Today's social media "analysts" insist record-high corporate profits are driving inflation. This is backwards. Don't believe me? Here's how:
Suppose you make and sell widgets. Your expenses are $100 for each widget, including materials, labor, shipping, factory maintenance, and everything else. You sell them for $105, giving yourself $5 profit and a 5% profit margin per piece.
Now suppose inflation drives up the cost of your raw materials. Increased fuel costs drive up your logistics costs. Your employees demand higher wages. Your vendors are also experiencing increased costs, and pass them along to you through increased prices. It now costs you $120 for each widget.
In response, you raise your price to $126, maintaining your same 5% profit margin, which is still what you need to get out of your business in order to make the venture worth your while, and avoid shutting it down altogether and doing literally anything else with your life instead.
But now, if you manage to somehow maintain steady business in spite of the volatility of the market and the systemic pressures of inflation, you are making $6 profit per widget. This is "record profits," and idiots will attack you on the internet. Never mind the devaluation of those dollars, or the odds this trend will continue. Raw numbers are bigger, so the price inflation is somehow your fault.
Moral of the story: assume people discussing money and economics are clueless. If they fixate on raw numbers, assume something in the percentage is omitted, and vice-versa. Sure, corporate bigwigs are greedy, but vice does not ebb and flow to drive the economic trends we see. There is always more to the story than anyone can fit into a tweet or TikTok video, and nuance is lost as a consequence. Maybe something has been overlooked, or maybe deception was the intent. Either way, always dig deeper.
