Stuff You Should Know - Greedflation Is Real

Episode Date: April 2, 2024

One of the things we rely on is for the companies who make the stuff we need to not stick it to us, the customer. But it’s become painfully clear that’s just what happened during the pandemic and that it’s still happening today. What can we do about it?See omnystudio.com/listener for privacy information.

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everybody. Yes, and for tickets and information, just go to link3.sysklive or go to stuffyoushouldknow.com and click on the Tour button. And we'll see you guys this year. Welcome to Stuff You Should Know, a production of iHeart Radio. Hey, and welcome to the podcast. I'm Josh and there's Chuck and Jerry's here somewhere and this is stuff you should know. The timely topical edition. We haven't done one of these in a while, Chuck.

Yeah, fight the power edition. I guess so. It kind of seems that way, doesn't it? Like there's really very few ways to discuss this and not kind of come out on that side yeah, I'm kind of glad you picked this one because With all the talk of you know food grocery store prices and stuff in the back of my mind I've been thinking like All right. I know there were some reasons for this, but I also wonder if

They just raised prices a lot because they could, and that's kind of what happened. Yeah, it sure seems that way. Like, um, I think kind of at the end of the day, the discussion over what we're talking about, which is called greedflation, which is a fairly new, catchy term, right? Yeah. Um, the idea isn't that food companies made massive profits over the last few years starting in the pandemic, right?

Like there's just basically no way you can argue that that didn't happen. It's been documented. The issue at hand is whether that constitutes something beyond the norm of capitalism or is that just, that's what happens in a free market. It, when there's, you know, they sell their chance. Weirdly. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah that constitutes something beyond the norm of capitalism? Or is that just, that's what happens in the free market

when there's, you know, weirdness to it, you know? Sure. That's the question in my mind, what it really comes down to is your interpretation of whether there's, I don't know, maybe some sort of basic moral responsibility for certain kinds of companies or companies that deal in certain kinds of goods to not just make as much money as they possibly can. Right.

I don't know. I think that's the actual debate over it. Now, let me ask you this. Is it possible to be a person who says, you know, I'm a thousand percent behind capitalism and let it run amok. And that's just let it work itself out. And then also complain about food prices. Like, can those things coexist? Yes. Those people are called the worst. Okay. So it can coexist.

They're just people you don't want to hang out with. Right. Exactly. Okay. Yeah. I think conversely too, you can be totally pro-capitalist and still be like the idea that it's just business is kind of amoral. Yeah. I don't think you have to you have to pick one side or the other. I think that it's a little grayer than that.

All right, shall we jump in? Yeah, let's. So ultimately what we're talking about are increases in prices at the grocery store on levels that we just haven't seen before. Like you're not crazy. The prices at the grocery store are bonkers. Apparently in 2022 in America, the inflation for food at grocery stores increased 11.4 percent. Then in 2023, it added another 5%. And that was, you know, half, a little more than half of what the increase had been in 2022, but it was still double what the normal annual increase is of 2.5%.

That's how much food typically inflates year over year at the grocery store. Instead, in two years, it inflated by almost 17%. Wow. Yeah. And there were reasons for this. Like, there's a standard narrative, which is, there's just a handful of reasons that everybody points to, and like, this is why. Yeah. And there's, you know, we're going to talk, I guess, a little bit about kind of the standard explanations that we've been hearing for the past couple of years, which we're not saying is, you know, bunk or anything like that. Because as you'll see,

I think it's a pretty even-handed episode. We might get a little hot under the collar, but I think there's reason to be. So here we go. So one thing you will hear and have heard a lot is, you know, the pandemic's obviously a big reason for all this, the biggest driver of it, and the disruptions to the supply chain.

Whether you were building a house or whether you were a food company marking up your goods, the supply chain squeezed out, it seems like, everything on the planet. And there were food item shortages, there were ingredient shortages, and that was one of the drivers for inflation. Yeah, even packaging shortages.

Like a good example is that caffeine-free Coke was temporarily discontinued because there was a shortage of aluminum, which meant that Coke had to basically ration their cans, and regular Coke sells more than caffeine-free Coke they, they just basically focused on Coke for a little while. Like that caused a shortage. It was just that. Sure. Bizarre and meandering in some cases, right?

Yeah. But which had nothing to do with raising prices, but that's just a side note. No, no, right. It's true. Yes. So people ate at home a lot more during the pandemic, obviously.

So there was more demand, you know, these goods were in shorter supply, and all of a sudden there's more demand for fewer of those goods, and that is just inflation 101 as far as how things get out of control. Right. And then so if you are a processed food company, you have to use ingredients, and a lot of ingredients were scarcer and the cost of the ingredients went up. Right. So that means that they raised their costs because they raised the prices of their products

because their costs increased. So their marginal costs, which is the cost to put everything together and deliver it and all that stuff, package it, um, increased, which means they increase their markup, their profit, which means you put those two together, the price increases in unnecessary, kludgy economic terms. Yeah. And we're going to talk more in depth about this stuff, obviously, but usually if there's

like, if it's not a pandemic and there just happens to be an ingredient that is getting squeezed and so the cost of making a bag of Cheetos or something costs more. Companies aren't gonna be like, we gotta raise the price then. They'll just sort of absorb that to keep the prices kind of steady and keep things flowing. That wasn't the case during the pandemic though. No, and Chuck, that is a key thing to understand is that what we are seeing, those markups, the difference in the price and the cost of the company's pay to actually produce the product, that's,

we've just never seen anything like this before. Economists are like, I've never seen anything like this before in my 40 years of studying food delivery and food supply chain stuff. Yeah. And then people said, you've been studying there for 40 years? And the guy's like, yes, someone please let me stop. Exactly. And then another thing that we heard here and there was people got stimulus checks. A lot of people did when unemployment was just so staggering during the pandemic.

