The April jobs number came out last week and showed continued strong job growth. The New York Times reported, Job Growth Shows Continuing Vigor of U.S. Economy:

The U.S. economic rebound from the pandemic’s devastation held strong in April with another month of solid job growth.

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Employers added 428,000 jobs, matching the previous month, the Labor Department reported Friday, with the growth broad-based across every major industry.

The unemployment rate remained 3.6 percent, just a touch above its level before the pandemic, when it was the lowest in half a century.

The challenge of a highly competitive labor market for employers — a shortage of available workers — persisted as well. In fact, the report showed a decline of 363,000 in the labor force.

The economy has regained nearly 95 percent of the 22 million jobs lost at the height of coronavirus-related lockdowns two years ago. But the labor supply has not kept up with a record wave of job openings as businesses expand to match consumers’ continued willingness to buy a variety of goods and services. There are now 1.9 job openings for every unemployed worker.

President Biden pointed to the latest data as evidence of “the strongest job creation economy in modern times,” a message the White House is increasingly amplifying ahead of the congressional elections.

But the New York Times, like much of the media, is committed to negative downplaying of an historic economic recovery with “yeah, but what about inflation?”

This next paragraph in the Times report tells me that this reporter knows nothing about economics and is simply parroting the Wall Street types who want to blame workers being able to demand higher wages in a tight labor market for inflation. Once again, there is NO evidence of a wage-price spiral. This is a bullshit statement:

The hiring scramble has driven up wages, and employers are largely passing on that expense, helping fuel inflation that Americans have cited as their leading economic concern. On that front, Friday’s report showed an easing in the acceleration of average hourly earnings, which increased 0.3 percent from the month before, after a 0.5 percent gain in March.

Workers getting pay raises because they have leverage for the first time in years is a good thing.

Even worse, this reporter like so many reporters, wants to frame the jobs report in the context of a political story and the Times’ penchant for both-siderism, rather than just solid economics reporting.

But a record share of Americans now rate inflation as the biggest financial problems facing their households, according to a Gallup Poll in April. The survey found that 46 percent of Americans rated their personal finances positively, down from 57 percent last year, when most households were freshly benefiting from rounds of direct federal aid.

After the Labor Department report on Friday, Ronna McDaniel, the chairwoman of the Republican National Committee, put the spotlight on inflation rather than jobs. “Families can’t afford food and groceries, wages can’t keep up with inflation, and Biden’s agenda is only going to make it worse,” she said in a statement.

Just a reminder, Republicans have no plans to deal with inflation. “Zero, zip. nada, zilch.” Republicans don’t do economics, they do political propaganda. And this Times reporter gave Ronna McDaniel a free pass. Where is the obvious follow-up question, “Oh yeah, what do Republicans propose to do about it?” The answer is “Nothing, we are just going to blame Democrats for inflation.”

Both this reporter and the idiot propagandist Ronna McDaniel are wrong about the source of inflation. It is neither workers nor Democratic policies.

The Times sort of redeemed itself just a little by publishing this op-ed from Lindsay Owens, the executive director of the Groundwork Collaborative at the Roosevelt Institute. I Listened In on Big Business. It’s Profiting From Inflation, and You’re Paying for It.

Last fall, as container ships piled up outside the Port of Los Angeles, it looked as if inflation was going to be with us for longer than many had predicted. Curious how C.E.O.s were justifying higher prices, my team and I started listening in on hundreds of earnings calls, where, by law, companies have to tell the truth. While official statistics on inflation such as the Consumer Price Index can tell you that prices are rising, earnings calls provide rich, qualitative data that speak to why and how.

Executives from the nation’s largest publicly traded companies had a lot to report to their shareholders about supply chain snarls, product shortages and rising prices — mostly that they were very good for business. What was striking in the earnings calls was not the supply chain shortages or companies’ typical profit motives; it was the plain old corporate profiteering. The Economics 101 adage that “inflation is just too much money chasing too few goods” doesn’t come close to the full story. This raises the question: When companies are exploiting consumers in a time of national crisis, when should government step in?

Companies that historically might have kept prices low to pick up profit by gaining additional market share are instead using the cover of inflation to raise prices and increase profits. Consumers are now expecting higher prices at the checkout line, and companies are taking advantage. The poor and those on fixed incomes are hit the hardest.

As Hostess’s C.E.O. told shareholders last quarter, “When all prices go up, it helps.” The head of research for the bank Barclay’s echoed this. “The longer inflation lasts and the more widespread it is, the more air cover it gives companies to raise prices,” he told Bloomberg. More than half of retailers admitted as much when surveyed.

Executives on their earnings calls crowed to investors about their blockbuster quarterly profits. One credited his company’s “successful pricing strategies.” Another patted his team on the back for a “marvelous job in driving price.” These executives weren’t just passing along their rising costs; they were going for more. Or as one C.F.O. put it, they were “not leaving any pricing on the table.”

