Is Most of America’s Inflation About Monopolies, Price-Gouging, & Oil Barons Fleecing Us?
The most important takeaway from today’s inflation crisis is that we must get our corporations back under control if we’re to have an economy that works for us instead of just for the billionaires
Lifelong Republican and Trump Fed appointee Jerome Powell is preparing to hit the American economy — American workers, in particular — upside the head with another 2x4 today. His theory is that if enough people get thrown out of work, employers will have so many folks desperate for jobs they can start cutting pay (or at least stop having to offer pay increases).
But is out-of-control pay driving inflation? There’s little evidence of that. As CBS News noted, based on Bureau of Labor statistics, just last week:
“When the numbers are adjusted for rising prices, wages and salaries have actually declined 3% over the year.”
This “gotta cool down the economy” pitch from the Fed is, in reality, most likely a case of Abraham Maslow’s famous dictum: “When the only tool you have is a hammer, every problem you face looks like a nail.”
Interest rates are about the Fed’s only tool, and Powell and his colleagues are under mind-boggling pressure to slow down or stop prices from rising.
So, what’s really going on with inflation? And when and how will it end?
The cynics among us suggest that American inflation will begin to ease significantly in the months immediately after the election, probably most visibly by February.
According to their theory, the captains of American industry are itching to get back to Republican control of one or both houses of Congress so they can put a stop to Democratic talk of a “billionaire tax,” investigations into corporate price-gouging, and any further regulation of America’s largest corporations.
To help the GOP along, goes the theory, they’ve been price-gouging the American consumer as hard and fast as possible.
It’s a three-fer: it pisses off voters so they’ll “throw the [Democratic] bums out,” makes CEOs obscene short-term profits they can split up among themselves and their senior executives, and is all done under the cloak of invisibility provided by worldwide inflation.
Even the Saudis and Putin got into the act, the story goes, intentionally jacking up oil prices a month before the election to kneecap Biden and his Democratic Party, hoping to see Trump back in office one day soon. Their timing, and their weak protestations to the contrary, simply give credence to the theory.
If this theory is right and Democrats hold the House and Senate, there will almost certainly be a rapid reduction in inflation because the threat of congressional investigations and Biden’s regulatory agencies will force CEOs to moderate their notorious greed.
If, on the other hand, Republicans seize one or both of the two houses of Congress, they’ll do everything they can to crash the economy so Biden and the Democrats will get the blame (even if that blame is mostly of the “How could you have let them do this to us?” variety).
In either case, inflation goes down.
Like with the Saudis, Republicans are feeding this conspiracy theory by openly proclaiming their intention to shut down our government, which would provoke a major economic crisis, if Democrats don’t agree to speed up the privatization of Medicare and join the GOP in gutting Social Security.
While the “GOP conspiracy” theory makes a certain amount of sense, it competes with another that’s more easily demonstrated and explains why the US is flirting with over 8 percent inflation but it’s only 3 percent in Japan.
This theory posits that most of America’s inflation can be attributed to two factors: corporate monopolies price-gouging us and oil barons fleecing us. It’s just that they’re not doing it for political purposes: they’re doing it because they can.
The simple economic reality, noted from the days of Adam Smith, is that there are only two things that keep corporate profits within reasonable bounds. The first is competition in the marketplace and the second is government regulation.
America has, over the past 40 years, adopted significant aspects of neoliberalism, what we call Reaganism, “supply side” or “trickle down.” This has included allowing corporations to engage in their favorite method of destroying competition: through mergers and acquisitions.
In 1983, the Reagan administration instructed the Securities and Exchange Commission (SEC), Department of Justice (DOJ), and Federal Trade Commission (FTC) to essentially stop enforcing our nation’s anti-trust laws that dated back to the Sherman Act of 1891. The result, as anybody old enough to remember the 80s can tell you, was an explosion of merger and acquisition activity, the so-called “M&A Mania.”
“Greed is good” was the mantra of the time, “Chainsaw Al” Dunlap was a pop culture hero for firing over 20,000 people after slamming companies together, and Michael Douglas starred in a cautionary tale titled, aptly, Wall Street.
As economist Thomas Philippon noted in his 2019 masterpiece book The Great Reversal: How America Gave Up on Free Markets, when you add up all the little ways these new corporate behemoths rip us off, the average American household pays $5000 a year more for the necessities of life than the average European or Canadian household.
It turns out that a nation can have heavily regulated monopolies — like Japan does broadly and we do with water and power utilities (and used to do with AT&T when they were America’s only phone company) — or you can have price-gouging that costs, well, $5000 a year per family.
To avoid the problem of monopolies engaging in price-gouging, countries can do what’s common among European nations: rigorously enforce anti-monopoly laws to prevent any one corporation or handful of corporations from controlling large chunks of any industrial or retail sector. But, as noted, America abandoned that in 1983 as part of the Reagan Revolution.
So here we are with the worst of both worlds. We allow monopolies and — unlike Japan — we don’t regulate profits. As a result, there’s not a single consequential industry or sector in America that’s not now dominated by five or fewer corporations that, in almost every case, act together like a cartel and squeeze us for all they can. (This is called oligopoly.)
Delta raises their airfares $100 and fifteen minutes later United and American have followed suit. Drug companies so effectively backstop each other that a cancer drug that sells for $260 in the UK costs $38,398 here. Our largest health insurance companies steal literally billions from Medicare and, because they do it so aggressively and so frequently, the government is swamped and rarely even gives them a slap on the wrist.
As Congresswoman Katie Porter recently pointed out, fully 54 percent of our current “inflation” is actually the result of corporate price-gouging of American consumers. They’re getting away with it, in the absence of either antitrust or regulatory action by our government, because (as noted earlier) they can.
“But what about inflation worldwide?” some will ask.
The world opening up after Covid drove the initial inflationary surge all around the planet, and, here in America, once our monopolies and oligopolies jumped on the price-raising bandwagon, they simply used those initial conditions as an excuse to continue to jack up prices to nosebleed levels.
If 54% of our inflation is price-gouging, now that supply chains are recovering (there are still problems with chips) most of the rest of our inflation is caused by increases in the price of oil echoing through our economy.
Inflation in Europe is driven largely by the explosion of energy costs there, the result of Russia’s genocidal invasion of Ukraine and the resulting disruption of world oil markets. We could be energy self-sufficient (as I noted last week) if we just rolled the clock back 7 years and stopped exporting oil, but Europe doesn’t have that option.
The most important takeaway from today’s inflation crisis is that we must get our corporations back under control if we’re to have an economy that works for us instead of just for the billionaires and their companies.
The Biden administration is now starting to enforce our antitrust laws again, which is a Very Good Thing; they just blocked 4 hospital mergers, the Random House/Simon & Schuster merger, and are looking at the giant grocery store merger plan with a jaundiced eye.
President Biden is also talking about windfall profits taxes, recently comparing American oil companies and refineries to “war profiteers,” which will also constrain corporate abuse of American consumers.
These actions don’t require conspiracy thinking and can be far more consequential than Jerome Powell’s hammering working people into poverty.
They’re also long overdue: Biden is the first American president to talk or act like this, using actual rational economic theory instead of Reagan’s neoliberal nonsense, in over 40 years.
He needs our support in these efforts. The number for the congressional switchboard is 202-224-3121 if you’d like to encourage your Member of Congress and Senators to help him use our antitrust laws to constrain America’s billionaires and their corporations’ never-ending greed.