So the government issued these checks. People had a little more money in their pocket to spend, which was the idea. And demand increased. And so that pushed prices higher. The thing is, though, Europe experienced the same inflation we did, sometimes even worse as far as food costs go and they didn't get stimulus checks. So that one is a little, I don't know, confusing, I guess, is the easiest way to say it. It is, but just based on classic economic theory, there's just no way it didn't have

some impact. Do you know what I mean? Yeah, sure. In a way, you can also point to it as being a very, um, unusual factor that took place within the context of a larger unusual period, which was the pandemic. Right. You also had, um, other things going on at the same time. Like the pandemic wasn't enough.

There were tons of bouts of avian flu that was killing hens left and right. There were tons of bouts of avian flu that was killing hens left and right. And I guess fryer roasters, the kind you eat to those chickens. So there was less chicken to go around and less hens to lay eggs, which meant the price of eggs and poultry would increase. What's interesting about that is that as more hens were hatched and started laying more eggs and the supply came back, the price of eggs went down. And that is weird in the context of what's been going on lately too.

Yeah, absolutely. And we'll talk about eggs more because, believe it or not, eggs are a big story. Yeah, it's a huge story. And then of course, the thing we heard a lot about was the war in Ukraine. That was another sort of coexisting situation alongside the pandemic, which disrupted wheat exports. You know, when you're a European country, the United States, and you squeeze sanctions onto Russia, they're going to squeeze right back and say, well, we've got oil that we're not going to supply you anymore.

And that's just going to And that squeezes everything. And all of a sudden, grain exports, especially wheat, went up, which affects the cost of a lot of foods. Yeah, because the global economy is so interconnected that, like, if Europe is paying higher energy prices, that's definitely going to affect the price of the things that American companies are importing from Europe, right? Yeah. So all those things put together added up to that unprecedented increase in prices in the grocery store.

All right, so those are a lot of the reasons that we've been hearing about, you know, over the past few years. But as far as like what this actually looks like in a grocery store, I thought, you know, we thought it'd be helpful if we break down just what this looks like for just a person walking in a grocery store. We thought it'd be helpful if we break down just what this looks like for just a person walking in a grocery store. Okay, so I'll be that person walking in. I've got a hat on. Just imagine I have a cool hat on, okay? I'm walking into the grocery store.

I don't know if I've ever seen you wear a hat. Weirdly though. Like I look weird right now. Well, it's because you're wearing a hat. And I'm walking in place, but weirdly. I think I've seen you walk in place, but I've never seen you wear a hat. So if you talk to the USDA, they will say the price of food in the United States is 25% higher this last year in 2023 than it was in 2019.

And that was higher than every other category on the planet, except for transportation. And that's why people are probably like, you should also do one on why airline, why it costs $1,000 to fly from Atlanta to New York now. It doesn't really or? No, that's not true. But just airline tickets are ridiculous now. Yeah, do you remember when you used to like get on a plane

and to be like a third full and they'd still take off, they didn't cancel it? Yeah, which that remember when you used to like get on a plane and it'd be like a third full and they'd still take off? They didn't cancel it? Yeah, which that's no good. Like let's fill the planes up. For sure. But I mean, like, now it's just cutthroat. It's like the opposite.

It's like, oh, you paid for your ticket a month ago. T.S. you're off the flight. Yeah. Yeah. And the expense. Anyway, all that to say that food price rose over that three-year period or four-year period more than any other category except for transportation. And I believe you already talked about the food increase

percentage-wise, but if you're in a grocery store, sir, with a hat, weirdly walking in place, why don't you start coming forward? Okay, here I come. Take off your hat when you enter like a good gentleman. No, I'm gonna leave the hat on. Okay, sure. It's a really cool hat.

All right, and you might notice that that loaf of bread over there, just that white sandwich bread, is 22% more expensive than it was just two years ago. Good! And sir, I see you're thinking like, well forget that, I'm gonna bake my own bread. Well, good luck with that too, because that all purpose flour is 21% more expensive

and butter is 31% more expensive. So don't even think about baking a birthday cake. I can't even get a break on butter. You can't even, I know, butter is, I mean, I ate that stuff right off the stick. So, so okay. I'm still the guy in the hat. I'm moving down another aisle.

I'm like nuts to make it my own bread. I'll just eat a bunch of ultra processed stuff because that's dirt cheap. Everybody knows that. Surely that hasn't increased in price. No, no. And since you said nuts, why don't you go ahead and get some of those nuts? Because they're about 16% more expensive. Well, they make me pack on too much weight anyway, so I'm fine with that.

And by the way, sir, with the hat, I want to remind you that these stats for, uh, processed foods are just over one year. Whoa. From 2022 to 2023, you're paying 16% more for the salties, 16% more for those cookies, 18 and a half percent more for that granola bar you think is healthy. And if you want a little fruit snack, almost 24% more expensive. Not the fruit snacks.

