Like many Americans, I’ve thought a lot about inflation – what causes it, why we’re experiencing it right now, and how it will affect my family. So I decided to cut into it, break down how it works, and offer an epidemiologist’s perspective in a two-part series. In part one, I explained how the pandemic is driving much of what we are going through right now.
Today, in part two of the series, I want to explore another major driver that we’ve talked about a lot in these pages: corporate greed.
Inflation explained (by an epidemiologist)
Inflation explained (by an epidemiologist)
By Abdul El-Sayed
Progressive economists — and more quietly, the Biden administration — have argued that the current inflation we are experiencing is, at least in part, the consequence of corporate consolidation that allows a few giant corporations to wield monopoly power. on critical products.
Take General Mills. You might know them as the cereal company, makers of favorites like Reese’s Puffs. But they also own bakery company Betty Crocker, yogurt giant Yoplait, Annie’s (makers of the famous mac and cheese). They have been described as one of “10 companies that control everything you buy”. General Mills is raising its prices by 20% in 2022. And this despite the fact that the company increased its profits by 6% in fiscal year 2021.
Rising profits in 2021. Rising prices in 2022. It’s a formula companies across the country like Starbucks, Tyson Foods and Chipotle are emulating. Amazon has even increased the price of its Prime subscription.
Today I want to offer four ways that companies have driven this inflationary moment. (Hint: most of them behaved this way long before the pandemic.)
Corporate monopolies hide behind the smokescreen of inflation to raise prices
Contrary to popular belief (and GOP propaganda), we are not really a true “free market” economy. One of the hallmarks of a true free market is freedom of entry and exit. But money makes money, which is why the greatest danger to a free market isn’t government regulation (again contrary to popular belief and GOP propaganda), it’s the monopoly. Companies are getting so big that they crowd out, buy out, or exploit the government to prevent new entrants. As our economy consolidates, it allows a few players in a given sector to collude to raise prices.
Public concern about inflation has allowed companies in heavily consolidated sectors to use inflation as a smokescreen to raise prices, much like General Mills. Here’s what 3M’s CFO said on a quarterly conference call with shareholders: “The team has done a terrific job of driving pricing. The price rose from 0.1% to 1.4% to 2.6%.”
This quote is particularly poignant. What corporate executives are willing to say on earnings calls is often much more honest than what they are willing to say publicly. On those calls, they made it clear that this moment is not really about inflation, but about profit. My friend Dr. Lindsey Owens, who heads the progressive think tank Groundwork Collaborative, just released a report showing exactly how companies have used inflation to drive up prices. You can read the full report yourself, but I think she did a great job distilling her biggest findings on Twitter.
Businesses push to keep taxes low
If inflation is the product of too much money for too few goods and services, then how do you fight it? You have to take money out of the economy.
There are basically two ways to do this. The monetary approach is to raise interest rates. If an interest rate is the amount you will have to pay to borrow money, then raising the interest rate literally makes the money more expensive. If you follow the logic of supply and demand, making silver more expensive reduces the amount of money businesses or households will take out as loans, thereby reducing the amount of silver in the economy. But the interest rate is a blunt instrument, affecting everyone. The rate hike is especially hard on small businesses that rely on lines of credit to stay afloat — and make payrolls. Many of the dollars spent on debt service or not borrowed at all because interest rates are too high are dollars that ultimately do not end up in a worker’s pocket.
The second approach is fiscal: taxation. Unlike raising interest rates, taxation can be done in a gradual manner, suitable for people with excess money currently heavily invested in large corporations.
You know how we talked about “taxing the rich”? Well, now might be a good time to do it. But while the interest rate can be fine-tuned by the Federal Reserve, taxation requires an act of Congress. If you haven’t noticed, Congress hasn’t been good at doing much right now, let alone raising taxes. Why? Because corporations have spent billions of dollars lobbying Congress to make sure they don’t. Indeed, the last time Congress changed our tax policy, it resulted in one of the largest transfers of wealth to the wealthy in US history.
The Great Resignation is a Corporate Wage Suppression Issue
Inflation hasn’t been the only major economic shift happening right now. In 2021, nearly 5 million Americans quit their jobs, triggering what talking heads are now ominously calling the “Great Quit.”
Much of the debate around this workforce change has focused on the unintended consequences of COVID relief. But this characterization only works if we ignore the context. Over the past few decades, the median worker has seen their salary stagnate while the average CEO has seen their salary skyrocket. The pandemic has raised the stakes for millions of workers – “why should I risk my life to go out in a pandemic to make the CEO millions of dollars?
Wage suppression was corporate policy. This too has to do with business consolidation. Not only can the oligopolies collude to raise prices, but they can collude to keep the wages of workers in their sector low. And there is solid evidence that they have.
Said correctly, the Great Resignation, one of the contributors to our current inflation, is not about workers “paid to stay at home”, but rather about companies that have suppressed workers’ wages for decades – and workers deciding that’s enough.
Globalization and its dissatisfactions
And finally, the history of this inflationary moment can be traced back to a set of policies crafted under the Clinton administration.
In 1994, when the North American Free Trade Agreement came into effect, President Clinton told us that the age of globalization would offer consumers an unprecedented amount of choice at unbeatable prices. But this era delivered – or took – much more. It closed factories, cut jobs and carved out a manufacturing corridor in the Midwest (and gave birth to Donald Trump, but that’s another story for another day).
He delivered cheaper and more plentiful goods…for a while. But globalization means much more complex supply chains. These much more complex supply chains introduce many more points of failure when, for example, a global pandemic occurs. I know these pandemics don’t happen all the time. But one is happening — and since we are now talking about inflation, we have to point the finger at globalization.
It was also company policy. Big business looking for cheap (and dangerous) labor was the fundamental driver of America’s outward push in the 1990s. Chickens coming home to roost bring l inflation with them.
The worst part is that fixing a supply chain is a bit like putting the dominoes back in place after knocking them all down. It is tedious and time-consuming. While there has been a push to bring some of this channel back to the United States, these are multi-year projects that will do nothing for the pain we are feeling right now.
What does all this mean for you and me?
In the first part of this series, I explained how the pandemic – the way it has changed demand and disrupted supply chains – has shaped current inflation. The good news on this front is that this pandemic will end.
The problem, however, is that corporate greed won’t do it. Much of what prepared us for inflation right now were corporate decisions made long before COVID became part of our vernacular. Even if inflation starts to come down, we can’t lose sight of the kind of regulation we need – from raising corporate taxes to dismantling oligopolies – we need to protect us from the next .
Originally published February 17 in The Incision. It is republished here with permission. Get more at abdulelsayed.substack.com.
Stay connected with Detroit Metro Times. Subscribe to our newsletters and follow us on Google News, Apple News, TwitterFacebook, Instagram or Reddit.