The Democrats are masking the depths of their failure after capturing the trifecta of power in 2020. The United States is entrenched in a cost-of-living crisis spawned by a blend of out-of-control spending, excessive money-printing by the Leviathan, a global supply chain crisis, and war in Europe. But President Joe Biden is refusing to accept a modicum of responsibility for 40-year high inflation, choosing instead to manufacture a list of scapegoats that can be blamed for soaring across-the-board prices. The left is appealing to authority figures to free them from culpability for today’s environment. These anointed individuals have regurgitated the same mendacity as prominent Democratic leaders when it comes to explaining why pork and milk are up 14% and 11.2%, respectively. So, what’s the latest excuse?
Senate Budget Committee Hearing
The Senate Budget Committee held a hearing titled “Corporate Profits are Soaring as Prices Rise: Are Corporate Greed and Profiteering Fueling Inflation?” It featured former Labor Secretary Robert Reich, former senior economic policy adviser to Sen. Elizabeth Warren (D-MA), and former Assistant Secretary for Economic Policy at the Department of the Treasury Michael Faulkender.
The message delivered from Reich and Edwards during this hearing was simple: rampant price inflation is the fault of Corporate America, big business could absorb higher costs, and corporations are greedy because they enjoy record-high profit margins when inflation is skyrocketing.
“They are not raising prices because of the increasing costs of supplies and components and of labor,” said Reich. “Corporations enjoying record profits in a healthy competitive economy would absorb these costs. Instead, they’re passing these costs on to consumers in the form of higher prices. Why? Because they can. And they can because they don’t face meaningful competition.”
Edwards essentially shared the same concept, noting that “corporate profiteering” is playing a critical role in this inflationary environment. She also noted that Wall Street is adding to rising prices because investors are demanding even greater profits. In the end, according to Edwards, the present-day situation is a result of mega-corporations instituting a system of “heads I win, tails you lose.”
Faulkender attempted to provide some common sense throughout his testimony, purporting that four-decade high inflation was triggered by “unnecessary fiscal stimulus” from Congress and the current administration, enabled “by excessively accommodative monetary by the Federal Reserve.”
So, as the young whippersnappers say on the playground, there are two sides to every story.
The Economics of Economic Thinking
First, let’s get this out of the way: Did corporations suddenly become greedy overnight? The left has long postulated that multi-billion-dollar multi-national juggernauts are greedy institutions without a care for anyone or anything except their bottom line. If companies could raise prices without fear of reprisal or competition, why did they not emulate this pattern in 2020, 2015, or 2010? Why did they wait until 2021 to do so? Did they only become Greedy Gretchens this year?
Faulkender brought this up during his testimony, noting that he has yet to come across “any finding in the academic literature that corporations significantly altered their desire to generate profits in the last year relative to the decades that preceded the pandemic.”
One more thing on this subject about corporate profits that often goes unmentioned. The Democrats keep harping on, for example, oil and gas companies enjoying record numbers, meaning that they should be taxed to oblivion, such as what Sen. Sheldon Whitehouse (D-RI) recommended. Here is the lack of consistency that politicians possess: These same firms experienced sharp losses during the pandemic when demand vanished, and supplies could not be exhausted. Did anyone on the left propose extending them handouts because they lost money?
Now, it is essential to correct a few other things, especially the term inflation. The hearing – and the overall coverage of this crisis by the mainstream press – accepted the premise that inflation is merely higher prices. But inflation is the expansion of the money supply, resulting in increasing costs at the supermarket, electronics store, or car dealership. Some economists from the Austrian School suggest that this is a deliberate distortion, while others believe it is a fundamental misunderstanding. Whatever the case, it is an indictment of our collective ignorance on how the Swamp destroys money.
So, are corporate profits exploding? Yes, the US corporate profit margin was above 13% for the first time in 70 years. Of course, some companies are more profitable than others. The demand for fuel and home digital technologies supported massive gains for Exxon and Amazon. But the Fed’s easy-money policies played an integral role in these impressive profits that should make shareholders ebullient.
By injecting $9 trillion into the economy in less than two years, this new money traveled from the printing press into the rest of the economy. The more units of currency that seep into the system, the greater the erosion of Americans’ purchasing power becomes. This, in turn, requires more dollars to buy the same amount of goods and services. This ultimately pads the bottom line for the private sector by flooding these businesses with more cash.
In other words, corporate earnings are overstated, particularly when commodity, industrial, and overall producer prices are in double digits. If today’s corporate profits were adjusted for inflation, whether by revaluing depreciation costs upwards or altering inventory costs to spotlight current prices, they would probably be much lower.
Blame is the Name of the Game
President Joe Biden has insisted that mom-and-pop gasoline stations are price-gouging customers. Sen. Warren thinks grocery stores are the cause of inflation. Sen. Bernie Sanders (I-VT) has been gesticulating to the heavens that the billionaire class is making everyone pay more for everything. This hearing of two well-known economists was meant to erect cover for the administration and its reckless fiscal policies. Anyone not blinded by partisanship, such as economists Daniel J. Mitchell and Robert Murphy, will allude to the trillions in the stimulus and relief packages as contributors to inflation. Heck, even the San Francisco Fed Bank will concede that Bidenomics added to inflationary pressures. When former Treasury Secretary Larry Summers is blasting the current administration for today’s environment, it might be time to conduct some introspection and learn what is truly transpiring on your watch.
~ Read more from Andrew Moran.