Bangladesh has been hit by that same problem that afflicted the United States recently. Big Egg has decided to push up the price of eggs because, well, they just got more greedy recently. No, really -- Senator Elizabeth Warren (Bangladesh is fortunate that this lady is not part of the local legislature) says so and thus, there we are.
Dr Faridi has pointed out excellently in this newspaper why this is not the correct way to think about it all. Eggs -- as with many other things -- are a highly competitive market with many suppliers, many buyers. Thus there is no syndicate that can push prices up. No, not even if more money is needed for the marriage of Big Egg's daughter or anything else that might increase greed for profits.
Egg prices have risen because producing eggs has become more difficult. In the US it was avian flu which killed many laying hens. Here, as stated, floods, transport difficulties, the rise in demand given the time of year and … well, no, it wasn't an increase in greed.
Again, as explained, we assume that the capitalists -- everyone in fact -- would just love to increase their prices and profits, always. The reason they don't is that they cannot -- because there are those others they are competing with.
So far I've just said that an economics professor knows his economics which is a rare and wonderful surprise. But Dr Faridi might agree with me that we can also go a little further here.
For we've a problem here. Ok, so prices rise. Why have they risen? Sometimes it really is true that there's a syndicate trying to do this. Unions deliberately try to withdraw labour -- that's what a strike is -- to gain higher prices. There really have been attempts by businesses to kill off enough of the competition that they can raise their prices and their profits. But, as has been pointed out, sometimes supply really is restricted, or even demand rises against the previous supply, so prices rise.
Which is a problem. We cannot actually tell, from retail prices -- that's the prices you and I get charged at the market -- whether the problem is demand, supply, or, in fact, that cabal of evil just trying to cheat us into buying them another Rolex. That is, just price changes alone don't tell us whether we're in a fixed market or a free one. The movement of prices will be the same in a wholly free and unbiased market as it will be under the influence of an effective and efficient syndicate.
We'd really like a way to be able to do that though. If eggs are up because birds have been drowning, well, that's one thing. If it's because of someone greedy, well why should we pay for it? And so, how do we distinguish?
Well, think about what the greed is all about. The supplier wants to rip us off, the consumers (or even their own suppliers), to increase their profits. Or, the other explanation: Stuff has happened, sorry, but that's the way it is right now.
Well, if it's that second explanation then profits will not have increased. Stuff happened, costs rose, prices rose, but profits didn't. If it's that first explanation, prices rose because greed for profit did, then profits must have risen. That was the point, after all.
Further, one of those things that happens in a competitive market is that as prices rise, for non-syndicate reasons, profits made by suppliers tend to fall. Because we consumers face those higher prices, reduce our consumption and that squeezes what suppliers can charge us.
Which is what gives us our measure of why prices change. If profits change -- as the good doctor points out, profits of current production, not stock -- upwards, then yes, we might well want to start thinking about collusion ripping us off. But if profits do not rise, well, that's just one of those things.
Rising profits is a signal of a possible syndicate. Rising prices aren't.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
