An inflation conspiracy theory is infecting the Democratic Party

  

Category:  Op/Ed

Via:  hallux  •  one week ago  •  17 comments

By:   Catherine Rampell - WaPo

An inflation conspiracy theory is infecting the Democratic Party

S E E D E D   C O N T E N T



A conspiracy theory has been infecting the Democratic Party, its progressive base, even the White House. It’s not quite as self-sabotaging as the  horse-dewormer-cures-covid  false theory that swept up many Republicans last year, but it’s pretty damaging nonetheless.



Call it “Greedflation.”



The theory goes something like this: The reason prices are up so much is that companies have gotten “greedy” and are conspiring to “pad their profits,” “profiteer” and “price-gouge.” No one has managed to define “profiteering” and “price-gouging” more specifically than “raising prices more than I’d like.”




For example, a   bill   introduced on Thursday by Democratic Sens. Elizabeth Warren (Mass.) and Tammy Baldwin (Wis.) and Rep. Jan Schakowsky (D-Ill.) bans “price-gouging,” which it defines as “unconscionably excessive” pricing.

What counts as an “unconscionably excessive” price, you ask? TBD, but it’s definitely going to be illegal.


The problem with this narrative is that it’s just a pejorative tautology. Yes, prices are going up because companies are raising prices. Okay. This is the economic equivalent of saying “It’s raining because water is falling from the sky.” Well,   why ?



Why are companies, which have always been “greedy” (or, one might say, “profit-maximizing”), able to raise prices   now ? What changed between early 2020, when   corporate profits   and   inflation   were plummeting, and today, when both metrics are “unconscionably” up?



The answer is important, because it determines what policymakers can or should do about it.

Here is how economists explain the recent run-up in inflation: Demand is strong, thanks to pandemic-forced savings plus expansionary government policies (stimulus payments, low interest rates, etc.). Meanwhile, supply remains constrained by covid-related disruptions, labor shortages,  other unfortunate shocks . Companies can’t ramp up production quickly enough to procure all the stuff that consumers want to buy, whether that “stuff” is oil, furniture or eggs.


Consumers still want to buy all this stuff, though, and Americans overall have an unusually high amount of   cash on hand . So they are willing to pay more. That pushes prices up.



A concrete example: In 2019, a car dealer that raised prices 10 percent might have lost customers and watched inventory sit. Today, that dealer can raise prices 20 percent and still have trouble keeping anything in stock. That’s because cars remain hard to come by, and customers are willing and able to pay a premium for whatever’s available.



The solution to the broader increase in prices, then, is ramping up supply (e.g., getting more workers in the labor force, removing trade barriers, encouraging oil-drilling); and/or, tamping down demand (e.g., raising interest rates).


“Supply and demand” is not the greedflationists’ preferred lens on inflation. They say inflation is driven by a Manichean struggle between big corporations and their innocent victims, the customers.



Companies are somehow conspiring to boost inflation, this thinking holds, because they can use it as an “ excuse ” to “ profiteer .” No matter that major business groups have actually been   hawkish   about   inflation , since unpredictable price growth can make it difficult for them to plan (and increases the prospect of recession).



So what’s the supposed evidence that businesses are pro-inflation? The greedflationists —   including President Biden   — complain that executives are boasting on corporate earnings calls about how much money they’re making. This might sound like a smoking gun if you have never listened to an earnings call, in which executives usually boast about how great profits are or will be.


The greedflationists argue that something fishy is afoot because companies are not merely “passing along” their higher costs; their profit margins are expanding, too. But this is exactly what you’d expect when flush customers are buying more stuff  and willing to pay whatever’s necessary to get what they want. Prices  and  profits rise.


I’ve been scolded before, including by White House senior aides, for making a fuss about Democrats’ demagoguery on this issue. So what if Biden and Democratic lawmakers want to grandstand about corporate greed? Who cares whether Biden asks for  another gratuitous investigation  into whether “ illegal ” conduct is driving up gas prices? This kind of populist anti-corporate rhetoric  polls   well , they say. It does no harm. It’s just cheap talk, so Democrats can show they’re Doing Something about inflation.





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Hallux
Sophomore Principal
1  seeder  Hallux    one week ago

No ladies and germs, WaPo is not just a 24-7 libtard screed.

 
 
 
JohnRussell
Professor Principal
1.1  JohnRussell  replied to  Hallux @1    one week ago

you are correct

 
 
 
JohnRussell
Professor Principal
2  JohnRussell    one week ago

I generally like Catherine Rampells columns on the economy, but all this article really goes to show is that she approves of price gouging. 

We have been told for the past year that inflation is all Bidens fault. Rampell seems to acknowledge that it is the result of excessively higher prices on consumer goods, but she excuses it on the basis that it is simply business being business. 

If companies had just maintained previous profit margins that might be a good argument, but if they increased profit margins as they took advantage of increased demand, even though they knew it would fuel record high inflation, then these companies are simply unAmerican. 

