The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”

Vladimir Lenin


“No one is walking in saying, ‘Great, I’d love to pay full price’.


One of the things that drives me nuts is when people say how much better the economy was during the Trump Administration. It’s not really true, it was good, not quite as good as under Obama administration, certainly not bad, not really comparably as good as current economy, but that’s a post for a different day (and I encourage everyone to research economists like Noah Smith, Tyler Cowen or Justin Wolfers to read their thoughts).

Today I’m addressing the comparison elephant in the room: inflation.

Inflation is not the economy. It seems like the majority of people are judging the economy solely on what they perceive is inflation. Inflation perception may seem like an odd term. Heck. Inflation itself is an oddish thing. Economists define it in a nuanced way, people define it in a simplistic way, news defines it whatever way its own political winds blow way, and reality is somewhere in between. But where people think of inflation the most is with prices they pay (not causes).

So let me speak a little bit about pricing during the Trump administration years. Similar to the Obama administration years, in the Trump years corporate America scanned about their competition and tried to figure out how to be able to charge the highest possible competitive price and generate the highest profits. It’s kind of standard operating pricing procedure weighing “how much can I charge and still create significant demand.” That doesn’t mean that many of these same companies were year in year out doing things like conjoint testing (testing variables that affect the price that could be charged versus the demand increase or decrease, i.e., price sensitivity). Businesses are always trying to figure out how to have higher prices. That said, generally speaking, changing prices sends a shiver down the spine of every business as they worry about the demand effect. So, the natural arc of pricing is to establish your price within a competitive environment, watch your competition pricing, and establish a demand for your product or service based on that price. I would be remiss if I didn’t note that I’ve sat in endless meetings where business people wistfully spoke of charging significantly more than they currently were charging.

Which leads me to the Trump Administration years.

Business institutions had less and less wistful conversations. Not because they actually raised their prices, but because the Trump Administration went out of their way to cut corporate taxes, offer incentivized subsidies to keep cost of goods affordable, and did a variety of things which enabled businesses to increase their profits, not their sales, without ever having to raise their price one penny. Let me reiterate that the Trump Administration also did everything they could possibly do to subsidize everything (things that effected cost of goods) to keep inflationary pricing down. The consequence of this was soaring federal level deficits, but for the most part the everyday schmuck like you and I didn’t really care because prices remained fairly stable and the headlines didn’t look any different than they had always looked in the past – pointing out day after day the soaring corporate profits. We all felt like the system was rigged, the corporations were gouging us, but we didn’t really see it at the shelf or in our pocketbooks. So, we just hated business, but didn’t hate the economy.

Which leads me to the pandemic.

Instead of theoretical, conjoint-like, testing, every business was faced with market reality and a real market test. Supply chains were disrupted, commodities – costs of goods – that were essential to their production and resources needed for services became limited or asymmetrically supplied and more costly, and consequently prices changed – most typically upwards. Oh. And everything was passed along to the buyers. What this meant in practical terms, to a business, was the sellers were able to test the market pricing (elasticity) without being blamed. They could see in real time how demand was affected by disruptions and price changes. Rightfully so everybody pointed their fingers at the pandemic, but businesses didn’t really lose a lot of sleep because they maintained their profits, for the most part adapted to the changing demand, and tried to keep their profit heads above the water. Then the pandemic ended. And businesses sat around conference rooms failing moral gut check after moral gut check. And what was that moral gut check? What to do with my pricing now that my cost of goods has decreased. This isn’t to suggest that some industries and businesses were still affected by some of the ripple effect consequences of the pandemic with regard to the cost of the goods they needed to be able to craft the products they offered to the market. But for the most part the pandemic encouraged businesses to create a more resilient production model to make their cost of the goods more stable. In addition, the corporate tax cuts stayed in place … despite the current administration wanting to increase them (government is government and nothing changed there). Many of the tariffs were removed which should have eased pricing to the buyers, but many of the businesses failed to pass along the cost savings. In addition to that the pandemic market had shown many of the businesses the price elasticity and inelasticity of their products and services. For example. My geographic market prior to the pandemic. It would not be rare to see that you could buy a two-liter bottle of Coke or Pepsi on promotion for $1 (actually 99cents) and the everyday price was always below $2 (maybe $1.99, maybe $1.89.) During the pandemic of course all prices went crazy. Coke and Pepsi’s two-liter bottle prices soared above $2 every day (usually $2.99 everyday). Uhm. Post pandemic the everyday price for a two-liter bottle is now $2.50, or above, and promotions never drop below $1.25 per 2 liter. The demand has remained exactly the same and Coke and Pepsi are getting, at minimum, $0.25 gravy, at maximum, $1.00 gouging, on every single two-liter bottle purchased. Just to complete the math on this. If they sell 1 million 2-liter bottles, they make anywhere from $250,000-$1,000,000 additional profit. Uhm. And they sell billions. Anyway. This isn’t to just pick on Coke and Pepsi, Coke and Pepsi are indicative of business. The problem is most people aren’t thinking about this the way I just finished describing it. All they see is what groceries are costing them every single day, without promotion, a dollar more per 2-liter bottle. And as they wander the supermarkets, they see the same thing. In some industries the prices have certainly decreased and, generally speaking, the majority of the pandemic pricing has decreased aligned with the realities of whatever their cost of goods increased or decreased. But when you go to the supermarket you don’t focus on the prices that lowered closer to prepandemic, you focus in on the prices of the goods that you want that you’re tired of paying pandemic pricing for. And I word it that way because that’s not inflation. That’s pandemic pricing in non-pandemic time.

“The reality is that business and investment spending are the true leading indicators of the economy and the stock market. If you want to know where the stock market is headed, forget about consumer spending and retail sales figures. Look to business spending, price inflation, interest rates, and productivity gains.”

Mark Skousen

And that’s the economic gut check on the moral gut check businesses failed. I am certainly not suggesting that the Trump Administration is to be blamed for the current pricing. They didn’t plan the pandemic and the pandemic certainly affected all businesses in terms of their supply chains and cost of goods. And just as well I can’t blame the Biden administration for not doing anything about what I’m calling pandemic pricing, which is confused with inflation, because governments are not in the business of dictating pricing that people pay. Suffice it to say, no administration would ever change the prices people pay.

“I believe that it is just a matter of time before our party pays a heavy price for President Trump’s reckless spending and shortsighted financial policies, his erratic, destabilizing foreign policy and his disregard for environmental concerns.”


But, in the end, I opened discussing what drove me nuts (the Trump administration wasn’t as great as many people think it was). Inflation in Trump times was no better than prior administrations and unless you have a crystal ball there is no way to know whether inflation would be the same, lower, or higher if the Trump administration were in place now. That said, I will suggest that the likelihood a new Trump administration would lower inflation is next to nil. Any objective observer would struggle to imagine what policies the Trump administration would have in place that would lower inflation now or even what policies would be in place that would make the economy any better now.

At this time, I tend to believe the biggest culprit is institutional pricing, not real inflation. But that’s me. Ponder.

Written by Bruce