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If the consumer has nowhere else to go, they’ll pay whatever price is available.

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A long and interesting read. And yes on paying the price. Article by David and Lindsay on what is happening today with increasing pricing across the economy. You can experience it in just about every part of the economy. Further on down this article the authors say, this is more about pricing than supply chain. I would say this is true. However, you can discern whether excess pricing can be justified by reviewing the supply chain costs. Not knowing those costs makes it easy for deception. Those costs are also not difficult to discern. The Age of Recoupment by David Dayen and Lindsay Owens The American Prospect The Federal Reserve chair’s semiannual monetary report to the Senate Banking Committee is not typically of great interest to

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A long and interesting read. And yes on paying the price.

Article by David and Lindsay on what is happening today with increasing pricing across the economy. You can experience it in just about every part of the economy.

Further on down this article the authors say, this is more about pricing than supply chain. I would say this is true. However, you can discern whether excess pricing can be justified by reviewing the supply chain costs. Not knowing those costs makes it easy for deception. Those costs are also not difficult to discern.

The Age of Recoupment

by David Dayen and Lindsay Owens

The American Prospect

The Federal Reserve chair’s semiannual monetary report to the Senate Banking Committee is not typically of great interest to the average American. Committee members usually lob a predictable set of questions:

When the Fed will raise or lower interest rates, whether they expect the economy to grow or slow, and maybe whether the central bank is fulfilling its supervisory duties in overseeing large banks.

But Jerome Powell got a bit of a surprise this year when Sen. Sherrod Brown (D-OH), the Banking Committee chair, launched into his opening statement.

“The biggest corporations are always finding new ways to charge people more to increase their profits. Fast-food restaurants and big stores are experimenting with electronic price tags, so they can change prices constantly, making it easier to sneak prices up little by little.” He called for legislative measures “to take on corporate price-gouging,” which, he argued, had “nothing to do with higher interest rates.”

Later, Brown confronted Powell directly over the increasing use of algorithms analyzing price information acquired across a whole market. If a business knows what its competitor charges, it can adjust prices upward in real time, maximizing what it can earn. Brown asked . . .

“Are you concerned that the wide adoption of these price-gouging strategies, these pricing schemes if you will, will contribute to inflation?”

Powell stammered through a response, keying in on Brown’s use of the term “dynamic pricing,” only one of the pricing strategies cited during the hearing. Dynamic pricing means that prices rise and fall based on how many people want the product at a given time. Offering an Econ 101 theory of dynamic pricing, Powell said . . .

“I think it works both ways. If there’s nobody in the store, prices would go down, and if the store is packed with customers, prices would go up. Smart shoppers would adjust, and it would all even out in the end, as long as customers were “informed.”

Brown’s reply . . . “You think that this kind of surge pricing might lower prices overall? These are sophisticated economists working for these big companies. They’re not going to do things to lower their profits.”

This did not seem like an argument Powell wanted to have.

“I think the price mechanism is incredibly important in our economy. I think we need to give companies the freedom to do that, as long as they’re not fixing prices or failing to disclose the nature of the price changes to the public.”

JAY POWELL IS CORRECT; THE SETTING OF PRICES is one of the most critical functions in a capitalist economy. Introductory economics textbooks are filled with explanations of this process, where price is precisely plotted on a curve that takes into account supply and demand. But something is missing from Powell’s faith in what he sees as an excessively mathematical process. It ignores a central variable influencing how the economy works right now: power.

Today, everywhere consumers turn, whether they are shopping for groceries at the local Kroger or for plane tickets online, they are being gouged. Landlords are quietly utilizing new software to band together and raise rents. Uber has been accused of raising the price of rides when a customer’s phone battery is drained. Ticketmaster layers on additional fees as you move through the process of securing seats to your favorite artist’s upcoming show. Amazon’s secret pricing algorithm, code-named “Project Nessie,” was designed to identify products where it could raise prices, on the expectation that competitors would follow suit. Companies are forcing you into monthly subscriptions for a tube of toothpaste. Banks have crept up the price of credit, so customers who cannot afford price-gouging in their everyday transactions get a second round of price-gouging when they put purchases on credit. Expedia is using demographic and purchase history data to set hotel pricing for an audience of one: you.