Yes, the fruit snacks. Chuck, this skit has gotten really dark. As dark as Halloween? Pretty, pretty dark. Um, no, actually, no, you're right. Halloween was a bloodbath, especially if you're talking fun sized Snickers. Cause get this, you're right. Halloween was a bloodbath, especially if you're talking fun-sized Snickers. Cause get this, this is crazy.

I mean, even Halloween, normally Halloween prices are beyond nuts, but this is just really bad. A bag of fun-sized Snickers went from, um, 2022 or sorry, went from 2021 to 2022. It increased by 140%. You could have gotten a bag of fun-sized Snickers for five bucks in 2021. You paid $12 the next year. All right. Well, there's nothing fun about that.

Okay, so the skits over and scene, or end scene, depending on your view. And I'm gonna keep wearing my hat though, okay? All right, keep that hat on. That's a good setup, and we'll be right back with more. I Heart podcast update this week on your free I Heart radio app. In retrospect, revisit pop culture moments from the 80s and 90s and try to understand what it taught us about the world and a woman's place in it. Crying in public. Two 20-something college women living in NYC dive into growing up at a time when there was no distinction between what's public and what's private. Best of both worlds. A discussion on work-life balance, career development, parenting, time management, productivity, and making time for fun. Hear these podcasts and more on your free iHeartRadio app or wherever you get your podcasts.

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those people spend a far greater proportion of their household budget or their national budget. They have the largest impact on the people who have the least amount of money, because those people spend a far greater proportion of their household budget or their national budget on food than wealthier people do. They just have less money, so they still need food. It's not something that you can skip very easily and eventually you're going to have to eat. So it's an essential thing to buy and you don't really have much of a say in it if the food prices keep rising. So it's really important to keep that in mind that it's not just annoyance,

it's not just debt in your pocketbook. It actually has pushed people into poverty classes in different countries and developed countries because food prices got, they were kind of close on the border to begin with and then the pandemic came along. And as the food prices increased, they were pushed into poverty categories. Yeah, if you look at the food price index, the five categories, meat, dairy, cereals, vegetable oils and sugar increased 57% all over the world over a two-year period from 2020 to 2022. And then a couple years later here in 2024, some prices have come down, some quite a bit,

eggs especially, and again, we'll talk about eggs a little more. They're ones that really kind of reset back down again. But not everything. And just over a two-year period, a 57% increase in meat, dairy, cereals, vegetable oil, and sugar is going to have a real impact on, like you said, on families in the United States that don't have as much money and certainly hundreds of millions of people all over the world in countries that didn't have so much money, and certainly hundreds of millions of people all over the world in countries that didn't have so much money to begin with. Right. So that's one side of it. This is actually affecting and impacting people in very extreme ways. So on the one hand, you have people who are being pushed into poverty. On the other hand,

you have the food producers who are benefiting tremendously, like in, again, in like record degrees in some cases. You mean these hundreds and hundreds of corporations that own all these food companies, right? No. Chuck, do you have five fingers and five toes on each hand and foot? Still? Yes.

Well, then you can more than count the number of conglomerates essentially running the food supply in the developed world. Yeah, I mean, we were being kind of cheeky there, but that's, we've talked about this before the fact that there are just a handful of huge corporations that own almost every food. And, you know, this is obviously discounting the little indie brands and stuff like that. They're out there doing their thing. Most of those are trying to get bought by one of these companies.

Yeah, I was going to say more and more they're a portfolio of one of these larger brands. Yeah, looking for that big money exit. And you know, good for them. But point is, there are just a handful of these big corporations. And if you ask, if you sit down any of their CEOs and grill them over this cost increase, they're going to talk about those things we talked about at the beginning. They're going to be the pandemic inflation was out of control and there wasn't anything

we could do. We were forced to raise our prices to remain profitable and we're not saying that you shouldn't make a profit or anything like that. Like we get it that these are for-profit companies and those costs definitely did go up and they maybe could not take that all on the chin. We're not arguing for that. But if they then raise those costs and said, all right, well, we have to account for this so we don't lose our profit margins, and they accounted for that, then their profit margin should have been about the same and they should have been like, all right, well, we have to account for this so we don't lose our profit margins. And they accounted for that,

then their profit margin should have been about the same and they should have been like, all right, well, we didn't lose a lot of money, we stayed about the same because we accounted for those costs. But that's not what happened. Yeah, their profits didn't increase in step with their costs, they increased plus some, right?

Plus a lot. Right, plus a lot. So Tyson Foods, a huge producer of chicken, um, in the United States. Uh, in the first quarter of 2021 to the first quarter of 2022, they doubled their profits, not their revenue, their profits doubled. Okay. To a hundred percent times two doubled. That's important.

And that's one year, year over year. Cargill, another huge conglomerate, they had a record $6.68 billion profit in 2022, double its profit two years before. Yeah. I mean, overall food corporations had their largest profits during the pandemic, during peak inflation, when everyone was getting squeezed and hurt the pandemic, during peak inflation, when everyone was getting squeezed and hurt the most, food corporations recorded their largest profits

in 70 years. Right. And some of them even did while they were losing sales. Like General Mills sales were declining by like 9% in 2021 and another 4% in 2022. And yet at the end of 2022, their profits were up 97% over the 2021, I believe. So here's where the sticking point is, Chuck. This is where views diverge because this is documented fact. Is that just to be expected? Like, do people who are mad about this greed-flation idea

not understand basic capitalism? Or do they have a point in saying, like, this is approaching and probably has passed a morality? Yeah, I mean, that's a question. If you look, we're talking about corporations, but if you look at people, there were 62 new, new food billionaires over that two year span from 2020

to 2022 and they calculated, this is Oxfam who calculated this stuff, that the food billionaires, which that, those two words is interesting together, food billionaire. Yeah. Those food billionaires made more money during the two years of the pandemic than they did in the previous 23 years combined. That's, I mean, that's the stat of the show.

