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this post was submitted on 12 Jul 2023
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Not to mention, "record profits" is exactly what you would expect in absolute numbers in an inflationary environment. If all of a company's costs double, and they subsequently double all prices, then they'll get "record profits", despite nothing meaningful having changed.
Individual workers are also making "record" amounts of income, but again, that number in isolation isn't meaningful at all. I have significantly more dollars than a 1700s NYC landlord. I'd still much rather have his relative financial situation.
That’s not how net profit works. Net profit takes into account the cost of goods, if cost of goods, doubles, and gross profit doubles, net profit hasn’t changed at all. These companies are taking advantage of the fact that cost of goods (including shipping) have gone up to massively crank up prices, hence record net profits.
Corporate profit margins hit a 70 year peak in 2022 despite plenty of supply turbulence in the highest inflation since the 1980s.
Yes, it is.
Expenses: $500
Revenue: $1000
Net profit: $500
Now, say we've had runaway inflation, and the dollar is suddenly worth half as much.
Expenses: $1000
Revenue: $2000
Net profit: $1000
You might thing, "hey, that's $500 more dollars!" Yes, but these dollars have half the value as they did in the previous scenario, so you have the same amount of actual value as before the inflation, even though the absolute number is higher and thus you've broken records. Profit margin is a much more useful metric to look at, and that is unchanged in this example.
Now, as I understand, there are some industries where profit margins have noticeably increased, and there are interesting questions that can be asked there. But profits going up simply isn't a very interesting thing. Profits remaining static is actively a bad thing, because again, inflation is a thing. To flip this around, a worker never getting a raise in 20 years is obviously not doing very well. Workers need regular raises just to keep up with inflation. The exact same thing is true for businesses as well.
It's actually record profit margins, not just record profits. Even industries that were not affected by shortages raised their prices and there was an increase in profit margins almost across the board.
For sure, and I'm very much not saying that businesses are blameless or haven't exploited the situation. I'd just vastly prefer reporting to talk about the metrics that actually matter, like profit margins, rather than essentially meaningless ones like net profit than do nothing more than push an obvious underlying agenda.
From data I could find, you see a very sharp dip in margins during 2020, a significant rise in 2021-2022, and in 2023, things have largely returned to pre-pandemic numbers. I won't pretend to be an economist, but if we're going to be claiming uniquely bad corporate malfeasance, I want strong evidence showing that, not essentially meaningless fluff like "numbers go up in a highly inflationary environment".