Category: economics

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Greedflation

The teaching of economics and socioeconomic policies has to deal with the topics around inflation and economic inequality for centuries. Greedflation has become a newly coined term for the rise of inflation due to greedy firms who use a window of opportunity to achieve extra profit margins or windfall profits. At a time of perceived price rises in many sectors, sectors that have no cost increases might still try to push prices higher simply because almost everybody else does so. Higher profits then show up in the reporting season of enterprises quoted at the stock exchange and the increase in inequality between wage earners and shareholders will rise. Greedflation is a summary term for it. The ECB European Central Bank has mentioned this and Reuters has reported on it as well end of June 2023. Since then a wait and see strategy has been adopted. Now in February 2024 we witness the wider spread of extraordinary profits of big firms not only in the fossil energy sector but also bog banks. The economies and societies suffer huge losses and a massive redistribution of capital. Subsidies introduced to lower the shock of the coronavirus crisis and the Russian aggression are unpopular to be scaled back. Employees and their trade unions have a hard time negotiating adequate wage increases whereas most companies use the momentum of seemingly general price rises to push profit margins. The translation of this mechanism to the political economy risks to jeopardize the support for capitalism and market forces in general. Another wave of increasing inequality endangers the survival of democratic societies. Countries with only a short experience of the functioning of market economies are at a particular risk. Germany’s decline into dictatorship in the 1930s after the severe economic crisis should be remembered as a major threat. Greedflation is a very serious and very real threat which we have to address with economic and social policies rather than waiting until the European elections have passed. Time to act, the thinking has been done. Evidence accumulates to make the political case.

Adolf von Menzel, The Petition, Alte Nationalgalerie Berlin
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Forced Labor 2024

Thanks to the ILO we have recent data on forced labor across the globe. At the time when the EU struggles to tighten the rules on decent supply chains, it is important to draw attention to the already reversed trend that worldwide forced labor is on the rise again. According to latest report by the ILO 27.6 million women, men and children were in forced labor at any day of the year 2021. This is even about 10% more than 5 years before in 2016. The fact sheet from ILO highlights the region that are practicing it the most but mentions at the same time that no region in the world has completely wiped out this criminal activity. Despite the SDGs containing a goal to eradicate forced labor by 2025 for children there is little hope that this will be reached. Controlling supply chains of the rich countries could be an important factor in identifying the states or companies which built their production model on forced labor. The fight against this practice is an enduring challenge. We cannot allow to shun away from the thorny issue. The price for labor is only one argument in the reasons for the persistence of forced labor, migration is also a force at work. This asks for specific solutions to country-specific or sector-specific problems. It is a global responsibility but needs partnerships across continents to reach better outcomes in the interests of humanity. Some countries like Germany have a historical debt to invest more than others.

ILO recommendations 2024-1
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Skill loss

There is a sense of skill loss in watching the trends to increase comfort. We all use washing machines and maybe dishwashers. Households can save a lot of time by using those machines. Some porcelain and clothes should not be left to the machines. The need to organize traditional washing routines is almost forgotten after 1-2 generations. The same holds for many technical skills. Bicycle and car repairs or small repairs of electrical appliances are delegated to specialized repair shops. Not using or having learned these skills puts you in a form of dependency and at the risk to pay a price for specializing on other skills. Find out and focus on what you are best at. This has been the mantra of economic theory since Adam Smith. The potential value of satisfaction with an own production rather than a bought product is frequently acknowledged for baking cakes yourself rather than simply buying one in a shop. The same rationale holds for many other skills. Autonomy of own production with possibility to improve or repair are forgotten values. The have become a luxury item or a necessity for persons lacking financial spending power to buy products from others. Many skills will be lost rapidly because products have become so cheap to replace or order for home delivery. Industrial production is desperately searching for skilled persons but losing skills is pervasive at the same time. Public schools and academic curricula will not be able to stand the tide of pervasive skill loss.

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Postmodernism

The grand narratives of the modern world, like modernism itself, are under serious criticism. Deconstruction of the modern way of thinking has become philosophical mainstream. Economics as a science is in the middle of the behavioural shift and changing or at least complementing its narratives. Sociology has embraced postmodern thinking in theoretical as well as empirical forms (Mirchandani, 2005). The empirical measurement focuses a lot on the groups and people who hold postmodern beliefs and values. The discussion in the social and literary sciences continue. In the arts reading on modernism and postmodernism is a must in order to understand much of contemporary art or art from the 19th and 20th century.
Bookstores in art galleries that cover long spells of history can make surprising links between historical periods of art. Books of postmodernism appear next to books on romanticism. A lot of the ideation of postmodernism rejoins romantic depiction about nature, re-naturalizing or the emotional connotations of wildlife, isolated places and stillness.
On the other hand, we are confronted with the brutal world of war, drugs and crime. Classical warfare and strategies are back in Europe with tanks and rockets killing like in previous wars. The Russian empire of a specific version of modernism strikes back as if it were to stop the postmodern turn of the 21st century. Neo-fascism tries to build on the losers of the transitions to the socio-ecological economy and society. There are manifold backlashes of modernism, but the postmodern world is under continuous construction, most of in our mindsets.

