Tariffs and Potential Inflation

[Flatrock]

You are confusing nominal prices with the rate of inflation.

I'd say a majority of the country is confused with that.

 

[VikingsGuy]

Fair enough. But I still find it hard to worry about those big businesses still making a profit on top of increased costs. They aren't guaranteed or have a right to a certain profit margin.

When they stop giving C-suite executives raises I'll starting believing their profits have been pinched

Just a little moody and sarcastic this morning.

tldr; c-suite - fun to flog, but not the problem

OK - we have wander far away from the OP, but by page 9 I suppose that is par from the course.

C-suite comp is an easy horse to flog. Fun for one and all. But an actual discussion of its real impact breaks down into three discussions.

Economic impact, social impact (envy) and unintended consequences.

Since this is a tariff/inflation thread and your remarks seem connected to company profits vs consumer prices, let’s go to economic impact first. I hope we can all agree that no human is worth $40 million for one year’s work. Not a CEO, not an athlete, not an entertainer. But what is the actual economic impact of this? Does it drive inflation? Does it force down general wages? The simple answer to both of those is not really. I will use a S&P500 company I know well as an example. So, if the total comp of the entire c-suite of this entity was paid the entry level salary instead, the company would have those funds to do one of two things folks would hope to see improved — reduce prices or increase wages. In this case the company could reduce prices in a manner that would save the average American household less than 10 cents per year. Or it could use those funds to increase average wages of its other employees by less than $200 per year per employee. Neither of these choices do anything to enrich the lives of Americans. It does not drive a shared prosperity, it does not reduce the cost of goods, it does not raise the standard of living, it does not help a family buy a home, pay for college or even take a cheap vacation. So - there is no material effective economic impact of most S&P500 c-suite comp to the broader economy or workforce. Also, when you take into account the progressive tax rates and limited deductibility of c-suite comp, well over 50% of this comp is returned to the public coffers via taxes.

Now what I feel is really behind comments such as yours is the politics of envy (social impact). Why should any one have that much . . . . I think this is a very unproductive and subtractive view of the world. We should not be worried about knocking these folks down a peg - we should be asking how we can actually raise the stakes of working families (which per above is barely effected by c-suit comp). I don’t care how much bill gates has, I care about paying for my kids college and there is no actual connection between the two at the scale of 350 million Americans.

As for the third, unintended consequences is an area that is hard to really dial in, but I do wonder if prior attempts at limiting c-suite comp via income tax policy drove us to a more equity based comp model that may skew descision making in the long run. Hard to know/establish, but an interest area to consider. But the solution would likely result in paying higher salaries and bonuses and removing equity so while the form would change, the envy would still be there.

 

[VikingsGuy]

I'd say a majority of the country is confused with that.

Fixed it for you

 

[schmalts]

tldr; c-suite - fun to flog, but not the problem

OK - we have wander far away from the OP, but by page 9 I suppose that is par from the course.

C-suite comp is an easy horse to flog. Fun for one and all. But an actual discussion of its real impact breaks down into three discussions.

Economic impact, social impact (envy) and unintended consequences.

Since this is a tariff/inflation thread and your remarks seem connected to company profits vs consumer prices, let’s go to economic impact first. I hope we can all agree that no human is worth $40 million for one year’s work. Not a CEO, not an athlete, not an entertainer. But what is the actual economic impact of this? Does it drive inflation? Does it force down general wages? The simple answer to both of those is not really. I will use a S&P500 company I know well as an example. So, if the total comp of the entire c-suite of this entity was paid the entry level salary instead, the company would have those funds to do one of two things folks would hope to see improved — reduce prices or increase wages. In this case the company could reduce prices in a manner that would save the average American household less than 10 cents per year. Or it could use those funds to increase average wages of its other employees by less than $200 per year per employee. Neither of these choices do anything to enrich the lives of Americans. It does not drive a shared prosperity, it does not reduce the cost of goods, it does not raise the standard of living, it does not help a family buy a home, pay for college or even take a cheap vacation. So - there is no material effective economic impact of most S&P500 c-suite comp to the broader economy or workforce. Also, when you take into account the progressive tax rates and limited deductibility of c-suite comp, well over 50% of this comp is returned to the public coffers via taxes.

Now what I feel is really behind comments such as yours is the politics of envy (social impact). Why should any one have that much . . . . I think this is a very unproductive and subtractive view of the world. We should not be worried about knocking these folks down a peg - we should be asking how we can actually raise the stakes of working families (which per above is barely effected by c-suit comp). I don’t care how much bill gates has, I care about paying for my kids college and there is no actual connection between the two at the scale of 350 million Americans.

As for the third, unintended consequences is an area that is hard to really dial in, but I do wonder if prior attempts at limiting c-suite comp via income tax policy drove us to a more equity based comp model that may skew descision making in the long run. Hard to know/establish, but an interest area to consider. But the solution would likely result in paying higher salaries and bonuses and removing equity so while the form would change, the envy would still be there.

Agree and disagree. The wage thing is one thing but total compensation is another. Companies are pulling benefits and hiking healthcare benefit cost constantly. And it's BS news that everyone's wages went up in the last 3 years, not that you said it but most people I know got little to no increase during huge inflation. Media and current administration saying inflation not so bad because wages increased is more fake news.

 

[VikingsGuy]

Agree and disagree. The wage thing is one thing but total compensation is another. Companies are pulling benefits and hiking healthcare benefit cost constantly. And it's BS news that everyone's wages went up in the last 3 years, not that you said it but most people I know got little to no increase during huge inflation. Media and current administration saying inflation not so bad because wages increased is more fake news.

I agree inflation in wages was hugely uneven in spread. Most folks took a real hit and those pretending “it is over” are either fools or liars for reasons already discussed above. Very very few ended up “net postive” when looking at their own wages and their own bills.

