Good read and I appreciate the FRED charts you included, but I think you missed an important one, M2. Both M2 and Corporate Profits After Tax jumped by about 50% from pre-pandemic levels. Wouldn’t one expect higher corporate profits (and inflation) be correlated with money supply? After all the value of a widget or service is not determined by input costs (materials and labor) but by the price a consumer is willing to pay?
I think that's an important point. What concerns me is that if markets are insufficiently competitive then consumers are price takers, and a higher M2 just gives corporations the ability to extract larger rents from transactions. In a more competitive market corporations have to bid for consumers where MC=MR, and aren't able to increase prices so quickly, or pass on the entire incidence of increased costs. Between the end of the great recession and the start of the pandemic recession M2 roughly doubled, but corporate profits increased by only about 20ish percent. In the late 90s, as M2 was increasing in growth rate, corporate profits leveled out and even fell. So I think pricing power (in this case, seen through scapegoating too) is still a huge part of the equation.
Good read and I appreciate the FRED charts you included, but I think you missed an important one, M2. Both M2 and Corporate Profits After Tax jumped by about 50% from pre-pandemic levels. Wouldn’t one expect higher corporate profits (and inflation) be correlated with money supply? After all the value of a widget or service is not determined by input costs (materials and labor) but by the price a consumer is willing to pay?
I think that's an important point. What concerns me is that if markets are insufficiently competitive then consumers are price takers, and a higher M2 just gives corporations the ability to extract larger rents from transactions. In a more competitive market corporations have to bid for consumers where MC=MR, and aren't able to increase prices so quickly, or pass on the entire incidence of increased costs. Between the end of the great recession and the start of the pandemic recession M2 roughly doubled, but corporate profits increased by only about 20ish percent. In the late 90s, as M2 was increasing in growth rate, corporate profits leveled out and even fell. So I think pricing power (in this case, seen through scapegoating too) is still a huge part of the equation.