What’s really driving inflation? Corporate power with Robert Reich et al.
Robert Reich on inflation H/T Annette Butterworth
The biggest culprit for rising prices that’s not being talked about is the increasing economic concentration of the American economy in the hands of a relative few giant big corporations with the power to raise prices.
If markets were competitive, companies would seek to keep their prices down in order to maintain customer loyalty and demand. When the prices of their supplies rose, they’d cut their profits before they raised prices to their customers, for fear that otherwise a competitor would grab those customers away.
But strange enough, this isn’t happening. In fact, even in the face of supply constraints, corporations are raking in record profits. More than 80 percent of big (S&P 500) companies that have reported results this season have topped analysts’ earnings forecasts, according to Refinitiv.
Obviously, supply constraints have not eroded these profits. Corporations are simply passing the added costs on to their customers. Many are raising their prices even further, and pocketing even more.
How can this be? For a simple and obvious reason: Most don’t have to worry about competitors grabbing their customers away. They have so much market power they can relax and continue to rake in big money.
The underlying structural problem isn’t that government is over-stimulating the economy. It’s that big corporations are under competitive.
Corporations are using the excuse of inflation to raise prices and make fatter profits. The result is a transfer of wealth from consumers to corporate executives and major investors.
This has nothing to do with inflation, folks. It has everything to do with the concentration of market power in a relatively few hands.
It’s called “oligopoly,” meaning that two or three companies roughly coordinate their prices and output.
One example of an oligopoly in household staples: Procter & Gamble and Kimberly Clark. In April, Procter & Gamble announced it would start charging more for everything from diapers to toilet paper, citing “rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods.”
Baloney. P&G is raking in huge profits. In the quarter ending September 30, after some of its price increases went into effect, it reported a whopping 24.7% profit margin. Oh, and it spent $3 billion in the quarter buying its own stock.
How can this be? Because P&G faces very little competition. According to a report released this month from the Roosevelt Institute, “The lion’s share of the market for diapers,” for example, “is controlled by just two companies (P&G and Kimberly-Clark), limiting competition for cheaper options.”
So it wasn’t exactly a coincidence that Kimberly-Clark announced similar price increases at the same time as P&G. Both corporations are doing wonderfully well. But American consumers are paying more.
Or consider another major consumer product oligopoly: 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.”
Rubbish. The company recorded $3 billion in operating profits and increased its projections for the rest of the year, and expects to send $5.8 billion in dividends to shareholders in 2021.
If PepsiCo faced tough competition it could never have gotten away with this. But it doesn’t. In fact, it appears to have colluded with its chief competitor, Coca-Cola – which, oddly, announced price increases at about the same time as PepsiCo, and has increased its profit margins to 28.9%.
And on it goes around the entire consumer sector of the American economy.
You can see a similar pattern in energy prices. Once it became clear that demand was growing, energy producers could have quickly ramped up production to create more supply. But they didn’t.
Why not? Industry experts say oil and gas companies (and their CEOs and major investors) saw bigger money in letting prices run higher before producing more supply.
They can get away with this because big oil and gas producers don’t face much competition. They’re powerful oligopolies.
Again, inflation isn’t driving most of these price increases. Corporate power is driving them.
What do you think?
–Robert Reich served in the administrations of Presidents Gerald Ford and Jimmy Carter, as well as serving as the United States Secretary of Labor from 1993 to 1997 under President Bill Clinton. He was a member of President Barack Obama‘s economic transition advisory board. Reich has been the Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at UC Berkeley since January 2006. (Wikipedia)
Oil-industry consultant Art Berman correlates inflation with oil prices, as he said yesterday on his Twitter feed:
Business headlines be like…
What will be the response by the corporate-statists, acting upon the Republicans and “Centrists” (whatever that means) in the Congress? As the headlines “subtly hint at,” the drive is on to “Blame Biden” for the inflation surge. The “Let’s Go Brandon” crowd will be going nuts with this.
The demand on elected officials will be, Roll Out the Austerity Juggernaut. Time to cut benefits, income, to America’s unequal people. America’s working-poor have TOO MUCH MONEY, they will say, and that is driving up prices across the board.
You may say, “there’s no logic in that” after reading Reich’s piece above.
No one should ever accuse our shadowy corporate overlords of using too much “reason and logic.” That’s not how their game works.
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