Inflation and Corporate Greed

With inflation still continuing to mar what would otherwise be a rosy economic picture, some Democrats are claiming that corporate greed is a major cause of rising prices. "Corporate executives are happy to help drive inflation and fatten their profit margins by price gouging Americans," Senator Elizabeth Warren, D-Mass., said in early January. Warren's argument, echoed by left-leaning colleagues like Senators Bernie Sanders, I-Vt., and Sherrod Brown, D-Ohio, is that wealthy corporations are taking advantage of the underlying causes of inflation to raise their prices far beyond what would be needed to offset their increased costs.

Prices in January were up about 7.5% from the previous year, the biggest spike in four decades. At the same time, corporations are enjoying their highest profit margins in decades despite dealing with more expensive material goods, gnarled supply chains and a labor shortage. Economists largely argue that inflation is too complicated of an issue to draw a simple line connecting it to corporate price gouging; a recent survey of economists found a majority rejecting that claim. But polls suggest that voters find this case compelling, and the debate has reportedly divided Democrats in Washington. Earlier this month, some prominent party members ripped into what they called "pandemic profiteers" during a hearing of the House Energy and Commerce committee. The White House, however, has taken a less sweeping approach. President Biden has limited his criticisms to specific industries, like oil and meatpacking. His administration has also pinned much of the blame for inflation on rising used car prices.

Why is there debate? Warren, Sanders, and others say that, though far from the only cause of inflation, corporate price gouging is pushing costs higher than needed based on the underlying economic conditions. They argue that companies are taking advantage of the fact that customers expect things to get more expensive while also pointing to a lack of real competition in some industries. As evidence, they cite companies like Starbucks, which is reportedly planning to raise prices again this year despite soaring profits in 2021.

Skeptics generally argue that our current inflation has a much more straightforward explanation: a lack of supply that is unable to keep up with sky-high consumer demand. Others say framing the debate around greed treats prices as a moral decision, when in reality they're determined by the competing pressures of the market. They say companies have an incentive to continue raising prices until consumers are no longer willing to pay them, and, so far, that hasn't happened.

So what's next? The Department of Justice and FBI announced earlier this month that they had opened a joint investigation into companies that may be using "supply chain disruptions as a cover for collusive schemes." That inquiry will focus on possible coordination between companies to fix prices and divvy up markets, which are violations of antitrust law.