Don’t blame inflation on stimulus checks. Blame it on corporate greed

On the Clock is Motherboard’s report on the organized labor movement, gig work, automation, and the future of work.

For him last months, there has been a heated debate about the sources of inflation and the proper way to contain it. Part of this stems from the fact that the United States Recorded the biggest jump in inflation since 1981 this year. Another big part is the ongoing debate about what supercharged inflation in the first place, as well as what set of policies can keep it in check.

Currently, some economists to insist inflation is being driven primarily by wage growth, Biden’s $1.9 trillion pandemic relief program, and waves of stimulus checks (“stimmies”) that provided up to $600, $1,200, and $1,400, and they sent from April 2020 to March 2021 (some of which were also sent under Trump).

The underlying theory is relatively simple: when wages go up, so do prices. When prices rise, companies will try to sell more by hiring more at higher wages. Higher wages further increase production costs (and thus prices) as well as demand to a point where it outstrips supply, sustaining inflationary price increases. Similarly, it is argued that the stimulus checks were part of a historic $1.9 trillion government spending program that raised demand too high and helped overheat the economy by giving people thousands of dollars of disposable income to spend. to spend.

To reduce this, economists like former Treasury Secretary Larry Summers have said publicly that more unemployment is needed, ranging from five years of unemployment above five percent to one year above 10 percent, through Federal Reserve interest increases. Right now, unemployment stands at 3.6 percent, or 6 million people. Summers says millions of Americans must lose their jobs for inflation to come down. As set forth in a line of questioning between Rep. Alexandria Ocasio-Cortez and Federal Reserve Chairman Jay Powell, 10 percent unemployment would not only mean An additional 10.5 million people losing their jobs, but a 20 percent black unemployment rate.

Basically, some economists, including those who can speak directly to the president, looked at the terrifying financial landscape (the lasting impact of COVID-19, a war in Ukraine that severely limited oil and grain supplies, posted corporate profits) and decided that the real problem here is that American wages are too high and the stimulus checks mailed out early in the pandemic were too large. However, it is becoming increasingly clear that inflation is being driven by corporations taking advantage of the pandemic to boost profits. In fact, “the largest price increases in 2021 tended to emanate from the most concentrated industries in 2020,” economist Hal Singer told Motherboard in an interview.

Consider the argument that wages and disposable income are rising, not falling: CNN Business analyzed Data from the US Bureau of Labor Statistics found that real wages (wages minus cost-of-living increases) are down 3.5 percent in the last 12 months. An early June study from the Institute for Policy Studies found that executive pay not only outpaced wage growth, but worker pay cuts were also combined with record share buybacks, and yet there has been no analogous argument that a price-wage spiral of CEOs are raising prices.

Another hole in labor-blaming explanations of inflation is that typically in the run-up to inflation we would see a decline in unemployment along with an increase in corporate-sector labor compensation manifesting as real wage growth and a reduced profit margins. Like the Economic Policy Institute he pointed in April, the opposite happened: corporate profit margins increased as corporations took advantage of excess power to raise prices.

A much more convincing explanation, then, must take into account not only that corporate market power is channeled into price increases, but also the elephant in the room: the persistent shortage of supplies we have all experienced since 2019.

Since the start of the COVID-19 pandemic and its lockdown measures, not only has factory production been slowed down or completely stopped at various points, but also cargo shipping, warehouse operation, and trucking. . All of this has disrupted the production, distribution and thus supply of key goods like food and parts like semiconductor chips (key parts of any and all electronic devices) and the prices of almost all goods and services. In the economy.

In December, economist Matt Stoller calculated that 60 percent of inflationary price increases went to corporate profit margins, but also pointed to a variety of dynamics in various industries that allowed inflation to cover price increases. Meatpacking distributors can claim that meat prices are skyrocketing due to inflation and no collusionbut a close look reveals livestock providers they haven’t raised their prices. The global auto industry has been even more explicit: Daimler CFO Harald Wilhelm saying financial time that your company would “knowingly undersupply the level of demand[s]even after the production-restricting semiconductor supply crisis ends.

