CORPORATE POWER IS FUELING INFLATION; UNIONS ARE A VERY POPULAR POTENTIAL REMEDY

This post is dedicated to the guy who keeps telling us how the terrible Democrats are the cause of high inflation. You can be on-topic if you want to comment here. 

I have no love for corporate Democrats or really any Republicans. Please read this piece in the Guardian from Robert Reich, Labor Secretary under Bill Clinton. Reich makes the case that lack of competition is largely responsible for fueling high prices as corporate profits are going up during this inflationary period which wouldn't happen if there was real competition. Reich writes:

A major reason for price rises is supply bottlenecks, as Jerome Powell, chair of the Federal Reserve, has pointed out. He believes they’re temporary, and he’s probably right.

But there’s a deeper structural reason for inflation, one that appears to be growing worse: the economic concentration of the American economy in 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? They have so much market power they can raise prices with impunity.

Viewed this way, the underlying problem isn’t inflation per se. 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”.

But P&G is making huge profits. In the quarter ending 30 September, after some of its price increases went into effect, it reported a whopping 24.7% profit margin. It even spent $3bn during the quarter buying its own stock.

It could raise prices and rake in more money because 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 roughly coordinate their prices and production. It was hardly a coincidence that Kimberly-Clark announced price increases similar to P&Gs 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”. Rubbish. The company didn’t have to raise prices. It recorded $3bn in operating profits through September.

If PepsiCo faced tough competition, it could never have gotten away with this. But it doesn’t. To the contrary, it appears to have colluded with Coca-Cola – which, oddly, announced price increases at about the same time as PepsiCo, and has increased its profit margins to 28.9%.

You can see a similar pattern in energy prices. If energy markets were competitive, producers would have quickly ramped up production to create more supply, once it became clear that demand was growing. But they didn’t.

Why not? Industry experts say oil and gas companies saw bigger money in letting prices run higher before producing more supply. They can get away with this because big oil and gas producers don’t operate in a competitive market. They can manipulate supply by coordinating among themselves.

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

Business Insider agrees with Reich. They note that profit margins for the third quarter are at 12.9%.

FactSet noted this is the second-highest net profit margin for the index, following only the record-breaking 13.1% margins posted in the second quarter of this year.

This is not what you'd expect to see in an inflationary environment. Rising costs should cut profit margins dramatically — higher bills for materials and labor are supposed to eat away at the bottom line. But in spite of supply shortages and rising wages, pandemic-era Corporate America is still doing just fine — somehow.

No competition! How do we fight back? It would be nice if the government enforced anti-trust laws to reign in large businesses. That is not likely when corporations are major donors for most politicians. What about the government  empowering workers to unionize? This would be quite popular. From Gallup:

Sixty-eight percent of Americans approve of labor unions. Though statistically similar to last year's 65%, the current reading is the highest Gallup has measured since 71% in 1965.

This popularity for unions is across the political spectrum.

Democrats are the most approving of unions. Their latest approval of 90% is the highest it has been in the past two decades and is up seven points since last year. At the same time, Republicans' (47%) and independents' (66%) approval is essentially unchanged. Each partisan group's current approval of unions is more than 20 points higher than its lowest 2001-2020 rating.

The problem is that only 9% of Americans self-identify as union members. The Democrats in the Senate are not showing much inclination to push through the PRO Act which would make it much easier to unionize. The bill is stalled in the Senate as not even all of the Democrats are on board. 

At the end of the day, giant corporations truly rule this country. Stop blaming each other for our problems.