Don’t try to tell me my wages are sharply increasing either, because they’re not! Nor are my friends, family, or neighbors.
In: 113
In a CEO’s bank account, offshore accounts, yacht builders etc. Rolls-Royce just reported its most profitable year in over a hundred years. Also, corporations are buying their own stocks with their windfall profits.
Prices are going up, because there has been a huge amount of money printing over the past two years, and decreased production of goods due to people being in lockdown. More currency chasing fewer goods means prices go up. Supply vs demand. As for where the money is going… it goes to anyone who has seen their income or capital gains increase more than inflation. This tends to be people who were already very wealthy.
There’s an effect called the Cantillon Effect, which means the people who get their hands on the newly-printed currency first tend to increase their real wealth, while the people who get their hands on it last tend to see their real wealth decrease. That’s because it takes a while for the economy to price in the fact that there’s more currency in it.
Wages are going up, but it doesn’t mean all companies raise them at once… you may need to land a new job to see a pay bump, wait for your next review cycle, etc. (eg. my company gave double the usualy cost of living raises this year, 4% vs. 2% most years).
But the extra costs are going throughout the system.
Raw materials to make things are higher due to shortages. When it costs more to get steel and microchips, the refrigerator costs more to make.
Hiccups in the supply chain like delayed shipments, boats taking longer to unload in port due to lack of dock workers, etc. mean ships aren’t where goods are that need shipping, so cargo shipping costs are much higher. Transport from the ports to warehouses and stores are higher due to fuel costs and labor costs.
Stores have less inventory to sell, but rent, utilities, etc. are the same… which means they need more profit margin on each item sold to cover those fixed costs. Think of a car dealership with $100k in monthly expenses for rent, utilities, marketing/advertising, employees, etc. If they sell 100 cars a month, it means they need $1000 profit just to cover those costs. If they can only sell 20 cars due to lack of inventory, then they need something like 5x profit per car to make up the difference just to cover those expenses… hence the “market adjustments” and high margin add-on products like warranties and nitrogen filled tires.
So let’s go back to that refrigerator. Used to sell for $1800. Now it’s selling for $2000. But the materials to make it cost more, and the freight cost to transport it from the factory to the store’s warehouse costs more. And the store employees got raises due to difficulty retaining employees. But store sales volume is down because half the fridges the store normally carries are back-ordered. So now do you get a better idea of where all that extra money ends up?
It would probably take someone with a serious background in economics and reporting to actually figure it out: the global economy means money is moving everywhere and it’s easy to lose track of it. However, I can offer some guesses based on what little I do know:
There’s been a lot of news about corporations reporting profits and passing on those profits to executives, boards, and major shareholders. There’s good reason to believe that a lot of the increase in prices is going to these people and organizations. This is pure corporate greed – I’d say more, but there isn’t anything to explain here.
However, some of it is being spent on actual costs. While it finally looks like it might come to an end; there’s been a “shipping apocalypse” that’s lasted around 12 months. It was initially set off when companies dropped production predicting lowered demand after COVID, made worse by the Evergreen crash in the Suez, and continued by various COVID restrictions and labor issues (which I’ll talk about more in point 3); and it’s resulted in massive shipping delays (there’s some Kickstarters I pledged to that are months, even a year, late because of supply chain issues) – or very high costs as you pay a premium to cut in line.
These increased shipping costs get lost too – some go towards increased fuel costs (because there’s enough money in shipping for it to be worth it to go faster at the cost of fuel efficiency); some goes to workers in the form of rush jobs on maintenance and turnaround (which means overtime for shore crew) and buying off vacation on ship crew; but some of it also makes it’s way to the top, and some goes other places.
The third place is increased pay – but probably not where you are. The people making more money off of this are longshoremen (port workers) and transporters: the people working to get you the stuff you’re buying. Trucking pay is up – some reports have it up 30%/year over the last two years, though it’s probably less than that. Port workers pay is up too, although not as much – but there’s also been a hiring spike to get ships unloaded faster, which means more money. And other people involved in logistics – ship workers and captains, train crew, and so on – have also seen notable increases in pay and benefits.
And a big part of this is that these workers know they have the power right now. Because of the aforementioned shipping problems, they *know* they are in demand – especially the skilled ones – and have threatened strikes for higher pay; and as long as their demands aren’t too excessive, it’s cheaper, even in the long run but definitely in the short run, than losing out on money because you’re missing workers. And in case any of the companies thought they were bluffing, there were a few strikes last year, including a 4-day strike in the Port of Los Angeles, the largest port in the US. The fact that strike came soon after the Evergreen crash (Strike in April, Suez crash in March) also significantly impacted the shipping delays.
Basically, the Wes is more and more dependent from China (and others but let’s assume it’s only China for simplicity). Everything we use is made in China. And due to Chinese people wanting better salaries, and due to China having all the industry that matters, China can make higher prices while companies can’t really go somewhere else.
The western companies (which basically outsource all the work from China) see their expenses go up. As a reaction to it, instead of actually losing money, they simply shrink the wages in the west and at the same time sell products in the west for higher and higher prices, overcompensating such losses.
Due to the fact that prices are higher, companies can even earn more by raising the price another bit, that bit of extra price is not gonna change the big equation, so it’s absurdly possible to make more money out of a situation where you should make less. And because all the companies are competing on the stock market, it’s far better to play this game than to lose a bit of appeal and have your stock holders move away from you.
It’s really fucked up.
It’s because we’re being scammed.
For example, [Tyson just raised their prices on meat by 20%, citing “inflation”/“worker shortages” while simultaneously having profits at an all time high.](https://www.reuters.com/business/retail-consumer/tyson-foods-beats-revenue-estimates-higher-meat-prices-2022-02-07/) Their price hike and inflation excuse is bullshit as they’re turning *more of a profit* than they ever have before. We’re being asked to subsidize their freight costs and such (by adding it into the pricing of meat) when the company itself is doing the best it ever has.
It’s greed, plain and simple.
Into the executive pockets. There have been multiple articles showing how profits increased for various companies, with prices also increasing
Everywhere. Some is going to wages. Some to suppliers. Some to business profits.
It’s going to be product specific where, exactly, the money is going for any particular thing you’re talking about.
Sucks that you don’t know anyone getting a raise. Most people have been.
It goes to line the pockets of the people at the top. That is it. Simple. All other explanations are there to pacify you as a consumer.
Inflated costs might occur for a real reason, but when the reason gets resolved, prices do not return to normal.
Barrel of oil costs 40 bucks, gas costs 60 cents a liter.
Barrel of oil costs 80 bucks because (hurricane, political stuff, wildfires, pipeline problems, whatever), gas costs 1.20 a liter.
Issue resolved and a barrel of oil goes back down to 40 bucks, gas continues to cost 1.20 a liter.
Because they know you will pay it.
This is the same for every single object you pay money for.
All of the profit goes to the top.
Have you seen Bezos’ new yacht? Still think I’m not being accurate?
Look up the wealth and earnings of the top people on publicly traded companies and tell me how else they earn so many millions and billions if they weren’t gouging.
Answer:
1) extra time and resources spent moving things because our infrastructure at ports and roads is inadequate.
2) Jeff bezos’s pocket.
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