Since then, a large number of studies have affirmed this analysis. In late December, the Federal Reserve Bank of St. Louis published a document showing that industries that rely on semiconductors raised prices 4 percent more than industries that did not rely on semiconductors, notable because the former accounted for 40 percent of manufacturing output. A June document from the Federal Reserve Bank of San Francisco found that two-thirds of the factors responsible for the current inflationary period were not related to demand, and half were related to labor shortages and supply chain problems caused by the pandemic and the Russian invasion of Ukraine. A paper from the Federal Reserve Bank of Boston revealed that the United States had grown “at least 50 percent more concentrated” since 2005 and that the market power of firms in concentrated industries was likely amplifying inflation. A June study from the Roosevelt Institute Ready how historic price margins were driven in part by companies that enjoyed excessive market power and were well positioned to take advantage of the pandemic and political responses, helping deliver the highest profit margins in 2021.

Bringing all this to a head is a recent survey by economist Hal Singer, who showed that companies in monopolistic industries like pharmaceuticals or oil refining have been able to harness market power in record prices that drive inflation. Singer also showed that in highly concentrated, non-monopolistic industries, price coordination and collusion take many forms, such as earnings calls where executives signal to each other that they are willing to coordinate a price increase.

“Inflation provides a pretext, a focal point and a talking point during earnings calls, so that companies can find their way to monopoly prices. In fact, they are inviting their rivals to collude,” Singer told Motherboard in an interview.

Taken together, this picture suggests that non-demand factors have played a much larger role in driving inflation. This has enormous consequences not only in the way we talk about the problem, but also in the way we solve it. Instead of blaming stimulants and the workforce, we should blame corporations for excess market power, the pandemic, and the war in Ukraine. And instead of using the Federal Reserve to force a recession, policies that address profit margins, supply shocks and market power should be prioritized.

Profit margins can be addressed with an excess profits tax; Supply chain crises and opportunistic price markups could be eased with strategic price controls; the FTC could discourage forms of price coordination by showing examples of executives bold enough to use public channels to collude; and business concentration can be addressed with an antitrust policy. The Roosevelt Institute study noted that “there was already a strong case for increased antitrust scrutiny of the corporate sector before the pandemic. Increased competition and reduced market power would reduce inflation to some extent, no matter the cause.” .

Legal scholar Sanjukta Paul write in the Boston Review that we should not stop at increasing scrutiny, and should go further in expanding it as part of an attempt to create a political economy that prioritizes “democratic and egalitarian structures of economic coordination” rather than ensuring the optimal functioning of one based on “control and domination”. One way it could manifest itself could be through the affirmative use of antitrust rules to achieve non-monetary results such as racial inequality, privacy rights, or freedom of expression, before they become problems rather than addressing them after the fact.

Some of the leading economists who insist on demand-side solutions have already acknowledged this: In mid-June, Summers appeared on NBC meet the press and suggested that the government pass a bipartisan budget bill that tackles the power of the pharmaceutical market and cuts prices in a bid to reduce inflation. “That’s within our reach if we use the great purchasing power of the government through Medicare,” Summers said. Yellen also echoed this sentiment, telling Congress in early June that she can help. curb inflation by helping Americans find affordable housing, lower prescription drug prices, and invest in renewable energy to lower energy costs and utility bills.

Still, that hasn’t stopped Summers from dismissing attempts at inflationary explanations centered on market power and supply shocks as “science denial” or others who smugly name this theory “avarice” Despite mounting evidence against narratives blaming workers or stimulus for inflation, orthodox economists defend the value of austerity and urge the Federal Reserve to effectively engineer a recession that will crush workers in It’s time for a labor organizing upswing and it will crush the poorest Americans. at a time when they struggle to recover.

“It is an almost religious belief, with which economists are indoctrinated in graduate school. His test consists of pointing to two variables that increase at the same time: wages and inflation. That’s it,” Singer told Motherboard. “Raising interest rates is the most regressive way to deal with inflation. This belief, and the complete suspension of cost-benefit analysis here, stems from anti-worker sentiment or callous disregard for the suffering of workers.

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