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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 seems that way, doesn't it? There's really very few ways to discuss this and not come out on that side.

Yeah, I'm glad you picked one because with all the talk of 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. That's what happened.

Yeah, it sure seems that way. I think at the end of the day, the discussion over what we're talking about, which is called greedflation, which is a fairly catchy term, right? Yeah. The idea isn't that food companies made massive profits over the last few years, starting in the pandemic, right? 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 when there's weirdness to it. They sell their chance. It has to be a business to it.

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 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. 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, I'm a thousand % behind capitalism and let it run amok, and that's just let it work itself out, and then also complain about food prices? Can those things coexist?

Yes. Those people are called the worst. Okay.

So it can coexist.

I think so.

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 That's amoral. I don't think 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. 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 %. Then in 2023, it added another 5 %. And that was a little more than half of what the increase had been in 2022, but it was still double with the normal annual increases 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. There's a standard narrative, which is there's just a handful of reasons that everybody points there and like, this is why.

Yeah. We're going to talk, I guess, a little bit about the standard explanations that we've been hearing for the past couple of years, which we're not saying is 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 the pandemic is 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. 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. So they just basically focused on Coke for a little while. That caused a shortage. It was just that bizarre and meandering in some cases, right?

Yeah, which had nothing to do with raising prices, but that's just a side note.

Right. It's true. Yes, you're right.

So People ate at home a lot more during the pandemic, obviously. There was more demand. 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. So that means that they raised their costs because they raise the prices of their products because their costs increased. So their marginal cost, which is the cost to put everything together and deliver it and all that stuff, package it, increased, which means they increased their markup, their profit, which means you put those two together, the price increases in unnecessary kluji economic terms.

Yeah. And we're going to talk more in-depth about this stuff, obviously. But usually, 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 going to be like, Oh, we got to raise the price then. They'll just absorb that to keep the prices 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 what we are seeing, those markups, the difference in the price and the cost of the companies pay to actually produce product. 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 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 confusing, I guess. It 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 unusual factor that took place within the context of a larger unusual period, which was the pandemic.

Right.

You also had 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, and I guess, frier roosters, the kind you eat to those chickens. Sure. 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 in 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 co-existing situation alongside the pandemic, which disrupted wheat exports. 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 that, that squeezing 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 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 un unprecedented increase in prices in the grocery store.

All right. Those are a lot of the reasons that we've been hearing about over the past few years. But as far as what this actually looks like 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. I look weird right now.

Well, it's because you're wearing a 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. If you talk to the USDA, they will say the price of food in the United States is 25% higher. Last in 2023 than it was in 2019. What? 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 an airline, why it costs a $1,000 to fly from Atlanta to New York now.

Does it really?

No, that's not true. But just airline tickets are ridiculous now.

Yeah. Do you remember when you used to 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. Let's fill the planes up.

For sure. But I mean, 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, and the expense. Anyway, all that to say that food prices rose over that three-year period or four-year period more than any other category except for transportation. 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 going to leave the hat on.

Okay, sure.

It's a really cool hat. All right.

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. Sir, I see you're thinking, Well, forget that. I'm going to 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.

I can't even. I know. Butter is... I mean, I eat that stuff right off the stick.

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-process 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 processed foods are just over one year. From 2022 to 2023, you're paying 16% more for the salties, 16% more for those cookies, 18.5% more for that granola bar you think is healthy. 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 dark. No, actually, no, you're right. Halloween was a bloodbath, especially if you're talking fun-size Snickers, because 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-size Snickers went from 2021 to 2022. It increased by 140 %. You could have gotten a bag of fun-size Snickers for five bucks in 2021. You paid $12 the next year.

All right. Well, there's nothing fun about that.

Okay, so this gets over and seen or in seen, depending on your view. I'm going to keep wearing my hat, though, okay?

All right, keep that hat on. That's a good set up, and we'll be right back with more.

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So there's something to remember, too. It sucks to pay a lot at the grocery store. But if you are a low income family or a low income country, it hits you even worse because food prices, increases in food prices are regressive. 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 an annoyance, it's not just a dent in your pocketbook. It actually has pushed people into poverty classes in different countries, in developed countries, because food prices got, they were 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. Then a couple of years later, here in 2024, some prices have come down, some quite a bit, eggs especially. Again, we'll talk about eggs a little more. They're ones that really reset back down again. But not everything. Just over a two-year period, a 57% increase in meat, dairy, cereals, vegetable oil, and sugar is going to have a real impact, 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 to begin with.

Right. That's one side of it. This is actually affecting and impacting people in very extreme ways. 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, again, in 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 cheeky there, but we've talked about this before, the fact that there are just a handful of huge corporations that own almost every food. And 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 good for them. But the point is, there 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. 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. We're not saying that you shouldn't make a profit or anything like that. We get it that these are for-profit companies, and those costs definitely did show up, and they maybe could not take that all on the chin. We're not arguing for that. But if they then raised 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, 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 is a huge producer of chicken in the United States, in the first quarter of 2021 to the first quarter of 2022, they doubled their profits. Not their revenue, their profits doubled, okay? A hundred % times two, doubled. That's important. And that's one year, year over year. Cargill, another huge conglomerate, they They had a record 6.68 billion dollar profit in 2022, double its profit two years before.