So economists like have started to dig into this and just like about anything else, there's liberal economists, there's conservative economists. And depending on where you fall, you probably either agree like, yes, this is greedflation, or you're like, no, people don't understand. This is just basic capitalism. Yeah.

We can look at actual numbers, though, to help people make up their own mind. There's a nonpartisan group called Economic Policy Institute that we talked about before on the show. And they looked at factors that contributed to these higher prices over the last few years. And they identified three major components of costs for a category goods and services, which food was a part of, which are unit labor costs, which are, you know, the workers, what you pay a worker, their salary, their benefits, stuff like that. The non-labor costs, energy costs, transportation, debt payments, tax, I imagine for the food part, like the actual food stuff is in there, right?

Sure, yeah. And then profit margin, which is that markup that we talked about, that, you know, that's what's going to generate the profit for the company. And so they looked since 2020 and prices in the non-financial corporate sector, which like we said, food's a part of that group, have increased 6.1% a year on average, which is three times the prepayment rate of 1.8 a year. Right. Okay. So they said, like under normal circumstances, all these costs are actually pretty well represented in a steady way across the non-financial corporate sector. Like inflation increases, you can attribute increases in price, which is inflation, to those three things, labor, non-labor, and profit. You can divide them up pretty clearly.

Normally, the largest contributor to price increases are labor costs. In a normal economy, they contribute about 62% to inflation. The non-labor cost, which is like you said, the cost to actually make the product and deliver it and all that stuff, it's about 27%. And normally, the profit represents about 11.4, 11.5%. And you put all those things together, and that explains the increase in prices year over year, which we call inflation, right? Yeah, and that, by the way, was over a 40 year period. Yeah. So that's, yes, exactly.

That's what I'm saying. Like it's pretty stable or what has been stable over the last 40 years, where it became totally unhinged from normalcy is starting in the pandemic. It's starting about Q2 of 2020, where everything just kind of went haywire, basically, according to that normal 40-year trend. Yeah. So, labor costs, which over that 40 years previously accounted for about 62% of increase in costs, accounted for less than 8% this time.

The non-labor cost previously, if you remember, was 27%. That is now 38%. So that's that narrative of the supply chains and Ukraine and all that stuff. That's what that cost, that increase in cost represents. Yeah, and then the, you know what's coming everybody, that 11.4% over 40 years of the markup of the corporate profit that accounted for an increase in prices went to almost 54%.

Isn't that nuts? I mean, there it is. Yeah. So it's about five times the normal rate. During a pandemic, food companies made about five times what they normally make in profits on food. Yeah. The end. Can we stop? made about five times what they normally make in profits on food. Yeah.

The, the end, can we stop? Pretty, I mean, pretty much. Um, there's cause everything else is just basically a matter of opinion at that point. Um, there's no, there's no right answer to tell you the truth. It's, I think what's going to happen is a large enough group will decide on what they consider the right answer and that that will be how things move forward. And it looks like the drumbeat seems to be pretty greedflation-y, like people against greedflation. Yeah, and that, like you said, that's a pretty catchy word. There's an actual economics term. Like if you said, well, you can probably get away with saying greedflation and an econ class these days, but sure

Everybody will think you're really cool Previously they say look at the guy in the hat walking in place Saying things like greedflation back at it The previous term for that was sellers inflation. There was a guy in 1958 named Abraham Lerner an economist who he's a Keynesian guy and we've talked about the Keynesian approach to economics and what was the other one? It's another guy. Oh, Milton Friedman, the Chicago school guy.

Was that it? No, I can't remember. Adam Smith. Yeah, that was it. The classical, the guy who came up with capitalism. Yeah, yeah, so those are sort of the general big two schools of thought. And Keynesians generally think that if there's

a lot of inflation going on, that means there's too much money in the economy, and so the Fed comes in, they operate on the Keynesian theories, and they wanna slow that that inflation so they'll raise interest rates to kind of cool things down and try and get people to instead borrow and spend to kind of save a little money. Yeah and this actually can control inflation a lot, like a lot, but what greedflation is showing us and what some economists who study this kind of thing, sellers inflation, have known for a while, that kind of monetary policy can't control corporate decisions to increase prices. In other words, seller inflation. Right. So that's seller-induced inflation.

Another word for greedflation. It just is saying like the companies who sell these products are deciding they want to make more money than they did before and they're going to see if you're willing to pay it. Here's the thing, and this is why the pandemic changed everything. This is why the pandemic takes these standard economic narratives and theories and just turns them on their head in a lot of situations. And the reason why is in a normal economy where companies are competitive with one another, that urge to increase their price and make more profit is kept down from the concern that their competitor is going to keep their price the same.

