Last week when I was booking a haircut I noticed a couple of interesting things. First, the prices were about 50% higher than pre-COVID. But more interestingly, one of the barbers, a bloke named Elliott, puts a $10 surcharge on each cut. He’s the only one of the 10 barbers able to charge a premium.
Elliott is the most popular barber there. He does the best haircuts and tends to book out very quickly. It makes total sense for him to charge a premium (in fact, he’s probably charging too little because he’s still booking out).
According to my colleagues who write for Crikey, Elliott (and businesses or people like him) are the embodiment of our cost-of-living crisis. Before COVID, it cost $35 to get a 30-minute haircut from Elliott; now it costs $60. This represents significant inflation. According to Bernard Keane and Glenn Dyer, businesses (like Elliott) should be limiting price rises to the inflation level so as not to rip off consumers.
Or consider Taylor Swift, who is probably the world’s most popular performer at the moment. The average ticket to a Swift concert in the US is US$254 (A$390). According to Bloomberg, “Just five years ago, the only two acts that topped US$200 were Britney Spears and Celine Dion. That year’s biggest performer, Ed Sheeran, could be seen for an average of US$89 a night.”
Tickets to Sheeran’s concert in March were about half the cost of Swift tickets. Swift’s tickets represented a significant inflation on Sheeran’s tickets from just six months ago (and every other pop artist who has toured Australia). Swift is charging so much for her concerts that she is expected to break all sorts of records, with the Eras tour expected to gross more than $19 million a night, and $1.5 billion (yes, that’s billion) in total.
So is Tay Tay also an evil corporation gouging customers and causing the cost-of-living crisis?
In fact, the opposite is the case. Swift, like many artists, is actually undercharging fans to attend her concerts (this weird phenomenon was discussed by the excellent Freakonomics podcast). Not only was it extremely difficult to get Swift tickets in the first place, but Swift tickets are now being sold for double (or even more) their face value by scalpers. If Swift let the market determine pricing, it’s likely tickets would have to be two or three times the cost. So while Swift is a lot more expensive than everyone else, she is actually doing her bit to keep inflation low.
Swift and Elliott are two examples of why it’s not retailers or corporations causing inflation but profligate monetary and fiscal policy. The best artisans are able to add a premium because people have more money to spend (not all people have more money — that’s the inherent evil of inflation, where the newly created money flows to those who already own assets, namely richer folks). As I explained here, governments added a huge amount to the money supply during COVID after a near-decade-long period of very loose monetary policy. That money is now sloshing around the economy and leading to significant price rises.
The money that was created wasn’t distributed equally, which is why some people are paying $500 for average tickets to Swift and others can’t afford to buy groceries.
There are, of course, some businesses with monopoly or duopoly power that have been able to significantly increase prices without justification. Airlines and energy companies are the two most obvious examples. But that is a symptom rather than a cause of inflation.
Qantas, which enjoys quasi-monopoly status (it has competitors such as Virgin and Rex, but it also has the largest and stickiest loyalty scheme and business customers who are locked in to flying with it), announced a record domestic profit last week on the back of soaring fares. But Qantas was able to charge customers so much because customers have more cash to be able to pay for those higher fares.
Blaming all corporations for greedily ripping off consumers and profiting from inflation (or suggesting that businesses be capped in how much their profit can increase according to inflation) is nonsensical. Some businesses, such as hairdressers or pop stars who operate in highly competitive environments, can increase their prices only when they are providing more perceived value to customers. Those businesses should be rewarded with higher profits. Whether that be Swift or the local barber.
That’s very different from businesses that enjoy monopoly or duopoly market power (almost always provided by government regulation or protection), which should be restricted from making windfall profits during times of inflation. In Qantas’ case, it was able to increase prices by brazenly reducing supply (it removed flights in 2022 and then increased prices on its remaining seats). Meanwhile a seemingly powerless Australian Competition and Consumer Commission watched on as energy companies announced record profits against the backdrop of the transition to net zero.
Inflation is a cruel tax on the poor and middle class (the rich tend to slightly benefit from inflation) — but don’t blame all businesses for the rot. The real culprits were a central bank that left interest rates well below inflation for a decade, a toothless regulator, and a series of federal governments from both sides of the aisle who couldn’t resist lavishing their donor mates with debt-funded boondoggles.
