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Greedflation UPSC NOTE

 


What is Greedflation?

  • Greedflation refers to price inflation caused by corporate greed for high profits.

  • Instead of the traditional wage-price spiral, it is the profit-price spiral that drives inflation. 

  • Progressives in the United States have accused corporate greed as a major reason for the historically high price inflation in the U.S. since the pandemic.

Impact of Greedflation

  • It leads to higher inflationary pressures, financial strain on individuals, and reduced purchasing power. 

  • It undermines trust in businesses, distorts market dynamics.

  • Hampers economic stability and growth.

Debate on it’s significance  

  • Many economists, however, have questioned the validity of the argument that corporate thirst for higher profits is the cause behind inflation. 

    • They see greedflation as a political narrative built around the issue of inflation rather than as a serious economic explanation of high inflation since the pandemic.

  • Economists who disagree with the greedflation narrative argue that businesses, whether they are large corporations or small companies, cannot arbitrarily set prices as many people seem to erroneously believe.

  • Businesses set prices for their products based on what consumers would be willing to pay for these products. 

  • In other words, businesses cannot force consumers to pay a certain price for their goods.

  • They can only try to gauge the maximum price that consumers would be willing to pay and set prices accordingly in order to maximise their profits.

  • If a business sets the price of its product too high, this would cause its goods to go unsold and the business would have no choice but to lower the price of its product to clear its unsold stock.

  • In short, while businesses have the freedom to raise or lower the prices of their products, it is ultimately consumers who determine the price of any product in the market. 

  • So be the case, it may not be sound to argue that corporate greed is behind the rise in inflation.

  • The only way corporations can influence the overall price level is by reducing the supply of goods and services.

  • Greedflation has been compared to other theories of “cost-push” inflation which attribute inflation to a rise in input costs. 

  • For example, in the past, a rise in the wages demanded by workers has been blamed for the rise in the prices of goods and services. 

  • In the case of greedflation, it is the rise in the corporate thirst for profits that is seen as a cost that is driving up prices.

  • A criticism of the cost-push theory of inflation has been that it ignores the fact that the cost of producing any good is itself determined indirectly, but ultimately, by consumers. 

  • It should be noted that the cost of inputs, which can be used towards different alternative ends of society, is determined by competitive bidding in the market.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Greedflation UPSC NOTE
Greedflation UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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