Yeah. Overall, food corporations had their largest profits during 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 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? Do people who are mad about this greedflation idea not understand basic capitalism? Or do they have a point in saying, This is approaching and probably has passed a morality?

Yeah. I mean, that's a question. We're talking about corporations, but if you look at people, there were 62 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 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. I mean, that's the stat of the show.

Economists have started to dig into this. And just like about anything else, there's liberal economists, there's your conservative economist. 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. Yeah. We can look at actual numbers, though, to help people make up their own mind. There's a non-partisan group called the Economic Policy Institute that we've 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 the workers, what you pay a worker, their salary, their benefits, stuff like that. The non-labor cost, energy cost, transportation, debt payments, tax. I imagine for the food part, the actual food stuff is in there, right?

Sure. Yeah.

Then profit margin, which is that markup that we talked about, that that's what's going to generate the profit for the company. And so they looked since 2020, and prices in the nonfinancial corporate sector, which, like we said, food is a of that group, have increased 6.1% a year on average, which is three times the pre-pandemic rate of 1.8 a year.

Right. Okay. So they said under normal circumstances, all these costs are actually pretty well represented in a steady way across the nonfinancial corporate sector. 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%. Normally, the profit represents about 11.4, 11.5%, and you put all these 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. Yes, exactly. That's what I'm saying. 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 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%.

That's that narrative of the supply chains in Ukraine and all that stuff. That's what that cost, that increase in cost represents. Yeah.

And then, 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 company he's made about five times what they normally make in profits on food.

Yeah. At the end. Can we stop?

I mean, pretty much because everything else is just basically a matter of opinion at that point. There's no right answer to tell you the truth. 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 drum beat seems to be pretty greedflation-y, like people against greedflation.

Yeah. And like you said, that's a pretty catchy word. There's an actual economics term. If you said, well, you can probably get away with saying greedflation in an econ class these days. Sure.

Everybody will think you're really cool.

Previously, they'd say, look at the guy in the hat walking in place saying things like greedflation.

I'm back at it.

The previous term for that was seller's inflation. There was a guy in 1958 named Abraham Lerner, an economist. 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.

Milton Friedmann, the Chicago School guy. Was that him?

I can't remember.

Adam Smith?

Yeah, that was it.

The classical, the guy who came up with capitalism.

Yeah. Those are 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 want to slow that inflation. So they'll raise interest rates to cool things down and try and get people to instead borrow and spend to 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 thing, seller's inflation, have known for a while, that 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 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 wheatflakes rather than wheaties because it's a dollar less. So I'm just going to go eat these from now on and just abandon 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, a 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 want to have that price as much as it can be without getting someone to not buy it.

Right.

And that's just 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, to make that hard decision. So they don't fluctuate in their prices a lot. They want to keep it at that maximum price where you're still going to buy it, but what essentially is fair for everybody. But like you said, during the pandemic, and I don't think anyone is saying these five or six corporations, 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 happened that way in that 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 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 long been for several decades open for business. 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 today, I think three 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 unison, 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 immoral 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 lost to, so they wouldn't start losing money. We're talking about the increases that we saw, which was 50 plus % profit increase. If you are the groundwork collaborative think tank, you We can go over transcripts from these corporate earnings calls from these companies, and they're flat out saying it. They're saying basically, this is our chance at a market reset, like an adjustment. We thought our 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, 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.

No, it was a really bizarre word to use, but this was these transcripts of CEOs talking to their shareholders and major investors, and then basically taking a victory lap saying, Look at this. This is nuts. We're able to do this. We're able to make all these extra profits for nothing without our costs 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 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 a fair price still. 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're 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 it happen all over, from gas costs to food costs. I remember when gas... I can't remember when it was. I feel like it was in the late '90s or early 2000s. Yes. When gas jumped 50 or 60 cents over a year or two. I remember telling my friends at the time, 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, up 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 don't even know why, I knew nothing about it. I just remember thinking this was... What was it? Was 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 going to be the cover, and the gas will never be below a buck 75 five again or whatever it was. Right.

Yeah. And so that's a really cynical view, but it's entirely possible. You're correct.

It was correct.

Yeah. They used an opportunity to raise prices and maybe raise them beyond what they really needed to. And 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 and so forth. And under normal conditions, that's just inflation, right? The prices are supposed to grow over time. It's like a sign of a healthy economy, but it needs 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 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. Inflation is outpacing its normal rate because of higher prices. Some economists are like, No, 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.

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So thus far, we've been leaving grocery stores 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 a check on food manufacturers. Like the big chains, and probably even mid-size chains. They have entire departments whose job it 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. 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. And then so normally that ends up being a check on how much food companies mark up.

Makes 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.

Can you believe it?