And so people, shoppers being very price sensitive, especially with food will be like, oh, I'll eat this generic wheat flakes rather than wheaties because it's a dollar less. So I'm just going to become, I'm just going to go eat these from now on and just abandoned Wheaties. They don't want that to happen. So they're really, really touchy about raising prices in a normally competitive economy.

The thing is the pandemic offered in a lot of people's opinion, including CEOs, as we'll see, basically once in a generation opportunity for everyone to raise their prices for no good reason, essentially, because they wanted to. Yeah, I mean, there's a sweet spot if you're a company, and you're making a box of granola bars or whatever, where you wanna have that price as much as it can be without getting someone to not buy it.

Right. And that's just sort of the sweet spot where they have maximized their profit and anything beyond that might get them, like you said, to look at another brand or maybe to not get it at all, like to make that hard decision. So they don't fluctuate in their prices a lot. They want to keep it kind of at that maximum price where you're still going to buy it, but you know, like what essentially is quote unquote fair for everybody. But like you said, during the pandemic, and I don't think, you know, I don't

think anyone is saying they, these like five or six corporations, like the evil heads of them, all got together on a call and said, on the count of three, we're all going to raise our prices together. It just sort of happened that way in that, you know, there isn't a lot of competition like when there's only a handful of companies. So, it's not like you had to have some big wide-ranging conspiracy. You just had to basically individually agree that this pandemic was a great cover to raise

prices that will never go back down. Yeah, I think that you don't need collusion. Any CEO worth their salary would see the pandemic as a great opportunity to raise prices because there was really highly publicized reasons for why prices would go up, like the supply chain shortages, the war in Ukraine, energy prices going up. They had this cover. The pandemic gave them cover to raise their prices just because they wanted to. They didn't need to say, I'm going to do this.

They knew that everybody else is going to do this at the same time, which provided additional cover. It decreased the risk that they were going to lose market share. And then the other thing that kind of came together to make this a perfect storm of terribly high food prices is something you touched on. Competition is less today than it was, say, 10 years ago, 15 years ago, 20 years ago,

because the Federal Trade Commission and the Justice Department have kind of long been for several decades open for business. Like if you want to have a merger, they'll probably let you do it and you'll become a bigger corporation and a bigger corporation and a bigger corporation. And as you grow, you control more and more market share to where some, you know, today, I think three main companies produce 70 or 80% of the cereals on the shelves in American grocery stores. That's not competition. That really lowers the risk of losing market share because you control so many different brands. You can monkey with them as much as you want.

So lower competition because of consolidation, plus the cover that the pandemic gave, basically presented this perfect opportunity for everybody to raise prices basically in unisonison essentially just to increase their profits. That's what we're seeing. And again, I know I've been hammering this, we come to this question again, is that amoral or is that just normal capitalism? Yeah and again we're not saying cover profits because all those reasons were real. We're not saying raising their costs so they wouldn't like reasons were real. We're not saying raising their costs to so they

wouldn't like start losing money. We're talking about like the kind of increases that we saw which was 50 plus percent profit increase. If you are the groundwork collaborative think tank, you can go over transcripts from these corporate earnings calls from these companies and they're flat out flat-out saying it you know like they're saying basically this is this is our chance at a market reset like an adjustment right we thought our product products were too inexpensive before so this is our chance to really

raise these profits because we have all this cover one of the execs at ConAgra even said the consumers will welcome the increased price, which is, I mean, if that's not just out of touch, I don't even know what to say about that. People might accept it and live with it because it's food they need, but no one welcomes a price increase on something. It was a really bizarre word to use,

but this was like these transcripts of CEOs talking to their shareholders and major investors and then basically taking like a victory lap, saying like, look at this, this is nuts. Like we're able to do this. We were able to like make all these extra profits for nothing without our costs like increasing. We just raised our prices and here's why.

And you said something important. A lot of the story that you hear from CEOs and corporations and the people who typically defend them is that, like you said, the prices were too low before. So this was, this gave them a chance to correct the market. And then we, us continuing to buy these products at the higher price sends the signal to those companies.

Like, okay, this is signal to those companies like, okay, this is a fair price still, like consumers are willing to pay this and will they pay a little bit more? Let's find out and they'll increase prices again. And then eventually we get to a point where people are like, I'm not paying anymore, demand goes down, maybe the price goes down or they hold it at that point.

Yeah, and that goes back to the previous thing we were saying where people that are upper middle class and higher can maybe complain about the cost of something, but it doesn't change how they're necessarily buying groceries. The people that are really getting pinched are the people at the bottom. And that's, we've just seen that happen all over, you know, from gas costs to food costs. Like, I remember when gas, I can't remember what it was, I feel like it was in, like, the late 90s or early 2000s.

When gas jumped, like, 50 or 60 cents over a year or two. And I remember telling my friends at the time, like, it's never going to go back down. Because over the previous, maybe as long as there was gas, but over the previous at least decade or so, it fluctuated up and down like a nickel, two, three cents, maybe as high as a dime, then back down again. And then it just ramped up like 50 cents. And I just remember thinking, I didn't even know why, I knew nothing about it. I just remember thinking, this was, what was it? it, jeez, was it 9-11 maybe?

No, it was before that. There was something that happened and they took a huge jump and I just remember thinking this is gonna be the cover and the gas will never be below a buck 75 again or whatever it was. Right, yeah, and so that's a really cynical view but it's entirely possible, you're correct, that. Right. Yeah. And so that's a really cynical view, but it's entirely possible. You're correct that. It was correct.

