‘We may be looking at the end of capitalism’: One of the world’s oldest and largest investment banks warns ‘Greedflation’ has gone too far

[Morrison71]

‘We may be looking at the end of capitalism’: One of the world’s oldest and largest investment banks warns ‘Greedflation’ has gone too far

Albert Edwards, an economist at the 159-year-old investment bank Société Générale, says corporate greed may call for the unthinkable: Price controls.

fortune.com

When costs go up, so do profits? That’s not how capitalism is supposed to work, but that is the recent trend. For over a year now, consumers and businesses, both in the U.S. and worldwide, have struggled with stubborn inflation. But the soaring costs haven’t prevented corporations from raking in record profits. The companies in last year’s Fortune 500 alone generated an all-time high $1.8 trillion in profit on $16.1 trillion in revenue. Voices largely on the left side of the political spectrum have been sounding the alarm on this—think: Bernie Sanders in Congress or Jon Stewart’s recent grilling of former Treasury Secretary Larry Summers—but now an economist at one of the world’s oldest and greatest investment banks is singing the same tune.
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Albert Edwards, a global strategist at the 159-year-old bank Société Générale, just released a blistering note on the phenomenon that has come to be called Greedflation. Corporations, particularly in developed economies like the U.S. and U.K., have used rising raw material costs amid the pandemic and the war in Ukraine as an “excuse” to raise prices and expand profit margins to new heights, he said. And the French investment bank isn’t just historic: It’s one of the select banks considered to be “systemically important” by the Financial Stability Board, the G20’s international body dedicated to safeguarding the global financial system.
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Furthermore, Edwards wrote, in the Tuesday edition of his Global Strategy Weekly, after four decades of working in finance, he’s never seen anything like the “unprecedented” and “astonishing” levels of corporate Greedflation in this economic cycle. To his point, a January study from the Federal Reserve Bank of Kansas City found that “markup growth”—the increase in the ratio between the price a firm charges and its cost of production—was a far more important factor driving inflation in 2021 than it has been throughout economic history.

Typically, higher commodity prices and labor costs squeeze corporate margins, especially if the economy is slowing. But Edwards pointed to data released by the Bureau of Economic Analysis (BEA) last week that showed profit margins still near a record high relative to costs in the fourth quarter. The strategist said he assumed margins would have “declined sharply” at the end of last year as the economy slowed, but instead, “How wrong I was!”
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Edwards added that he fears the “super-normal profit margins” of corporations in the U.S. and abroad could eventually “inflame social unrest” if consumers continue to struggle with inflation.

“The end of Greedflation must surely come. Otherwise, we may be looking at the end of capitalism,” he warned. “This is a big issue for policymakers that simply cannot be ignored any longer.”

 

[Huey Grey]

Americans are suckers. And a lot of them are on here. $31 trillion comes to mind first.

 

[Nole Lou]

Globalization and consolidation and regulation has raised the barrier of entry too high for the market to work properly.

The way this is supposed to work is that if a product can be made or sold more cheaply and at a profit, somebody will.

75 years ago, if Bob's 5 and Dime was selling for exorbitant margins, Ted could open up Ted's Mercantile and sell at reasonable prices. The barrier of entry to opening up a new Walmart or Target is nearly insurmountable. We're down to a handful of major players worldwide in all kinds of industries up and down the supply chain with impossible barriers to price disruption.

All that said...while inflation over the last several years is bad...my guess is that on a real cost basis as a function of income, everything that was for sale 75 years ago at Ted's mercantile was 2-10x more expensive than what it is today. There's a reason nobody mends socks today.

We've reaped the price benefits of consolidation and unifying supply chains, but now we're paying the price penalties of the loss of competition.

I don't know the answer.

 

[bdg8]

It has gotten beyond ridiculous. The only way there will be change if consumers start not buying from the companies that have excessively raised prices

I have seen some figures and statements from beer execs that basically say they have went too far with increases. And they will start applying more promotional funds to lower retails. Which is very rare for beer category

 

[bdg8]

Globalization and consolidation and regulation has raised the barrier of entry too high for the market to work properly.

The way this is supposed to work is that if a product can be made or sold more cheaply and at a profit, somebody will.

75 years ago, if Bob's 5 and Dime was selling for exorbitant margins, Ted could open up Ted's Mercantile and sell at reasonable prices. The barrier of entry to opening up a new Walmart or Target is nearly insurmountable. We're down to a handful of major players worldwide in all kinds of industries up and down the supply chain with impossible barriers to price disruption.

All that said...while inflation over the last several years is bad...my guess is that on a real cost basis as a function of income, everything that was for sale 75 years ago at Ted's mercantile was 2-10x more expensive than what it is today. There's a reason nobody mends socks today.

We've reaped the price benefits of consolidation and unifying supply chains, but now we're paying the price penalties of the loss of competition.

I don't know the answer.

Large consumer product companies used to try to gain edge with offering lower pricing than competitors. Now competing companies follow suit. If Coke raises prices on Monday, Pepsi and Dr Pepper will raise theirs to same level by Friday

 

[onlyTheObvious]

ALDIs

 

[SoDakHawk]

Globalization and consolidation and regulation has raised the barrier of entry too high for the market to work properly.

The way this is supposed to work is that if a product can be made or sold more cheaply and at a profit, somebody will.

75 years ago, if Bob's 5 and Dime was selling for exorbitant margins, Ted could open up Ted's Mercantile and sell at reasonable prices. The barrier of entry to opening up a new Walmart or Target is nearly insurmountable. We're down to a handful of major players worldwide in all kinds of industries up and down the supply chain with impossible barriers to price disruption.

All that said...while inflation over the last several years is bad...my guess is that on a real cost basis as a function of income, everything that was for sale 75 years ago at Ted's mercantile was 2-10x more expensive than what it is today. There's a reason nobody mends socks today.

We've reaped the price benefits of consolidation a unifying supply chains, but now we're paying the price penalties of the loss of competition.

I don't know the answer.

I'll agree with this. I'll also say the "record profits" are not all they appear to be because that $1 today is not the same as $1 from twenty, ten, or even two years ago. The profits these companies are bringing in aren't as valuable due to inflation and the devalued currency.

 

[markfromj]

Americans are suckers. And a lot of them are on here. $31 trillion comes to mind first.

Our system has made me rich. Or, really, allowed me to make me rich. No sucker here.

Sorry if others have not been able to take advantage of the amazing luck the were granted of living here.

 

[JRHawk2003]

There is no such thing as Greedflation.

This is what Capitalism is.

 

[markfromj]

Large consumer product companies used to try to gain edge with offering lower pricing than competitors. Now competing companies follow suit. If Coke raises prices on Monday, Pepsi and Dr Pepper will raise theirs to same level by Friday

BS.

 

[ping72]

There is no suck thing as Greedflation.

This is what Capitalism is.

Amen. I’m not saying communism is good… but I am saying that capitalism isn’t good either.

 

[ConvenientParking]

Free unregulated markets are the infallible divine will of nature. Except for all the times in our history that we suspended or altered them because they were disastrous, but that was different

 

[joelbc1]

Globalization and consolidation and regulation has raised the barrier of entry too high for the market to work properly.

The way this is supposed to work is that if a product can be made or sold more cheaply and at a profit, somebody will.

75 years ago, if Bob's 5 and Dime was selling for exorbitant margins, Ted could open up Ted's Mercantile and sell at reasonable prices. The barrier of entry to opening up a new Walmart or Target is nearly insurmountable. We're down to a handful of major players worldwide in all kinds of industries up and down the supply chain with impossible barriers to price disruption.

All that said...while inflation over the last several years is bad...my guess is that on a real cost basis as a function of income, everything that was for sale 75 years ago at Ted's mercantile was 2-10x more expensive than what it is today. There's a reason nobody mends socks today.

We've reaped the price benefits of consolidation and unifying supply chains, but now we're paying the price penalties of the loss of competition.

I don't know the answer.

You would have thought with all those MBA aces out there, we’d have seen this coming! WTF are we teaching these guys/gals now? These “Adam Smith” professors turning liberal or something?

 

[noleclone2]

The movie Wall E was as prophetic as Idiocracy

 

[bdg8]

BS.

How so

 

[Hoosierhawkeye]

Globalization and consolidation and regulation has raised the barrier of entry too high for the market to work properly.

The way this is supposed to work is that if a product can be made or sold more cheaply and at a profit, somebody will.

75 years ago, if Bob's 5 and Dime was selling for exorbitant margins, Ted could open up Ted's Mercantile and sell at reasonable prices. The barrier of entry to opening up a new Walmart or Target is nearly insurmountable. We're down to a handful of major players worldwide in all kinds of industries up and down the supply chain with impossible barriers to price disruption.

All that said...while inflation over the last several years is bad...my guess is that on a real cost basis as a function of income, everything that was for sale 75 years ago at Ted's mercantile was 2-10x more expensive than what it is today. There's a reason nobody mends socks today.

We've reaped the price benefits of consolidation and unifying supply chains, but now we're paying the price penalties of the loss of competition.

I don't know the answer.

This. . . it always gets me that people want to go back to the days of mom and pop stores. Which to be fair I understand why that is.

But at the same time any time I go into one of those small town mom and pop grocery stores that still exist in small towns they are enormously expensive. A box of kraft mac and cheese can still be bought for a dollar at the major grocery chains but in small town mom and pop stores it's $2.50.

Those small town stores are nice if you are in the area and just need to grab a few things and don't want to drive all the way into a larger town or city for it. But if I had to do my regular grocery shopping in one of those places I would be broke.

 

[bcherod]

‘We may be looking at the end of capitalism’: One of the world’s oldest and largest investment banks warns ‘Greedflation’ has gone too far

Albert Edwards, an economist at the 159-year-old investment bank Société Générale, says corporate greed may call for the unthinkable: Price controls.

fortune.com

Interesting article. I learned something new.

Thanks for posting that. Now I'm going to call my friend that used to trade precious metals and share and see what she thinks about it.

 

[SoDakHawk]

This. . . it always gets me that people want to go back to the days of mom and pop stores. Which to be fair I understand why that is.

But at the same time any time I go into one of those small town mom and pop grocery stores that still exist in small towns they are enormously expensive. A box of kraft mac and cheese can still be bought for a dollar at the major grocery chains but in small town mom and pop stores it's $2.50.

Those small town stores are nice if you are in the area and just need to grab a few things and don't want to drive all the way into a larger town or city for it. But if I had to do my regular grocery shopping in one of those places I would be broke.

People don't understand that food deserts exist. Iowa is rural but not as rural as South Dakota. We go ice fishing up in Webster, SD every year. There is one grocery store in Webster. The nearest cities with grocery stores to Webster are Watertown (44 miles) and Aberdeen (51 miles). That's close to an hour drive either way if you want an alternative to the grocery store in Webster. Living in Webster and buying groceries at the locally owned grocery store is like being perpetually trapped in a movie theater or baseball stadium, they charge you out the butt for everything. Stopped in there once to pick up a few things to grill while out on the ice, holy crap, almost needed to take out a second mortgage.

Point is, we may all lament the Walmart's, Target's, and all the other Big Box Stores, including Amazon, and bitch about their obscene profits, yet at the same time we've never been able to buy such cheap goods before in history.

 

[Huey Grey]

Our system has made me rich. Or, really, allowed me to make me rich. No sucker here.

Sorry if others have not been able to take advantage of the amazing luck the were granted of living here.

Great for you, not so great for everyone pissed off at all this price gouging.

 

[markfromj]

How so

Sellers do not raise prices because others do.

 

[markfromj]

Great for you, not so great for everyone pissed off at all this price gouging.

Define price gouging…I dare you.

 

[Ree4]

For many companies it's a race to the highest stock performance at the cost of everything else. It's all driven by Wall Street.

 

[Colonoscopy]

lolno. The end of it? You just have blowups and reconfigurations and "restarts"

 

[RileyHawk]

Define price gouging…I dare you.

Price gouging
noun

• 1.the action or practice of overcharging customers for something by sharply increasing its price, especially in order to take advantage of sudden high demand:

 

[ConvenientParking]

Define price gouging…I dare you.

Hey how does Keynesian economics and supply side economics fit in to your critical observation that the laws of supply and demand are immutable? Seems like it's implicit in the topics that supply and demand are in fact not strictly naturally occurring phenomena and they can actually be affected in ways preferable to society by differenr methods of deliberation?

 

[RileyHawk]

Sellers do not raise prices because others do.

This is a really stupid comment. You can't be taken seriously.

 

[Hoosierhawkeye]

People don't understand that food deserts exist. Iowa is rural but not as rural as South Dakota. We go ice fishing up in Webster, SD every year. There is one grocery store in Webster. The nearest cities with grocery stores to Webster are Watertown (44 miles) and Aberdeen (51 miles). That's close to an hour drive either way if you want an alternative to the grocery store in Webster. Living in Webster and buying groceries at the locally owned grocery store is like being perpetually trapped in a movie theater or baseball stadium, they charge you out the butt for everything. Stopped in there once to pick up a few things to grill while out on the ice, holy crap, almost needed to take out a second mortgage.

Point is, we may all lament the Walmart's, Target's, and all the other Big Box Stores, including Amazon, and bitch about their obscene profits, yet at the same time we've never been able to buy such cheap goods before in history.

Mom and pop places are kind of overrated. The only positive thing about them is that they keep a bit more of the money locally instead of showing up as profits on the ledger of a corporation based a thousand miles away.

But outside of that they don't really pay higher wages than the corporate competition and their products are much more expensive.

I do think that the power of law should be used as much as possible to push or force if necessary large corporations to pay higher wages to employees as well as provide them with good working conditions.

 

[JRHawk2003]

Define price gouging…I dare you.

Isnt that the business plan for the US Pharma industry?

 

[NewVicHawkeye]

Don’t buy anything. F ‘em.

 

[SoDakHawk]

Mom and pop places are kind of overrated. The only positive thing about them is that they keep a bit more of the money locally instead of showing up as profits on the ledger of a corporation based a thousand miles away.

But outside of that they don't really pay higher wages than the corporate competition and their products are much more expensive.

I do think that the power of law should be used as much as possible to push or force if necessary large corporations to pay higher wages to employees as well as provide them with good working conditions.

Or, I don't know, use existing anti-trust legislation to force some break-ups and create some competition.

Thing is, thinking of Walmart or Target, who are their competitors? Definitely Amazon. I'd also put stores like Fleet Farm, Runnings, Bomgaars, CVS, Walgreens, Jewel-Osco, and I'm guessing many other "Box" type stores that have overlapping retail goods they compete for customers.

There is competion out there.

 

[ConvenientParking]

Mom and pop places are kind of overrated. The only positive thing about them is that they keep a bit more of the money locally instead of showing up as profits on the ledger of a corporation based a thousand miles away.

But outside of that they don't really pay higher wages than the corporate competition and their products are much more expensive.

I do think that the power of law should be used as much as possible to push or force if necessary large corporations to pay higher wages to employees as well as provide them with good working conditions.

I like Walmart better than Hy-Vee basically because they do pay store employees better than Hy-Vee (at least at entry level, not sure when you work your way up a bit). And they have cheaper prices for the consumer. And, if you really believe in Walmart as a business, you can buy their stock. Hy-Vee trades on a nearly meaningless "employee-owned" branding as if they were a worker co-op when in reality they are a private business owned by very few employees relative to the amount in their operation (I suppose regular employees can opt in to acquiring Hy-Vee as part of their 401k assuming their wages are good enough to save in a 401k) and the public doesn't save money shopping there and the public can't buy stock in them.

Walmart and Amazon are also basically proof that current technology allows for highly centralized planning of many consumer products.

 

[Hawki97]

Our system has made me rich. Or, really, allowed me to make me rich. No sucker here.

Sorry if others have not been able to take advantage of the amazing luck the were granted of living here.

Considering your posts on HORT - I’m assuming you inherited the doublewide?

 

[Hoosierhawkeye]

Or, I don't know, use existing anti-trust legislation to force some break-ups and create some competition.

Thing is, thinking of Walmart or Target, who are their competitors? Definitely Amazon. I'd also put stores like Fleet Farm, Runnings, Bomgaars, CVS, Walgreens, Jewel-Osco, and I'm guessing many other "Box" type stores that have overlapping retail goods they compete for customers.

There is competion out there.

I think the issue is more that it's an oligopoly. There is competition but the real competition is pretty limited.

Walmart and Target are direct competitors as is Meijer in my neck of the woods. Amazon is in part.

I wouldn't consider CVS or Walgreens to be legitimate competition. They sell a few of the same things but pharmacies are smaller in size and more specific in what they sell to be considered legitimate competition.

I've never even seen a Fleet Farm, Runnings, or Bomgaars. Perhaps they are regional competition like Meijer is??

 

[Nole Lou]

People don't understand that food deserts exist. Iowa is rural but not as rural as South Dakota. We go ice fishing up in Webster, SD every year. There is one grocery store in Webster. The nearest cities with grocery stores to Webster are Watertown (44 miles) and Aberdeen (51 miles). That's close to an hour drive either way if you want an alternative to the grocery store in Webster. Living in Webster and buying groceries at the locally owned grocery store is like being perpetually trapped in a movie theater or baseball stadium, they charge you out the butt for everything. Stopped in there once to pick up a few things to grill while out on the ice, holy crap, almost needed to take out a second mortgage.

Point is, we may all lament the Walmart's, Target's, and all the other Big Box Stores, including Amazon, and bitch about their obscene profits, yet at the same time we've never been able to buy such cheap goods before in history.

Not particularly relevant to the discussion, but your comment made me think about something...there are geographically massive, huge swaths of the country for whom Dollar General is the most crucial retailer, if not one of the most crucial businesses, in their lives.

Trader Joes has 560 stores in the United States. Dollar General has 19,000 stores in the United States. It's the only nearby store for essential items for a huge number of Americans. Way more Americans shop at Dollar General than Trader Joes.

Hell, they EMPLOY 160,000 people, more than Johnson and Johnson, Boeing, or Hilton.

When is the last time you ever saw anything in the culture...viral tweets, late night jokes, Atlantic think pieces...about Dollar General. If you don't live or drive outside the urban centers that define our culture, you'd be forgiven for for not even knowing it exists as an entity.

Too me, the whole "two Americas" hand wringing in the wake of Trump has frequently gone overboard, but there's something incredibly striking about the idea there is a massive retailer, or any entity really, that is a vital part of life for a large segment of the population, and thoroughly invisible the the rest of it.

 

[markfromj]

For many companies it's a race to the highest stock performance at the cost of everything else. It's all driven by Wall Street.

No, it’s not.

It’s driven by shareholders.

 

[markfromj]

Price gouging
noun

• 1.the action or practice of overcharging customers for something by sharply increasing its price, especially in order to take advantage of sudden high demand:

Wait, demand should drive up prices? Nobel prize stuff right there!

 

[RileyHawk]

Wait, demand should drive up prices? Nobel prize stuff right there!

You asked for a definition.

 

[markfromj]

Considering your posts on HORT - I’m assuming you inherited the doublewide?

Nope. Made it all myself.

 

[Huey Grey]

Define price gouging…I dare you.

Dare me? What is this, middle school? If you're jacking up prices beyond what is reasonable for costs and profits, that is gouging. We see it all the time in medicine.

 

[bdg8]

Sellers do not raise prices because others do.

Well they do. But I was speaking about consumer product companies, who most certainly do