Why the White House stopped telling the truth about inflation and corporate power | Robert Reich

Ja Biden White House decided to stop linking inflation to corporate power. This is a big mistake. I’ll get to the reason for the change in a moment. First, I want to be clear about the relationship between inflation and corporate power.

While most of the price increases currently affecting the US and global economies are the result of global supply chain issuesit does not explain why large, extremely profitable companies pass these cost increases on to their customers in the form of higher prices.

They don’t need do this. With corporate profits at near-record levels, they could easily absorb cost increases. They raise prices because they can – and they can because they don’t face significant competition.

As the White House National Economic Council said in December report“Companies that face significant competition cannot do this because they would lose business to a competitor who does not increase their margins.”

Starbucks is raising prices to consumers, blaming rising supply costs. But Starbucks is so profitable it could easily absorb those costs — it just reported a 31% increase in annual profits. Why didn’t he just swallow the cost increases?

Ditto for McDonald’s and Chipotle, whose revenues have exploded but are nevertheless increasing prices. And for Procter & Gamble, which continues to reap record profits but drives up prices. Also for Amazon, Kroger, Costco and Target.

All are able to pass cost increases on to consumers in the form of higher prices because they face so little competition. As Chipotle’s CFO said, “Our ultimate goal…is to fully protect our margins.”

Worse still, inflation has allowed some large companies to raise their prices significantly above their rising costs.

In a recent survey, nearly 60% of large retailers to say inflation gave them the opportunity to raise prices beyond which is necessary to offset the higher costs.

Meat prices are skyrocketing because the four giant meat processing companies that dominate the industry are “using their market power to extract growing profit margins for themselvesaccording to a recent White House National Economic Council report (emphasis added).

It is no coincidence that this report was dated December 10. Now the White House is firing its shots. Why has the White House stopped explaining this to the public?

The Washington Post reports that when congressional prepared testimony from a senior administration official (Janet Yellen?) was recently released inside the White House, it included a passage linking inflation to corporate consolidation and the monopoly power. But this language was removed from remarks before they are spoken.

Apparently, members of the White House Council of Economic Advisers raised objections. I don’t know what their objections were, but some economists argue that since firms with market power would not need to wait for current inflation to raise prices, firm power cannot contribute to the inflation.

This argument ignores the ease with which powerful corporations can pass on their own cost increases to customers by raising prices or use inflation to mask even higher price increases.

It seems likely that the Council of Economic Advisers is influenced by two Democratic economists from a previous administration. Former Democratic Treasury Secretary Larry Summers and Jason Furman, a top Obama administration economist, have criticized attempts to link corporate market power to inflation, according to the Post.

“Business bashing is terrible economics and not very good politics in my opinion,” Summers noted in an interview.

Wrong. Showing the links between corporate power and inflation is not “corporate bashing”. He holds powerful corporations accountable.

Whether through antitrust enforcement (or threat thereof), windfall tax or price controls, or all three, it is important that the administration and Congress do what they can to keep the hugely profitable monopolistic corporations from raising their prices.

Otherwise, the responsibility for controlling inflation falls entirely on the Federal Reserve, which has only one weapon at its disposal: higher interest rates. Higher interest rates will slow the economy and likely cause millions of low-wage workers to lose their jobs and forgo long-awaited wage increases.

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