Yeah. Yeah. That it, they, they used an opportunity to raise prices and maybe raise them beyond what they really needed to. And it sure, it came down, it fluctuated up and down, but it reset to a new normal, a new baseline. Yeah. That's what I'm trying to say.

And it didn't really ever drop below that. And then that new baseline gave them an opportunity later on to ratchet it up to a new normal and so on and so forth. And under normal conditions, that's just inflation, right? Like, like, like the prices are supposed to grow over time. It's like a sign of a healthy economy, but it needs to be around two, 3%, something like that. What we're talking about is, is well beyond that, but that does seem to be around 2, 3%, something like that. What we're talking about is well beyond that.

But that does seem to be what we're seeing here too. And at least one of the CEOs from their earnings call said something like, this is giving us a chance to create this new normal, to normalize higher prices, essentially, people are going to get used to it. Sure, we're mad about it. Sure, some people are being forced into poverty People are going to get used to it. Sure. We're mad about it. Sure. Some people are being forced into poverty now. They'll get used to it.

And the other terrible thing about it, Chuck, is that they're driving inflation. They're making it, they're making everything more expensive. Like, like inflation is outpacing its normal rate because of higher prices. Some economists are like, nope, it's the other way around, but it seems to be lopsided this time where the higher prices are causing higher inflation rather than higher inflation causing higher prices, at least in the food world.

All right, let's take another break and we'll talk about more of this stuff right after this. podcast, Edgy Martinez IRL, where I candidly speak to icons like Alicia Keys, Killer Mike, Janelle Monae, Kelly Clarkson, and Kim Kardashian about the lessons in their real lives. Check out my interview with Super Bowl halftime show performer, songwriter, dancer, and the newly married Usher about relationships. Having a partner who will be honest with you, brutally honest with you, and you can take that constructive criticism because you know it comes from a good place and you've spent enough time, you're friends enough and you've established trust.

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It is the number one marketing podcast in the United States and number 15 on business in the United States. And it has amazing guests such as Alex Hermosy, Leila Hermosy, Cody Sanchez. We pull in these amazing interviews with other people that are not only great marketers, but actual operators. And the icing on the cake is Neil and myself were also operators as well. So we share learnings from the trenches. We share secrets that we otherwise wouldn't be sharing with other people.

And we also share other advantages that will help you get ahead of your competition. So all you have to do is listen to marketing school every weekday on the iHeart radio app, Apple podcasts, or wherever you get your podcasts. So, thus far we've been leaving grocery stores kind of out of the conversation and under normal circumstances that would make sense. Oh, okay. I was wondering if we were going to get to grocery stores kind of out of the conversation. And under normal circumstances, that would make sense. Oh, okay. I was wondering if we were going to get to grocery stores. Right.

Because grocery stores provide kind of a check on food manufacturers. Like the big chains and probably even mid-sized chains, they have entire departments whose job it is, is to basically reconstruct all of the costs that the food producers have to get a general idea of how much they're marking up their product. Right. Because the grocery stores don't want to pay any more than anybody else because they're the ones whose stores we actually go to, they have the most to lose.

Yeah. Um, and then so normally that ends up being like a check on how much food companies mark up. Make sense? The thing is, it turns out that at least according to the federal trade commission in the United States, grocery stores were profiteering from the pandemic too. God, can you believe it? Yeah. The FTC recently conducted a study of nine different grocery stores and food wholesalers that includes Kroger, Amazon, and Walmart.

And they found that as an industry, they didn't, they weren't able to get like individual company data, but they found that as an industry, their profits went up, uh, out of step with their costs. Oh geez, here we go. Um, just like the food producers, although it wasn't nearly as dramatic as the food producers. Um, for example, in 2015, the peak markup, the

peak profit was 5.6% across the industry. And then in 2021, it went over 6%. And then two years later, it hit over 7%. Oh boy. And again, this is out of step with their costs. Uh, and they also found that the large chains, um, used their clout to basically get their hands on scarce products and edged out smaller competitors.

So they basically created mini monopolies in their areas, in their regions, temporary mini monopolies. Geez. So that's a thing too, for sure. many monopolies in their areas, in their regions, temporary many monopolies. So that's a thing too, for sure. We're getting gouged both by the food companies and the grocery stores it seems. Yeah, I mean I can tell when I go to the grocery store it's a big difference.

Right? One thing we should mention kind of quickly here is this idea of shrinkflation, because that kind of figures in, that's another sort of sneaky way to increase profits. That is when you pay the same price for less of something that you used to get. Whether it's five less dishwasher detergent inserts that come in the packet or whether

it's ounces off of a chocolate bar or ounces out of a Coke bottle the price is the same and It's generally just like there's nothing illegal about it, but it's like oh boy maybe they won't notice if we make the The the two liter coke one point seven five liters right if we just keep the price the same and that's what happens Yeah, it's another form of inflation. Even though the price doesn't go up, like as a whole, the unit price,

like say the per ounce price has gone up because you get less for the same price, right? Right. People who track inflation actually adjust for that because it's so widespread shrinkflation is. But one thing that's not typically tracked is something related called skimpflation, where But one thing that's not typically tracked is something related called skimpflation, where the ingredients or the packaging or something degrades or downgrades

to save money, and that actually affects the price or the value or the quality of what you're paying for. That's not tracked as part of inflation. So there's still a way to kind of wiggle through without making it seem like you're ripping the customer off. Yeah. So you mentioned other schools of thought. We're gonna talk about some of those because there is no arguing that during the pandemic that the prices just went way, way up.

