-----------------
Dr. Reich tries to deflect from one thing to another. He doesn't really want to talk about inflation, he wants to talk about eeevil corporations. He'd rather not discuss monetary policy or government malfeasance, for his purpose is to blame businesses for being too successful.
Now, we are the first to admit that some businesses do bad things. This is Dr. Reich's complaint. But most of what he chronicles is illegal. Yes, it is illegal to price-fix. It is illegal to collude. This means when a business breaks the law, it needs to be prosecuted. That is government's job. So what we actually have here is a failure of government.
Dr. Reich manages to completely avoid discussing inflation by conflating price-fixing with inflation. The two are not the same. Inflation is the loss of value because there is too much currency in circulation. This occurs when the government prints money and spends it, particularly in the form of stimuli, bailouts, and subsidies.
For example, if there are, say, 100 dollars in the economy, we know each dollar is worth 1/100th of 100 dollars. But if the government prints 10 more dollars and puts them into the economy, then there are 110 dollars in the economy with no increase in value. Now, each dollar is worth 91 cents. This is inflation.
Now, let's draw in Dr. Reich's complaint. The eeevil corporation raises its prices (which is perfectly legal). Does it matter that the company is profitable? No. This company raised its prices for its own reasons, reasons which are none of Dr. Reich's business. Unless of course the company did something illegal.
Being profitable does not mean a company's products are properly priced. If the company has supply chain problems, staffing problems, or production problems, it may well decide to raise prices. Raising prices is a decision made based on the company's assessment of its own position in the marketplace in relation to its competition, tax policy, oppressive legislation, labor supply, etc, etc.
But we also must consider that if the government is pumping billions (trillions) of additional dollars into the money supply, the company must realize that inflation will mean its pricing will be inadequate. That is, inflation influences not only buying power, but also product pricing.
We would be remiss if we did not also mention that an economy the size of the US's has millions, if not billions of transactions occurring every day. There are thousands of factors affecting the processes of the economy. But for Dr. Reich there is only one relevant one: Greedy corporations.
------------------------------
Prices are rising because corporations have the power to raise them. They're using "inflation" as an excuse. The Fed is about to apply the wrong medicine.
Yesterday, the Fed’s policy committee announced it would both end its bond-buying program and likely raise interest rates sooner than had been expected. “Inflation is more persistent and higher, and that the risk of it remaining higher for longer has grown,” Fed chair Jerome Powell explained. Translated: Powell and the Fed are about to slow the economy — even though we’re still at least 4 million jobs short of where we were before the pandemic. And even though, as a result, millions of American workers won’t get the raises they deserve.
I think that’s a big mistake. Powell’s medicine has nothing to do with the real reason for inflation: the increasing concentration of the American economy into the hands of a relative few corporate giants with the power to raise prices.
If markets were competitive, companies would keep their prices down in order to prevent competitors from grabbing away customers. But they’re raising prices even as they rake in record profits. How can this be? The answer is they have so much market power they can raise prices with impunity.
The underlying problem is not inflation. It’s lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.
In April, Procter & Gamble announced it would start charging more for consumer staples ranging from diapers to toilet paper, citing “rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods.”
That was rubbish. P&G continues to rake in huge profits. In the quarter ending September 30 (after its price increases went into effect) it reported a whopping 24.7 percent profit margin. It even spent $3 billion during the quarter buying back its own stock.
The reason it could raise prices and rake in more money is P&G faces almost no competition. The lion’s share of the market for diapers (to take one example) is controlled by just two companies – P&G and Kimberly-Clark – which coordinate their prices and production. It was hardly a coincidence that Kimberly-Clark announced price increases similar to P&G’s at the same time P&G announced its own price increases.
Or consider another consumer product duopoly – PepsiCo (the parent company of Frito-Lay, Gatorade, Quaker, Tropicana, and other brands), and Coca-Cola. In April, PepsiCo announced it was increasing prices, blaming “higher costs for some ingredients, freight and labor.” That was pure baloney. The company didn’t have to raise prices. It recorded $3 billion in operating profits through September.
If PepsiCo faced tough competition it could never have gotten away with it. Consumers would have deserted it for lower-priced competitors. But PepsiCo clearly colluded with its only major competitor, Coca-Cola – which announced similar price increases at about the same time as PepsiCo, and has increased its profit margins to 28.9 percent.
Half of the recent rise in grocery prices is from meat products — beef, pork, and poultry. Just four large conglomerates control most meat processing. They’re raising their prices — and coordinating their price increases — even as they’re scoring record profits. Here again, they’re using “inflation” as an excuse.
You see the same pattern all over the American economy.
Since the 1980s, two-thirds of all American industries have become more concentrated. Monsanto now sets the prices for most of the nation’s seed corn. Wall Street has consolidated into five giant banks. Airlines have merged from 12 carriers in 1980 to four today, which now control 80 percent of domestic seating capacity. The merger of Boeing and McDonnell Douglas has left the US with just one large producer of civilian aircraft — Boeing. Three giant cable companies dominate broadband: Comcast, AT&T and Verizon. A handful of drug companies control the pharmaceutical industry: Pfizer, Eli Lilly, Johnson & Johnson, Bristol-Myers Squibb and Merck.
All this concentration gives corporations the power to raise prices, because it makes it easy for them to coordinate price increases with the handful of other companies in their same industry — without risking the possibility of losing customers, who have no other choice.
In sum, inflation isn’t driving these price increases. Corporate power is driving them.
So what’s the appropriate government response? Not slowing down the economy. This will only hurt millions of workers, who are just beginning to get the raises they deserve. The problem at the heart of the economy is amenable to only one thing: the aggressive use of antitrust laws to bust up monopolies.
This will take time — perhaps years. In the meantime, Biden and the Democrats could do something with a more immediate effect: Enact a windfall profits tax applicable to any large corporation that raises its prices during the same quarter its profits have risen.
What do you think?
No comments:
Post a Comment