Date: 2025-04-04 Page is: DBtxt003.php txt00021732
INFLATION
NOT INFLATION ... FREE MARKET PROFIT MAXIMIZATION
Why the White House Has Stopped Telling the Truth about Inflation and Corporate Power?
NOT INFLATION ... FREE MARKET PROFIT MAXIMIZATION
Why the White House Has Stopped Telling the Truth about Inflation and Corporate Power?
Telling the Truth about Inflation
Original article: https://www.laprogressive.com/telling-the-truth-about-inflation/
Burgess COMMENTARY
When I was a student at Cambridge I learned some engineering and I learned some economics. Later I earned a professional qualification as a Chartered Accountant and did a lot of work involving cost accounting and profit planning. By the early 1970s I was in the USA and had a senior management position (VP Manufacturing and Financial Controller) for a quite large American manufacturing company. I this job I experienced in practice what 'cost-push' inflation looked like when the OPEC oil cartel was able to exert monopoly power over global crude oil trading. There was little that President Richard Nixon (R) could do about nor President Jimmy Carter (D).
President Ronald Reagan had some success with an economic recovery when the American business managers replaced 'Made in USA' with outsourced products produced in all sorts of low wage countries, including China. The Reagan economic model (sometimes referred to as VooDoo Economics) enabled an increase in US business profitability but gutted everything that workers in American thought they had. Since that period US business profits have increased substantially but worker wages have flat-lined and household wealth for most Americans has declined.
What Reagan started has been institutionalized by the financialization of the modern socio-enviro-economic system ... where the key metrics are all about the economy, and the associated impacts on society and the environment are ignored. There is some growing conversation about social impact and environmental impact, but it is mainly talk while the action ... the financial action ... is all about profit performance and the accumulation of wealth by those who already have a lot of power and influence.
Almost everything done by political leadership in the past 40 years has been in the service of a healthy economy ... a healthy financial economy. In contrast almost nothing has been done to address the many degradations in the total US socio-enviro-economic system. To a large extent a progressive agenda cannot win because of the massive role that is now played by money in politics (after the Citizens' United Supreme Court decision) and the weaponization of disinformation on social-media by many who have been beneficaries of financialization.
Peter Burgess
And why that’s a big mistake
BY ROBERT REICH
POSTED ON FEBRUARY 20, 2022
The Biden White House has decided to stop tying inflation to corporate power. That’s a big mistake. I’ll get to the reason for the White House’s shift in a moment, and why it’s a mistake. First, I want to be clear about the relationship between inflation and corporate power.
Corporate power and rising prices
While most of the price increases now affecting the US and global economy have been the result of global supply chain problems, this doesn’t explain why big and hugely-profitable corporations are passing these cost increases on to their customers in the form of higher prices. They don’t need to do so: With corporate profits at near record levels, they could easily absorb the cost increases. They’re raising prices because they can, and they can because they don’t face meaningful competition. As the White House’s National Economic Council put it in a December report:
Businesses that face meaningful competition can’t do that, because they would lose business to a competitor that did not hike its margins.
Starbucks is raising its prices to consumers, blaming the rising costs of supplies. But Starbucks is so profitable it could easily absorb these costs (it just reported a 31 percent increase in yearly profits). Why didn’t it just swallow the cost increases?
McDonald’s and Chipotle have increased their prices, also blaming higher food and labor costs. But McDonald’s revenues hit a five-year high in 2021 and Chipotle’s revenues increased by over a third from two years before. Why didn’t they absorb the cost increases?
Procter & Gamble is charging more for consumer staples, citing “rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods.” But P&G continues to rake in record profits. It’s even been spending billions buying back its own stock. Why didn’t it just absorb the cost increases?
And on it goes. America’s largest and most profitable retailers — Walmart, Amazon, Kroger, Costco, and Target — say they must raise their prices because the products they’re selling cost more. But these retailers are so profitable they could absorb much of the cost increases and be profitable with smaller markups. Why didn’t they?
The answer in all these cases is they didn’t absorb the costs — and instead passed them on to consumers in the form of higher prices — because they face so little competition. Market power allows them to keep high profit margins even in the face of rising costs. As Chipotle’s chief financial officer said, “our ultimate goal … is to fully protect our margins.”
Some economists argue that corporate power can’t be driving inflation because any corporation with the market power to raise prices would already have done so. (This reasoning is roughly analogous to the old story about two economists who were walking along a street when one says “look! There’s a ten dollar bill!” and the other says “don’t be silly. If there were a ten dollar bill, someone would have picked it up by now.”) Corporations are raising prices now because their costs are increasing now. They’re using their market power to pass on these rising costs to their customers.
That’s not all. Inflation has given some big corporations cover to increase their prices well above their rising costs.
Almost 60 percent of large retailers say inflation has given them the ability to raise prices beyond what’s required to offset higher costs.
On a recent survey, almost 60 percent of large retailers say inflation has given them the ability to raise prices beyond what’s required to offset higher costs.
Meat prices are soaring because the four giant meat processing corporations that dominate the industry are “using their market power to extract bigger and bigger profit margins for themselves,” according to a recent report from the White House’s National Economic Council (emphasis added).
Not incidentally, that report was dated December 10. Now, the White House is pulling its punches.
So why has the White House stopped explaining this to the public?
According to Thursday’s Washington Post, when the prepared congressional testimony of a senior administration official (Janet Yellen? The President?) was recently circulated inside the White House, it included a passage tying inflation to corporate consolidation and monopoly power. But that language was deleted from the remarks before they were delivered.
According to two people aware of the matter who spoke on the condition of anonymity, members of the White House Council of Economic Advisers raised objections. I don’t care what their objections were but as I’ve said, some economists argue that since corporations with market power wouldn’t need to wait until the current inflation to raise prices, corporate power can’t be contributing to inflation. This argument ignores the ease by which powerful corporations can pass on their own cost increases to customers in higher prices or use inflation to disguise even higher price increases.
The Council of Economic Advisers is likely being influenced by two Democratic economists from a previous administration. According to the Post, former Democratic treasury secretary Larry Summers and Jason Furman, a top economist in the Obama administration, have been critical of attempts to link corporate market power to inflation.
“Business bashing is terrible economics and not very good politics in my view,” Summers said in an interview.
Wrong. Showing the connections between corporate power and inflation is not “business bashing.” It’s holding powerful corporations accountable. Whether through antitrust enforcement (or the threat of it), a windfall profits tax, or price controls, or all three, it’s important for the administration and Congress to do what they can to prevent hugely-profitable monopolistic corporations from raising their prices.
Robert Reich Otherwise, responsibility for controlling inflation falls entirely to the Federal Reserve, which has only one weapon at its disposal — higher interest rates. Higher interest rates will slow the economy and likely cause millions of lower-wage workers to lose their jobs and forfeit long-overdue wage increases.
Robert Reich Crossposted with permission from Robert Reich’s Newsletter.
BY ROBERT REICH POSTED ON FEBRUARY 20, 2022
DISCLAIMER: The opinions expressed here are those of the individual contributor(s) and do not necessarily reflect the views of the LA Progressive, its publisher, editor or any of its other contributors.
About Robert Reich ... Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine. .
Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.