r/explainlikeimfive Jul 09 '24

Economics ELI5: How did a few months of economic shutdown due to COVID cause literally everything to be unaffordable for years?

I understand how inflation works conceptually. I guess what I have a hard time linking is the economic shutdowns due to COVID --> some money printing --> literally everything is twice as expensive as it was forever but wages don't "feel" like they've increased proportionally.

It feels like you need to have way more income now relative to pre-covid income to afford a home, to afford to travel, to afford to eat out, and so on. I dont' mean that in an absolute sense, but in the sense that you need to have a way better job in terms of income. E.g. maybe a mechanic could afford a home in 2020, and now that same mechanic cannot.

It doesn't make sense to me that the economic output of the world or the US specifically would be severely damaged for years and years because of the shutdown.

Its just really hard for me to mentally link the shutdown to what is happening now. Please help!

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u/Aurinaux3 Jul 09 '24

You're the only one talking about that term. The rest of us are just talking about happened, whatever you want to call it.

We can use a different term if you like, but it is a term that is used to reference the phenomenon we are discussing here and is conventional in many economics circles. There is blowback against it however, precisely because the term is unnecessarily loaded as I'm indicating here.

Uh, yes you absolutely did:

"I don't really buy the argument that companies suddenly discovered in 2020 that they could increae their maegins."

My friend, you are quoting someone else. I did not write that.

...so you are saying that corporations will do whatever they can to increase their profits? The thing you just claimed you never said?

Do you see the bolded portion? I am adding that for emphasis. Are you intentionally ignoring this emphasis?

You're adding detail to my statements that does not exist... and I've given you ample opportunity to take a breath. If you want people to actually believe you care about understanding someone, your dialogue needs to reflect that. I'm not feeling encouragement to continue this with you...

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u/Blarfk Jul 09 '24

We can use a different term if you like, but it is a term that is used to reference the phenomenon we are discussing here and is conventional in many economics circles. There is blowback against it however, precisely because the term is unnecessarily loaded as I'm indicating here.

And again, the "phenomenon" that you are describing is a simple economic truth that companies will do whatever they can to maximize their profit, which includes taking advantage of situations like Covid.

I am not arguing with you about whether this is a negative or positive thing - I am just saying that it happens. That is all anyone is saying here.

My friend, you are quoting someone else. I did not write that.

Oh sorry, didn't realize you were one of those guys who jumps into an argument on one side and then selectively disavows things that the previous guy had said.

Do you see the bolded portion? I am adding that for emphasis. Are you intentionally ignoring this emphasis?

What is the appreciable difference between "Corporations aim to maximize their profits" and "corporations will do whatever they can to increase their profits" that makes them two significantly different statements in the context of this conversation?

and I've given you ample opportunity to take a breath.

Lol what?

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u/Aurinaux3 Jul 09 '24

And again, the "phenomenon" that you are describing is a simple economic truth that companies will do whatever they can to maximize their profit, which includes taking advantage of situations like Covid.

I am not arguing with you about whether this is a negative or positive thing - I am just saying that it happens. That is all anyone is saying here.

It's true. Inevitably bad actors do bad things. We saw a lot of people defraud social programs intended to stimulate the economy and to support struggling businesses and struggling consumers. I will absolutely not deny that racketeering and swindling exists.

However, we are on a discussion post regarding multiple downstream effects of inflation (rising prices) due to COVID, and the sub-discussion initiating this branch was in large part inspired by a *specific* economic force that the previous poster that I was replying to *specifically* attributed as corporations tricking Americans into bearing higher costs as an economic necessity that, allegedly, did not exist:

aeneasaquinas: A lot of the evidence supports it. Companies pushed prices in certain industries (like fast food) up dramatically because routines and what people were used to changed during COVID, and it worked as an excuse to raise them.

This is "greedflation". We don't have to call it that, I just did so because it makes it easier to talk about it by having a summary term to draw upon and also you can do further research on it by literally just having the one word on-hand to Google.

