Not new, perhaps, but getting worse by the day
In a new video from Robert Reich, former secretary of labor and accomplished author, the phenomena we are all experiencing on a daily basis, such as incredible high gas prices, crazy energy prices, more out-of-pocket at the grocery store, and what sure looks like price gouging and price hikes on almost everything, he takes on the root of it all, in other words: Inflation.
Naturally, with all of this being so obvious to you and me there’s no shortage of folks to explain the purported causes, from media outlets like The Washington Post, to Biden administration officials and pundits from left, right and center.
One explanation you will seldom hear, however, is that much of the pain we are experiencing is due to monopoly power, the inequality growing out of the economic concentration of the American economy and the ever increasing concentration of financial and market power to a relative handful of big corporations.
This perspective is not only refreshingly direct, but it actually has a remedy attached, unlike the usual reasons given, such as economic policy, government spending, irresponsible actions by the federal government and federal reserve and so on. While all of these are certainly good candidates for finger pointing, they generally have only one response attached that is suggested as a remedy: higher interest rates.
“How can this structural problem be fixed? Fighting corporate concentration with more aggressive antitrust enforcement. Biden has asked the Federal Trade Commission to investigate oil companies, and he’s appointed experienced antitrust lawyers to both the FTC and the Justice Department.”– Robert Reich
The idea that corporate greed, massive corporate profits that keep rising, in spite of supply chain disruptions and other issues, could be at the root of the problems, and that aggressive use of antitrust law might just be an appropriate response to the deeper structural issue is spot on.
A real change via antitrust might help to reinstate tough competition, weed out greedy businesses and even slow down the increasing consolidation of the economy, and the concept comes across as a welcome revelation, or at least beats a job and economy crushing series of Paul Volcker-style (huge) interest rate hikes.
There’s an even bigger challenge on the horizon, however, which is the sheer size of the biggest tech firms, who make the companies mentioned in the video, such as Coke, Pepsi, Procter & Gamble, meat conglomerates and the pharmaceutical industry seem tiny by comparison. As noted by the Wall Street Journal, during the pandemic the behemoths such as Facebook, Amazon and Microsoft have surged.
This is evidence of even less competition than in the sectors mention and presented in the video, and yes, the energy sector, consumer goods, food prices are all showing little competition and that situation is getting worse.
In a recent New York Times article “Economists Pin More Blame on Tech for Rising Inequality” the author, Steve Lohr, argues that, above and beyond the horrors outlined in The Hidden Link Between Corporate Greed and Inflation there’s an automation factor at work concentrating the already ludicrous levels of unending power faster and more efficiently. Great.
At least we have Mark Zuckerberg, from a recent YouTube interview with Lex Fridman, with his sunny personality shining through, saying that “what if playing with your friends is the point [of life]?, and further “I think over time, as we get more technology, the physical world is becoming less of a percent of the real world, and I think that opens up a lot of opportunities for people because you can you can work in different places you can stay closer to people who are in different places removing barriers of geography”. At least, then, there’s that. Thanks Mark.
The video text reads well also on the page. Charts, graphics and the charismatic voice of Robert Reich are worth the watch, but here is the full text, in case you prefer:
Inflation! Inflation! Everyone’s talking about it, but ignoring one of its biggest causes: corporate concentration.
Now, prices are undeniably rising. In response, the Fed is about to slow the economy — even though we’re still at least 4 million jobs short of where we were before the pandemic, and millions of American workers won’t get the raises they deserve. Republicans haven’t wasted any time hammering Biden and Democratic lawmakers about inflation. Don’t fall for their fear mongering.
Everybody’s ignoring the deeper structural reason for price increases: the concentration of the American economy into the hands of a few corporate giants with the power to raise prices.
If the market were actually competitive, corporations would keep their prices as low as possible as they competed for customers. Even if some of their costs increased, they would do everything they could to avoid passing them on to consumers in the form of higher prices, for fear of losing business to competitors.
But that’s the opposite of what we’re seeing. Corporations are raising prices even as they rake in record profits. Corporate profit margins hit record highs last year. You see, these corporations have so much market power they can raise prices with impunity.
So the underlying problem isn’t inflation per se. It’s a lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.
Take the energy sector. Only a few entities have access to the land and pipelines that control the oil and gas powering most of the world. They took a hit during the pandemic as most people stayed home. But they are more than making up for it now, limiting supply and ratcheting up prices.
Or look at consumer goods. In April 2021, Procter & Gamble raised prices on staples like diapers and toilet paper, citing increased costs in raw materials and transportation. But P&G has been making huge profits. After some of its price increases went into effect, it reported an almost 25% profit margin. Looking to buy your diapers elsewhere? Good luck. The market is dominated by P&G and Kimberly-Clark, which—NOT entirely coincidentally—raised its prices at the same time.
Another example: in April 2021, PepsiCo raised prices, blaming higher costs for ingredients, freight, and labor. It then recorded $3 billion in operating profits through September. How did it get away with this without losing customers? Pepsi has only one major competitor, Coca-Cola, which promptly raised its own prices. Coca-Cola recorded $10 billion in revenues in the third quarter of 2021, up 16% from the previous year.
Food prices are soaring, but half of that is from meat, which costs 15% more than last year. There are only four major meat processing companies in America, which are all raising their prices and enjoying record profits. Get the picture?
The underlying problem is not inflation. It’s corporate power. Since the 1980s, when the U.S. government all but abandoned antitrust enforcement, two-thirds of all American industries have become more concentrated. Most are now dominated by a handful of corporations that coordinate prices and production. This is true of: banks, broadband, pharmaceutical companies, airlines, meatpackers, and yes, soda.
Corporations in all these industries could easily absorb higher costs — including long overdue wage increases — without passing them on to consumers in the form of higher prices. But they aren’t. Instead, they’re using their massive profits to line the pockets of major investors and executives — while both consumers and workers get shafted.
How can this structural problem be fixed? Fighting corporate concentration with more aggressive antitrust enforcement. Biden has asked the Federal Trade Commission to investigate oil companies, and he’s appointed experienced antitrust lawyers to both the FTC and the Justice Department.
So don’t fall for Republicans’ fear mongering about inflation. The real culprit here is corporate power.
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