The Pitch: Economic Update for January 25, 2024
Six months ago, Greg Petro correctly defined greedflation for Forbes as “price-gouging or monopolistic profiteering. Prices are so high; the theory goes, because retailers found they could jack them up with little consumer pushback by pointing to the headlines.” While Petro got the definition right, he unfortunately dismissed greedflation as a “conspiracy” and a “myth.” He’s not alone: Over the last year, mainstream economists and pundits alike rose up to mock the idea of corporate greedflation.
I could fill the rest of this newsletter with links to pieces tut-tutting the idea that corporations would use headlines about inflation as an excuse to raise prices solely in order to jack up their profit margins when their costs hadn’t increased nearly as much, but here are a few more to give you a sense of how widespread the greedflation pushback was: The Economist called greedflation “a nonsense idea.” Matthew Yglesiasclaimed on multiple occasions that it was “fake.” The Washington Post’s Catherine Rampell warned that the “conspiracy theory” of greedflation was “infecting” the Democratic Party. Obama Administration economist Larry Summers refused to entertain the ideaof greedflation at all, announcing that “I don’t think it’s a tenable view that all of a sudden corporations became greedy.”
Economists used complex language to try to explain why Americans shouldn’t believe the evidence in front of their own eyes—that somehow the record-high profit margins corporations were reporting bore no relationship to the skyrocketing prices Americans were paying. Pundits arguing against greedflation claimed that this was simply capitalism at work—corporations were simply raising prices to match inflation, they’d argue, and the free market would in its eternal wisdom naturally reject any excess profit-taking. (Those pieces conveniently ignored the fact that human beings need to eat in order to survive, and so they’ll continue to pay ballooning prices for groceries even when those prices rise beyond their means.)
Last week, though,Tom Perkins at the Guardian reported on a new study showing “‘resounding evidence’…that high corporate profits are a main driver of ongoing inflation, and companies continue to keep prices high even as their inflationary costs drop.”
The report, Perkins explained, even put a percentage on how much of the higher prices you paid went directly to corporate profits: “corporate profits accounted for about 53% of inflation during last year’s second and third quarters. Profits drove just 11% of price growth in the 40 years prior to the pandemic.”
I urge you to read and share the report,which was researched and published by the Groundwork Collaborative. It explains that while supply-chain snarls during the pandemic did in fact cause those early bursts of inflationary price increases in 2021, those snarls have dissipated and corporations are no longer paying higher prices for the raw materials that go into their products: “While prices for consumers have risen by 3.4 percent over the past year, input costs for producers have risen by just 1 percent. For many commodities and services, producers’ prices have actually decreased.”
This graph shows that while the costs producers have paid to make their products (the dark blue bars) have declined steeply over the last year, they still kept prices unnaturally high for consumers (the turquoise bars):
And while we talk a lot about groceries and gas prices because that’s where Americans most frequently spend their money, this greedflation touches every part of the economy and every part of our lives—even the very end. For the American Prospect, Luke Goldstein writes that “The multibillion-dollar funeral industry—a universal service that everyone has to deal with at some point—has costs that have risen 4.7 percent, a rate well above last year’s overall inflation rate of 3.4 percent. Death care is one corner of the economy that, despite promising indicators overall, is still afflicted by high markups driving inflation.” Thanks to concentration in the funeral industry, Goldstein argues, we’re even falling prey to price-gouging from beyond the grave.
Regular readers of The Pitch have known about greedflation for years, of course, but the data in this report will be a useful tool to counter the claims of pundits and economists who are arguing for the right of big business to continue to raise prices in order to plump up their bottom lines.
Groundwork says the Biden Administration is working to combat corporate price-gouging: “The Consumer Financial Protection Bureau, the Federal Trade Commission, and the Department of Justice continue to dust off authorities not touched in decades to rein in corporate profiteering and concentration.” But they also make a recommendation for addressing runaway corporate profits: “As Congress turns to expiring provisions from the 2017 Trump tax cuts over the next year, they must take a hard look at the corporate tax rate. Our tax code should support a robust and equitable economy, not incentivize profiteering.”
In many ways, greedflation feels like an end result of 40 years of trickle-down economics. Many of the world’s biggest corporations—Coca-Cola, Nestle, Proctor & Gamble—decided to forego competition. They didn’t care about selling the most products, or even the best products. Instead, they jacked up their prices simply because they realized that a significant portion of their regular customers could pay it.
Middle-out economics understands that competition is a key driver of growth and prosperity. That’s why regulations are needed to encourage healthy, competitive markets—so unbridled arrogance and unchecked power doesn’t result in anti-capitalist outcomes like greedflation that shrinks the market and punishes consumers in the name of higher profit margins that only benefit an already-wealthy few.