For those who look at this and see the normal process of for-profit companies wanting to push their earnings to the absolute peak, the numbers suggest otherwise. In the 40 years from 1979 to 2019, nonfinancial corporate profits cumulatively drove about 11.4 percent of price growth. From April to September of last year 2023, the number was 53 percent. And in the final quarter of 2023, the Bureau of Economic Analysis showed corporate profits at a new all-time historic high, rising by $136.5 billion, compared to $90.8 billion in the previous quarter. Indeed, corporate profits surged during the pandemic years, and remain affixed at that new, higher level, all the way to the present day.

So something has changed in our economy. Companies are laser-focused on wringing as much out of Americans as possible, unleashing new schemes and building information advantages to either confuse, outsmart, or simply gouge the consumer.

The question is, why now?

For decades, the most ruthless form of American capitalism centered on cost-cutting. Beginning in the late 1970s, institutional investors, not just the hedge funds and private equity firms were often caricatured as standard-issue predators, The majority of traders and analysts on Wall Street started demanding companies to cut costs to boost profits for shareholders. Whereas mass layoffs before this period were seen as unthinkable resulting in a corporation letting down the community. The Reagan era practically promoted a race to the bottom: One out of every four employees at General Electric was laid off between 1980 and 1985.

Unions were busted. Jobs and manufacturing were shipped overseas. Supply chains were outsourced. Zero-based budgeting studied every sheaf of paper, every thumbtack, and slashed budgets annually. This was seen as an unavoidable strategy to become “competitive” in corporate America.

Even after the Great Recession, companies didn’t try to make up for lower overall demand by raising prices, instead viciously suppressing wages. Between 2009 and 2012, labor costs fell, and corporations maintained their margins by reducing workers’ share of the profits.

The results can be seen in ruined industrial ghost towns across the Midwest, and businesses strip-mined by leveraged buyouts. But there is a tipping point to all this cost-cutting. There’s only so much fat to cut before you hit bone. The strategy eventually had diminishing returns, and without a new strategy, profits would hit a plateau. That wouldn’t cut it on Wall Street.

Enter the age of recoupment. Instead of cutting costs, the new mantra is raising prices.

Price hikes are old as dirt. But today’s companies have reinvented them. They’re using a dizzying array of sophisticated and deceitful tricks to do something pretty darn simple: rip you off.

The new tricks have fancy new names. Charging you more for less is a corporate practice known as “shrinkflation.” Revealing part of the total price up front, only to tack on all manner of ridiculous-sounding fees and service charges: Industry insiders call that one “drip pricing.”

  • Stealing your online shopping data to predict the maximum price you would be willing to pay for your next e-commerce purchase: That’s personalized pricing.
  • Using software to coordinate pricing with other companies to make sure they don’t undercut each other: That’s algorithmic price-fixing (or plain old-fashioned collusion).
  • And charging you more for an item when supply is limited: That’s Jay Powell’s favorite, dynamic pricing.

Three critical factors have come together to make recoupment work. None of them are necessarily new, but they have become more finely honed, more ubiquitous, and importantly more interconnected, achieving what you might call a perfect storm for pricing.

First, companies got bigger. Over the past few decades, about three-quarters of domestic industries  became more concentrated. In many markets, there simply is no competition. Even where an illusion of competition is perceived, companies have become adept at robbing their customers of choices. This grants the remaining corporate giants the freedom to hike prices without fear of being undercut by the competition. If the consumer has nowhere else to go, they’ll pay whatever price is available.

Second, pricing went high-tech. It used to be a process where companies made some rudimentary queries about their competitors and balanced what made them a profit with what could attract customers. It’s now a highly engineered science. Technological innovations such as cloud computing, artificial intelligence, and surveillance targeting have enabled companies to collect reams of personal information on consumers. Your identity graph tells a company when you’re most likely to purchase something, where that product is in proximity to you, and how much you can afford. Website designers can construct techniques to compel you to buy products, even making it seem like you’re getting a deal when you’re actually getting ripped off. Technology, in short, has hypercharged the time-honored tactics of gouging, hidden fees, and price-fixing.

Finally, market power and technological advances came together in the shadow of the pandemic, when logistics delays, broken supply chains, manpower shortages, and later geopolitical tensions created scarcity throughout the economy (the first four would be associated with supply chain). The first extended bout of inflation since the early 1980s created the quintessential laboratory for companies to try out pricing strategies they’ve dreamed of implementing for decades. Any concerns CEOs may have had over damaging reputations and losing market share by executing their most egregious experiments evaporated. As a bonus, more people were shopping online than ever before, providing more data and more opportunity to tie prices to a customer’s personal habits.