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AI or I

Generative AI receives a lot of attention. One of the main issues is, to study how AI interacts with humans. The hiring decision by managers or an AI algorithm is an interesting application. According to Marie-Pierre Dargnies et al. (2022) the preference for human decisions remains strong despite reasonably unbiased performance of an algorithm. The main issue is with the transparency of the algorithmic decision-making. As a worker or as a hiring manager the preferences continue to sit with the person rather than the AI. It is a worrying outcome, however, that if the rule of gender equality is removed from the algorithm both workers and managers tend to prefer the algorithmic outcome. I interpret this as a latent preference of study participants for gender bias, which could lead them to expect a more favoured outcome in case the AI makes the decision. Knowing what decision-making rules have gone into the hiring algorithm has an impact on all persons involved.
A new managerial competence is to be able to assess tasks carefully, whether you should perform the task yourself or delegate to AI. In this sense the old question: to do the task yourself or to delegate has simply been enlarged by an additional delegation option. The decision-tree goes from (1) To delegate or not to delegate, and (2) if I want/need to delegate, should I delegate to AI or somebody in person (not allowed to use AI).
I opted to use AI for image creation rather than to take a photo myself or by one from a professional photographer. (Image creation: NEUROFLASH AI – Image-Flash 2024-1-26)

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AI and We

Research is beginning to provide empirical evidence and experimental modelling results on the widespread use of generative AI. First results by Doshi and Hauser point at the individual benefits of using artificial intelligence but the widespread use of it is likely to narrow the scope of novel content. This research is particularly interesting because it deals with the micro level to macro level aggregation effects. It is fine for me to use AI. If it becomes a mass phenomenon, we expect in sum a negative outcome for society as a whole.
The example at hand deals with the capability to innovate or to come up with novel content. As more and more texts or newspapers are published with extensive use of genAI, the real element of creation will remain the domain of humans for quite some time.
In my opinion this is due to the difficulties for algorithms to differentiate between the positive and too risky negative aspects of innovative solutions. A query for AI might ask to come up with an innovative solution for auto-mobility of short distances. A human being might propose walking due to the additional health effects the AI might propose helicopter lifts. The not so stupid machine would need a lot of additional information about circumstances to generate useful solutions. Therefore it is not surprising that sometimes public transport apps propose to walk short distances rather than waiting for “delayed or unreliable services“ they provide themselves. Personal circumstances like mobility with children, other dependents or luggage are usually beyond the scope of the information base of the algorithms.
On the other hand, if the AI knows that 50.000 persons after an event want to take public transport at the same time the indication to walk or wait solves an aggregation problem of individual preferences to adapt to available capacities. Lots of issues to solve for AI and us or better yet, us and AI.
(Image creation: AI using Microsoft Dall-E Image creator: Prompt: a person with notebook in profile and in front of 5 other persons in Office with windows 26.1.2024, 8:24 PM)

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Shrinkflation

Shrinkflation is a hybrid term that combines “to shrink” with “inflation”. The trick is to keep prices at the same level for a product, but to reduce the weight or amount sold at a constant price. The intention of producers is to indirectly increase prices without touching at price tickets on products. As consumer you are likely to remember the price tag of a product, but much less the unit costs. However, the unit price is the basis for fair comparisons. In supermarkets there is an obligation to print also unit prices (€/kg or €/L) next to price labels. Comparisons allow information irrespective of package size. In shrinkflation the higher unit costs of a product will drive the official measure of inflation (Destatis, 2024). In Germany inflation for food had the top inflation rate in 2023, surpassing even price rises for energy.
On the one hand, shrinkflation is cheating on consumers to sell them less for the same price. On the other hand, oversized products that solicit higher consumption are part of the health and environmental problems we face. The obesity pandemic is part of the XXL consumption hype the food industry and supermarkets have created. In this respect, more expensive food (Eurostat info) potentially may trigger the rethinking of consumption and nutrition. “Eating better instead of less” has always been more expensive.
Besides the profit-maximising logic of shrinkflation, there is at least a small hope that behavioural changes might be triggered to consume less, to use less detergent in washing, less sugar drinks, smaller size pizza and so on. Shrinking our food intake is part of the solution for many problems. In the end cutting out most convenience food will save you a lot of money. As a side effect of such behavioural changes, eventually prices are likely to come down some time later again.