As for the benefits area - I agree they are getting squeezed too, but again c-suite total comp isn’t enough to drive that and that was the issue I was addressing.

 

[ignorethefringes]

tldr; c-suite - fun to flog, but not the problem

OK - we have wander far away from the OP, but by page 9 I suppose that is par from the course.

C-suite comp is an easy horse to flog. Fun for one and all. But an actual discussion of its real impact breaks down into three discussions.
. . .

I'm afraid you missed my entire point. I couldn't care less about C-suite pay generally. But as a small business owner it's easy to say something like, "If I'm able to keep giving myself a raise every year, profits are more than sufficient." That's true even if the profit margin is less than before. Not all things scale, but I feel like that one does. Again, maybe I'm wrong and maybe I'm just a little snarky.

My point is more that C-suite compensation is an indicator that the companies lack financial distress. Don't tell me that things are getting tighter, in any real meaningful way, if the big bosses are making more money every year.

 

[jryoung]

Agree and disagree. The wage thing is one thing but total compensation is another. Companies are pulling benefits and hiking healthcare benefit cost constantly.

As a data point, we just went through open enrollment. For my company we provide HMO (Kaiser) and PPO (Blue Cross/Blue Shield) options for staff to choose from. I pay 100% of employee medical/dental/vision. Kaisers increased 7% this year (historically 3-5%) and BC/BS increased 25% (historically 7-9%). There's nothing I can do as as an employer to avoid those health care cost increases delivered to me by the providers.

 

[schmalts]

As a data point, we just went through open enrollment. For my company we provide HMO (Kaiser) and PPO (Blue Cross/Blue Shield) options for staff to choose from. I pay 100% of employee medical/dental/vision. Kaisers increased 7% this year (historically 3-5%) and BC/BS increased 25% (historically 7-9%). There's nothing I can do as as an employer to avoid those health care cost increases delivered to me by the providers.

You can't control the cost of it but a company can stop paying a CEO 45 million and cover the increase with a pay reduction in one person's salary to keep the employees cost from m going up. They just choose not to

 

[VikingsGuy]

You can't control the cost of it but a company can stop paying a CEO 45 million and cover the increase with a pay reduction in one person's salary to keep the employees cost from m going up. They just choose not to

Wow - does @jryoung make $45 million? I would have been much nicer to him if I had known that

 

[ignorethefringes]

As a data point, we just went through open enrollment. For my company we provide HMO (Kaiser) and PPO (Blue Cross/Blue Shield) options for staff to choose from. I pay 100% of employee medical/dental/vision. Kaisers increased 7% this year (historically 3-5%) and BC/BS increased 25% (historically 7-9%). There's nothing I can do as as an employer to avoid those health care cost increases delivered to me by the providers.

Genuinely honest question: Can you shop a PPO plan from someone else? Or is BC/BS still competitive in the market?

 

[jryoung]

Genuinely honest question: Can you shop a PPO plan from someone else? Or is BC/BS still competitive in the market?

Wasn't a ton of difference between Aetna and United, just need to buy more lube. While I cover 100% for my employees, dependents are their responsibility, I did have one staff move to Kaiser as a result.

 

[jryoung]

Wow - does @jryoung make $45 million? I would have been much nicer to him if I had known that

If I could just make $45M for a single year. One year is all, I wouldn't be greedy LOL

 

[Bonasababy]

I understand it is politically inconvenient, but actually it is.

Nope--inflation is a constant. Unless some of us are old enough to remember the conditions before or into the late 1930's the last US long term average I saw was 3.7 percent. Right before the election the rate of inflation was around 2.5 percent for the previous year--roughly the same as the last year under Trump before Covid--the outlier neither president should be blamed for.

Inflation is Almost Always present. Some act like they want negative inflation--a rare event and the conditions that precede it usually are accompanied by other economic pain and aren't something anyone should wish for.

What matters is why the prices have gone up and ability to pay.

That varies, but wages rose dramatically over the last 5 years--and were passed on to consumers in the form of higher prices. That's a big cause of much of the inflation.

All discussed in the Reuters article and by every economist.

If the price of a car rose 5k in recent years but your wages have increased by 10K a year---see the point?

So no, actually the expressed view overly simplifies the situation.

What matters is income adjustments together with inflation. Certainly for some incomes have not kept up with inflation--but for many that's not the case--but many focus only on cost, not ability to pay.

 

[VikingsGuy]

Nope--inflation is a constant. Unless some of us are old enough to remember the conditions before or into the late 1930's the last US long term average I saw was 3.7 percent. Right before the election the rate of inflation was around 2.5 percent for the previous year--roughly the same as the last year under Trump before Covid--the outlier neither president should be blamed for.

Inflation is Almost Always present. Some act like they want negative inflation--a rare event and the conditions that precede it usually are accompanied by other economic pain and aren't something anyone should wish for.

What matters is why the prices have gone up and ability to pay.

That varies, but wages rose dramatically over the last 5 years--and were passed on to consumers in the form of higher prices. That's a big cause of much of the inflation.

All discussed in the Reuters article and by every economist.

If the price of a car rose 5k in recent years but your wages have increased by 10K a year---see the point?

So no, actually the expressed view overly simplifies the situation.

What matters is income adjustments together with inflation. Certainly for some incomes have not kept up with inflation--but for many that's not the case--but many focus only on cost, not ability to pay.

Inflation rate and PPP adjusted for inflation are two concepts you mix together. The later being the thing we have the least good data for but is probably the most useful. Meanwhile most people are talking about inflated prices. As for "every economist says", this is an obvious overstatement, as my best friend is a top 5 economist at the Fed and he constantly rails against the misleading notion that "inflation is only 4% everyone should be happy now" drivel.