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That, at least, is the story the White House and its allies, most prominently Sen. Elizabeth Warren (D-Mass.), want to tell.
The White House has particularly targeted meatpackers over the past several days. Its economists put out an analysis slamming meat processing companies for excessive profiteering, and press secretary Jen Psaki blamed "the greed of meat conglomerates" for rising prices. The oil and gas industry has come in for a similar pounding, and even Dollar Tree has been denounced for shamefully sticking it to the little guy.
Warren has said the dynamic of rising prices and rising corporate profits isn't "simply some inevitable economic force of nature — it's greed. And, in some cases, it is flatly illegal." In a similar vein, former Clinton labor secretary Robert Reich recently pinpointed "corporate giants with the power to raise prices" as "the real reason behind U.S. inflation."
No one on the left seems to deny that supply chain disruptions are playing a role in inflation, but the focus on corporate greed is an absurdly reductive depiction of the U.S. economy — as if a broad-based, multicausal economic phenomenon is being mainly or at least significantly driven by a handful of corporate malefactors wielding nearly unchecked power over the consumer price index. It is a fairy tale transparently intended to shift the political blame for an economic discontent that is hobbling Biden's presidency.
From the broadest point of view, the focus on the supposed monopolistic power of corporate America to set prices at whim makes no sense. Did the American economy, after 30 years of notably low inflation, suddenly become more concentrated earlier this year, such that companies could arbitrarily jack up prices? And why was it that this economic power made itself felt just as supply chain disruptions took hold and the Democrats' massive Covid relief bill further stoked demand in an already growing economy?
If greedy corporations are to blame, they are at work across the board. In November, food prices were up 6.1 percent from the year before, with meat, poultry, fish and eggs up 12.8 percent, cereals and bakery products up 4.6 percent, and nonalcoholic beverages up 5.3 percent. Energy increased 33 percent. All other commodities outside food and energy jumped 9.4 percent. Used trucks and vehicles went up 31.4 percent.
It is true that most big companies have increased their profit margins. An analysis reported by the Wall Street Journal last month found that quarterly profits as a share of GDP are among the highest they've been since 1960. But demand is higher than it was pre-pandemic in many sectors of the economy, providing a strong foundation for profitability, and a standard feature of an inflationary environment is companies seeing how much they can raise prices without hitting a wall of consumer resistance.
This is one reason it's best not to have an inflationary environment in the first place.
Companies obviously want to recoup current increased costs for labor and production, and insulate themselves from increased costs to come. Surely, there's sheer opportunism, too. But as another Wall Street Journal report notes, increasing prices is a highly sensitive and consequential decision for companies. Some are limited by contracts from increasing prices right away to make up for increased costs, and others have been too worried about the consumer reaction. Companies might try to cushion price increases by introducing new products at a higher price point, or by eliminating discounts and reducing the sizes of packages.
Regardless, they are operating in a complex, highly competitive environment in which misjudging the market can do serious harm. Also, just because a company is highly profitable in the current quarter doesn't mean it was nearly as profitable a year ago, or will be as profitable a year from now. If a persistent inflation takes hold, the recent price increases and enhanced profits will be eroded away again by still higher wages and increased costs.
As for the meatpackers, the White House complains that just four companies dominate the market. But four companies have had an outsize market share over the past 25 years, and the price of beef has bumped around, roughly in keeping with overall prices, during that entire period. What's happened during the pandemic is that there has been high demand that, combined with labor disruptions at meatpacking plants, has disrupted supply.
Increased demand and limited supply, of course, equals rising prices. As the Economic Research Service of the USDA wrote in a report in October, "Prices have been driven up by strong domestic and international demand, labor shortages, supply chain disruptions, and high feed and other input costs."
The situation is basically the same when it comes to oil and gas. Global demand has increased, while global supply hasn't caught up. Domestically, oil production has risen since last year but is still below prepandemic levels. Biden claimed last month that the fact that finished gasoline prices haven't declined as much as unfinished gasoline prices shows the oil and gas companies are engaged in anti-consumer behavior, but this argument obviously has no merit.
The finished price often lags the unfinished price. Biden's request for the Federal Trade Commission to investigate will lead to the same result as so many previous FTC investigations — namely, nowhere.
If companies had the ability to set prices without regard to market conditions, they never would have let prices fall so much during the pandemic and presumably wouldn't be satisfied today with prices that aren't any higher than they were in 2014. The CEO of the natural gas producer EQT Corp. noted in a letter to Warren that natural gas prices, even now, are below the 20-year average.
All the hokum about the causes of inflation is basically a confession of impotence. If the Biden administration had a good story to tell about how it's fixing inflation, it wouldn't need to create cartoon villains. It would be better served by focusing on a whole host of barnacles on the U.S. supply chain — from union rules and environmental laws that have hampered U.S. ports and other infrastructure; to the Jones Act, which increases the costs of shipping; to the foolish tariffs on truck chassis at a time when they are in short supply.
Of course, all these measures would be politically painful to address, and none would be a magic bullet. It is easier to pretend that, sometime earlier this year, corporate America suddenly decided out of nowhere to get greedy.
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