Successful businesses are caught in the crosshairs over cost-of-living pain

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.