Breitbart Business Digest: Walmart and Target sound the death knell for greed

It’s hard to believe that it was only last week that Democrats expected to change the rhetoric on inflation by blaming rising prices on greedy corporate price scammers.

In a speech on Tuesday last week, President Joe Biden complained that “corporate executives are in communication with investors on Wall Street, applauding their record profits and explaining how they are using this period of inflation to cover price increases far beyond what they need to do to cover their costs. On Thursday, Senators Elizabeth Warren (D-MA) and Tammy Baldwin (D-WI) and Rep. Jan Schakowsky (D-IL) proposed a bill to fight inflation by banning “price pricing,” broadly defined as “unreasonably excessive price increases”.

The best evidence the greedy-flationists could muster to support their theory of a corporate conspiracy to boost profits was the expansion of profit margins last year. Gasping in horror at rising profits at a time when profits are rising may be an age-old tradition, but it is also a display of ignorance of basic economics. Inflation is usually the result of an imbalance between supply and demand. When demand increases faster than supply, prices increase. This increases the profits of the people selling the goods and services. John Maynard Keynes, whom some on the left pretended to read, called this phase of an inflationary era “profit inflation.”

The problem with earnings inflation is that it very quickly leads to what Keynes called “income inflation.” Businesses attempt to sell more at higher prices, increasing production and hiring workers. This drives up the prices of materials, products, warehousing, shipping, and most importantly, labor. The rise in demand for consumer goods that pushes up corporate profits then fuels the demand for labor and other factors of production. This, in turn, wipes out excess profits.

This swing could be seen this week in quarterly reports from Walmart and Target. Both reported that sales were up, but profits were down. Downstream costs were rising and are not expected to moderate. Corporate earnings inflation has been eaten away by cost inflation.

A Target store in Miami, Florida on Aug. 19, 2020. (Joe Raedle/Getty Images)

Note that this inflation is evidence of competition in the economy – huge corporations competing for access to warehousing, workers and shipping. They drive up fuel prices. Senator Warren wants to blame inflation on anti-competitive behavior, but it’s really fueled by competitive activity. Instead of having market power that allows them to control prices, these huge corporations are unable to raise prices to keep up with costs because they are competing for customers.

Target has been pretty explicit about this. He said he decided not to attempt to pass the higher costs on to consumers, as he hopes to gain market share from competitors by maintaining a reputation for affordability. “While we don’t like the impact on our short-term profitability, we know it’s the right thing to do for our customers and our business in the long term,” Target’s chief financial officer said.

And with those words, the greed theory was thrown into the dustbin of history.

Is slowflation next?

Of course, the inflation story does not end with the elimination of excess profits due to rising wages and production costs. Consumers react to rising prices by changing their consumption habits. Walmart spoke about customers switching from national brands to private labels for products like lunch meats. The University of Michigan’s Preliminary Consumer Sentiment Survey for May saw a record number of consumers who think now is a bad time to buy durable goods. This cyclical trend is likely amplified by consumers shifting their spending from goods to services, reversing the huge shift in the spending balance caused by the pandemic.

On Wednesday, Target chief executive Brian Cornell spoke of a shift in consumption:

In our other three main merchandise categories, Apparel, Home and Durables, we saw a rapid slowdown in the year-over-year sales trend in early March when we began annualizing the impact of last year’s stimulus payments.

Although we anticipated a post-stimulus slowdown in these categories and expected consumers to continue to refocus their spending on goods and services, we did not anticipate the magnitude of this shift.

The shift could explain the collapse in demand seen in the Empire State Manufacturing Survey released on Monday. We will get a glimpse of the magnitude of this situation on Thursday when the Philadelphia Fed releases its manufacturing sector survey. A slight downward drift is expected. These were, however, the same expectations for the New York Fed survey. A downside surprise in the Philadelphia Fed survey could raise fears of a broader economic slowdown and more impact on corporate earnings, at least for producers and sellers of goods.

FREMONT, CA - SEPTEMBER 29: Tesla CEO Elon Musk steps out of the new Tesla Model X during an event to launch the company's new crossover SUV on September 29, 2015 in Fremont, California.  After several production delays, Elon Musk has officially launched the highly anticipated Tesla Model X Crossover SUV.  The (Photo by Justin Sullivan/Getty Images)

Tesla CEO Elon Musk steps out of the Tesla Model X during an event September 29, 2015 in Fremont, California. (Justin Sullivan/Getty Images)

Elon’s Odyssey

Could Elon Musk be turning red? Musk started out as a darling of the left and an icon of radical greens, so he naturally turned to supporting politics from his biggest fans. He began to show signs of alienation during the pandemic shutdowns, when he threatened to move Tesla’s headquarters from California to Texas and restarted production in defiance of state authorities.

He is now one of the nation’s foremost online free speech advocates; although given its historical proximity to repressive regimes in China and the Middle East, there is reason to remain skeptical about the depth of that attachment. Even still, if his position is simply that the United States needs or deserves free speech more than other countries and cultures, that would be better than people who are constantly trying to impose the last Ministry of Truth on us.

Now, however, he has crossed the line and announced that he will vote – gasp – Republican.

“In the past, I voted Democrat, because they were (mostly) the kindness party. But they have become the party of division and hatred, so I can no longer support them and will vote Republican. Now watch their backstabbing campaign against me unfold,” Musk tweeted.

Alexandria Ocasio-Cortez is probably considering trading in her Tesla right now.

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