The biggest culprit behind the unspoken price hike is the growing economic concentration of the US economy in the hands of a relatively small number of big giant companies with the power to raise prices.
If markets were competitive, companies would seek to keep their prices low in order to maintain customer loyalty and demand. When the prices of their supplies increased, they reduced their profits before raising the prices for their customers, lest a competitor would take those customers away from them.
But odd enough, that doesn’t happen. In fact, even in the face of supply constraints, companies are raking in record profits. More than 80% of large companies (S&P 500) that released results this season beat analysts’ earnings forecasts, according to Refinitiv.
Obviously, supply constraints have not eroded these profits. Businesses simply pass the additional costs on to their customers. Many are raising their prices even more and pocketing even more.
How can this be? For one simple and obvious reason: most don’t have to worry about competitors taking over their customers. They have so much power in the market that they can relax and continue to make a lot of money.
The underlying structural problem is not that the government is over-stimulating the economy. It is because large companies are under-competitive.
Companies use the excuse inflation to raise prices and make bigger profits. The result is a transfer of wealth from consumers to business leaders and large investors.
It has nothing to do with inflation, folks. It has everything to do with the concentration of market power in a relatively small number of hands.
This is called “the oligopoly”, where two or three companies roughly coordinate their prices and their production.
Judd Legum gives some good examples in his bulletin. It designates two companies that are giants of basic necessities: 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 for the transport of goods “.
Nonsense. P&G is making huge profits. In the quarter ending September 30, after some of its price increases took effect, it reported a whopping 24.7% profit margin. Oh, and he spent $ 3 billion in the quarter to buy his own stock.
How can this be? Because P&G faces very little competition. According to a report released this month by the Roosevelt Institute, “the lion’s share of the diaper market,” for example, “is controlled by just two companies (P&G and Kimberly-Clark), limiting competition for cheaper options. “.
So it’s not exactly a coincidence that Kimberly-Clark announced similar price increases at the same time as P&G. Both companies are doing very well. But American consumers pay 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 raising prices, blaming “higher costs for some ingredients, freight and labor.”
Waste. The company posted $ 3 billion in operating profits and increased its projections for the remainder of the year, and plans to send $ 5.8 billion in dividends to shareholders in 2021.
If PepsiCo faced stiff competition, it could never have gotten away with it. But this is not the case. In fact, it appears to have come to terms with its main competitor, Coca-Cola – which, oddly enough, announced price increases around the same time as PepsiCo, and increased its profit margins to 28.9%.
And so on, the entire consumer sector of the US economy goes around.
You can see a similar trend in energy prices. Once it became evident that demand was increasing, energy producers Could have quickly increased production to create more supply. But they didn’t.
Why not? Industry experts say oil and gas companies (along with their CEOs and major investors) have seen more money by letting prices rise before producing more supply.
They can get away with it because the big oil and gas producers don’t face great competition. They are powerful oligopolies.
Again, inflation is not the driving force behind most of these price increases. Corporate power drives them.
Since the 1980s, when the federal government virtually abandoned antitrust enforcement, two-thirds of all U.S. industries have become more concentrated.
Monsanto now sets the prices for most of the country’s corn seeds.
The government has given the green light to consolidate Wall Street into five giant banks, of which JPMorgan is the largest.
He authorized airline mergers, reducing the total number of US carriers from twelve in 1980 to four today, which now control 80 percent of domestic seat capacity.
It allowed Boeing and McDonnell Douglas to merge, leaving America with a single major producer of civilian aircraft, Boeing.
Three giant cable operators dominate broadband [Comcast, AT&T, Verizon].
A handful of pharmaceutical companies control the pharmaceutical industry [Pfizer, Eli Lilly, Johnson & Johnson, Bristol-Myers Squibb, Merck].
So what is the appropriate response to the latest wave of inflation? The Federal Reserve has indicated that it will not raise interest rates at this time, arguing that inflation is due to temporary supply bottlenecks.
Meanwhile, officials in the Biden administration have consulted with the oil industry in a bid to stem rising gas prices, trying to simplify the issuance of commercial driver’s licenses (to help alleviate the driver shortage truck) and seeking to unblock overcrowded containers. ports.
But none of this addresses the deeper structural problem – of which price inflation is a symptom: the growing consolidation of the economy into a relative handful of large corporations with enough power to raise prices and raise profits.
This structural problem lends itself to only one thing: the aggressive use of antitrust law.