Like that's just, it's a fact. But there are economists at the Fed, the Federal Reserve Bank of Kansas City that wrote a paper about these corporate profits during the pandemic. And they started looking at the dates and the timing of this stuff. And they noticed something interesting, which was that the biggest price hikes happening in 2020 through about the first quarter of 2021. And the inflation didn't get really bad until later on in 2021 and just devastatingly through 2022. And so the Kansas City economists basically said that they raised these prices early because they thought

they saw the future, that higher costs were coming down the line. So instead of waiting until that happened for a big spike in prices, let's start raising these prices now to kind of smooth things out over time. Yeah, instead of one big increase, maybe five smaller increases

that equal that same big increase, right? Yeah. And that makes sense. That actually is pretty smart. I mean, like if you're a business, of course you want to predict increases in cost. The thing is, is the fact that prices don't normally come back down. What we were talking about with your anecdote about a gas going up. Yeah.

When prices, uh, uh, like of a certain type of item or whatever, go up, but tend to not come back down really that they're called sticky or they're in economic terms, those prices are downwardly rigid. They don't like to come down, right? So as eggs, right? Eggs are the miracle. So as the, as companies like costs, their marginal costs to create and deliver the product go down, those prices aren't going to come down accordingly. So their profits are just going to be nicer and nicer. Um, that is an explanation that's definitely more in step with the idea. Like this is just normal capitalism. Like it happened to be a seller's market during the pandemic because demand went

up and companies were there to fulfill that demand and demand drove prices up and their costs didn't increase in steps. So they were able to reap a higher profit. That's kind of like that, what that explanation is saying. Yeah, for sure. There are people that are like, hey, this greedflation thing, I don't agree with it. There's a guy named Eric Levitz at New York Magazine who had a very long piece critique basically on the greedflation argument and

said a bunch of things that we're going to go over now. But the first one was that, hey, we've had corporate consolidation for a while now and they could have just raised these prices whenever. So I'm not buying that this happened just during the pandemic. But what we're – and a lot of people, including Robert Reich, who's a very smart guy, are pointing out, it's like, no, what they're saying is they gave him the cover to do that,

and they've sort of admitted this on the call, so I just say throw that one out right away. Yeah, it totally discounts the idea that brands try to cultivate goodwill with their customers, that they just wouldn't care that their customers didn't like them, T.S., you're gonna buy our stuff anyway because we're consolidated.

I agree, let's throw that one out. All right, the next one was, and this is kind of what you were talking about, but that 54%, nearly 54% increase in corporate profits. He argues that it's the effect of inflation, not the cause, and that we've got it backwards. Josh and Chuck have it backwards. Right, exactly. The companies were there to offer the products at the higher price, and they just happened to make this windfall, and that's just, it was in their favor, right?

I mean, it's a, it's a legitimate, um, explanation. It's just, again, it skirts that issue of whether that's okay, I guess. Yeah. And then, um, the other thing that Levitt eventually settles on is these, like all that stuff that people say, um, that pandemic narrative for higher prices, all that's correct.

Demand was high. Supply was tight. Um, people had way more money than they normally do all of a sudden, uncle Joe Biden sent him a bunch of checks. Um, and that corporations have always been greedy. And that I take this to basically say like, if you don't, if you don't like what you're seeing,

if you don't like being price gouged for food during a pandemic, then don't live through a pandemic in a capitalist country. Sorry. Right. You know? Sure. That is pretty inconvenient for a lot of people. Exactly. Yeah.

And a lot of people are saying like, no, we've, we've got to do something about this. There's a, um, a society general banker, uh, general banker, economist named Albert Edward, Edwin, I can't remember, Edwards, I think. And he said that what he's seeing, this is the guy who said he's been at this for 40 years and he's never seen anything like it. He said that it's unprecedented and astonishing levels of corporate greed that we're seeing as a result of these price increases and these profit margins that we're seeing are eye popping. This guy's an economist doing it for 40 years. He's like, this is just wrong. And he threw out something that a lot of people on both sides of the political spectrum do not like to hear. He said we should consider price controls. Like if

corporations are going to go this, be this reckless with people's lives and budgets, then we need to control them. The government needs to step in and say, you can't charge over this amount for this product. Yeah, and I mean, there are even like super capitalist, Keynesian economists who agree about part of that, which is like, hey, if there's a like of Asian economists who agree about part of that, which is like, hey, if there's a real bottleneck of a commodity that only a handful of people control, you should

cap that commodity price so they don't get together and gouge people when there's a real squeeze on a particular specific thing. Right. Not like an overall cap on the price of cereal or something. So the thing is, is that there's plenty of stories, of horror stories from the past where capitalist economies have tried to use price controls

and that they can lead to scarcity because suppliers would be like, I'm not gonna get into this business any longer, I'm getting out of it because I can't make more than what the government's saying I can make. And all of a sudden that product, say bread, is now really hard to come by because nobody's making it and demand spikes and people have to stay in line. No one likes price controls. But there's not, there's not a lot of alternative ideas. Like there's this sense of helplessness in everybody who tends to rely on the federal government to solve like major massive problems like food suppliers gouging customers.