With prices rising everywhere they turned, nobody could discern which were justified by companies’ own rising costs, and which were truly excessive. Highly engineered “dark patterns,” where people are tricked into signing up or paying more, were chalked up to the way things are now, rather than something more insidious. If a price surges, if a fee is tacked onto the bill, the culprit is the economy, not the company shoving their hands into your wallet.

CEOs could hardly contain their delight on calls with investors. From the CFO of the international conglomerate 3M patting their team on the back for doing a “marvelous job in driving price,” to the CFO of the largest beer importer in the United States, Constellation Brands, who promised investors the company would “make sure we’re not leaving any pricing on the table” and “take as much as we can,” to the tech CEO who copped to “praying for inflation” and doing his “inflation dance,” these corporate executives were clear on one thing:

Inflation was very good for business.

THIS PERFECT STORM USHERED IN A NEW REGIME where prices are becoming increasingly unmoored from the fundamentals, like the cost of labor or materials. In its place, a new corporate credo on pricing has emerged:

The best price is the one consumers are willing to pay. A fair price for everyone is increasingly becoming a thing of the past.

What does this mean for central-bank policymakers, who limit their studies of prices to how much they are rising, not the ways in which the increases are happening or the reasons why? What if prices in the economy, as Sherrod Brown suggested, have a little bit less to do with supply and demand, and a little bit more to do with corporate schemes aimed at parting consumers from their money? What if the Fed’s capacity to stem inflation is simply more limited now? What if inflation is increasingly a problem of data privacy and technological surveillance, not aggregate demand? What if the almighty power of America’s vaunted central bank is no match for the pricing power of corporate America?

Powell may not be able to tame the last mile of inflation, but we’ve faced these problems before, and there are a host of laws duly passed by Congress, designed to prevent price-fixing, collusion, and unfair or deceptive practices. Implementation and enforcement of these laws reside not with the Fed, but in agencies across the executive branch. Government needs to be active enough to spot these strategies—even if they appear in new forms—and crack down on the companies that institute them.

Fortunately, the Biden administration is rising to this occasion in many respects. Law enforcers have brought lawsuits against algorithmic price-fixing. Regulators are working to ban junk fees, increase price transparency, and outlaw certain types of price increases seen as unfair. They’re also trying to tear down the monopolies in our economy, companies with the confidence and the power to price-gouge relentlessly.

But there’s so much more to be done. We are not at the end but the beginning of a cycle of recoupment. Computing power will be able to much more finely discern your personalized price in the future. Experiences that have habitually been associated with price-gouging—buying a car, for example, or going to a hospital where the prices are completely unknown—are adding more tricks and traps with each passing day. The grocery store, one of the more unavoidable transaction points in American life, is where so many of these pricing schemes come together, and not surprisingly where some of the biggest cost increases have been seen. Without a whole-of-government strategy, companies will seek out unregulated corners and deploy the full weight of their superiority over consumers to take advantage of them.

In this special issue of the Prospect, you will learn about these emerging pricing strategies, and discover examples of them in everyday life. You will see the role that pricing power plays in our economy, and the technologies that no longer make it necessary for CEOs to gather in a room together to collude. You will see how price shifts have accelerated faster than consumers can adjust, and how inexplicable fees nickel-and-dime people to the tune of billions of dollars. You will see how it’s harder to figure out these days what you’re even paying for, or whether the price you pay for something is the same as everyone else. And you will hear from public servants at the state and federal level who are trying to crack down on this high-tech form of a thousand tiny thefts per day.

In this election year, we have seen how inflation can break the bonds of trust between people and their government. It has been at the top level of voter concerns for two election cycles, and across the world, incumbents have been hobbled by rising prices. Over the years, countries have outsourced too much inflation-fighting capacity to their central banks, leaving them weakened when prices soar.

You may think that a couple extra bucks in credit card interest, or a “convenience fee” on your hotel bill, or the price of a soda that’s a little bit more today than yesterday is too trivial for public policy, and too difficult to combat. You may even think it violates some sacred barrier between government and private enterprise. But the public expects elected officials to look out for them, to make sure they aren’t being treated unfairly. The outcome in 2024 will be determined at least in part by whether Joe Biden can convince the country that he’s on the side of the people against the powerful. In that sense, the stakes for understanding and reacting to the age of recoupment are nothing less than the future of the country.

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