A Buck and a Quarter
Back in my day putting air in your tires used to be free. Nowadays it costs a dollar. That is why it’s called inflation. Ha…get it…air in the tires and inflation. Just a little dad joke for you. Now re-read it in your best dad voice and suddenly it becomes funny. But seriously…we know things got real when the Dollar Tree announced that everything was now a buck twenty-five.. Somewhere in the universe there is a creepy 70’s game show host saying “but wait there’s more”.
We emerged from a two year pandemic, a period in which a good portion of the world had remained shuttered in their homes, to find an economy on the verge of collapse. Housing costs have skyrocketed. Groceries are up nearly 40%. Gas prices topping $4 a gallon. The country is back to work with record breaking unemployment numbers. And yet, there is a Help Wanted sign in every window. Seems everything is inflated except wages and earnings. Everybody has a job and yet everybody is hiring. Everybody has a paycheck but nobody has any money.
Welcome to the Ted Talk. But wait there’s more…
What is inflation exactly? In the simplest of terms inflation is the rise in prices, or rather the decline in purchasing power. Inflation is just a piece in the economics puzzle. The cause and effect of inflation goes far beyond the simple rules of supply and demand. This is why I love economics. There is no other discipline that blends the study of sociology with math and science intermingled with politics and oh let’s toss in some psych and statistics too just for kicks.
Modern economists have uncovered a more nefarious phenomenon behind inflation. Because inflation does not represent a uniform rise in the price of commodities researchers have found a systematic distribution of income. Each period of inflation resulted in higher profit margins for big business. Don’t just take my word for it. Over the last 75 plus years during each period of marked inflation the top 500 US businesses reported higher profit gains. Corporations are inflating already inflated prices in order to turn a bigger profit. In fact, the latest data from the US Commerce Department shows that the last time corporate profit margins were this large was December 1950. So when we ask ourselves what has caused this current economic crisis what we really should be asking is who is benefiting from it.
In the real world inflation looks nothing like it does in theory. Capitalism requires greed to run and corporations are notoriously greedy. The reality is that during this period of inflation, when the cost of goods has increased, even small businesses must often raise their prices as well. Not so they can buy a new corporate jet or timeshare in Vale, but simply to survive another day. The difference is a small business is going to carefully calculate the rise in COGs or cost of goods and spread that out to balance or soften any price increase they must pass on to their customers. A small business owner must keep a healthy profit margin and bottom line so the kids can eat…not so the CEO has a nice stock portfolio.
But wait there’s more…In all things the world will find ways to seek balance, a way to right itself. There is a slow but vibrant movement gravitating away from big business and corporate greed. It’s a ripple effect already seen by the closure of some mega box stores. Consumers are beginning to hold corporations accountable. This is the human behavior factor in the economic equation. It is true that numbers don’t lie, that math and science are empirical. That is what makes the coming shift, or consumer awakening, so exciting. Buyers are becoming acutely aware of the price manipulation within toxic corporations. They are making conscious decisions to budget their expenses that support small businesses and local companies. In turn these small businesses support and work with other small businesses. By demand or design, or simply a byproduct of decades of unchecked power and greed, small business owners and consumers are creating their own ecosystem. A system built on a fair market of goods and services.
I have confidence in the small business market, and not just as an owner but also as a consumer. There is a passion in this space for doing the right thing for the right reasons. If life is anything like a game show I would be really curious to see what is behind the next curtain. Either way I’d bet my buck and a quarter that big business and American corporate greed are in for a wake up call.