💵 The Greedflation Lie

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Prices keep rising, companies are making profits and people are outraged. Greedflation is a popular explanation. It's a lie.

Now, that's not to say that prices aren't rising or that corporate profits aren't high. Those things are both true. It's the greed part that's the issue.

See, David has discovered something that nobody knew before 👇

Sarcasm aside. Corporations are actually 'greedy' ALL THE TIME. Almost like there's some kind of motive to make profits. As if, somehow, that's their role in society. For some reason, these revelations shock people.

We can argue about the morals of profits for days on end. However, that space is very saturated and I fear we'd only be adding to the problem...

Leave the morals aside for a sec. Drop any lingering outrage. Any jealousy towards people making money.

And definitely don't speculate that greedflation™ is very politically convenient to deflect blame from governments and central banks onto corporations.

Is your pallette suitably cleansed? Excellent. Let's look at what's actually happening.

The simple, most relevant version is that we've had massive distortions and disruptions in the global economy. Input prices went up across the board. Disposable incomes rose on the back of government stimulus.

In that environment, nobody knows the 'right price' for anything. If you're a brand with pricing power, there's only one rational thing to do. Hike prices. Keep doing that until you find the point that consumers say "enough!".

Basically 👇

"We'll keep raising prices until you stop paying them"

And they did.

We kept paying them. So they did it some more. And we kept paying them. Then that changed. The majority of people kept paying the higher prices, but not as many as before.

Then a few more refused to pay the hiked prices, and companies kept raising them anyway. Because the higher prices compensated for the lower sales volumes.

• Sell 1000 units at $10, that's $10,000

• Sell 900 units at $12, that's $10,800

Price over volume is a risky strategy to follow. Not everyone can do it, and it's unlikely to be sustainable.  

Marketing takes many forms. Companies are always telling us stories about their products and services. And, done right, it can create brand value.

How else do you explain this? 👇

They're literally putting the most basic beans into a sauce made from one of the most abundant vegetables (or fruits, pedants) on the planet, and selling them to us.

There's no tangible economic moat here. It's just beans in tomato sauce. In a tin can. 

Yet people will pay three to five times more for the branded version. And econmists still believe in rational economic agents. We're certifiably insane.

Maybe it tastes a little different, but with that price difference there's a LOT of wiggle room to buy some separate flavour/spices to make the beans taste better.

But people don't/won't. They pay the price, eat their Heinz beans, and complain about rising prices. Until they don't.

Maybe they buy Heinz or nothing.

Maybe they switch, and that opens the door to a new competitor somewhere between the premium and the basic...

BEAN WARS 2024 IS GON BE LIT YOOOO!!

Once rising prices no longer compensate for lower volumes, profit growth slows. Time to cut costs. If you don't, there's ALWAYS someone waiting to take your spot, chip away at your market share...

OK. That's enough about the beans. The point is (hopefully) a simple one. We live in a time of abundance. Companies are all competing for our custom.

We might say that prices are too high, but our behaviours often don't match the words...

The fact that we even have different options for they types of beans we can buy, (or that you can buy a tin of beans for as little as 28p) is a miracle* in itself.

*not immaculate conception levels, but still pretty amazing

Companies are always testing out optimal pricing strategies. That's their job. Markets call it price discovery. It's a continual ongoing experiment.

If you want to get really esoteric, the entire modern world is the product of experiment. It's still happening right now.

Experiments lead to innovation and we call that progress.

Within all of this, cyclical sh*t happens. Straight lines only exist in academia. The real world is messy.

Exhibit A - 'Real' Wages

Inflation doesn't affect everybody equally. Depends where you live, what you buy etc etc. But we have to work with averages because it's all we have.

When inflation is as high as it currently is, everyone feels the pinch a bit somewhere, especially if wages don't keep up with inflation rates.

So, it's time for more greedflation. In wages.

Which is where the great Gordon Gekko comes in 👇

Is it only greedy when the corporations do it? Or is it greedy to ask for better pay, especially at a time of inflation and upheaval?

Please don't take this as a suggestion to immediately play hardball with your boss right this second, or go on strike. But when times are good, or the opportunity presents, don't forget to push your advantage.

We live in a competitive world. Companies compete for our custom. They also compete for our labour.

Which is why I say greedflation is a lie.  

It misses out those complex dynamics that make up the economy. Greedflation simplifies it down to people making money = bad. Which is wrong.

We should ALL want to make more money.

Generally, people paying us money indicates that we're adding value to society in some way. If we weren't, we'd be sacked or our company would go out of business. Happens all the time.

Shaming companies for the heinous crime of making money, as if that's somehow immoral, seems to breed a kind of learned helplessness. People just meekly half-arsing their work days, ashamed to ask for pay rises, but too de-moralised to try harder...

This weird modern obsession with shaming those that aspire isn't healthy. Nor is the learned helplessness, or the pretending that we're not ALL economic agents, living and operating in the very same economic system, adding value & making decisions every day that impact the whole.

No more. Greed is GOOD. It's a feature, not a bug. A healthy society thrives on greed.

To be clear. We're not talking exploitative, excessive greed. If it makes you more comfortable, just call it aspiration.

We should all aspire to be more greedy.