Pluralistic: Look at all the great stuff we lost because of inflation scare-talk (05 May 2023)

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A vintage postcard illustration of the Federal Reserve building in Washington, DC. The building is spattered with blood. In the foreground is a medieval woodcut of a physician bleeding a woman into a bowl while another woman holds a bowl to catch the blood. The physician's head has been replaced with that of Federal Reserve Chairman Jerome Powell.

Look at all the great stuff we lost because of inflation scare-talk (permalink)

Call me a conspiratorialist if you must. But when CEOs get on earnings calls and brag about how covid, war, and scare-stories about inflation let them hike their prices and rake in never-before-seen profit margins, I think it's reasonable to blame inflation on greed, not on workers getting a couple of relief checks during the lockdown.

Amazingly, this is a controversial position! For more than a year, Very Serious People have dismissed the greedflation hypothesis – that CEOs aren't lying when they boast about using pretexts to hike prices – is a conspiracy theory used to dupe people who Just Don't Understand Economics.

Jeff Bezos – whose profits soared during the lockdowns, even as his workers sickened and died in droves – went on a Twitter tear last March to tell us that free gubmint money (for workers, that is) was causing inflation:

And Bezos's columnists and editorial board at the Washington Post told the same story, calling greedflation "foolishness" and a "bizarre theory" and demanding that the Fed hike interest rates, drive Americans out of work, and "curtail their spending power" to fight inflation:

This message was repeated by the Very Serious People's Chorus, from us US Chamber of Commerce:

to Republican Senators:

to famous nepobabies, who dismissed greedflation as the product of conspiratorialists and "trolls":

Which was weird, because at the same time, all these eminently guillotineable CEOs were ecstatic about the gains from greedflation:

Colgate-Palmolive CEO Noel Wallace told investors, "What we are very good at is pricing. Whether it’s foreign exchange inflation or raw and packing material inflation, we have found ways over time to recover that in our margin line."

(Whoever came up with "very good at pricing" is also very bad at "not saying the quiet part aloud.")

Unilever CEO Graeme Pitkethly celebrated his 5% increase in profit margins by saying "Consumer-facing price is the last lever we normally use to manage inflation. We find that taking several small price increases is more effective than one large price jump."

Procter and Gamble CFO Andre Schulten boasted of increasing prices and margins, saying "We have not seen any material reaction from consumers, so that makes us feel good about our relative position."

Kroger CEO Gary Millerchip said, "We’ve been very comfortable with our ability to pass on the increases that we’ve seen at this point, and we would expect that to continue to be the case."

It's wild that as these CEOs boasted about greedflation, the position of the pundit class was, "Who are you going to believe, Larry Summers or your own lying ears?"

Meanwhile, two thirds of US companies saw increased margins during the first two years of the pandemic:

While wages lagged behind inflation by a wide margin:

And corporate strategists kept running their mouths, boasting of a new "price over volume" strategy, in which prices are raised even as sales fall, so long as profits continue to rise as wealthy people absorbed the price hikes and everyone else learned to do without:

The thing is, there were and are supply shocks caused by war and disease, but companies used these as pretexts to raise prices and margins. Wingstop used a temporary disruption in chicken supplies to hike prices by 125%, and kept them high even as the price of chickens fell by 50%. Their share price climbed to 250% of its pre-covid high.

The same happened with eggs: a transient bird-flu disruption drove up prices, but even after capacity was restored, the prices stayed high:

Small wonder: nearly all the eggs you buy at the grocery store come from a single conglomerate, Cal-Maine, that owns virtually every major egg brand in America, and whose profits increased by 110% during the "bird flu shortage":

Monopolists have pricing power – by definition. Massive concentration in every sector, driven by lax antitrust enforcement since the Reagan years, has produced monopolies, duopolies and oligopolies in most categories of goods, as companies gobbled each other up in an orgy of anti-competitive mergers.

These mergers were waved through thanks to the economic orthodoxy of Very Serious People, who claimed that monopolies are "efficient" and that markets – not regulators – will punish the "bad" monopolies:

Greedflation deniers say that the problem isn't greed, it's capacity – supply-chain disruptions left companies unable to bring good to market. Even if demand wasn't stimulated by covid relief checks, if supply dropped off, then prices would go up. No need to blame greed.

It's true that late-stage capitalism looooves long, brittle supply chains. In their drive to realize "efficiencies," multinational corporations squeezed every drop of slack out of the system, eliminating buffer stocks, cutting staffing to the bone, and pissing away cash reserves in stock buybacks.