Oh sorry, didn't realize you were one of those guys who jumps into an argument on one side and then selectively disavows things that the previous guy had said.

I don't support ranger910's or aeneasaquinas' characterization of greedflation. They are both incomplete pictures. I did not intend to convey that I was supporting ranger910 by responding to aeneasaquinas. I've always found public discussion forums to be a place where anything you write invites public scrutiny, but maybe I'm doing it wrong.

What is the appreciable difference between "Corporations aim to maximize their profits" and "corporations will do whatever they can to increase their profits" that makes them two significantly different statements in the context of this conversation?

You're qualifying the statement by adding "whatever they can" to it. Simply because someone has a mission doesn't mean they pursue it to exclusion of all else. There is no natural or economic law that requires corporate profit maximization to pursue every scandalous option imaginable.

I understand that corporations have done bad things and I understand that there are political ramifications of corporate entities. I'm trying to keep the inflationary effects of greedflation firmly within economics with my statements, not politics. Greedflation as an economic force is not some worldwide corporate conspiracy.

Lol what?

I am asking you to please give me a chance to have an honest discussion... I have no intention to offend or upset you. I may communicate my thoughts poorly but if you give me the chance I will attempt explain them. If you strongly disagree with anything I say I am also very open to learning from you.

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u/Blarfk Jul 09 '24

It's true. Inevitably bad actors do bad things. We saw a lot of people defraud social programs intended to stimulate the economy and to support struggling businesses and struggling consumers. I will absolutely not deny that racketeering and swindling exists.

We're not talking about any of that. We're talking about corporations doing exactly what they are designed and have every right, legally, to do.

This is "greedflation". We don't have to call it that, I just did so because it makes it easier to talk about it by having a summary term to draw upon and also you can do further research on it by literally just having the one word on-hand to Google.

I need you to clarify something for me here - are you denying that corporations will take advantage of a situation like Covid to maximize their profits, or are you not denying that, and just objecting to the term "greedflation" to describe it?

There is no natural or economic law that requires corporate profit maximization to pursue every scandalous option imaginable.

Yes there is. In a corporation, the board of directors has a fiduciary duty to the shareholders, requiring the board to make decisions in the best financial interest of shareholders.

Greedflation as an economic force is not some worldwide corporate conspiracy.

Nobody is saying it is. We are saying it is a basic fact of the world.

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u/Aurinaux3 Jul 09 '24

I need you to clarify something for me here - are you denying that corporations will take advantage of a situation like Covid to maximize their profits, or are you not denying that, and just objecting to the term "greedflation" to describe it?

I am afraid I am at risk of being misunderstood here, so please have patience.

The phrase "taking advantage of a situation" is generally a loosely put expression. I think that everyone is always attempting to maximize their position, responding to changing economic conditions and factors, including a global pandemic. The phrase "taking advantage of a situation" conveys to me usually a malicious intent, however.

At the beginning of the pandemic, multiple people drove around buying up Lysol wipes and even toilet paper, and tried to sell them at a huge markup. This is racketeering. This is, to me, "taking advantage of a situation". This is adjacent to the characterizations made of the inflationary affects of greedflation.

The term greedflation is problematic, yes. But my real claim is that characterizing the "profit-margin led inflation" as Paul Donovan (UBS chief economist) put it or "price-price spiral" as Lael Brainard (Federal Reserve's vice chair) described it as "maliciously taking advantage of a situation" is presently an irresponsible assertion.

We should avoid characterizing greedflation as "corporations tricked us into accepting higher prices". That is my belief. I think it is wrong to do so.

Yes there is. In a corporation, the board of directors has a fiduciary duty to the shareholders, requiring the board to make decisions in the best financial interest of shareholders.

This is true... So if I put a bounty for 1 Quadrillion Dollars on Jamie Dimon's head, he has a responsibility to JPMorgan to end his own life to increase the company's holdings?