You got basically either price controls or to me the more legitimate answer, which would be to tax those windfall profits at a higher rate. Like, okay, if you're just doing like the normal capitalist thing as a corporation, and you can't help it, that's just what your profits are. If it's, say, during a pandemic or during a crisis, where people are really hurting and you're making these profits, we're going to tax above, you know, X percentage higher than everything below that as your profit. crisis, or people are really hurting and you're making these profits, we're going to tax above X percentage higher than everything below that as your profit.

Now is that trigger, is that like during a specific time or is it like a specific like percentage increase in profits triggers it or both? I think both. I think if you have a situation where normal competition is being, is just kind of like gone haywire for some reason, say like the pandemic, then it would probably kick in because windfall profits are a real possibility.

And then say anything over, um, you know, a 20% increase in profits is going to get taxed at 90% or something like that. Like, yeah, you can make the profits, but we're going to take taxed at 90% or something like that. Like, yeah, you can make the profits, but we're going to take away more of it because we got to help out these people who are hurting while you're benefiting. We need to keep things a little more even than these guys are benefiting, these guys are starving, which is the current narrative.

What you're forgetting though, Josh, is when corporations have these huge windfalls of profits, they pass that along to their employees by raising their wages and to the consumer eventually too, right? Sure, sure. Isn't that how it works? Yeah, they drop their prices, right? They just don't keep that for themselves, right? No, not at all.

Well, that's the problem. Like, that's where a lot of people are like, okay, we need to figure out just even the basic structure of corporations. If the point of a corporation is to maximize profits for shareholders at all costs, at the expense of the economy, at the expense of people's lives, health, wellbeing, there's something inherently broken about that and we need to fix that. And if you ask me, I don't think there's anything

inherently problematic about capitalism. I think people who don't care enough about other people or the planet or something like that have been allowed to come to power over the years and they're the ones who seem to represent capitalism more than others. But I don't, I don't think that's necessarily like a pure capitalist format. I think it can be much more accommodating of the planet and of other people without reverting to socialism

or communism or anything like that. You can still have a capitalist economy, but why can't you also be like, you're making way too much money and people are starving because of all this money you're making, we need to help these people out with some of that money so we're gonna tax it. It just makes sense to me.

I understand that a lot of people revile that and I'm not trying to shove my opinion down anyone's throat. It just, that particular answer makes sense to me because this does seem like just such a haywire weird situation. Yeah. And this is especially, uh, sort of triggering for humans because it's food. We're not talking about luxury items or other weird kinds of inflation. I mean, this is something that people literally need to live everywhere.

Right. Like recreational pontoons aren't what we're talking about. It's really important stuff for sure. Yeah, I agree. I think that that makes it a different a different conversation than if we were talking about a different commodity or different. I mean, it seems like it, but jeez, I'm sure we'll hear from people that say that we don't

know what we're talking about. And oh, man, we're going to get some ugly emails from people. It's fine. We can deal with it. But those people don't complain about the cost of food, I'm sure, right? You have a right to your opinion, you know? We have a right to our opinion too, so don't get mad. You can share your opinion with us,

but don't get mad at us for sharing ours. Yeah, we're just people. Yeah. We don't have some, we never took some oath of neutrality. Right. To be podcasters. I think people think that sometimes. Right. Yeah, for sure.

We're just a couple of regular dudes, one of whom is wearing an awesome hat right now. Walking in place, weirdly. You got anything else? No. Well, go forth, everybody, and decide. Is greedflation an evil thing, or is it just normal, or what? And if you have other solutions to the idea or the problem, then I would love to hear those.

Send them in. And in the meantime, I say, Chuck, it's time for Listener Mail. All right. Hey, guys. Just want to say thanks for keeping me entertained. Since the pandemic, I've been the office random facts guy. I'm already that guy.

Wait, like this guy sends random faxes to people? No, no, no. F-A-C-T-S. Gotcha. That'd be funny though. That's a good bit. People just hear that sound, that fax sound, and they're like, oh god, Gary's at it. Not again.

I'm sorry, it's Daniel. I'm already that guy when it comes to a lot of the things I treat, but now it's about all things. Because of long rides to Ohio to see the family, my toddler's even asked for stuff you should know. Specifically the firetruck episode. That's cute. Makes sense. Which can be tough to find since I'm currently working backwards from newest to oldest. I even just found out that Josh and I are birthday buddies. Oh, hey, happy birthday.

That's right. He says and not cancers anymore did they change? Did they change that? I don't think so. I'll have to look into it. I have felt a little different the last couple years. All right thank you all again for the hours of enjoyment, laughs and learning. If you do end up reading this would you shout out my wife Lynn who's become a fan. So that is from Daniel Klein and Lynn and their kids. Nice. Thanks a lot, Daniel. Thank you for indoctrinating your children into the stuff you should know universe. That's right. And they're also listening now to Biblical Time Machine from Dave Roos. Is it biblical or is it Bible Time Machine?

Daniel says biblical and I'm not sure and we're not going to look it up right now. Either way, it's a top-notch Dave Ruse podcast. And by the way, Dave Ruse helped us with this episode too, so that's very appropriate. That's right. Double Dave. Yep. Again, thank you, Daniel, and if you want to be like Daniel and get in touch with us, you can send us an email to stuffpodcasts at iHeartRadio.com.

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