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Remember how Stephanie Kelton and the MMT people have suddenly evaporated now that inflation has come roaring back?

Were Weber's ideas to be implemented, I would expect a similar evaporation as they imploded as well.

Jonah Salk cured polio and then spent 30 years trying to cure the common cold with vitamin C. Sometimes, the heterodox researchers aren't eccentric, countercultural geniuses; sometimes they're just wrong.

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Great piece. I’m with you that the lack of an explicit model is frustrating. For example, she has said that in the face of a bottleneck, I know my competitor can’t increase Q so I raise P and that this is “no longer constrained by competition.” But that’s exactly what happens in competitive markets! See first half of this post https://www.economicforces.xyz/p/inflation-or-when-can-honda-raise

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Jun 9, 2023Liked by Noah Smith

The idea that Krugman would've called Weber stupid merely for suggesting any variety of price control also seems like journalistic malpractice, given that Krugman was already advocating for the kind of _limited_ price controls that are deemed successful in the article.

https://www.nytimes.com/2022/09/08/opinion/europe-russia-energy.html

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Fantastic article. True price controls are an absolutely terrible idea.

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I'd just add that I think any term with a name like 'greedflation' ought to spark immediate skepticism. A more nuetral academic term would be more like: game theoretic deviation from competitive equilibrium.

Sure, when it comes time for politics you've gotta sell your message but it's a good signal it's being pushed politically and emotionally and thus one ought to be wary of it as a purely theoretical construct (eg it may have support for reasons other than epistemic justification).

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Jun 10, 2023Liked by Noah Smith

I do think there is a concept of “greedflation,” but not in the examples cited in the referenced articles. Regarding petroleum, the formation of OPEC in the 1970’s is an example. The US healthcare system is another example. First it was providers of service who received price controls first. Currently it is the pharmaceutical industry (which include the clearinghouses/distributors) who are facing the music. Let’s see if they can escape legislative ire. It also makes one wonder if Mark Cuban was planted to disrupt the pharmaceutical industry...

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“ the notion that inflation is caused by companies’ monopolistic behavior rather than by macroeconomic factors “

So if this is the case then why are Price Controls a better solution than improved competition policy?

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Thank you Noah for this article!

Here in Australia, I think "greedflation" is an idea being increasingly more accepted by left-wing people, from some Reddit users to left-wing think tanks like Australia Institute, and newspapers like The Guardian:

https://australiainstitute.org.au/post/oecd-report-shows-corporate-profits-contributed-far-more-to-inflation-in-australia-than-wages/

It's really nice to hear from people with alternative ideas like you, so if possible, could you look at the example that I cited out, and point to problems in their reasoning?

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Jun 9, 2023Liked by Noah Smith

Good piece but you seem to have an unfinished sentence:

" As so often in this debate, the "greedflation" proponents..."

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Jun 11, 2023Liked by Noah Smith

Thanks Noah. You might be interested in reading about the Australian Government’s price caps introduced late in 2022 on gas and coal prices.

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I might be completely misunderstanding but I'm going to take a stab at it anyway. First the cruelty directed at this women is rather repugnant. Moving on, I'm not at all fond of price controls but I can see why the argument might be necessary because of inflation. Its the market distortion that really bothers me. The effect of QE/zirp/stock buybacks/ the roll over of debt in many zombie companies and the bailouts cant be called a market. In a more competitive market system less prone to boom/bust you would have less need for price controls.

Its so hard to even examine a simple sector like energy with all the entanglements, convoluted pricing . Maybe I'm just not understanding all the inputs, tax credits, subsidies, labor, capitol costs (uneven) and all the international flows.

Not at all statistical but I still think greedflation is a component. Just my gut.

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Everything is a network. Networks are fundamental to everything around and within us; both physical and mental models. They explain markets, theory of the firm, all of our laws, social interaction (philosophy and religion), even the biology and chemistry of our bodies and the physical laws that govern the universe. Understanding how networks work and how to model humanity's networks on those found in nature will lead to generative and sustainable growth. It's not utopia, but it's better than what we've believed in and understood to date that has led to extreme cycles of excess and collapse throughout human history. With networks everything is marginal and multi-dimensional/contextual, unlike the mostly average and 1 or 2 dimensional thinking today. Them's my two cents on the failures of economics as a profession.

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Usually your writing is limpid and easy to follow.

Here you quote the fed as saying that firms marked up prices in anticipation of cost increases and follow this with:

“ In other words, the Kansas City Fed paper presents evidence against Weber’s claim that market power is responsible for increased inflation”

I would have imagined that you have a boatload of market power if you can raise prices just because of something that you imagine is going to happen in the future.

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I have two big concerns with these kind of theories. First is that in addition to the usual incentive for academic novelty there is a hunger in the broader academic world to find ways in which economic results can be explained by factors like greed which we can blame/praise people for and thereby make the economy understandable in an intuitive way (we're social not mathematical creatures).

I fear this leads to a tendency to look too hard for any theory or data that might support such a view. Given how noisy economic data is to being with we should already expect false positives sometimes so call me somewhat skeptical.

Second, and more importantly, there is a huge difference between the finding that in theory some control measure would be optimal and showing that it's not only robust to error but isn't vulnerable to manipulation or induces regulatory capture.

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How would you respond to the Swedish experience?

Like everyone else, the country was facing runaway food inflation. Unlike most place, politicians began seriously debating price controls. Within a few weeks the major grocers announced they were reducing prices, with one promising to cut produce prices by 12%. All of this was a direct result of mere discussion of price controls.

https://www.bloomberg.com/news/articles/2023-03-27/swedish-grocers-pledge-price-cuts-after-soaring-food-inflation

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