As prices rose faster than at any other point in four decades, lawmakers rushed for explanation. In recent months, some Democrats have fallen on a new culprit: price rises.
The idea is that big companies have conquered inflation to drive prices higher than necessary. The White House has upheld this claim, and congressional Democrats have introduced bills aimed at raising prices. Proponents of the theory have a catchy word for it: “greed”.
For Democrats, this is a favorable explanation as inflation is turning voters against President Biden. This allows Democrats to avoid complaining about their pandemic bill, the American Rescue Plan, which has helped boost prices, experts say. And this allows them to reconsider inflation as a fault of the monopoly institutions – the progressives have long bargained against it.
Not all progressives are on board. Jason Furman, an economist who served under Barack Obama, told me that greed is not a major factor in inflation. He explained that the focus on price increases is distracted by the real causes and solutions.
But the White House and other lawmakers are taking the theory seriously. So in today’s newsletter, I’d like to see arguments in favor of and against the idea that greed is driving up prices.
This is how the greed camp looks at it: Inflation first rose from other factors, such as the Kovid and economic stimulus bills. But companies raised prices more than they needed for net profit. They knew they could get away with it because consumers no longer had the criteria for what prices should be. And they didn’t face enough competition to keep prices down.
Proponents of the theory do not claim that companies are suddenly more greedy or monopolistic. For decades, corporate profits have risen faster than economic growth and the major segments of the economy, retail and finance, have become more concentrated in the hands of some.
But inflation gives greedy, monopolistic companies the opportunity to profit, said Lindsey Owens, executive director of the Left-leaning Groundwork Collaboration. Profitability is “the catalyst for price increases,” she told me. “That’s not the primary reason.”
Owens pointed to what companies have said in earnings calls over the past year. Tyson Foods executives say the increase in the price of beef is not just about inflation but of higher costs “more than offset”. Visa’s CEO said, “Historically, inflation has been positive for us.” Owens has compiled a list of similar comments from other corporations.
Representatives for Tyson and Visa said groundwork executives’ comments had been misinterpreted and were taken out of context.
At least, not many corporations have taken a big hit with inflation. The Times analysis found that profit margins were “higher than the prepandemic average” in more than 2,000 publicly traded companies last year.
The opposite case
You don’t need a price increase to explain inflation, and there are other, more widely accepted explanations, Furman said.
Covid has disrupted supply chains globally. The Russian invasion of Ukraine caused another set of disruptions, especially in food and energy. Incentive bills left people with a lot of extra money and many Americans spent it. This prompted high demand for a very short supply, so prices increased.
Recent developments have undermined the theory of greed. Inflation remains high: 8.6 percent over the past year, according to a federal report released last week. But the stock market has fallen; The S&P 500 is more than 20 percent above its January highs after yesterday’s sharp decline. And earnings calls have disappointed investors so far this year. If the pursuit of profit is driving more inflation, you can’t expect to see it.
Economic indicators offer a test of going forward: if profits fall because inflation remains high, price increases will not be a major factor.
The theory of greed is that big companies, using their size of market power, raise prices more than what is possible in a truly competitive economy. But in some centralized markets, that has not been the case: hospitals are more consolidated, although healthcare prices have risen more slowly than overall inflation over the past year.
Health care prices have historically been extraordinary; In the last few decades, they have risen much faster than inflation. But his recent relative sluggishness suggests that if greed is real, it is not a major factor in every part of the economy.
My reading of the proof: Prices may raise prices in some places, but this is not universal.
It is not even clear what the progressives’ argument is. Anti-GoG bills introduced in Congress have been criticized as impractical or hostile. More antitrust enforcement – to break up or prevent the creation of monopoly companies – can help, but only in the long run. If greed describes our current problems, it does not provide a clear path.
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The latest EGOT
This weekend, when Jennifer Hudson received a Tony for the music of “A Strange Loop,” she was one of 17 people to win an Emmy, Grammy, Oscar and Tony. Or, as is known, an EGOT.
Actor Philip Michael Thomas, who played Detective Rico Tubbs in “Miami Vice”, first used the term in the 1980s and entered the mainstream in 2009 after “30 Rock” popularized it.
Whoopi Goldberg: The actor reached EGOT status in 2002 after winning an Emmy for Tony and “Beyond Tara: The Extraordinary Life of Hattie McDaniel” for “Tarafly Modern Millie”.
John Legend, Andrew Lloyd Webber and Tim Rice: Artists for NBC’s “Jesus Christ Superstar Live In Concert” all joined the club in 2018.
Who’s next? Multiple celebrities are just one title away. Among them: Lin-Manuel Miranda, who missed the Oscar; Cher, who has everything except Tony; Elton John, who doesn’t have an Emmy; And Viola Davis, without a Grammy.