Rising inflation continues to dominate headlines in the US and around the world. There is simply no getting around the fact that prices for rent, groceries, gas, and other everyday items are rising quickly. This has put most American households at a financial loss, especially since their wages have not risen fast enough to keep up.
President Biden will undoubtedly discuss the inflation situation in his State of the Union speech tonight. But unfortunately, we’re unlikely to hear the President use this opportunity to highlight the critical role that corporate greed and monopoly power have played in raising prices.
Two weeks ago, the Washington Post reported that the White House had plans to lay some of the blame for inflation on corporate profit-seeking in the Congressional testimony of a senior administration official earlier this month. But the language was ultimately removed from the remarks over objections from members of the President’s Council of Economic Advisors (CEA).
This is a significant mistake on the part of the White House. It’s true that businesses in a variety of industries have suffered cost increases as a result of global supply chain issues and higher labor costs, and that most of them have shifted these costs onto consumers in the form of higher prices. But there is now growing evidence that corporations have taken advantage of the situation to raise prices beyond what is necessary to make up for increased costs.
To understand this, all you need to do is look at what the corporations themselves are reporting. According to the US Commerce Department, corporate profit margins are the highest that they’ve been in 70 years. At the same time that they’ve raised prices on consumers, companies like Chipotle, McDonald’s, Procter & Gamble, Amazon, Walmart, and others have raked in record profits. Unfortunately, the only way that this makes sense in the face of inflation is if these companies have charged consumers more than is necessary to make up for production cost increases.
But here’s the other important thing to know about corporations in the age of inflation: most of them are so incredibly profitable that they didn’t even need to raise prices in the first place. In other words, most American companies could have easily absorbed any and all production cost increases and taken a dip in their mega-profits instead of passing them onto consumers in the form of higher prices.
So why haven’t they done this? Thanks to massive amounts of corporate consolidation (and more than a bit of illegal collaboration and price-fixing) most corporations in most industries today don’t face a lot of competition from other companies. Think about it: if businesses were vigorously competing against one another and wanted to attract customers today, you’d think that they would keep prices as low as possible and even be willing to, if necessary, take hits to their bottom lines. The exact opposite has happened because a handful of hugely profitable corporations dominate most industries in the American economy today and do not have any meaningful competition from other businesses.
Unfortunately, the White House CEA is unwilling to talk about inflation to the American people through the lens of corporate greed. While we don’t know exactly why the White House pulled its Congressional remarks, it’s likely in part due to inflation arguments being made by economists like Larry Summers and Jason Furman. They argue that corporate greed cannot be behind inflation because corporations with monopoly power would have raised prices on consumers ages ago, before the pandemic and supply chain issues.
This argument is simply wrong. Before inflation and global supply chain issues gave them justification for raising prices, corporations would have faced significant public backlash for repeatedly raising prices. Now that they have an “excuse,” however, they’re free to gouge consumers without generating the same criticism. This argument also fails to recognize the indisputable evidence of price-gouging in the form of record, windfall corporate profits.
To President Biden’s own credit, he has discussed corporate greed and inflation in relation to certain sectors of the economy. There are even reports that he will call out price-gouging behavior by the shipping industry in his State of the Union tonight.
This is better than nothing, but it’s not good enough. Biden and the White House need to muster the political courage to talk about corporate greed on a larger scale in the face of inflation. It certainly would be to their political advantage: according to one recent poll, the majority of voters believe that corporations have taken advantage of the pandemic to price-gouge.
If Biden and the Democrats want to improve their chances of retaining control of the House and Senate in the 2022 midterms, they need to get serious about inflation. And to get serious about inflation, they should devote more political energy to ending corporate greed and monopoly power.