Corporations exploit pandemic-induced economic disruptions, pent-up consumer demand, supply chain issues, and labor shortages for record profits. “In total, higher prices and lower wages caused by lack of competition are now estimated to cost the median American household $5,000 per year,” said Pres. Joe Biden.
The 7% annual inflation rate wipes out wage gains won by workers. Used cars and trucks, energy (which decreased recently), meat, lodging, auto rentals, and housing costs saw the most significant price increases last fall. Meanwhile, corporate profits are at their highest point in 70 years. According to Oxfam, the world’s ten richest men doubled their fortunes during the COVID-19 pandemic while the incomes of 99% of humanity fell.
“Just before the pandemic, in 2019, American non-financial corporations made about a trillion dollars a year in profit, give or take,” says Matt Stollar, Director of Research at the American Economic Liberties Project. “This amount had remained constant since 2012. Today, these same firms are making about $1.73 trillion a year.”
“Had corporate America kept the same average annual level of profits in 2021 as it did from 2012-2019 and passed on today’s excess to consumers, the inflation rate would be 3.8%, not 6.8%,” said Stollar. He estimated 60% of price increases stem from corporate profits.
Inflation fears obscure actions by the administration and Democrats, including the passage of the American Rescue Plan (ARP), which prevented a deep economic recession and hastened the economic recovery. The GOP hopes to ride these fears to victory in the 2022 mid-term elections while hiding their opposition to the ARP. Simultaneously, the right-wing propaganda media stoked hysteria of empty store shelves during the holidays, which never materialized.
Others, including Sen. Joe Manchin (D-W.Va.), cite inflation as a reason to oppose the passage of the Build Back Better Act.
Inflation is a global problem. European countries, Canada, Turkey, and Korea all report the highest inflation in three decades, although not as high as the U.S. The U.S. inflation rate slowed from October to December, raising hopes the surge may be transitory.
Economists and policymakers disagree on inflation’s causes and cures. Like former Treasury Secretary Larry Sommers, some blame the ARP and massive infusion of money into the economy. Cruelly, Sommers advocates ending the pause on student loan repayments to lower consumer spending.
Others, including Federal Reserve Board members, call for raising interest rates to slow economic growth. But this, along with waning effects from the federal stimulus, could increase unemployment, especially if the pandemic continues raging. As Nobel economist Joseph Stiglitz says, “A concerted global effort to increase vaccine supply and ensure equal access for the poor would do far more to alleviate inflationary pressures than interest-rate hikes would.”
Stiglitz, Paul Krugman, and others continue to believe the high inflation is transitory, directly related to pandemic-related economic disruptions that will work themselves out.
Monopoly pricing and profits
Many elected officials, economists, and policymakers, however, point to corporate profits, especially price-fixing by monopolized industries, as a chief cause. Corporate profits are at their highest level in 70 years, and “two-thirds of publicly traded companies have bigger profits than before the pandemic, says Sen. Elizabeth Warren, D-Mass.
FactSet estimated profits for S&P 500 corporations hit 12.9% in the third quarter of 2021, the highest on record, except for the record-breaking second quarter, at 13.1%.
“Giant corporations, who say, wow, a lot of talk about high prices and inflation – this is a chance to get in there and not only pass along costs but to inflate prices beyond that and engage in straightforward price gouging,” said Warren.
The Biden administration sought recommendations from cabinet officials to fix last fall’s supply chain crisis. The administration summed up the cause: “misaligned incentives and short-termism in private markets.” In other words, maximum short-term profits.
Three cargo shipping alliances control 80% of container shipping. Only a few ports are suitable for mammoth container ships, making them vulnerable to bottlenecks. Corporations increasingly offshore and use just-in-time production, resulting in domestic deindustrialization and reduced inventories.
Biden and Warren are not alone in pointing the finger at corporate greed and monopoly pricing. Fed Chairman Jerome Powell told Congress on Jan. 14, “Why are (corporations) raising prices? Because they can.”
The Biden administration singled out the meatpacking and energy industries as prime examples of monopolized industries inflating prices. According to the White House, four meat processing companies now control 55 to 85 percent of beef, pork, and poultry markets. Since the fall of 2020, the price of beef has risen by more than 20 percent, far higher than the inflation rate. At the same time, the profits of the meatpacking industry are up more than 300 percent.
Biden called for investigations into price-fixing and the possible use of anti-trust laws in response.
Monopolization and loosening of anti-trust rules ripple throughout the economy, says Paul Glastris. “The answer is monopoly—in particular, the hollowing out of capacity as a result of industry consolidation and Wall Street’s demand for short-term profits,” he says.
Glastris cites the semiconductor industry, which produced most semiconductors domestically. But when the government relaxed anti-trust enforcement, Intel bought up and offshored much of the manufacturing capacity.
In other examples, a few grocery chains dominate the market and in 2021, vaccine makers Moderna, Pfizer, and BioNTech made $34 billion in pre-tax profits on $70 billion in sales based mainly on their ability to restrict competition and dictate prices for Covid-19 vaccines.
That’s not all. “Over the past 20 years, price increases for brand-name drugs in Medicare Part D have risen at more than twice the rate of inflation,” reported the Commonwealth Fund. “In 2021, drug manufacturers increased prices an average of 4.2 percent on more than 900 brand-name drugs, a new record. Between 2018 and 2019, half of the drugs covered by Part D plans had a price increase that exceeded inflation (which was 1.8%). Some increases were as large as 19.7 percent.” Drug manufacturers announced price increases averaging 5% for 460 drugs in 2022.
The power of monopolies has given rise to calls for anti-trust action, price controls, and taxes on excess profits. “Long-term if we want to get those prices under control, we need competitive markets,” said Warren. “Enforcing our anti-trust laws and laws that promote competition.”
The administration is earmarking $1 billion to help small meatpacking companies compete in a monopolized industry. In July, Biden issued an executive order to enforce over 72 anti-trust laws across agencies and departments vigorously. The Build Back Better Act would allow Medicare to negotiate with drug makers to reduce costs directly.
Additionally, the Ultra-Millionaire Tax Act, introduced by Warren and U.S. Rep. Pramila Jayapal, D- Wash., languishes in Congress. The tax on America’s wealthiest 100,000 families would bring in $3 trillion in revenue over ten years. But passing this legislation requires the election of more significant Democratic majorities and more anti-monopoly legislators.
Control of inflation then, like almost everything else important to the people, depends on the all-out mobilization of the people’s forces for the 2022 Midterm elections this year.
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