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Robert Reich: You Want To Know The Truth About Inflation? (It’s Not What The Fed Thinks It Is) – OpEd

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The Fed’s policy committee announced it would both end its bond-buying program and likely raise interest rates sooner than had been expected. “Inflation is more persistent and higher, and that the risk of it remaining higher for longer has grown,” Fed chair Jerome Powell explained. Translated: Powell and the Fed are about to slow the economy — even though we’re still at least 4 million jobs short of where we were before the pandemic. And even though, as a result, millions of American workers won’t get the raises they deserve.

I think that’s a big mistake. Powell’s medicine has nothing to do with the real reason for inflation: the increasing concentration of the American economy into the hands of a relative few corporate giants with the power to raise prices.

If markets were competitive, companies would keep their prices down in order to prevent competitors from grabbing away customers. But they’re raising prices even as they rake in record profits. How can this be? The answer is they have so much market power they can raise prices with impunity.

The underlying problem is not inflation. It’s lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.

In April, Procter & Gamble announced it would start charging more for consumer staples ranging from diapers to toilet paper, citing “rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods.”

That was rubbish. P&G continues to rake in huge profits. In the quarter ending September 30 (after its price increases went into effect) it reported a whopping 24.7 percent profit margin. It even spent $3 billion during the quarter buying back its own stock.

The reason it could raise prices and rake in more money is P&G faces almost no competition. The lion’s share of the market for diapers (to take one example) is controlled by just two companies – P&G and Kimberly-Clark – which coordinate their prices and production. It was hardly a coincidence that Kimberly-Clark announced price increases similar to P&G’s at the same time P&G announced its own price increases.

Or consider another consumer product duopoly – PepsiCo (the parent company of Frito-Lay, Gatorade, Quaker, Tropicana, and other brands), and Coca-Cola. In April, PepsiCo announced it was increasing prices, blaming “higher costs for some ingredients, freight and labor.” That was pure baloney. The company didn’t have to raise prices. It recorded $3 billion in operating profits through September.

If PepsiCo faced tough competition it could never have gotten away with it. Consumers would have deserted it for lower-priced competitors. But PepsiCo clearly colluded with its only major competitor, Coca-Cola – which announced similar price increases at about the same time as PepsiCo, and has increased its profit margins to 28.9 percent.

Half of the recent rise in grocery prices is from meat products — beef, pork, and poultry. Just four large conglomerates control most meat processing. They’re raising their prices — and coordinating their price increases — even as they’re scoring record profits. Here again, they’re using “inflation” as an excuse.

You see the same pattern all over the American economy.

Since the 1980s, two-thirds of all American industries have become more concentrated. Monsanto now sets the prices for most of the nation’s seed corn. Wall Street has consolidated into five giant banks. Airlines have merged from 12 carriers in 1980 to four today, which now control 80 percent of domestic seating capacity. The merger of Boeing and McDonnell Douglas has left the US with just one large producer of civilian aircraft — Boeing. Three giant cable companies dominate broadband: Comcast, AT&T and Verizon. A handful of drug companies control the pharmaceutical industry: Pfizer, Eli Lilly, Johnson & Johnson, Bristol-Myers Squibb and Merck.

All this concentration gives corporations the power to raise prices, because it makes it easy for them to coordinate price increases with the handful of other companies in their same industry — without risking the possibility of losing customers, who have no other choice.

In sum, inflation isn’t driving these price increases. Corporate power is driving them.

So what’s the appropriate government response? Not slowing down the economy. This will only hurt millions of workers, who are just beginning to get the raises they deserve. The problem at the heart of the economy is amenable to only one thing: the aggressive use of antitrust laws to bust up monopolies.

This will take time — perhaps years. In the meantime, Biden and the Democrats could do something with a more immediate effect: Enact a windfall profits tax applicable to any large corporation that raises its prices during the same quarter its profits have risen.

What do you think?

Robert Reich

Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, and writes at robertreich.substack.com. Reich served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fifteen books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "The Common Good," which is available in bookstores now. He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.

2 thoughts on “Robert Reich: You Want To Know The Truth About Inflation? (It’s Not What The Fed Thinks It Is) – OpEd

  • December 18, 2021 at 3:36 am
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    The idea that collusion of the few powerful corporations in various industries exists sounds quite plausible and certainly enticing and could very well be true. Maybe that’s one of the reasons why the nation is so polarized because people know they’re getting played by the powers that be and are extremely frustrated and ready to jump and hold onto something/anything that will offer real or imagined relief. A talented communicator and manipulator at the right time could harness this anger and stumble into a lucrative opportunity!

    Reply
  • December 19, 2021 at 1:47 pm
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    Of course it is Corp greed that they know they can get away with. I also believe they are unhappy with Biden trying to impose fair taxes on corporations and the wealthy. Leon musk complains about BBB. Because he will face competition in electric charging stations and broadband will take away from his satellite internet biz. Oh, and of course he thinks he’s too smart to have to pay taxes. We need a tax revolt!! Or occupy Wall Street again.

    Reply

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