Yeah. The FTC recently conducted a study of nine different grocery stores and food wholesalers that includes Croger, Amazon, and Walmart. And they found that as an industry, they weren't able to get individual company data, but they found that as an industry, their profits went up. Out out of step with their costs.

Oh, jeez. Here we go.

Just like the food producers, although it wasn't nearly as dramatic as the food producers. For example, in 2015, the peak markup, the peak profit, was 5.7 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. And they also found that the large chains use 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. 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 What we're watching quickly here is this idea of shrinkflation, because that figures in. That's another 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 two liter Coke 1.75 liters, if we just keep the price the same. And that's what happens.

Yeah, it's another term of inflation, even though the price doesn't go up as a whole, the unit price, like to 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 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 wiggle through without making it seem like you're ripping the customer off.

Yeah. So you mentioned other schools of thought. We're going to talk about some of those because there is no arguing that during the pandemic, that the prices just went way, way up. 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 Economist 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 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, if you're a business, of course, you want to predict increases in cost. The thing is, the fact that prices don't normally come back down, what we were talking about with your anecdote about a gas going up. When prices of a certain type of item or whatever go up but tend to not come back down, really, they're called sticky, or in economic terms, those prices are downwardly rigid. They don't like to come down, right?

Except for eggs.

Right. Eggs are the miracle. So as companies' costs, their marginal costs to create and deliver the product, go down, those prices are going to come down accordingly, so their profits are just going to be nicer and nicer. That is an explanation that's definitely more are in step with the idea, this is just normal capitalism. 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 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 a lot of people, including Robert Wright, who's a very smart guy, are pointing out It's like, no, what they're saying is it gave them the cover to do that, and they've 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, yes, you're going to 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 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. That the companies were there to offer the products at the higher price, and they just happened to make this windfall, and it was in their favor, right? I mean, it's a legitimate explanation. It's just, again, it skirts that issue of whether that's okay, I guess.

Yeah.

And then the other thing that Levis eventually settles on is all that stuff that people say, that pandemic narrative for higher prices. All that's correct. Demand was high. Supply was tight. True. People had way more money than they normally do. All of a sudden, Uncle Joe Biden sent him a bunch of checks. And that corporations have always been greedy. I take this to basically say, if you 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.

Sure, that is pretty inconvenient for a lot of people. Exactly.

And a lot of people are saying, no, we've got to do something about this. There's a Societe Général Banker economist named Albert 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 is 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. If corporations are going to 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 they're even super capitalist Keynesian economists who agree about harsh part of that, which is like, Hey, if there's a real bottleneck of a commodity that only a 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 that there's plenty of stories, horror stories from the past where capitalist economies have tried to use price controls and that they can lead to scarcity because suppliers will be like, I'm not going to 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 a lot of alternative ideas. There's this sense of helplessness, and everybody who tends to rely on the federal government to solve 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. Okay, if you're just doing 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 X percentage higher than everything below that as your profit.

Now, is that during a specific time, or is it a specific percentage increase in profits triggers it, or both?

I think both. I think if you have a situation where normal competition is just gone some haywire for some reason, say, the pandemic, then it would probably kick in because windfall profits are a real possibility. And then say anything over a 20% increase in profits is going to get taxed at 90% or something like that. Yeah, you can make the profits, but we're going to take way 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's 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. 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. 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, well-being, there's something inherently broken about that, and we need to fix that. 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 think that's necessarily a pure capitalist format. I think it can be much more accommodating of the planet and of other people without reverting to the 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 going to 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 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. I know. Like, recreational pontoons aren't what we're talking about. It's really important stuff for sure. I agree. I think that that makes it 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. 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 people. But those people don't complain about the cost of people.

You have a right to your opinion. 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. We never took some oath of neutrality to be podcasters. I think people think that sometimes.

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? If you have other solutions to the idea or the problem, then I would love to hear those. Send them in. In the meantime, I say, Chuck, it's time for a 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, this guy sends random faxes to people?

No, no, no. F-a-c-t-s. Got you. That'd be funny, though. That's a good bit. People just hear that sound, that fax sound, and they're like, Gary's at it. 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 has 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 in the last couple of years. All right.

Thank you all again for the Hours of Enjoyment, Laps and Learning. If you do end up reading this, would you shout out my wife Lynn, who has become a fan? 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. They're also listening now to Biblical Time Machine from Dave Rues.

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 Rooz podcast. And by the way, Dave Rooz helped us with this episode, too, so that's very appropriate. That's right.

Double Dave. Yeah.

Again, thank you, Daniel. If you want to be like Daniel and get in touch with us, you can send us an email to stuffpodcast@iheartradio. Com.

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Listen to The Bright Bright Side on America's number one podcast network, iHeart.

Open your free iHeart app and search The Bright Side.

If you want to level up your marketing and business knowledge, look no further than the Marketing School podcast hosted by Neil Patel and yours truly, Eric Hsu. It is the number one marketing podcast on Apple and number 15 on business in the United States. Now, if you want to listen to interesting conversations with operators that have been there, done that, also with other interesting guests, then listen to Marketing School every weekday on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.