 
 
 
Drinker of the Wry
Freshman Expert
2.1  Drinker of the Wry  replied to  JohnRussell @2    one week ago
she approves of price gouging. 

Exactly, inflation is an indication of price gouging while recessions are just part of the normal economic/business cycle.

 
 
 
Texan1211
Professor Principal
2.2  Texan1211  replied to  JohnRussell @2    one week ago
We have been told for the past year that inflation is all Bidens fault.

Here is what Biden had to say last year about inflation:

Biden says inflation temporary; Fed should do what it deems necessary for recovery | Nasdaq

WASHINGTON, July 19 (Reuters) - U.S. President Joe Biden on Monday said an increase in prices was expected to be temporary, but his administration understood that unchecked inflation over the longer term would pose a "real challenge" to the economy and would remain vigilant.

Joe Biden and Company were so vigilant that they watched record-setting inflation hit US citizens.

Just think where we would be today had Joe not been so vigilant.

Great job there, Joe!

Oh, because I am sure it will be necessary:

/s

 
 
 
Im Not Here
Freshman Silent
2.3  Im Not Here  replied to  JohnRussell @2    one week ago

Here's the thing about markets and shortages of goods. Because that is what we have right now - a mismatch between the money available to buy goods and services and the goods and services available for sale.

One predictable outcome of price controls would be goods winding up in even shorter supply from legitimate suppliers and available at gouged prices on the black market. Remember what happened when paper products disappeared from the shelves in the early pandemic? Toilet paper was being sold on eBay.

Nixon tried to address inflation with a wage and price freeze before he resigned. It didn't work. Economists, like Larry Summers, who truly understand this economy saw this inflation coming and were correct from the start. Why are some other economists resistant to recognizing that at any given moment supply is a constraint that we can't simply wave a magic wand at? Why did they dismiss this inflation as transitory?

My answer to that would be politics. The left wing of the Democratic Party has a wish list of agenda items they have not been able to pass because Manchin and Sinema won't go along. The last thing they want to hear is that an additional reason they shouldn't be throwing more money at the economy is that the economy can't handle it (right now, anyway).

 

 
 
 
Texan1211
Professor Principal
3  Texan1211    one week ago

Looks like the lady nailed it.

Democrats continue to attack businesses.

Biden has no clue about inflation, he probably thinks it ended months and months ago since he believed it to be "temporary".

Maybe his handlers will get to it eventually.

 
 
 
Im Not Here
Freshman Silent
3.1  Im Not Here  replied to  Texan1211 @3    6 days ago
Biden has no clue about inflation, he probably thinks it ended months and months ago since he believed it to be "temporary".

Honestly, I don't think anybody completely understands inflation.

Rising corporate profit margins are a concern. Anytime someone can make more money by maintaining scarcity rather than increasing supply is probably a bad thing for us all.

Having said that, I think this Washington Post journalist is a pretty astute economics commentator. Democrats relying on disingenuous talking points is neither going to help us get back to a world of stable price increases or help Democrats at the polls in November.

But I do think you are unfair to Joe Biden. He is a moderate Democrat and a centrist tasked with the impossible problem of holding his party together. On one side he has Joe Manchin and on the other he has Sanders and AOC. He has chosen to let the politics between those wings play out as it will giving them both a chance to make their case to the American people.

Maybe we all need to ask ourselves what we can do to help keep inflation under control.

There are two areas of shortages we are about to be faced with that perhaps some lifestyle changes could help us all out with: reducing energy consumption and reducing meat consumption. 

 
 
 
Drinker of the Wry
Freshman Expert
4  Drinker of the Wry    one week ago

California knows how to 'Whip Inflation Now' (WIN) by pumping another $18.1B into their economy:

"We enacted the most comprehensive economic stimulus program in the nation last year, getting billions in immediate relief to millions of Californians. But many folks are still struggling, especially with high costs due to inflation, so we’re leveraging this historic surplus to get money back into the pockets of Californians. This inflation relief package will help offset the higher costs that Californians are facing right now and provide support to those still recovering from the pandemic.” - Governor Newsom

 
 
 
Texan1211
Professor Principal
4.1  Texan1211  replied to  Drinker of the Wry @4    one week ago

What I want to know is why we need economic stimulus when Biden is touting how successful his economy is.

On one hand, the economy is GREAT, according to Biden and a host of Democrats.

On the other hand, it is so bad that people are unable to pay their legal debts and we need to shell out tax dollars to "stimulate" the economy.

 
 
 
Drinker of the Wry
Freshman Expert
4.1.1  Drinker of the Wry  replied to  Texan1211 @4.1    one week ago
What I want to know is why we need economic stimulus when Biden is touting how successful his economy is.

Who doesn't like stimulation?  I like it and I like free fried chicken too.  

people are unable to pay their legal debts and we need to shell out tax dollars to "stimulate" the economy.

Look at it this way, the more inflation, the cheaper the debt.  We will pay it back with dollars not worth nearly as much as when we originally spent them.  If we keep this stimulation up, we can inflate our way out of debt.

