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Greedflation, Wageflation, and the Great Resignation

By Mitch Klingher

September 13, 2023

They say economics is the “dismal science,” probably based upon a prediction by Thomas Malthus, a 19th-century economist who once said the world’s population would grow so large it would outstrip the resources required to sustain it. (So far, he has been wrong, by the way.) Personally, I’m not sure economics even rises to the level of a science, but it does attempt to measure how people value the various resources available—and unavailable—to them and attempts to predict their behavior in the various marketplaces for goods and services.

Probably the three greatest economic thinkers of all time had radically different views on the fundamentals of economic behavior in a “capitalist” economy. In the 18th century, Adam Smith, who is considered to be the father of capitalism, was the preeminent proponent for the operation of a free market. His core belief was people will always do what they believe is in their best interests and should therefore be allowed to decide what the economy produces simply by voting with their money—the so-called “invisible hand.” He argued that government interference, the so-called “command economy,” was unnecessary and might even be detrimental. John Maynard Keynes, who is considered to be the father of modern macroeconomics, believed that governments should solve problems in the short run rather than wait for market forces to fix things over time. Milton Friedman introduced the concept of monetarism in the late 1950s and made the case that controlling the money supply was the key to economic stability. He also fervently believed that voluntary interactions between consumers and businesses would produce far better results than anything the government could come up with, and lower taxes and less government regulation would be the key to having a successful economy.

Three brilliant men, with three very different views on the factors that lead to economic growth and prosperity. I have studied economics and actually have a degree in it, and I can tell you that if you put 10 economists in a room and ask them to opine on something, you will likely get 10 different opinions. However, some of the core principles of all great economic thinkers have proved true over time. At the end of the day, businesspeople need to have a more pragmatic approach as to how to proceed.

The past two years were characterized by a fairly new concept that has been labeled “greedflation,” most notably by Robert Reich, the former U.S. Secretary of Labor. Under this theory, rising prices are not simply the product of the normal supply and demand curves but rather are the product of excess corporate power. I have seen numerous charts showing that some of the largest companies raised prices significantly during this time because they could, and the increases far surpassed the increase in their underlying costs. One could make the case that the papermaking “oligopoly” increased paper prices so many times in 2021 and 2022 simply because they could. However, in 2023, the basic laws of supply and demand have kicked in, and the oversupply of paper has been driving prices down.

Similarly, the undersupply of labor in 2021 and 2022, which was greatly influenced by the COVID-19 pandemic and its related government subsidies, drove wages up significantly. This undersupply of workers caused salaries and wages to increase dramatically over the past few years, and all of these additional funds gave consumers more money to spend, which increased the demand for goods and services and led to higher prices. Economists have dubbed this as “wageflation,” and although there are no absolutes in terms of the causes for the inflation of the past two years, this has clearly been a factor.

In my opinion, the basic laws of supply and demand still govern most everything, and the demand for labor has clearly outstripped the supply, which is why wages have risen. The other significant contributing factor to the dramatic increase in wages has been the large numbers of potential employees who have voluntarily removed themselves from the workforce in the wake of the COVID-19 pandemic. There have been many factors cited as causing this phenomenon, which has been called “the great resignation” by many economists. Among them are inflexible remote-work policies, job stagnation, long-lasting job dissatisfaction, and the high cost of benefits. Enhanced unemployment benefits and other government assistance programs during the pandemic are also undoubtedly strong factors in this. Most converters struggled to fill open job positions during 2021 and 2022, particularly in the plant labor area.

Well, now in 2023, all of this seems to be changing. The rate at which workers voluntarily quit their jobs through May has fallen dramatically and is only modestly above where it was before the pandemic disrupted the U.S. labor market. In June, the overall inflation rate has decreased to 3% over the past year. The gross domestic product seems to be growing in 2023—growth in the first quarter was just revised up to 2%, and most economists now expect the economy to have a soft landing this year, which means a recession is unlikely. However, the packaging industry has certainly been in recession for the past six months, and no one knows what the future will bring. There is clearly too much paper being produced domestically and in our export markets, and in the absence of a significant increase in demand or the closure of mills, the price of paper is likely to continue to go down. When paper prices go down, packaging prices go down, and so far, 2023 has been an exercise in the preservation of margins. Based upon what I have seen in my travels, this has been a success so far for most independent producers. Volumes are down, but margins remain high.

My advice to converters is that irrespective of what the overall economy is doing, you are in a recession and need to act accordingly. Economics is a dismal and inaccurate social science that still does not have any cohesive theory that allows it to predict economic performance with any degree of accuracy. Smith, Keynes, and Friedman have compelling theories that are interesting but not always actionable. I tell people that 2009 was the best year ever for converters because that year they cut expenses, reduced overhead, and reengineered their companies to be the lean, mean fighting machines that propelled them to high levels of profitability for the next 10 years. You need to execute the same playbook now. Reduce head counts, eliminate shifts, cut down on warehouse leases, and trim out all of the fat you can find.

Sure, 2023 is going to be a down year, but I wouldn’t worry about it too much. Eventually, the paper companies will get supply and demand back to equilibrium because it is in their own economic interests to do so, and it looks like the economy will continue to grow. The future is bright, but this is the year you need to take a deep breath and set yourselves up for future success.

Mitch Klingher is owner of Klingher Nadler LLP. He can be reached at 201-731-3025 or