I wrote today at Politico on the “corporate greed” explanation for inflation:
No one on the left seems to deny that supply chain disruptions are playing a role in inflation, but the focus on corporate greed is an absurdly reductive depiction of the U.S. economy — as if a broad-based, multicausal economic phenomenon is being mainly or at least significantly driven by a handful of corporate malefactors wielding nearly unchecked power over the consumer price index. It is a fairy tale transparently intended to shift the political blame for an economic discontent that is hobbling Biden’s presidency.
From the broadest point of view, the focus on the supposed monopolistic power of corporate America to set prices at whim makes no sense. Did the American economy, after 30 years of notably low inflation, suddenly become more concentrated earlier this year, such that companies could arbitrarily jack up prices? And why was it that this economic power made itself felt just as supply chain disruptions took hold and the Democrats’ massive Covid relief bill further stoked demand in an already growing economy?
If greedy corporations are to blame, they are at work across the board. In November, food prices were up 6.1 percent from the year before, with meat, poultry, fish and eggs up 12.8 percent, cereals and bakery products up 4.6 percent, and nonalcoholic beverages up 5.3 percent. Energy increased 33 percent. All other commodities outside food and energy jumped 9.4 percent. Used trucks and vehicles went up 31.4 percent.
It is true that most big companies have increased their profit margins. An analysis reported by the Wall Street Journal last month found that quarterly profits as a share of GDP are among the highest they’ve been since 1960. But demand is higher than it was pre-pandemic in many sectors of the economy, providing a strong foundation for profitability, and a standard feature of an inflationary environment is companies seeing how much they can raise prices without hitting a wall of consumer resistance.
This is one reason it’s best not to have an inflationary environment in the first place.