The Biden Boom: Let’s Talk About The REAL Causes of Inflation – Corporate Concentration And Price Gouging

Above: Teddy Roosevelt, Trust Buster, during the last corporate Gilded Age. Time to break the monopoly power of corporations again in this new corporate Gilded Age.

Even as the omicron variant spread rapidly earlier this winter, employers have been eager to hire, a sign of a resilient economy. The winter spike in infections briefly tripped up the country’s strong recovery from 2020′s virus-caused recession, but employers appear confident in long-term growth.

The AP reports today, Jobless claims fall again for third straight week:

Jobless claims fell by 16,000 to 223,000 last week, from 239,000 the previous week, the Labor Department reported Thursday.

The four-week average for claims, which compensates for weekly volatility, declined by 2,000 to 253,250 after rising for five straight weeks as the omicron variant of the coronavirus spread, disrupting business in many parts of the U.S.

Last week, the Labor Department reported a surprising burst of hiring in January, with employers adding 467,000 jobs. It also revised upward its estimate for job gains in November and December by a combined 709,000. The unemployment rate edged up to a still-low 4% from 3.9%, as more people began looking for work, but not all of them securing jobs right away.

In total, 1.6 million Americans were collecting jobless aid the week that ended Jan. 29, essentially flat from the previous week.

Massive government spending and the vaccine rollout jumpstarted the economy as employers added a record 6.4 million jobs last year. The U.S. economy expanded 5.7% in 2021, growing last year at the fastest annual pace since a 7.2% surge in 1984, also coming after a recession.

Zachary Carter writes at The Atlantic, The Economy Is Good, Actually:

We are living through the best labor market in 50 years. The U.S. economy created 467,000 jobs in January, more than triple the 125,000 that economists had anticipated. According to the most recent data, the economy created 700,000 more jobs at the end of last year than previously believed. Workers are leaving their jobs for greener pastures at record levels, organized labor is enjoying a resurgence of worker power unseen in a generation, and pay for low-wage workers is up even after adjusting for inflation.

Compared with the federal government’s response to the 2008 financial crisis, the recovery from the COVID-19 crash has been an extraordinary success. [Hobbled by Republican control of Congress after the Tea Party election of 2010 and “austerity”], It took more than a decade after the onset of the previous recession for the unemployment rate to fall back to 4 percent, the level where it stands today. Even this figure understates the gap between the Great Recession and the pandemic-era economy. Most of the jobs created after the 2008 crisis paid poverty wages, and the country never recovered all of the manufacturing jobs it lost. Today, manufacturing jobs have nearly returned to their pre-pandemic levels amid a burst of onshoring activity across different industries [in response to the disruption of global supply chains]. The stunning jobs numbers over the past two months were secured even as the Omicron variant damaged commercial activity across the country.

It remains difficult to find intellectuals or policy makers eager to take credit for these triumphs. This silence is especially noticeable on the left, which can reasonably claim much of the change in approach as its own. The federal government spent far more money over the course of the pandemic than it did in response to the 2008 crash, and spent more of that money on ordinary families. The child-tax-credit expansion unveiled by President Joe Biden in early 2021 cut child poverty in half all by itself, never mind the hardships averted by expanded unemployment benefits and stimulus checks.

The primary rationale for this reluctance to declare victory is not a secret: Many Americans are pretty miserable at the moment. The pandemic itself is a grief machine, and most of the efforts that households and governments can take to mitigate the coronavirus’s spread are extremely frustrating [especially the sabotage of government efforts by Republicans and their anti-science, anti-vaxxer Trump Death Cult]. Biden’s approval rating has been in the toilet since the summer, and reached new lows last month. The collapse of Biden’s Build Back Better agenda, which was sabotaged by two senators in the president’s own party, has not helped his cause, and neither has his administration’s clunky and at times bizarre response to the pandemic itself. (White House Press Secretary Jen Psaki mocking the very idea of sending out free COVID-19 tests to households was probably the low point.)

But most of the conversation about the economy today is not about manufacturing jobs, strike activity, or quit rates. It’s about inflation. And wage growth across the pandemic is much less impressive when you focus on the past six months or so of consumer-price data. Inflation-adjusted wages are actually up since the first quarter of 2020, but they were down 2.4 percent over the course of 2021. (Even this data point carries a silver lining, though: Workers in the bottom third of the income distribution still enjoyed modest wage gains last year, a break with recent trends in which wage growth has been concentrated at the top.) Polling consistently indicates that voters loathe inflation. In 2013, when inflation was nonexistent, a majority of Americans cited inflation as “a very big problem.” It is less popular today.

Just why inflation remains a problem is a matter of intense debate among economists, but virtually everyone accepts two premises. First, the pandemic is a major cause of rising prices. Shutting down whole sectors and then starting them up again creates all sorts of disruptions and bottlenecks that lead to shortages, which in turn lead to price increases. Second, the higher prices created by those shortages are exacerbated by robust consumer purchasing power. How much of either factor—high household demand or bad bottlenecks—is responsible for the problem remains under dispute, but it seems likely that inflation will not dissipate until the supply-chain issues are resolved. In the meantime, any good economic news—more jobs, better pay—will put at least some upward pressure on prices. People are reluctant to claim credit for the recovery because they are reluctant to accept blame for inflation.

They shouldn’t be. Highlighting the strength of the job market may or may not be a winning message for politicians, but it’s essential for understanding both the calamity we avoided and how to respond to inflation going forward. The conventional response to rising prices—higher interest rates from the Federal Reserve, withdrawing fiscal stimulus—may well bring prices down, but it will do so by attacking the incomes of ordinary Americans, particularly those at the edges of the labor market. Given Senate gridlock, this may well be the best that policy makers can do with the tools available to them. But it is not the only way to deal with rising prices. An excess-profits tax on businesses is one; rent control for families is another. Both have the advantage of avoiding a direct hit to consumer pocketbooks.

