Note to President Biden and Democrats
From: Robert Reich
Re: Inflation and the economy
As America moves closer to the midterm elections, you need an economic message that celebrates your achievements so far – job creation and higher wages – but also targets the major abuses of economic power that fuel inflation and increase inequality.
You should put these ten indisputable facts at the center of the scene:
1. Corporate profits are at an all-time high for the past 70 years. However, corporations are raising their prices.
2. Prices do not rise due to rising costs of goods and components and labor – which are real but expected when an economy suddenly shifts from a pandemic-induced freeze to meeting the growing demands of consumers emerging from the pandemic. . Corporations that enjoy record profits in a healthy competitive economy would absorb these costs.
3. Instead, they pass on these costs to consumers in the form of higher prices. In many cases, prices rise more than cost increases, using inflation coverage to further increase profit margins.
4. They do it because they face little or no competition. If markets were competitive, companies would keep their prices low to prevent competitors from grabbing customers. As the White House National Economic Council said in a December report: “Businesses facing significant competition cannot [maintain high profit margins and pass on higher costs to consumers] because they would lose business in favor of a competitor who did not get married. margin. ”
5. Since the 1980s, two-thirds of all American industries have become more concentrated. This focus gives corporations the power to raise prices because it is easy for them to informally coordinate price increases with a few other companies in the same industry – without risking losing customers who have no choice.
6. Corporations use these near-record profits to raise stock prices by repurchasing a record amount of their own shares. (Redemptions reduce a company’s outstanding shares by pushing higher earnings per share.) Redemptions hit a new high last year. So far this year I am on track to break this record. In the first two months of 2022, the S&P 500 companies revealed $ 238 billion in repurchase permits – a record high, according to Goldman Sachs, which expects $ 1 trillion in repurchases this year – a record high .
Chevron has pledged $ 1.4 billion in share repurchases and spent $ 500 million more on shareholder dividends than it did in 2020. This year, the oil giants plan to buy back at least $ 22 billion. billions of dollars extra.
7. Most American workers have barely had a pay rise in 40 years (adjusted for inflation). Although corporations have recently granted wage increases in response to rising post-pandemic demand, these wage increases have been almost completely eroded by price increases.
Corporations grant wage increases to attract or retain workers with one hand, and then eliminate those wage increases by raising prices with the other hand. When corporations enjoy near-record profits, we would expect corporations to pay higher wages out of their profits, rather than pass them on to consumers at higher prices. But they are not. The labor market is not “unhealthy” to tighten, according to Fed Chairman Jerome Powell; corporations are unhealthy fat. The workers do not have much power; corporations do.
8. As a result of all this, income and wealth are redistributed upwards from the average working people (many of whom live on one payroll) to executives and shareholders, including the richest people in America. Billionaires became $ 1.7 trillion richer during the pandemic. The CEO’s salary (based largely on stock values) is now at a record 350 to 1 relative to the average salary.
9. Wealthy America now pays a lower tax rate than the working class. Some do not pay taxes at all.
10. Large corporations have accumulated a substantial amount of political power, defeating lower drug prices, preventing corporate taxes from rising, and amassing unprecedented corporate prosperity.
In short, although the US economy is recovering well from the recession, the growing imbalance in economic power is bad for