The Real Cause (and Cure) for Inflation
Rising prices are making it more difficult to buy all kinds of goods. But why is it happening? Many culprits have been suggested, from supply chain problems to government over-spending in the pandemic to the war in Ukraine. But others—notably among them Robert Reich, former Treasury Secretary—have pointed to another source: opportunistic price gouging by major corporations.
Taking advantage of increases in costs caused by supply and labor shortages, corporations are increasing their prices beyond what is needed to cover those costs. This is why there is such a disparity in the economic success of workers and companies following the pandemic. Contrary to the theory that growing wages in a short labor market are inflating prices, workers’ real wages are not keeping up with inflation.
Meanwhile, corporations are collecting some of the highest profit levels they’ve had in years. Look no further than the oil industry, where British Petroleum recorded its largest windfall in profits for 14 years this year, while Exxon posted its largest quarterly profit ever. Chevron and Shell both reported more than $11 billion in quarterly profits as well.
Companies can raise their prices thanks to corporate consolidation: a small number of companies control the majority of several key industries including food processing, energy, airlines, pharmaceuticals, and banking. Without the threat of competition to draw customers away, they can push prices to their limits at the expense of consumers.
What’s the solution? Rather than raising interest rates, as the Federal Reserve has done several times, policymakers should resurrect the power of anti-trust initiatives and take action to warn companies away from carelessly raising their prices.
In the shorter, immediate term, a temporary price control would be helpful to put inflation in check, until the heightened costs are brought under control and the economy begins to return to normal. If corporations are the cause of inflation, workers shouldn’t have to feel the pain of fighting it. We should pursue policy options that hold the proper people responsible and ease the economic pressure millions of Americans are struggling with every day.
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