This morning, the Bureau of Labor Statistics reported that prices were 8.5 percent higher last month than they were a year ago -- the highest rate of inflation since 1981. The buying power of Americans is being squeezed more and more each day. But the media is failing to tell the whole story.
Here are the facts about inflation you need to know:
1. Corporate profits are at a 70-year high. Yet corporations are still raising their prices.
2. They are not raising prices because of the increasing costs of supplies and labor -- which are real but expected when an economy goes suddenly from a pandemically-induced deep freeze to meeting the soaring demands of consumers who are emerging from the pandemic. Corporations enjoying record profits in a healthy competitive economy would absorb these costs.
3. Instead, they’re passing these costs on to consumers in the form of higher prices. In many cases they’re raising prices higher than those cost increases, using the cover of inflation to increase their profit margins even more.
4. They’re doing so because they face little or no competition. If markets were competitive, companies would keep their prices down to prevent competitors from grabbing away customers.
5. Since the 1980s, two-thirds of all American industries have become more concentrated. This concentration gives corporations the power to raise prices because it makes it easy for them to informally coordinate price increases with the handful of other companies in their same industry -- without risking the possibility of losing customers, who have no other choice.
6. Corporations are using these near-record profits to boost share prices by buying back a record amount of their own shares of stock. Stock buybacks hit a new record last year. So far this year they’re on track to exceed that record. Stock buybacks are predicted to hit $1 trillion this year -- an all-time high.
7. Most American workers have barely had a wage increase in 40 years (adjusted for inflation). Although some corporations have recently given out wage increases in response to the post-pandemic surge in demand, these wage increases have been almost completely eroded by price increases. When corporations are enjoying near-record profits, we would expect corporations to pay the higher wages out of their profits rather than to pass them on to consumers in the form of higher prices. But they are not. The labor market is not “unhealthily” tight, as Fed Chair Jerome Powell asserts; corporations are unhealthily fat. Workers do not have too much power; corporations do.
8. As a result of all this, income and wealth are being redistributed upward from average working people (many of whom live from paycheck to paycheck) to CEOs and shareholders, including the wealthiest people in America. Billionaires have become $1.7 trillion richer during the pandemic. CEO pay (based largely on stock values) is now at a record 350-to-1 ratio relative to median pay.
9. Wealthy Americans are now paying a lower tax rate than the working class. Some are paying no taxes at all.
10. Big corporations have accumulated a substantial amount of political power, with which they’ve beaten back lower drug prices, prevented higher corporate taxes, and amassed unprecedented corporate welfare.
In short, although the American economy is rebounding nicely from the recession, the growing imbalance of economic power is bad for most Americans and for the economy as a whole.
So, how can we fix this? I have a few ideas:
1. Tougher antitrust enforcement
2. A windfall profits tax on corporate profiteers
3. Higher taxes on the wealthy and corporations
4. A ban on corporate stock buybacks
5. Stronger unions
6. Campaign finance reform to get big money out of politics
None of these solutions is radical. What’s radical is allowing this direct upward redistribution of wealth from the wallets of working Americans to the pockets of corporate executives and shareholders.
That’s my view. I hope you find this useful!
In solidarity,
Robert Reich
Inequality Media Civic Action
(from my inbox)
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