Sainsbury’s, Tesco represents 43% of the UK’s grocery market – and the retailer Tesco reported a 5.3% increase in company sales, reaching £57.6bn in the 2022/23 financial year.’
I had
And I think they do understand what is going on.
I’m always amused to find that Adam Smith can come up with observations that are valid some 250 years later.
“Our merchants and master manufacturers complain much of the bad effect of high wages in raising the price and thereby lessening the sale of their goods, both at home and abroad. They say nothing concerning the bad effects of high profits, they are silent with regard to the pernicious effects of their own gains; they complain only of those of other people” (Wealth of Nations p169)
I read that paper too and came to much the same conclusion as Richard. What they are trying to hide is that they are acting in the interests of the banks, not the general public. I’ve got a pamphlet by Costas Lapivistas which shows quite clearly that what the Bank paper says is not correct.
This is the problem I see with the banking system:
➡️ Bank A lends £1m to Bank B, plus 10% interest (£100,000)
➡️ Bank B lends £1m to Bank C, plus 10% interest (£100,000)
➡️ Bank C lends £1m to Bank A, plus 10% interest (£100,000)
After all the banks pay back their £1m loan, they now each have to find a total of £300,000.
The banks may even pay themselves the £300K salary or bonuses.
But where does the £300K come from?
No matter how you borrow or lend money, the private banking system can not create the required interest payments.
The only source of the £300K must be government spending?
Or reduced prvate spending…
Or increased interest to private borrowers?
Although I am not arguing against the conclusions here, it does undermine the credibility of what is said when commentators conflate turnover and profit. The article says Sainsbury’s and Tesco jointly have increased turnover by 5.3% to £57.6b. So what? It is profits we are talking about not turnover.