The Great Recession was a generational cataclysm for the American middle class. The COVID-19 recession has not been, because policy makers have prioritized the benefits of a high-demand economy over the risk of moderately rising prices. They should not be ashamed of their success.

Two key points that average Americans do not know (nor much care that they don’t know): The government does not control supply chains, businesses do. The government does not set the price of goods and services, businesses do. Yet business leaders have largely gotten a pass from American consumers, who blame the president for these factors – someone who has no power over a free market economy.

Would you prefer a return to the wage and price controls Richard Nixon used in a failed bid to control inflation? Would you prefer the astronomical interest rates that both Jimmy Carter and Ronald Reagan (under Federal Reserve Cairman Paul Volker) used in a successful bid to control inflation, resulting in two recessions and high unemployment (Jan.-Jul. 1980, Jul.1981-Nov. 1982)? These are the traditional tools to cool inflation (but not the only ones available).

Americans really need to get over “magical thinking” or a “savior complex.” No – no politician is going to magically unwind bottled up global supply chains or bring down inflation quickly as the world recovers from a once in century global pandemic. This will require businesses to unwind bottled up global supply chains and to stop profiteering off the resulting shortages by setting higher prices for higher profits to appease shareholders.

MSNBC’s Joy Reid had a good segment on this topic on Thursday. “Here’s a dirty little secret companies do not want you to know: some of them are taking advantage of the situation and charging you way more, just because they can.” CEO’s are crowing about their ability to raise prices, with little resistance from consumers.

Reid’s guest is Lindsay Owens, Executive Director of Groundwork, and a Roosevelt Institute and Data Progress fellow in economics. This is her twitter thread that this segment is discussing.

CEOs often speak more candidly on earnings calls (held when a new report comes out), in an effort to impress investors, by bragging about their ruthless profit-rigging schemes. It apparently doesn't occur to them that the public might find out about them! For instance… (2/7)

— Lindsay Owens, PhD (@owenslindsay1) February 10, 2022

Tyson, one of the big 4 meat monopolies Biden is targeting for price-fixing saw profits nearly DOUBLE after price hikes of 32% on beef and 20% on chicken which the CEO attributed to the "continued resilience of our multi-protein portfolio." (4/7) https://t.co/A5NExE94pe

— Lindsay Owens, PhD (@owenslindsay1) February 10, 2022

Kimberly Clark is a mega-corporation manufacturing everything from paper towels to diapers. On its recent earnings call, CEO Mike Hsu crowed to investors about “multiple rounds” of “significant pricing actions” & admitted he plans to continue doing it throughout the year. (6/7)

— Lindsay Owens, PhD (@owenslindsay1) February 10, 2022

If you want to understand the role of corporate greed in price hikes & inflation in America today, you don't have to take the word of watchdogs or critics of corporations. CEO's are admitting it themselves in plain daylight.

And they're betting they can get away with it. (END)

— Lindsay Owens, PhD (@owenslindsay1) February 10, 2022

Robert Kuttner at The American Prospect similarly reports, Inflation and Price-Gouging:

The Prospect’s special issue on the supply chain debacle should demolish the fable that the current inflation reflects too much stimulus. As we report, most supply and price pressure is the delayed result of deregulation and concentration of the global logistics system combined with far too much offshoring. It took only a crisis like COVID to expose the system’s fragility.

Want more evidence? Have a look at Europe. Inflation in the EU, which has nothing like the stimulus program of the U.S., clocked in at 5 percent for 2021, the highest in decades.

This statistic understates Europe’s true consumer inflation because Germany, the EU’s largest economy, cut value-added taxes for six months in July 2021, lowering net prices to consumers. Without that cut, the increase in consumer prices would have been even higher.

In 2020, the U.S. deficit was 15.2 percent of GDP. Europe’s was less than half that, at 7.2 percent. In 2021, as the recovery kicked in, the U.S. deficit fell to 12.4 percent. Europe’s budget deficit slightly increased, because its recovery was weaker.

In short, despite very different stimulus policies, Europe and the U.S. are experiencing similar price pressures due to supply shocks. And one result that adds to the inflation is opportunistic price hikes and excess profits.

The big investment banks booked record profits in 2021. Likewise the platform monopolies. Amazon just reported profits of $14.3 billion on the fourth quarter alone, double its fourth-quarter profits of 2020.

On an earnings call with Wall Street analysts this morning, the meat giant Tyson reported earnings per share up by 50 percent over last year, driven by price increases of 32 percent in beef, 20 percent in chicken, and 13 percent in pork. These price hikes to consumers go neither to farmers nor to supermarkets but to giant monopoly middlemen like Tyson.

Ocean shippers have quintupled their rates, and booked astronomical returns of $150 billion in 2021, up from $25 billion in 2020. This price-gouging reflects the extreme economic concentration that has resulted from deregulation coupled with a four-decade failure to enforce the antitrust laws. All of this comes at the expense of consumers and of workers whose nominal pay is up but in most cases lags behind price hikes.

So COVID has been a grotesque bonanza for America’s most concentrated industries. The long-term cure for the supply crunch is drastic re-regulation of the global logistics system, as well as rebuilding domestic manufacturing and supply. The Biden administration’s antitrust crackdown will also help reduce pricing power.

In the meantime, we need an excess profits tax, to tax away the opportunistic price hikes, just as we did in World War II. Profits that exceeded a normal rate of return, based on several pre-pandemic years, would be subject to a much higher rate of tax.

This idea will both spotlight the real source of the inflation and help pay for the domestic industrial policy that we need to prevent future supply shocks. Even if it’s not enacted, Biden should propose it.