Business

Corporate greed, not wages, is the cause of inflation. It’s time to set prices | Robert Reich

aOn Wednesday, Federal Reserve policymakers – the US central bank – continued their fight against inflation with a third consecutive increase in interest rates. They warned that they were not finished. They will continue to raise borrowing costs until inflation is tamed.

They assume that the underlying economic problem is a tight labor market, which causes wages to rise – and prices to rise in response. They believe that higher interest rates are necessary to slow wage inflation.

This is a fatal error.

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Wage increases have not kept pace with inflation. Most workers’ salaries are shrinking in terms of real purchasing power. Instead of causing inflation, wages are actually Reducing inflationary pressures.

The basic economic problem is profit price inflation. It is caused by firms raising their prices above their increasing costs.

Companies are using those increased costs — for materials, components, and labor — as Excuses To increase their prices higher, which leads to increased profits. This is why corporate profits are close to levels not seen in more than half a century.

Companies have the ability to raise prices without losing customers because they face so little competition. Since the 1980s, two-thirds of American industries have become more concentrated.

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Why are groceries prices so high? Because only four companies control 85% of meat and poultry processing. Only one company sets the price of most corn seed in the country. Basic consumer goods are dominated by two giant corporations.

All of them raise prices and increase profits because Can.

Big pharma, which includes five giants, is causing drug prices to rise.

The airline industry has gone from 12 companies in 1980 to just four today, all of which are rapidly raising ticket prices.

Wall Street consolidated into five giant banks, making record profits from the spreads between the interest they pay on deposits and what they charge on loans.

Broadband is dominated by three giant cable companies, and they are all raising their prices.

Car dealers are enjoying record profits as they raise retail prices for cars.

Gas prices are starting to fall but big oil still has the potential to drive prices at the pump well above the costs of crude oil.

and so on.

That’s why Congress and the administration need to take direct action against profit-price inflation, rather than relying solely on the Federal Reserve to raise interest rates and placing the burden of fighting inflation on the shoulders of ordinary workers who are not responsible for it.

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Bold antitrust enforcement is essential. Even a reasonable threat of antitrust enforcement can deter companies from raising prices above their costs.

A windfall tax can also be beneficial. This will be A temporary tax on price increases that exceed the PPI costs of producing consumer goods.

Price control should be a pillar. Current inflation, emerging from a pandemic, is similar to inflation after World War II when economists called for temporary price controls to buy time to overcome supply bottlenecks and prevent corporate profiteering.

Limited price controls must now be considered for the same reasons.

The inflation we are seeing now is not due to wage gains from an excessive labor force. It is because of profit gain from excessive corporate power.

It is profits, not wages, that have to be controlled.

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