The Federal Reserve chair, Jerome Powell, said that sometimes businesses are raising prices just “because they can.” He’s right. Companies have pricing power when consumers don’t have choice. Sometimes this is because demand for consumer staples like toilet paper, toothpaste and hamburger meat is relatively inelastic. If you need a box of diapers, you need a box of diapers. Other times pricing power comes from concentrated market power. In industries like meatpacking and shipping — in which giants have over 80 percent of market share at times — it’s easier to take big markups when there aren’t major competitors to undercut you.

What we learned on these earnings calls was quickly reflected in data. Despite the rising costs of labor, energy and materials, profit margins reached 70-year highs in 2021. And according to an analysis from the Economic Policy Institute, fatter profit margins, not the rising costs of labor and materials, drove more than half of price increases in the nonfinancial corporate sector since the start of the Covid pandemic.

From the Economic Policy Institute, Corporate profits have contributed disproportionately to inflation. How should policymakers respond? (excerpt):

Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the NFC sector have risen at an annualized rate of 6.1%—a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase. This is not normal. From 1979 to 2019, profits only contributed about 11% to price growth and labor costs over 60%, as shown in Figure A below. Nonlabor inputs—a decent indicator for supply-chain snarls—are also driving up prices more than usual in the current economic recovery.

Lindsay Owens continues:

Despite clear evidence that a majority of price increases are not justified by rising costs, there is a fierce debate in Washington about what, if anything, policymakers should do to address it. This debate primarily stems not from questions about the cause of price increases but from differing viewpoints on whether policymakers should play a role in ensuring fair and just prices.

Most economists believe that markets are efficient allocators of scarcity and that governments should have little, if any, role in guarding against unfair pricing. They argue that price hikes will help cool demand and alleviate scarcity by efficiently rationing goods by consumers’ ability to pay. If sellers take price hikes too far, customers will just go to a competitor across the street. But what if there are no competitors? Not to worry: Truly exorbitant markups will all but guarantee new businesses entering the market. Many economists even argue that publicly traded companies have an obligation to shareholders to bring in as much profit as possible. If they see any interventionist role of government, it is in suppressing demand through interest rate hikes by the Federal Reserve, a blunt policy tool with a high likelihood of throwing the country into a recession.

On the other side of the debate are a majority of Americans, including me, who look at the economy and see businesses exploiting supply chain bottlenecks, foreign war and a pandemic to bring in record profits on the backs of consumers. We don’t dispute that the system is working well for Fortune 500 companies and Wall Street investors, but we want lawmakers to stop the profiteering that has gone too far.

Although economists may not like to admit it, prices are not immune from political considerations. In fact, 38 states and the District of Columbia already limit price increases on certain goods through price-gouging statutes designed to prevent companies from capitalizing on abnormal disruptions, like pandemics and hurricanes, that lend themselves to scarcity and price gouging. In other words, the bulk of state legislatures have decided that although shareholders might like to see bottled water sold for $100 a gallon and gas for $5 after a hurricane, that is neither fair nor in the public interest.

Lawmakers must do even more. They should pursue a federal price-gouging statute to give regulators the authority to stop companies from exploiting crises to wring out more profit. Last week, Democrats in Congress announced plans to do just that. They could go further to discourage profiteering through the tax code — whether by increasing the corporate tax rate or by imposing excess-profits taxes like those proposed by Senators Sheldon Whitehouse and Bernie Sanders. This is not new; the government took similar action during times like World War II and as recently as 1980 for oil and gas. Regulators, even without new legislation, should start by enforcing existing laws, including ones against price fixing, price gouging and collusion.

The supply shocks we are experiencing are just a dress rehearsal for those to come. Climate change will bring increasingly severe and frequent disasters that wipe out crops, flood manufacturing plants and disrupt trade routes. The White House Council of Economic Advisers admitted as much in its latest annual Economic Report of the President. More scarcity will undoubtedly bring more opportunities for profiteering, and policymakers need to close their introductory economics textbooks and actually look at the economy. The question we should be asking is not whether companies will exploit those disruptions — we know they will — but what we can do to stop it, or else companies will just make the rest of us pay the price.

Max Sawicky, senior research fellow at the Center for Economic and Policy Research, adds Most Price Increases from Inflation Have Gone to Corporate Profits:

When the history of the 2020s is written, the current inflation panic could very well rival the ​“but her emails” canard surrounding Hillary Clinton in 2016: The impacts on U.S. politics have been profound, and decidedly negative from any progressive standpoint.

I have to admit that I previously understated the persistence of the price increases that started showing up last fall. As Yogi Berra is credited with saying, ​“Prediction is hard, especially about the future.” Still, the fact remains that the most popular explanations for inflation reflect malign political-economic motivations.

First and foremost, we hear that inflation is due to excessive economic stimulus, especially from the eternal enemies of economic stimulus. Hence the outsized political role of Sen. Joe Manchin (D‑W.V.) — the self-styled economic genius who constantly worries about inflation — and the endless nattering of budget hawks. According to this outlook, the federal government (under Trump as well as Biden) gave people too much money, and, as everybody knows, inflation is the result of ​“too many dollars chasing too few goods.” As usual, what ​“everybody knows” serves as an inadequate guide.