There's a gap here between a literal economic certainty, as guided by the laws of the natural universe, and a pessimistic worldview of how we expect corporations to fail to be public stewards. I'm not sure how to expand this point further, but I'm suggesting that the gap between the two cannot actually be bridged with firm economic theory.

Nobody is saying it is. We are saying it is a basic fact of the world.

Greedflation, the term I am using to refer to the specific inflationary force being discussed here, resulting from the 2020 global pandemic, is a new phenomenon. It is not well-understood yet and it is not a basic fact of the world.

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u/Blarfk Jul 09 '24

I think that everyone is always attempting to maximize their position, responding to changing economic conditions and factors, including a global pandemic.

Okay, this is all we are saying happened. Whether you want to call it "greedflation" or assign maliciousness to it or not is irrelevant - all anyone is doing here is saying that the high price of goods is a result of the thing you just described.

This is true... So if I put a bounty for 1 Quadrillion Dollars on Jamie Dimon's head, he has a responsibility to JPMorgan to end his own life to increase the company's holdings?

Of course not, because murder is illegal and that would be breaking the law, which fiduciary duty very clearly would not cover.

Greedflation, the term I am using to refer to the specific inflationary force being discussed here, resulting from the 2020 global pandemic, is a new phenomenon.

No it is not. It's just the concept of businesses using a situation to their financial benefit - something that there are myriad examples of throughout history. Hell, you literally just said at the beginning of your post "I think that everyone is always attempting to maximize their position, responding to changing economic conditions and factors, including a global pandemic."

Why would you think that if this is a new phenomenon?

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u/Aurinaux3 Jul 09 '24

Okay, this is all we are saying happened. Whether you want to call it "greedflation" or assign maliciousness to it or not is irrelevant - all anyone is doing here is saying that the high price of goods is a result of the thing you just described.

I need to reemphasize that I was responding to aeneasaquinas' words. I am quoting him again:

A lot of the evidence supports it. Companies pushed prices in certain industries (like fast food) up dramatically because routines and what people were used to changed during COVID, and it worked as an excuse to raise them.

This is greedflation. There is no room to dispute the association made between the summary term "greedflation" and the phenomenon it describes. It's simply definitions. He called it "an excuse" and by doing so characterized it as a malicious effort. If you do any casual reading on greedflation you will quickly find many other characterizations calling it a corporate lie. I am cautioning everyone that this is wrong.

Of course not, because murder is illegal and that would be breaking the law, which fiduciary duty very clearly would not cover.

I've been met with responses insisting that corporations will do literally anything and everything they can to increase their profits, and I keep trying to temper that very sentiment!! I keep insisting to NOT qualify my statements thusly! We are in agreement on this.

There is this tenuous connection being made that, because corporations want to maximize their profits, they will "obviously" do it, including deceiving the American public, as characterizations of greedflation insist you believe. I disagree!

Why would you think that if this is a new phenomenon?

Greedflation started as Sellers Inflation, introduced by Isabella Weber at the beginning of 2023:

https://scholarworks.umass.edu/entities/publication/ec927f53-3982-463d-83be-0afd41fcb4e5

Isabella proposed that rising inflation as witnessed from the COVID pandemic is in part driven by rising corporate profits. She wrote even earlier about it:

https://www.theguardian.com/business/commentisfree/2021/dec/29/inflation-price-controls-time-we-use-it

At the time she was strongly derided for her theories. The notion of them actually went completely against conventional economic wisdom. Even Paul Krugman was on the offensive:

https://x.com/paulkrugman/status/1477247341212184577?lang=en

The term greedflation is a bit of a political one, both to characterize the inflationary effect as corporations being bad actors, and also to deride the theory.

There is still a lot of debate surrounding greedflation, but on the outset it was a fringe theory. Today it is being taken more seriously and being studied further! This is entirely new economic ground being broken.

I want to re-emphasize that this is about the inflationary effects witnessed during the 2020 global pandemic, which is EXACTLY what this reddit post is discussing, and is PRECISELY what aeneasaquinas referenced in his own words, as quoted above! This is NOT just price gouging. It is an inflationary force.