The Inflation Blame Game

If you want to know who is responsible for all of the price inflation in this country, just look in the mirror...or so economists, politicians, and the media have been falsely telling us for decades.

In this view, large firms and unions conspire to push up wages excessively; the firms then pass the increased labor costs along to final consumers and other purchasers in the form of higher product prices, thereby creating inflation. In response to this inflation, which reduces real wages, the unions subsequently return to the bargaining tables with even more outrageous demands.

This is of course, complete and total garbage, which I will explain in detail shortly.
However, it's been doctrine for so long that many people actually believe it.

The truth of who is to blame for all of the price inflation in this country is that it is coming directly from the wealthiest and most powerful. Which explains why so many are bending over backwards to openly lie to your face about it.

On Tuesday Senator Elizabeth Warren offered Federal Reserve Chair Jerome Powell an impromptu lesson in what she termed “Econ 101.” Through a series of leading questions, she argued that lack of competition was a major factor behind the rise in prices that Americans have experienced over the last year.
...
In economic terms, this misses the mark. In any real-world market, a temporary surge in demand will tend lead to a temporary rise in profits.
...Economics also suggests that those higher profits would induce businesses to try to hire more workers, stock more inventory and, eventually, open more stores.

For starters, the price rise isn't temporary, and there hasn't been a nationwide surge in demand.
Secondly, higher profits don't cause businesses to hire workers. Greater demand causes businesses to hire workers. That's Econ 101, and it's where the Republicans failed with the 2017 Corporate tax cut.

We can always count on Larry Summers to get basic economics wrong. His gift is being so arrogant while being wrong in the defense of the ruling elites.
Even a casual examination of the numbers will show you that the primary driver of this inflation is Corporate Greed.

Let's start with actual numbers.

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More than half of the companies surveyed by the small business services reviews website Digital.com reported raising prices beyond what was required to offset rising input costs.
"In other words, businesses are inflating already inflated prices in order to turn a bigger profit amid people's fears over uncertain times," the sites small business expert, Dennis Consorte, said in a statement.
...Still, gains in US corporate profits over the past year (37%) has vastly outstripped both inflation (6.2%) and compensation increases (12%), leading Morgan Stanley to recommend a return to a more equitable arrangement.

It's amazing how Summers and the financial media will lie with confidence for the corporations they defend even while those same corporations will openly admit it to their shareholders.
And when I say openly admit, it's not just one source.

Wall Street is explicit that margin expansion is the big story of the pandemic. “What we really want to find are companies with pricing power,” said Giorgio Caputo, senior portfolio manager at J O Hambro Capital Management told Bloomberg. “In an inflationary environment, that’s the gift that keeps on giving because companies can pass along their pricing on the way up, and don’t necessarily need to get it back on the way down.”

Matt Stoller does some back-of-the-envelope calculations and comes up with a pretty good idea of how much of the blame for inflation can be put on corporate board rooms.

Just before the pandemic, in 2019, American non-financial corporations made about a trillion dollars a year in profit, give or take. This amount had remained constant since 2012. Today, these same firms are making about $1.73 trillion a year. That means that for every American man, woman and child in the U.S., corporate America used to make about $3,081, and today corporate America makes about $5,207. That’s an increase of $2,126 per person.
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Taking all of this together, it means that increased profits from corporate America comprise 44.7% of the inflationary increase in costs. That means corporate profits alone are absorbing a 3% inflation rate on all goods and services in America (44.7% of 6.8% annual inflation), with all other factors causing the remaining 3.8%, for a total inflation rate of 6.8%. In other words, had corporate America kept the same average annual level of profits in 2021 as it did from 2012-2019 and passed on today’s excess to consumers, the inflation rate would be 3.8%, not 6.8%. And that’s a big difference, indeed it is the difference between Americans getting a raise, and seeing real wages decline.

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It gets worse, once you factor in the roughly 2% inflation that the Federal Reserve intentionally pushes into the economy through asset buying and money printing.
In all, about 60% of the price inflation problem can be attributed directly to corporate gouging.

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Now some of the inflation problem also comes from the well-publicized supply-chain problems. But who's to blame for that? If there's a huge backlog of cargo ships waiting to unload goods at the Port of Los Angeles, shouldn't the blame for that also go to the corporate leaders who intentionally shipped all of those jobs and factories from the U.S. to Asia?

If anything, the American worker is actively keeping the inflation rate down at his/her own expense. The American workers are the heroes in this story.

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Now I'm going to dump a bunch more charts on you, just in case this wasn't already clear.

