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Biden and Dems need to declare War on Inflation and Corporate Price Gouging [1]

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Date: 2023-11-13

Several times I’ve had MAGAs challenge me with “What has Biden even done?” Usually paired with that is “Trump had the greatest economy EVER!” Which is flatly a lie.

I often respond like this.

The GDP now is at 4.9% after peaking at 5.95% in 2021 while the best Trump achieved was 2.95%. Trump lost 2.9 Million jobs (due to Covid) while Biden has gained 13 Million. https://www.macrotrends.net/countries/USA/united-states/gdp-growth-rate Unemployment is now at 3.8% after hitting a low of 3.4% in April and has held below 4% for 2.5 years which is better than anytime ever. Trump started at 4.2% following Obama and after three years brought it down by a whopping 0.7% to 3.5%, then during Covid it peaked at 14.7% and eventually dropped back down to 6.7% when Biden started. So Trump improved unemployment by 0.7% while Biden improved it by 3.3%. https://fred.stlouisfed.org/series/UNRATE Trump increased the deficit from $400 Billion to $983 Billion by 2019, during Covid it skyrocketed to $3.1 Trillion. Biden brought the deficit down by a record $1.8 Trillion to a total of $1.3 T. https://fred.stlouisfed.org/series/FYFSD Inflation and gas prices started rising in May of 2020 - On Trump's Watch - ultimately reaching 9% in 2022. It has since been decreased by Biden to 3.7% which is a record amount. https://tradingeconomics.com/united-states/inflation-cpi There is no measurement where Biden does not outdo Trump. Except for increased prices because of Trump’s inflation and the COVID supply chain collapse, the economy has never been better than now.

Unlike when dealing with a normal rational human being, this is usually unconvincing. It doesn’t matter what the numbers say. Often MAGA will claim that “Biden is destroying the country!”

When you ask them “How exactly?” they are usually vague and respond with “Look Around!” or “Open your eyes!”

What they really mean, I think, is that prices — especially gas — are higher than they used to be. It doesn’t matter that that isn’t Biden’s fault. It doesn’t matter that inflation has been reduced from 9% to just 3.7% in the past year, as noted above.

All that matters is that things cost. more. now.

And that’s something Biden needs to take seriously and do something about.

Prices have gone up, but there seems to be an expectation that at some point they would shrink back to normal but that hasn’t been the case. Mostly, after prices have increased they’ve remained high even though the inflation rate itself has shrunken.

Well, the rate of inflation is the rate of increase — so although prices aren’t increasing quickly as they did last year, they are still increasing. Some would seem to expect -— MAGAs that is — that once the inflation stops the prices go down, but what that would require is actually Deflation, which I don’t think we really want.

Deflation is a decrease in the general price level of goods and services. Put another way, deflation is negative inflation. When it occurs, the value of currency grows over time. Thus, more goods and services can be purchased for the same amount of money. Deflation is widely regarded as an economic “problem” that can intensify a recession or lead to a deflationary spiral.

So for now, the prices we have, are the prices we’re stuck with.

Now, did the Stimulus Packages or worker pay cause Inflation?

No.

Even if you did target the stimulus packages as the cause for inflation — Trump had two of them before Biden’s American Rescue Act, so if one stimulus package helped put us in this situation, why exactly didn’t the other two packages?

Ultimately, the primary reason that prices are higher is because of Corporate Profits.

The inflation spike of 2021 and 2022 has presented real policy challenges. In order to better understand this policy debate, it is imperative to look at prices and how they are being affected. The price of just about everything in the U.S. economy can be broken down into the three main components of cost. These include labor costs, nonlabor inputs, and the “mark-up” of profits over the first two components. Good data on these separate cost components exist for the nonfinancial corporate (NFC) sector—those companies that produce goods and services—of the economy, which makes up roughly 75% of the entire private sector. Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the NFC sector have risen at an annualized rate of 6.1%—a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase. This is not normal. From 1979 to 2019, profits only contributed about 11% to price growth and labor costs over 60%, as shown in Figure A below. Nonlabor inputs—a decent indicator for supply-chain snarls—are also driving up prices more than usual in the current economic recovery. Growth in Corporate Profits.

Corporate profits have grown from an average of 11% to over 53%.

What is the justification for that?

During the pandemic prices rose because of scarcity and low supply with high demand, but the people who had left the workforce during the shutdowns have returned. Jobs have been restored and the supply chain has been untangled.

What’s the current excuse for these prices?

I would argue there is none, other than corporate greed. And that is a problem.

What does the abnormally high contribution of profits to price growth mean for how policymakers should respond to the recent outbreak of inflation? It is unlikely that either the extent of corporate greed or even the power of corporations generally has increased during the past two years. Instead, the already-excessive power of corporations has been channeled into raising prices rather than the more traditional form it has taken in recent decades: suppressing wages. That said, one effective way to prevent corporate power from being channeled into higher prices in the coming year would be a temporary excess profits tax.

The problem with that solution is the fact that the GOP congress will not allow any kind of tax to be implemented, particularly not on corporations even when they are riding high with 4x normal profit margins.

So, will they shrink on their own?

The historically high profit margins in the economic recovery from the pandemic sit very uneasily with explanations of recent inflation based purely on macroeconomic overheating. Evidence from the past 40 years suggests strongly that profit margins should shrink and the share of corporate sector income going to labor compensation (or the labor share of income) should rise as unemployment falls and the economy heats up. The fact that the exact opposite pattern has happened so far in the recovery should cast much doubt on inflation expectations rooted simply in claims of macroeconomic overheating.

Ruh roh.

Corporations have used the pandemic to set a “new normal.” People have learned to be tolerant of these prices, and so they will stick. If they can get away with $4-5 gasoline — then they’re going to keep having $4-5 gasoline because they can.

Without a Windfall Profits tax, what can be done?

Well, the FTC or DOJ can fill a case under the Sherman Anti-Trust Act.

This law prohibits conspiracies that unreasonably restrain trade. Under the Sherman Act, agreements among competitors to fix prices or wages, rig bids, or allocate customers, workers, or markets, are criminal violations. Other agreements such as exclusive contracts that reduce competition may also violate the Sherman Antitrust Act and are subject to civil enforcement.

Further….

An Antitrust Primer This primer briefly describes the most common antitrust violations and outlines those conditions and events that indicate anticompetitive collusion. Introduction1 American consumers have the right to expect the benefits of free and open competition — the best goods and services at the lowest prices. Public and private organizations often rely on a competitive bidding process to achieve that end. The competitive process only works, however, when competitors set prices honestly and independently. When competitors collude, prices are inflated and the customer is cheated. Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution by the Antitrust Division of the United States Department of Justice. In recent years, the Antitrust Division has successfully prosecuted regional, national, and international conspiracies affecting construction, agricultural products, manufacturing, service industries, consumer products, and many other sectors of our economy. Many of these prosecutions resulted from information uncovered by members of the general public who reported the information to the Antitrust Division. Working together, we can continue the effort to protect and promote free and open competition in the market-places of America.

So the DOJ’s mission is to fight “collusion” and “price fixing” — then I think they have some serious work to do.

As it turns out the Anti-Trust Division has a public complaint form.

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[1] Url: https://www.dailykos.com/stories/2023/11/13/2205360/-Biden-and-Dems-need-to-declare-War-on-Inflation-and-Corporate-Price-Gouging?pm_campaign=front_page&pm_source=more_community&pm_medium=web

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