ISSN 2330-717X

Robert Reich: Why Aren’t Democrats Talking About The Real Cause Of Inflation? – OpEd

By

Despite the Federal Reserve’s most aggressive campaign in generations to slow the economy and bring price increases under control, prices continued to climb at a brutally rapid pace in September — with a key inflation index increasing at the fastest rate in 40 years.

Even though the Fed has quickly raised interest rates from near zero to a range of 3 to 3.25 percent, overall inflation — 8.2 percent over the year through September — continues to roar. Worse, it’s headed in the wrong direction. After stripping out volatile fuel and food, inflation increased. No wonder investors expect the Fed to announce another rate increase at the end of its next meeting, on Nov. 2. 

All this could have severe political consequences for Democrats in the midterm elections three weeks from today. Republicans are focusing on inflation because voters see it as their biggest immediate problem, and it’s easy to pin blame on the Democrats because they’re in charge. Biden and the Democrats have provided no retort except to talk about their efforts to reduce drug prices. 

Why are Democrats so reluctant to blame inflation on one of its major causes — corporations raising their prices faster than their costs in order to fatten their profit margins? 

The evidence of this is now all around us. “The companies who set prices are really reluctant to stop increasing them,” says Jeanna Smialek, who writes about the Fed for the New York Times. “What we saw was that corporations were actually pocketing quite a bit more profit off this…. They’re still putting up prices very rapidly, even in instances where their own costs are starting to fall.”

As a result, corporate profits continue to climb, even as consumers are taking it on the chin. It’s a giant redistribution from consumers to corporations. 

The Fed’s rate hikes aren’t working because they’re based on an anachronistic idea — that slowing consumer demand causes prices to fall (or climb more slowly). 

But with monopolistic corporations raising prices to preserve or enlarge their profits, the Fed would have to raise interest rates far higher, bringing the economy to a crawl before having the desired effect — by which time the human cost will be overwhelming.

Better to wait out the global supply shocks and deal with corporate power with a temporary windfall profits tax and more vigorous antitrust enforcement.

Would this truthful message be helpful to the Democrats? 

I defer to my favorite (and most accurate) pollster, Stanley Greenberg, who did a large survey last month of more than 2,000 registered voters. 

Greenberg found that the following statement had the biggest impact on moving voters toward the Democrats:

Corporate profits are at a 70-year high, yet corporations are raising their prices. They are not raising their prices because of their increasing costs. They’re using the cover of inflation to increase their profits. They’re doing so because they face little competition. Most American workers haven’t seen a real wage increase in 40 years. Income and wealth are being distributed up to CEOs and shareholders, while working people are living paycheck to paycheck. And the CEOs are now paying a lower tax rate than working people. Republican leaders in Congress won’t stop price gouging and letting working people pay higher taxes. Democrats say enough. They are cutting taxes for working people and raising them on big corporations and billionaires. And they are fighting against unlimited secret campaign funds.

Greenberg believes this is a winning message for Democrats. Hitting big corporations and Republicans on price increases wins them a large portion of voters under 50 and the working class overall. 

So why aren’t Biden and the Democrats hammering away with this message? 

I’ve wondered the same thing. Nine months ago, the White House’s National Economic Council was putting out research papers on the relationship between corporate power and inflation — but then abruptly stopped. 

At the time I suspected this was because more conventional economists from the Obama administration, such as Larry Summers and Jason Furman, were claiming that the theory didn’t hold water because monopolistic corporations would have exercised their pricing power all along, not just during this burst of inflation. (The reason they’re doing more of it now, by the way, is that inflation has given them cover.)

But after speaking to several insiders, both in the White House and in Congress, I believe I’ve found the real reason — and it’s more troubling. To put it bluntly: Corporate funders of Democrats have made it clear they don’t want the White House or the Party to blame this inflation on them.

That’s a pity, because until Democrats tell it like it is — and talk accurately and clearly about such abuses of corporate power — their electoral majorities will continue to be fragile. And they’ll never get the political mandate they need to take on corporate power as directly and forcefully as it must be taken on.

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.

4 thoughts on “Robert Reich: Why Aren’t Democrats Talking About The Real Cause Of Inflation? – OpEd

  • October 19, 2022 at 9:00 pm
    Permalink

    A new algorithm has given landlords cover for taking rent to an otherwise “unthinkable” level. Yieldstar.
    Maybe “shareholder management” has a dehumanizing solution looking for a problem?

    Reply
  • October 20, 2022 at 1:55 pm
    Permalink

    I would venture most people know nearly ALL politicians have a vested interest in corporate price gouging, so why fix it? We still see exorbitant grocery prices under the guise that there are supply chain issues. Consumers know that this is largely gouging! The same as the insane gas prices. We KNOW we are being gouged intentionally because they CAN. I’m just glad someone in a position of power actually said it as fact and reflected back what most of us already know. Call it what it is though, steep prices due to inflation is a LiE. Congress and companies, small and large, benefit. I went into a hair salon and the owner was telling a customer that prices were going up at the start of the month and said, “You know, inflation.” I call bullshit. They are joining the corporate bandwagon because they can. If I said to the owner, “No, I don’t know, what do you mean? How exactly is inflation causing your prices to go up?” I am nearly certain she couldn’t explain specifically the relationship between the two. Everywhere to me it seems disingenuous and dishonest. It’s starting to happen in healthcare as well. I need dental work and was given a price to fix it: $8,000. Yes, thousands. The kicker is…”but you can make payments.” Funny, a “payment plan.” Isn’t that what car dealers do? They want you to negotiate the payment, not the total price of the car then stretch out the months and interest on your loan so the payment is “smaller” in any single month, meanwhile you are paying on a $25k car for 50 years, lol. Big mistake. I’d rather go to Mexico for services than ensure my dentistry Corp can give their Drs bonuses or new pools or a second house for gouging us. My only recourse is to find a better price if I can. I say wake up migrants, the US is not the rosy place many of you imagine. Boy did I not get a big enough return on investment from college. Maybe we should start holding our universities accountable for the MBAs they produce who have no ethics or for their inability to actually impact the communities they set up shop in. Can someone please do a graphic study across the country on the shape of the communities these universities thrive in? I’d like to know how many universities are their own urban island while the houses next door are in shambles. Start with Duke in NC.

    Reply
  • October 20, 2022 at 2:38 pm
    Permalink

    Obviously Mr. Reich has not taken Economics 101. Too few goods and too much money has been the cause for 100 years.

    Reply
  • October 20, 2022 at 5:26 pm
    Permalink

    What is the effect of trumps tariffs on inflation?

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *