The Grand Illusion
We have pets. At one time we had five dogs and three cats. All the cats rescued themselves by finding us. So did three of the dogs. Ergo, we needed a carpet cleaner. Although we’re down to one cat and two dachshunds, we still have the occasional need for a carpet cleaner.
Last week the “old” carpet cleaning machine died. I’ve never gotten more than four years out of any cleaner, and this was no exception. So, over the weekend I trundled off and purchased a new version of the same brand – one that proved effective over the years.
The price was almost exactly double what I paid four years ago. The design was somewhat better and likely more functional, but essentially the same technology and design. When I checked other makes, the price increases were comparable.
Now, according to the BLS, overall inflation since 2019 has been 19%. So why is my carpet cleaner showing a 100% rise in prices? Most statistical reports I’ve been able to find show that U.S. manufacturers required, on average, price increases of 8% per year over the past few years to maintain profit margins.
Even the average price for new cars has “only” increased some 30% over the past four years. So why have carpet cleaners increased 100%?
I fear that the answer is quite simple. Because on certain product lines, those where the consumer really needs to buy the product now, the manufacturers can charge more, get more profit, and blame the increase on generic “inflation.”
According to a recent study by the Economic Policy Institute, over the past four years, over half (54%) of inflation was caused by increased corporate profits, which makes sense since profits have increased at record rates, while, historically, corporate profit increases have only contributed 11% to inflation.
So let’s put the blame for high inflation where it really belongs – on greedy corporations – because those increased corporate revenues didn’t go to workers [except high paid executives], and the “supply chain” shortages or increased wages weren’t the principal cause of today’s inflation. Excessive profits were.
Which is why my carpet cleaner cost 60% more than it really should have… and why I have absolutely no sympathy for corporate executives opposing higher corporate taxes.
LEM,
Economists know this issue pretty well. Krugman has written about the phenomenon, which is known as ‘rockets and feathers. Prices can go up like a rocket from an event or economic perturbation, but they come back very slowly when that stimulus is gone. The companies that raised their prices don’t drop them quickly at all – often because entire sectors are working in lock step (intentionally or not) and therefore don’t pressure their competitors to reduce their prices (and extraordinary profits). It is indeed unfortunate that the ‘laws of supply and demand’ don’t work quite as they are taught and discussed in many venues.
I’m not sure where the answers are on the typical household items. They are generally not made to last – and that’s across all makes/manufacturers. A toaster, for example, in my parents and grandparents time would last a generation. Not so much anymore (same with many/most kitchen items). So, even buying top shelf things often doesn’t get you longevity, but more often features instead. Sigh.
All that you say is accurate, but from the statistics I’ve seen, the current situation is one of the most egregious examples, if not the most.
I’d go a little further than this – corporations are actively using the “supply-chain issues” excuse to jack up prices so that they can “restore” profitability. I think the experience in this part of the world (Australia) may be a bit more pronounced as we don’t have the population to support vigourous competition (same size as the continental US but <10% of the population). Airline, supermarkets, whitegoods – all dominated by a couple of major players who understand what their competitors are doing and align themselves accordingly
It’s also being used by shops as an excuse to take on more work than they can handle.
Obviously can’t share details, but as an Insurance Adjuster I’ve had my share of situations where delays and costs are blamed on ‘Supply-Chain issues” But we call the supplier and find out the shop didn’t bother to order the part for a while, then got it almost immediately. But claimed it was expensive and hard to get so the car could sit in the shop while they did other work.