💰 Can corporate profits cause inflation? - The Hustle
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In today’s email:
Greedflation: How corporations exploit inflation.
Mouthwash: It’s minting millions.
PSAs: An anti-piracy ad’s epic fail.
Around the web: A stolen art gallery, phrases to avoid, what to do with “do not eat” bags, and more interesting internet finds.
🎧 On the go? Listen to today’s quick podcast to hear Zack and Rob discuss “greedflation,” and how corporations are posting record profits while consumers struggle to pay the bills.
The big idea
What the heck is ‘greedflation’?
You probably already know that inflation is at 9.1% — a 40-year high.
What you may not know is that corporate profits are up 25% YoY — a 50-year high.
This paradox raises a scary question: How is it that corporations are making record profits at a time when consumers are cursing at their grocery bill (and gas bill and energy bill — pretty much all bills)?
AKA when corporations use inflation as an excuse to raise prices. According to economist Rakeen Mabud, the practice relies on exploiting information asymmetry.
Here’s how it works:
Consumers become accustomed to higher prices as a result of inflation (along with supply chain issues and the war in Ukraine, in this case).
Corporations use the opportunity to increase prices and boost profits, even if their own costs haven’t changed.
One example is credit card companies. Retailers recently called out Visa and Mastercard for upping their transaction fees, even though their costs haven’t been impacted by supply chain issues or inflation.
The practice has sparked debate…
… over which comes first — profit maximization or inflation?
While the “greedflation” theory suggests that inflation creates an opportunity for corporations to maximize profits, others believe causality runs the other way — that corporate profit margins can trigger inflation.
Case in point, a recent Morning Consult poll found 32% of voters consider profit maximization to be the biggest contributor to inflation.
While economists have found a correlation between the two, it’s unclear if one outright causes the other, leaving potential solutions highly contested.
In other words, it’s complicated.
Good news, bad news: Airbnb reported a record 103m+ bookings in Q2, while Robinhood got hit with a $30m fine and said it’s reducing headcount by ~23%.
Bullish: Uber reported $382m in free cash flow for Q2. In May, CEO Dara Khosrowshahi sent employees a stern email highlighting the need to hit the milestone amid a slowing economy.
Locket, an app for sharing photos to widgets on friends’ home screens, raised $12.5m. Over 1B images have been shared over the app, built by a guy who originally made it to use with his girlfriend.
Ouch: The FTC hit real estate platform Opendoor with a $62m fine. The company misled homeowners into selling to it, when selling to traditional buyers would’ve been more lucrative.
Bargain: Domestic flight prices are down 25% since spring, per travel app Hopper’s Q3 study. This month, you could score a round trip for an average of $286.
Showbiz: Seasonal costume chain Spirit Halloween made a movie about a group of kids who get trapped overnight in, yes, a haunted Spirit Halloween. It drops on-demand in October.
Marketing how-tos: Check out these time-savers from Trendsters who know their shit. The lineup’s got case studies on six-figure product launches, nailing TikTok ads, and more.
The people making millions off Listerine
For the 26 years that Catherine Schweitzer has worked at the Baird Foundation, a nonprofit based in Buffalo, New York, her organization has relied in part on a peculiar income stream: the mouthwash Listerine.
Every year, about $120k of the global revenue from the iconic mouthwash trickles back into the bank account of the organization.
Neither Schweitzer nor the Baird Foundation has any direct connection to Listerine or to Johnson & Johnson, the company that now manufactures it.
But the nonprofit is one of many entities that own royalty rights to Listerine — a group that’s included former New Jersey governor Chris Christie, Russian nobility, and the Catholic Archdiocese of New York.
This is the story of how a little-known provision in a 100-year-old contract opened up the door for private investors to mint millions from mouthwash.
In 2004, a PSA from the Motion Picture Association (MPA) and Intellectual Property Office of Singapore reminded viewers that pirating movies was a crime.
Set to The Prodigy-esque heist music, it infamously compared downloading a film to stealing a car. It became a widely mocked meme…
… but likely failed to deter pirates
A new report from the ESSCA School of Management explores why such ads are often counterproductive, per TorrentFreak.
Many don’t see it as theft. It’s called file sharing.
Messaging is too extreme. It’s reasonable to compare downloading a movie to stealing a DVD — not to grand theft auto.
They’re not relatable. People might be deterred by malware warnings, but an Indian PSA featuring Bollywood stars — who are worth up to 200k times the nation’s annual per capita income — failed to garner sympathy.
Declaring piracy a widespread issue implies everyone’s doing it. So, why not you?
Additionally, PSAs often screen in movie theaters for a paying audience. Pirates just edit them out, perVice.
Piracy PSAs aren’t alone
Teens who went through DARE were typically able to call bullshit on exaggerated claims about drug use, and, in some cases, were more likely to try drugs later in life.
BTW: British series “The IT Crowd” did a gross-out parody of the anti-piracy ad.
AROUND THE WEB
🤿 On this day: In 1958, US nuclear submarine theNautilus became the first underwater vessel to reach the North Pole. Today, it’s on display at the Submarine Force Museum in Connecticut.