The dollars chasing goods are reflected in what economists call consumption expenditures. If there are too many dollars, so to speak, then consumption spending would outrun the normal growth of GDP. As economist Dean Baker notes, this has not been the case during the ongoing panic, either in the United States nor in the nations of the European Union, where inflation has been similarly elevated.

Another pandemic effect cited by Baker is the shift within consumer spending from services to goods: less travel and eating out, more staycations and ordering in. Here again, goods producers can adjust, but that takes some time.

This takes us from the demand side — consumer spending — to the supply side. Here the problems are obvious. The pandemic disrupted “supply chains,” i.e. the transactions among firms within industries. 

As Josh Bivens of the Economic Policy Institute notes, if one producer is temporarily sidelined, or otherwise forced to cut back production, this provides opportunities for competitors that are not as hampered to jump in with price increases. This dynamic is not a matter of the long-running growth of monopolies, in tech or elsewhere, but a case of temporary market disruptions. Pandemic lockdowns in China — the world’s manufacturing colossus — have been significant, resulting in downstream impacts. 

The bottom line, as Bivens shows, is that profits have increased rapidly, while labor costs have not. The profit increase reflects the ability of firms to exploit kinks in the supply chain. Most of these price increases have gone to profits, not to labor. [Pay attention NY Times reporter boy.]

As Bivens writes, “The historically high profit margins in the economic recovery from the pandemic sit very uneasily with explanations of recent inflation based purely on macroeconomic overheating.”

Converging challenges

One of the functional aspects of capitalism is that such wrinkles tend to work themselves out. If somebody is making unusual profits in a particular niche, others move in to share the bounty and, in time, profits and prices settle back down.

But on top of the pandemic, we also have the war in Ukraine.

The EU is still buying gas from Russia, but uncertainty over oil and gas production has caused spikes in the world price, which has ended up at gas pumps in the United States. In trying to shift oil and gas buying away from Russian sources, our oil-producing ​“allies” such as Saudi Arabia have been singularly unhelpful.

The other leading supply problem is the curtailment of Ukraine’s grain production, which raises food prices worldwide. Of course, the United States produces most of its own energy and grain, but a rise in world prices allows our domestic producers to take the same ride.

All this takes more time to explain than sensationalist stories about gas prices. No technical story can stand up to heart-breaking tales of families of modest financial means faced with higher rents and higher prices for fuel and basic foodstuffs. There is clearly need for more social spending to help those being hit the hardest by such price increases.

Bivens suggests an excess profits tax as one remedy. Another would be increased benefits in programs such as the Supplemental Nutrition Assistance Program (a.k.a. ​‘food stamps’) and unemployment insurance to alleviate inflation effects on lower income families. The federal government could also do something about the high prices of prescription drugs. The impact on overall inflation itself for these remedies is dubious, but it would help if the Democrats showed they were doing something. The most important likely remedy is time, but in politics those who stand back and wait are in for a shellacking.

Otherwise, the U.S. economy has been doing quite well. The miraculous recovery of 2021 puts employment close to the pre-pandemic level in February 2020, after a steep drop of 16 percentage points. Wage growth for lower-income workers, especially people of color, has exceeded growth in prices. Where are the stories of those workers? 

There is a media problem and a messaging problem. In general, the media paints a dismal and unbalanced picture of the economy, and the Democratic Party fails to sort out what it has accomplished, what is beyond its control, and what policies are appropriate.

New playbook needed

On the policy front, we have two problems. One is a further indication of misfeasance from the Biden administration, in the form of new blather about the success of deficit reduction. It’s one thing to be blocked from worthwhile reforms like Build Back Better by a couple of intransigent Democratic senators. It’s another to celebrate the results.

This is very much a replay of the Obama 2010 playbook, when his administration failed to cobble together a congressional majority to support its initiatives, failed to note the shortcomings of what had been enacted, and failed to talk about what should have been done instead. Then, in the 2010 midterms, the Democrats, as Obama said, got ​“shellacked” and lost their majorities in Congress.

Bringing employment back to nearly its pre-pandemic level in a year’s time was a great achievement, but we can do better. Employment should keep up with population growth — and that means 2022 population, not 2020 population.

The other policy issue is the posture of the Federal Reserve, using the hammer it has while defining everything as a nail. By pushing up interest rates in pursuit of inflation reduction, the Fed will end up pushing down employment and GDP growth, while possibly worsening supply-chain difficulties.

This past Thursday, the Commerce Department announced that GDP in the first quarter of this year had declined by 1.4 percent on an annual basis. It’s not news that the stock market has also taken a dive this year, especially this past month, which further retards consumer spending. People feel, and are, less rich — and they spend less as a result.

Even the European Central Bank has pointed out the gap between the incoming Fed bombardment and the problem it is held to address:

“Higher interest rates won’t solve the imbalance between supply and demand, energy prices and base effects that are currently pushing up prices: they won’t make more shipping containers available or boost the supplies of semiconductors and fuel.” 

The pandemic relief has been a huge success. Supply-chain disruptions cannot be attributed to the White House, nor repaired by the Fed’s jack-up of interest rates. The economy’s inflation problem is being misdiagnosed and mistreated. All this adds up to a terrible political situation in the run-up to the midterm elections that puts our entire democracy at risk.




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