Do you agree that monetary and fiscal policy are the cause of our current cost-of-living crisis, or are greedy businesses to blame? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
According to my colleagues who write for Crikey, Elliott (and businesses or people like him) are the embodiment of our cost-of-living crisis. Before COVID, it cost $35 to get a 30-minute haircut from Elliott; now it costs $60. This represents significant inflation. According to Bernard Keane and Glenn Dyer, businesses (like Elliott) should be limiting price rises to the inflation level so as not to rip off consumers.
Quite simply, I’m very surprised this article was even published. The quoted paragraph above constitutes a contemptible straw man – the linked article by Keane and Dyer does NOT say what Schwab claims it does; it’s not even close. But ironically, in his second last paragraph Schwab appears to agree substantially with the thrust of Keane’s and Dyer’s articles about monopoly and duopoly power! The contention that not all businesses are gouging the public is supported only by the examples of Taylor Swift and Elliott the barber, surely irrelevant to the issue. Nobody HAS to go to a Taylor Swift concert or have an Elliott haircut; let the fabled ‘free market’ – represented by scalpers in one case – take care of their prices, as it should for private schools or hospitals. But that’s not what is happening in the supermarket chains, where people are being gouged for basic essentials in a situation where there’s no apparent excess of demand or shortage of supply, and where the corporations could and should demonstrate a social conscience. It’s time the shareholders’ interests were put behind the needs of the customers who have nowhere else to go.
Spot on, Cap’n Mainwaring.
If Schwab’s analysis was anything remotely approaching accurate, you would expect to have seen inflation occurring between 2009-2018, when all this so-called loose monetary policy and fiscal policy was causing all this extra money to enter the financial system. But we don’t see that, because the money supply is not the cause of inflation. That’s gold standard / convertible currency era thinking, and it wasn’t even all that correct then.
This article is truly dire, and I agree, it’s extraordinary that it was even published.
I don’t blame all businesses. In fact, I go out of my way to support those that haven’t gouged, which are mainly small businesses or ones with an ethical spine. This is more tripe as usual from Schwab.
Speaking of tripe, on one of my rare expeditions to Coles I noticed they are selling chicken wing tips!? for $4 a kilo. I’ve never seen these sold separately before. Three years ago you could get the whole wing for $2 a kilo
Have they realised there’s more potential for gouging than just your regular edible chicken parts or is this just to drill home the point to the poor that “This is the only type of food you deserve”?
Even the chicken necks were $6.50/kg. Let’s not forget that they are now filming us while self-checking out. I’ve found chewing gum works a treat over the camera.
And managed to avoid any clear presentation of official data and analysis of all actual drivers of inflation across sectors….
You’ve stated: Blaming all corporations for greedily ripping off consumers … is nonsensical”. Yes it is. I couldn’t find any articles from Keane or Dyer doing this, please quote from the articles or link to them.
You’ve tied yourself in knots. You talk about paying a premium in haircuts and concerts in what are highly competitive industries, which you’ve acknowledged, and then try and claim the previous authors would call this inflationary. Again I haven’t seen examples from these authors of of even a similar anecdotal nature. The fact that one of 10 barbers charges a premium simply means that you have people willing to pay for a premium service. Its not a very clear argument your making. You then rightfully acknowledge businesses like Qantas that exert their market power and quite frankly over-charge for an appalling service. As for the groups of people you’ve identified as the ‘real culprits’, yes they’ve contributed to the problem as well. In fact it’s pretty hard to specifically isolate all the contributing factors and drivers, with the exception of wages, which really aren’t playing a role at all.
so while its not ‘all’ businesses there’s obviously mining and industries with market power.
you’re. and a few other typos as well sorry.
You forgot a generation or more of decreasing / disappearing taxes that would otherwise be sucking that excess money out of the economy.
Have you read what your “colleagues who write for Crikey” have actually been writing? They haven’t been writing about Elliott and his ilk (hairdressers aren’t in a position to act like a monopoly oligopoly). At least you acknowledge that “There are, of course, some businesses with monopoly or duopoly power that have been able to significantly increase prices without justification.” However, I wouldn’t have said that airlines were the most obvious example of such companies with the ability to affect the cost of living.
As I recall Bernard Keane’s articles, it’s supermarkets who are the big culprits. BK writes a lot about the TWO major supermarket chains (Coles, Woolies), but even when their minnow competitors (Aldi, IGA) are added there is enormous concentration of $ power. These are the sorts of companies who site around the table the BCA and lobby for lower pay and reduced conditions for their staff, while increasing their prices beyond what their staff might be able to afford.
Is Elliott a member of the BCA?