 
 
 
Lucifer Morningstar
Professor Guide
4.1.2  Lucifer Morningstar  replied to  Drinker of the Wry @4.1.1    6 days ago

I don’t know if you did it intentionally or not but the government is doing it intentionally for a precisely the reason that you’re talking about with respect to the national debt.

And a whole shit load of other people are gonna get screwed in the process and they won’t even know it it was the government’s fault because the government of course told them that they were helping them while stabbing a knife in their back.

 
 
 
Nerm_L
PhD Principal
5  Nerm_L    one week ago

Joe Biden and Democrats are trying to explain away inflation with conspiracy theories.  If corporations were profiteering then why is the stock market suffering?  The stock market doesn't punish corporate America for making too much profit.

The neoliberal world is falling apart.  The value of the dollar hasn't been this high for 20 years.  And the Fed tightening monetary policy will only drive the dollar's value higher.  A high value dollar is supposed to lower the price for imports but will also raise the price for oil (since the dollar is also the petrodollar) and spur production.  The Fed tightening monetary policy also means deficits matter again; deficit spending has become much more costly.

So, we are experiencing high inflation along with an exceptionally high value dollar.  And that high inflation is affecting things that people cannot avoid buying.  Groceries, energy, and basic necessities are not discretionary luxury items and it's not likely that monetary policy will reduce demand for these necessities.  Inflation is affecting the price of bread and water so there's no wiggle.

The problem we are facing is that we've become overly dependent upon imports.  Just-in-time dependence upon imports has destroyed resilience in our economy.  We no longer have the capability to deal with short term disruptions in supply and certainly can not cope with long term disruptions.  And no amount of money (public or private) can fix that problem.  People can't eat money.

 
 
 
Dismayed Patriot
Professor Participates
6  Dismayed Patriot    one week ago

Price gouging does happen in times of crisis and uncertainty. However, price gouging can only be temporary and in the long term will often hurt the business that practices it. But it's important to define what price gouging really is. Raising prices because production costs have risen is normal, but price gouging is something different, it's not really effected by the cost of production but by sudden demand. 

Price gouging: noun - the action or practice of overcharging customers for something by sharply increasing its price, especially in order to take advantage of sudden high demand.

If a baby formula company started charging 10 times the common cost for a standard container of formula due to sudden demand, in the short term those who can afford it will have food for their babies while those who can't afford it will have to go without and likely suffer. But in the long term such prices are unsustainable since more and more competitors will compete for the market and those overcharging will be abandoned for the reasonable priced product when supply meets or exceeds demand. And if the price gouging company was too aggressive and people were hurt due to their greed, it's likely that the company will suffer long term damage to their brand.

I think that the Democrats pointing out price gouging as one of the reasons for the inflation is reasonable, it is happening in some places and industries, but it likely doesn't have as much of an effect as they'd like you to believe. Production costs have risen, shipping, fuel, the supply chain, changes in employment and changes in society all stemming from two years of a global pandemic are just now truly being felt by most Americans who are no longer just holing up in their homes. While we're not completely out of the woods, I think most Americans are getting back to some semblance of normality so the reality is now setting in and they want to get back to the life and activities they enjoyed before Covid which has suddenly increased the demand for many industries that were basically put on hold for the last two years. That coupled with a new sense of financial uncertainty has led many companies to give far more of a margin for profit because they often can no longer rely on the cost of materials and the supply chain. All these things have brought us to where we are now with rising inflation.

The one thing that anyone with more than half a brain should understand is that any President currently in office has very little to do with inflation, but clearly the Presidents political opponents will try and capitalize on the panic and try and blame the other party for anything that goes wrong while they're in power. Only complete dumb shits believe them however, sadly we have many on both sides of the aisle. But it's obvious that conservatives would blame Biden even if it was a completely unavoidable asteroid on a collision course with earth. Why didn't he develop an underground survival habitat for all Americans in time? Why didn't he develop jet engines that could push earth out of the way in time? Why didn't he develop a telescope that could have found it earlier? Why didn't he develop a weapon designed for destroying asteroids the size of Texas? That lazy bastard! /s

 
 
 
Texan1211
Professor Principal
6.1  Texan1211  replied to  Dismayed Patriot @6    one week ago

Why did Biden downplay inflation and claim it was temporary?

And with the Biden economy humming along so smoothly, why is inflation so rampant?

 
 
 
Greg Jones
Professor Guide
6.2  Greg Jones  replied to  Dismayed Patriot @6    one week ago

Of course Biden and the Dems will be blamed on election day...that's how it works.

 
 
 
Lucifer Morningstar
Professor Guide
7  Lucifer Morningstar    6 days ago

All I can say is thankfully I did an in-depth research project while in college on inflation because of the impacts that occurred  during the 70s and I’m not susceptible to the BS being propagated and sucked up by so many rubes who are completely financially illiterate intentionally at the behest of the government.

 
 

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