Memo to President Biden and the Democrats
From: Robert Reich
Re: Inflation and economy.
As America approaches the midterm elections, you need an economic message that celebrates your accomplishments to date—creating jobs and raising wages—but also targets serious abuses of economic power that fuel inflation and widen inequality.
You must put these ten undeniable facts in the spotlight:
1. Corporate profits hit a 70-year high. However, corporations raise prices.
2. They do not raise prices due to the increase in the cost of materials, components and labor, which is real but expected when the economy suddenly moves from a deep freeze caused by a pandemic to meet the growing needs of consumers emerging from a pandemic. . Corporations earning record profits in a healthy competitive economy will cover these costs.
3. Instead, they pass these costs on to consumers in the form of higher prices. In many cases, they raise prices above this cost increase, using the cover of inflation to further increase their profits.
4. They do it because they face little to no competition. If markets were competitive, companies would hold back their prices to prevent competitors from capturing customers. As a December report from the White House National Economic Council states: “Companies that face serious competition cannot [maintain high profit margins and pass on higher costs to consumers]because they will lose business to a competitor who doesn’t increase their margins.”
5. Since the 1980s, two-thirds of all American industry has become more concentrated. This concentration gives corporations the ability to raise prices because it is easy for them to informally coordinate price increases with a handful of other companies in the same industry without risking losing customers who have no other choice.
Corporations are using these near-record gains to boost stock prices by buying back record numbers of their own shares. (Repurchases reduce the number of shares a company has outstanding, which increases its earnings per share.) Last year, share repurchases hit a new record. So far this year they are on track to break that record. In the first two months of 2022, S&P 500 companies disclosed $238 billion in share buyback approvals — a record pace, according to Goldman Sachs, which expects $1 trillion in buybacks this year — an all-time high.
Chevron completed a $1.4 billion share buyback and spent $500 million more in shareholder dividends than in 2020. The oil giants plan to buy back at least another $22 billion this year.
7. For 40 years, the wages of most American workers have barely risen (adjusted for inflation). While corporations have recently increased wages in response to the post-pandemic surge in demand, those wage hikes have been almost completely offset by higher prices.
Corporations raise wages with one hand to attract or retain workers, and with the other they cancel wage increases by raising prices. When corporations make near-record profits, we expect corporations to pay higher wages out of their profits rather than pass it on to consumers at higher prices. But it’s not. The labor market is not “unhealthy” tight, as Fed Chairman Jerome Powell argues; corporations are unhealthy fat. Workers don’t have too much power; corporations do.
8. The result of all this is a redistribution of income and wealth from ordinary workers (many of whom live paycheck to paycheck) to CEOs and shareholders, including the richest people in America. Billionaires have become richer by $1.7 trillion during the pandemic. CEO salaries (mostly based on stock value) now stand at a record 350 to 1 ratio relative to the median salary.
9. Wealthy Americans now pay lower taxes than the working class. Some don’t pay taxes at all.
10. Large corporations have amassed considerable political power, with which they have held back drug price declines, prevented corporate tax increases, and accumulated unprecedented corporate wealth.
In short, while the US economy is recovering well from recession, the growing imbalance of economic power is bad for most Americans and for the economy as a whole.
This problem needs to be addressed through (1) tougher antitrust laws, (2) a temporary tax on excess profits, (3) higher taxes on the rich and corporations, (4) a ban on corporate buyouts, (5) stronger labor unions, and (6) funding reform. election campaigns aimed at taking big money out of politics.
You have a critical opportunity to reshape the national conversation the way it should be – around this escalating abuse of economic power by big corporations and the super-rich. Republicans have made themselves vulnerable because they don’t have the answer to this. They believe that their “culture wars” will distract the public from what is happening.
This is not and should not be a partisan issue. Average working Americans, many of whom voted for Trump in 2016 and 2020, are being ripped off.