The Pundits Were Wrong: Corporate Greed Stoked Inflation
For the last year, media pundits have insisted that today’s inflation has nothing to do with corporate profiteering, much to the delight of the capitalist class. It is more than clear now that they were wrong.
A shopper looks over a selection of canned soups April 30, 2023 at the Tops Super Market in Greenville, New York. (Robert Nickelsberg / Getty Images)
One year ago, as price hikes were becoming a major national concern, the world’s third-richest man touted his newspaper columnist asserting that corporate profits were not a driving force behind inflation — blaming temporary COVID-19 pandemic aid instead.
While Washington Post owner Jeff Bezos and others were trying to steer the inflation discourse away from a focus on business profiteering, there was already data showing that most of the price increases Americans were experiencing could be attributed to larger corporate profit margins.
Those figures were hardly surprising: corporations that had been permitted to grow into oligopolies during the era of lax antitrust enforcement were now able to leverage their outsized market power to hike prices — and to do so with less fear of competitors undercutting them. It’s a reality that has since been recognized by a Federal Reserve study, a top economist at UBS, European central bankers, and, most recently, Rupert Murdoch’s Wall Street Journal.
And yet, corporate media outlets ignored the available data, choosing to publish and platform pundits who scoffed at accusations of what they derisively called “greedflation” and who insisted that the problem is workers being paid higher wages. That decision delivered devastating consequences for the US working class.
As with the “weapons of mass destruction” lies used to justify the deadly Iraq War, and financial deregulation triumphalism leading to the 2008 financial crisis and bank bailouts, the fake media narrative about inflation became conventional wisdom, was echoed by lawmakers, and justified specific policies. In this case, the narrative provided government officials justification to cut off pandemic aid, block new spending, abandon any push for a minimum wage increase, and raise interest rates with the express goal of driving down workers’ wages.
The results: a sharp increase in the number of Americans who can’t afford to pay their bills, and now mass layoffs amid a slowing economy.
Directing blame for inflation away from corporations and toward government spending that temporarily boosted the working class was lucrative for the world’s wealthiest like Bezos and for the giant companies that belong to corporate lobbying groups like the US Chamber of Commerce.
The discourse manipulation helped stall momentum for anti-price-gouging legislation, higher taxes on the wealthy, and an excessive corporate profits tax. The propaganda also provided a justification for companies to keep jacking up prices as the government inflicted economic pain on workers and families.
We contacted several pundits who helped cement the narrative that “greedflation” was fake, and by extension, that government aid to the working class was the primary inflation culprit. Those who replied offered no apologies for helping create propaganda that justified cutting off millions of Americans from that aid, and they offered no response to a series of reports and analyses indicating that corporate profits have been driving historic price increases — exactly as some progressives accurately noted.
A “Flimsy” Democratic “Conspiracy Theory”
Early last year, the Washington Post editorial board published an op-ed claiming that President Joe Biden’s White House was offering “a bizarre message on inflation,” asserting that “pinning the current inflation problems on corporate greed is a flimsy argument.”
When House and Senate Democrats scheduled hearings a few months later on the role of corporate profiteering in inflation, the US Chamber of Commerce, the nation’s top business lobby, responded with letters to lawmakers pointing them to the Post op-ed.
“The premise of your hearing has been roundly refuted by economists,” the organization wrote to Senator Bernie Sanders in April 2022.
To an extent, the Chamber was right: the economist and pundit class had certainly disputed the notion that profiteering was playing a key role in driving inflation.
So did Republican lawmakers like Senator Chuck Grassley of Iowa, who used his time in the hearing to try to shift blame away from corporate price gouging and instead toward government spending.
First, he cited former Clinton treasury secretary Larry Summers’s warning that Democrats’ 2021 pandemic aid package would spur inflation.
“Democrats ignored common sense,” said Grassley, adding that they were now “grasping at straws to find a scapegoat, hence, blaming inflation on corporate greed, never mind that economists across the political spectrum overwhelmingly reject the theory.”
However, Lindsay Owens, executive director at the Groundwork Collaborative, testified to Sanders’s budget committee that her organization had reviewed hundreds of earnings calls, and found that Corporate CEOs were actively bragging to investors that they had been able to mark up costs on goods and services far beyond the rising costs paid by the companies.
“Over and over, in sector after sector, the message from corporate America is clear: CEOs are telling their investors that the current inflationary environment has created significant opportunities to extract more and more profit by raising prices on consumers,” she wrote. “Their strategy is simple — pass along rising costs, and then take even more.”
A few weeks after Sanders’s hearing, the Economic Policy Institute (EPI) released a study that found: “Corporate profits have contributed disproportionately to inflation.”
EPI’s chief economist Josh Bivens wrote that more than half of companies’ price increases since the start of the pandemic “can be attributed to fatter profit margins, with labor costs contributing less than 8 percent of this increase,” adding: “This is not normal.”
The EPI analysis should have been definitive — but the corporate pundit class chose to ignore it.
A few weeks after EPI released its study, Washington Post columnist Catherine Rampell wrote an op-ed calling “greedflation” a Democratic “conspiracy theory” equivalent to conservatives using a veterinary drug to try to cure COVID-19.
Rampell, who once wrote a piece standing up for legacy admissions at Princeton University such as herself, soon published another column arguing that Democrats were wrong to discuss corporate greed as a factor driving inflation . She instead cast partial blame on the one-time $1,400 pandemic aid payments mailed out by Democrats shortly after Biden took office.
Bezos, the Post’s owner, blasted Rampell’s column out to his millions of followers on Twitter, a few days after he criticized Biden for arguing that raising corporate taxes would help bring down inflation.
