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).
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.
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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No ladies and germs, WaPo is not just a 24-7 libtard screed.
you are correct
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.
Exactly, inflation is an indication of price gouging while recessions are just part of the normal economic/business cycle.
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).
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
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.
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
Of course Biden and the Dems will be blamed on election day...that's how it works.