This fragility is magnified by monopoly. When a sector is dominated by just a few companies, they can collude to stay out of each other's way, tacitly or explicitly deciding not to compete. When that happens, the companies are no longer disciplined by competition and can enshittify their services to an ever-greater extent.

Think of how the telcos and cable companies divided up America like the Pope dividing up the "New World" into non-overlapping, non-competing exclusive territories. The less they had to compete with one another, the less they had to spend on their infrastructure. That's how you get companies like Frontier, who draped their lines over shrubs or let them drag on the ground:

Global supply chains have the same pathology. Global shipping is controlled by three cartels, and for years, their regulators warned them that making their ships bigger and bigger risked disaster, like, say, a ship getting stuck in the Suez Canal:

But bigger ships meant higher margins, and the concentrated shipping sector was unified in its devotion to those margins. Not only did the ships get bigger and bigger, but regulators were powerless to stop it, because the sector spoke with one voice, as the three cartels converged on a single lobbying position.

Off-shoring was "efficient": if a corporation's goal was to destroy its union and set up shop in a territory where they didn't have to worry about workplace safety or pollution, the offshoring was a very efficient way to accomplish that goal. Offshoring works well, but fails badly. With supply chains stretching across continents and oceans, and with production concentrated into a few massive factories, all it takes is one storm, one ransomware attack, one disease outbreak to disrupt whole sectors.

Some inflation is unarguably the result of supply-chain problems, but we can't fix those problems by raising interest rates and slowing domestic investment. To add resiliency to supply-chains, we need to move production closer to home, and replace single points of failure with robust networks of suppliers:

But the inflation hawks didn't want to talk about any of that. For them, the equation was simple: inflation started when workers gained bargaining power and were able to secure higher wages and favorable political outcomes (that is, relief checks). The only solution was to put workers back in their place: hike interest rates to cause mass unemployment and accelerate offshoring, in order to "reduce demand."

Late last year Joseph Stiglitz and Regmi Ira published a thoroughgoing analysis of the causes of inflation, finding a mix of price-gouging, capacity failure, supply chain problems, higher rents (thanks to work-from-home) and shifts in the kinds of goods in demand (hand-sanitizer, home exercise equipment, etc):

None of these problems can be addressed with interest rate hikes, and many of them get worse when interest rates go up. But as Stiglitz and Ira write, monetary policy is like medieval bloodletting: if the patient gets worse, it's because you didn't do enough bloodletting. If the patient recovers, it's because the bloodletting worked.

This didn't make a dent in the inflation hawks' rhetoric. Instead, they insisted that greedflation was impossible. How, they asked, could supposed monopolists suddenly acquire the ability to raise prices? Did the pandemic increase the amount of greed somehow?

If only they'd bothered to listen to the greedflationists, they would have had their answer. As Ken Jarosch, owner of Chicago's Jarosch Bakery told investors, "Whether it’s rye flour, or bird flu that impacts eggs, when it makes national news, just running a business, it’s an opportunity to increase the prices without getting a whole bunch of complaining from the customers":

But who are we going to believe: neoliberal economists, or our own lying ears?

Writing for Lever News, Andrew Perez, Matthew Cunningham-Cook and David Sirota count the cost of greedflation denial:

Before pundits, CEOs and orthodox economists started ringing the alarm about inflation's origins in greedy, powerful workers, America was on track for some profound, long overdue reforms: $2T in climate retrofits and infrastructure, another round of pandemic relief, and a minimum wage increase.

Also on the table: anti-price-gouging legislation, new taxes on the ultra-rich, and a windfall profits tax targeted at pandemic profiteers. But once the inflation hawks started going on national TV, holding flashlights under their chins and intoning "Inflaaaaaaaation," all that died.

A year later, even the WSJ has to admit "Businesses are using a rare opportunity to boost their profit margins":

The Washington Post and Bloomberg concur, writing, "The idea that corporate profit expansion has been a big driver of inflation was once mostly confined to trade unions and left-wing academics, but it’s now taken seriously":

But it's too little, too late. The Fed just hiked interest rates again:

And they'll keep doing it, too – bleeding the patient until they recover, or die. The bloodletter is never wrong, and meanwhile, there's no end to the fortunes to be made from raising prices and blaming inflation.

(Image: Mosiac36, CC BY 2.0, modified)

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Colophon (permalink)

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