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Comments

Capitalists will respond to a rise in costs by a higher rise in prices - as long as people will pay, as much as people will pay. This is especially true the more "necessary" the product is and the more the company has a monopoly. Consumers can exert some control by refusing to pay inflated prices, but that power is limited if the product is something like food or housing. (obviously) This also explains such things as mandatory insurance laws.

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On to Biden since 1973

@doh1304
So now, when you inevitably run into one, and they say "Nah Ah!".
You don't have to reply with just "You're an idiotic corporate sycophant."

Instead you can point them to this essay and say "Here's the official numbers."

After they see there are actual numbers, and they still say "Nah Ah!" THEN you can say "You're an idiotic corporate sycophant" and walk away.

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snoopydawg's picture

If there's a huge backlog of cargo ships waiting to unload goods at the Port of Los Angeles, shouldn't the blame for that also go to the corporate leaders who intentionally shipped all of those jobs and factories from the U.S. to Asia?

I was hoping someone would dumb down the explanation for inflation for me. Numbers and charts literally make my brain hurt just like poems for some reason and I appreciate you writing about it. Might not have been dumbed down enough for me, but I get the drift. Lots of companies are raising prices above 20%, but the dollar store has raised them 25%. Sure things are now only $1.25, but for people pinching every penny it still adds up. They sale many of the same things for $1 as grocery stores up to $5 and more. You have to look at sizes so you’re not getting duped, but lots of times I find great deals. Meanwhile wages are crap. Especially compared with how much things cost. I feel very sad for young people who want to buy a house.

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It is not until the tide goes out that you discover who has been swimming naked.

Proud election denier

@snoopydawg
Price inflation is at 7%.

A small, minor part of that is coming from supply-chain issues which have been caused by a) our industrial base and all of its jobs were shipped to Asia by the corporate traitors, and now all of those goods have to come through a tight funnel at certain ports, and b) there is a shortage of qualified truckers at the ports because no one wants to work that brutal job for shit pay.

Corporations are using the excuse of price inflation from the supply-chain problems to boost prices far above the price inflation they are getting. This turns directly into CORPORATE PROFITS AT A 70 YEAR HIGH.

All of those Wall Street sycophants are blaming the workers for getting modest pay raises, despite the fact that worker pay is not keeping up with inflation.

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snoopydawg's picture

@gjohnsit

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It is not until the tide goes out that you discover who has been swimming naked.

Proud election denier

who intentionally shipped all of those jobs and factories from the U.S. to Asia?

That is the problem in a nutshell.
Supply chain is a convenient excuse for the loss in
domestic manufacturing due to the greed of industrialists.

Make it cheaper down south or in Asia, screw the workforce, then
try to ship it back to US markets. Except now the workers have no jobs
to pay for the junk. And other countries are not too keen on getting
petrodollars anymore.

What a friggin' mess the capitalist overlords have made.

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@QMS
in the essay and in the comments.

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I've got several relatives who drive trucks. They won't even go to California anymore. Too many extra taxes and fees. With all of the rich people there, they need to raise taxes.

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@Enchantress
but not recently. Either they’re logging way to many miles or their ranks are filling up with new drivers who find texting more important than driving like a pro should. My last trip to the heartland and back to visit family was disquieting, to say the least. Lots of rubber on the rumble strips. Not a good trend.

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“We have a very small window in which we need to make a fundamental shift away from capitalism.” Kshama Sawant

We keep getting the "textbook" explanation of inflation, when we're living the real world implementation of inflation. Instead of "textbook" capitalism we have predatory game the system capitalism. Since the capitalists, bankers and the wealthy have captured our government and press (and just about everything) all we get is the "textbook" (or is that fairy tale) version of everything.

Once those stimulus checks and extended benefits were cut the capitalist class decided that money was theirs, we just get to hold it for a bit. Another aspect is political. If you could manufacture inflation and blame your opponent it'd be win/win. What you write about is manufactured inflation. Not all of it is a scam, but it's easy enough to piggyback on a crisis for profit when there are so many near monopolies. It cowed Obama and Biden (or maybe they were just being bipartisan)and now the capitalist class have a club to beat back government programs. I can see a "Kill Social Security and Medicare to save the economy" on the horizon. Disagree and you're commie hippie.

This is capitalism. It has gone beyond selling washing machines and color tv's into health care, education, food, shelter, transportation and all the necessities of life, making sure we live with maximum costs while receiving the least benefit. For the other necessities, clean air, clean water and a climate we can live in, capitalists are controlling these too. By using them as a sewer. We think we have some control over our lives, but we are as hobbled as any citizen of the 1950's Soviet Union.

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