Rampell separately wrote, “For ‘corporate greed’ to be the culprit behind the recent spike in prices, well, you’d have to believe either that businesses suddenly got much greedier — that this is the greediest Thanksgiving ever! — or that businesses somehow suddenly got much more effective at acting upon that greed.”
The latter appears to be exactly what happened: data compiled by the Roosevelt Institute study suggested that corporations that had grown larger in the era of lax antitrust enforcement were able to use their expanded market power to inflate prices, knowing they would not be undercut by competitors.
The Washington Post and Rampell did not respond to questions from us.
As recently as February, Rampell tweeted out that those questioning her assertions about inflation are “internet trolls” and that despite all the data, she was right to repeatedly suggest that corporate profits were not a driver of price hikes.
“I Stand by That 100 Percent”
The Post editorial board and Rampell were far from alone in arguing that it was a “conspiracy theory” to suggest that corporate profits are responsible for much of the price inflation that people have experienced during the pandemic.
Jason Furman, the chair of the Council of Economic Advisers under President Barack Obama, shared Rampell’s column about Democrats’ inflation “conspiracy theory” on Twitter, praising her for calling out “this dangerous misguided nonsense.”
A scion of a wealthy and powerful real estate family, Furman later tweeted that “many of the arguments for ‘greedflation’ are unequivocally wrong & confused.”
Economist Justin Wolfers told NPR last fall, “My friend and economist Jason Furman says, ‘Blaming inflation on greed is like blaming a plane crash on gravity.’ It is technically correct, but it entirely misses the point.”
Furman continued to double down on this narrative when contacted by us.
“I do think corporations maximize their profits and try to raise prices as high as they can — and that we have too much corporate concentration so prices are too high,” Furman said. “But I don’t see any evidence that changed over the last few years. What did change was demand fueled by highly expansionary fiscal and monetary policy.”
Summers, the former Clinton treasury secretary who helped usher in the deregulation of the banking industry that led to the 2008 financial crisis and created “too-big-to-fail” banks, said in May 2022 that the idea that corporate profits played a role in inflation was “preposterous.”
Senate Minority Leader Mitch McConnell, a Kentucky Republican, amplified Summers and Furman’s criticisms of the “greedflation” narrative on the Senate floor last May.
Bloomberg Opinion columnist Matt Yglesias, whose Slow Boring blog is reportedly read by White House staff, wrote a post last May entitled: “Greedflation is fake.” Yglesias urged readers to suppose they ran a company that decides to hike prices in response to a temporary surge in demand.
“So imagine your surprise when politicians start screaming that the high-profit margins prove that this inflation is really ‘greedflation’ driven by monopoly power when all you did was make tables available promptly to people who wanted tables,” he wrote, adding: “Greed is a constant. But the cause of this particular inflation was a surge in demand, not a surge in greed.”
Reached for comment by us, Yglesias responded, “In terms of my piece, I believe my thesis — as you yourself quoted it back to me — was that inflation could not possibly be attributed to an increase in the level of corporate greed. I stand by that 100 percent.”
He added, “What I remember from my economics textbooks is that if you have a surge in demand that runs up against relatively inelastic supply, what happens is that prices go up (inflation) and so do profits — that’s broadly speaking what I think is going on here and what I assume the economists whose work you’re summarizing are explaining.”
Corporate Spin to “Disguise Profit Margin Expansion”
Several recent economic studies and comments from central bankers indicate that corporate profits are, in fact, driving price hikes.
“Firms raised markups during 2021 in anticipation of future cost pressures, contributing substantially to inflation,” researchers at the Federal Reserve Bank of Kansas City wrote in an economic review published this January.
In March, UBS chief economist Paul Donovan released a revealing commentary concluding: “Recent inflation has been driven by an unusual expansion of profit margins.”
He explained: “Profit margin-led inflation is not caused by a supply-demand imbalance. Profit margin-led inflation is when some companies spin a story that convinces customers that price increases are ‘fair,’ when in fact they disguise profit margin expansion.”
Donovan noted that “widespread reports of rising agricultural prices allow supermarkets and restaurants to raise the price of food.” Other spinnable stories include “supply chain disruption (in fact global trade is at a record high), labor shortages (in fact wage costs are rising far less than prices), and in the most circular of arguments ‘general inflation,’” he wrote.
Several days later, a top official at the European Central Bank gave a speech suggesting that corporate profiteering is sustaining inflation.
“Opportunistic behaviour by firms could also delay the fall in core inflation,” said Fabio Panetta, an executive board member at the bank. “In fact, unit profits contributed to more than half of domestic price pressures in the last quarter of 2022. In some industries, profits are increasing strongly and retail prices are rising rapidly, in spite of the fact that wholesale prices have been decreasing for some time.”
He added, “This suggests that some producers have been exploiting the uncertainty created by high and volatile inflation and supply-demand mismatches to increase their margins, raising prices beyond what was necessary to absorb cost increases.”
On Tuesday, the conservative Wall Street Journal reported, “Inflation has proved more stubborn than central banks bargained for when prices started surging two years ago. Now some economists think they know why: Businesses are using a rare opportunity to boost their profit margins.”
On Wednesday, the Federal Reserve once again hiked interest rates — increasing the risk that the US economy will fall into a recession.
For its part, the Washington Post recently republished a Bloomberg column that noted: “The idea that corporate profit expansion has been a big driver of inflation was once mostly confined to trade unions and left-wing academics, but it’s now taken seriously.”
But neither Bezos nor the newspaper’s editorial page have themselves responded to — or apologized for suppressing — the data showing their inflation narrative was false.