How Corporations are Using Inflation to Take Your Money
Corporations are using inflation as an excuse to raise their prices, hurting workers and consumers while they enjoy record profits.
Prices are surging – but let’s be clear: corporations are not raising prices simply because of the increasing costs of supplies and labor. They could easily absorb these higher costs, but instead they are passing them on to consumers and even raising prices higher than those cost increases.
Corporations are getting away with this because they face little or no competition. If markets were competitive, companies would keep their prices down to prevent competitors from grabbing away customers. But in a market with only a few competitors able to coordinate prices, consumers have no real choice.
Are they using these record profits to raise their workers’ real wages? No. They’re handing out meager wage increases to attract or keep workers with one hand, but effectively eliminating those wage increases by raising prices with the other.
So what are corporations doing with their record profits? Using them to boost share prices by buying back a record amount of their own shares of stock. Goldman Sachs expects buybacks to reach $1 trillion this year – an all-time high.
This amounts to a direct upward transfer of wealth from average working people’s wallets into CEOs’ and shareholders’ pockets.
The Federal Reserve intends to curb inflation by continuing to raise interest rates. That would be a grave mistake, because it doesn’t address corporate concentration and it will slow job and wage growth. The labor market isn’t “unhealthily tight,” as Fed Chair Jerome Powell claims. Corporations are unhealthily fat.
So what’s the real solution?
First, tougher antitrust enforcement to address the growing concentration of the economy into the hands of a few giant corporations. Since the 1980s, over two-thirds of American industries have become more concentrated, enabling corporations to coordinate price increases.
Next, a temporary windfall profits tax that takes corporation’s record profits and redistributes them as direct payments to everyday Americans struggling to cover soaring prices.
Fourth, higher taxes on the wealthy and on corporations. Corporate tax rates are at near-record lows, even as corporate profits are at a near-record highs. And much of billionaires’ pandemic gains have escaped taxes altogether.
In short, the real problem is not inflation.The real problem is the increase in corporate power and the decline in worker power over the past 40 years. Unless we address this growing imbalance, corporations will continue siphoning off the economy’s gains into their CEOs’ and shareholders’ pockets — while everyday Americans get shafted.
Sometimes, a tiny change in the political process comes along that makes you realize just how far things have come — a change that’s both substantive and symbolic. Something like this terse, six-paragraph memo from the FTC, a deceptively anodyne wrapper for an explosive moment:
Here’s the crux: “The FTC and DOJ will host a series of listening forums to hear from those who have experienced firsthand the effects of mergers and acquisitions beyond antitrust experts, including consumers, workers, entrepreneurs, start-ups, farmers, investors, and independent businesses.”
If you aren’t chest-deep in weird antitrust lore, this probably seems like it’s par for the course. But believe me, this is a hell of a moment — a moment of restoration, a return to a vital, long-dormant principle in American governance: the idea that corporations should not be allowed to ruin the lives of the people around them.
This was the idea behind antitrust in the first place. As Senator John Sherman said to Congress as he labored to pass his landmark antitrust law in 1890: “If we will not endure a King as a political power we should not endure a King over the production, transportation, and sale of the necessaries of life.”
“If we would not submit to an emperor we should not submit to an autocrat of trade.”
This was the foundation of American antitrust: the idea that companies of a certain scale would, by dint of that size, be in a position to exercise the autocratic control of a monarch, and return America to a tyrannical monarchy cloaked in the pretense of industry.
For nearly a century, this was the bedrock of antitrust enforcement, the idea of “harmful dominance” — that companies could attain a scale that made them a danger to the very idea of democratic control and legitimacy.
Rich people seethed and chafed and schemed to overturn this. They wanted to rule as if they were kings, wanted to avoid the scourge of what Peter Thiel calls “wasteful competition” (“competition is for losers” — P. Thiel). They bankrolled and promoted a deranged conspiracist named Robert Bork — Nixon’s solicitor general — who advanced a truly bizarre theory of antitrust.
Bork was a conspiracist, whose book “The Antitrust Paradox” maintained the historically unsupportable nonsense that what Sherman, Clayton and the other legislators behind America’s antitrust laws really wanted was to block “harmful monopolies” and leave the “efficient monopolies” to grow and rule, as benign kings:
Now, this is untrue. It’s not just untrue, it is unhinged. No reading of either the laws in question or the debates preceding their passage supports this idea. It is a fantasy, alternate history. A lie. But it was a convenient lie, because if it were true, then all the rich people promoting Bork’s fringe theory could create monopolies and rule as kings.
Ronald Reagan bought it. After a failed bid to put Bork on the Supreme Court — he failed his confirmation hearing so spectacularly that anyone who self-immolates in DC is said to be “borked” — Reagan adopted his antitrust theories. They spread around the world thanks to other monsters of the era, Thatcher, Mulroney, Kohl, Pinochet.
The idea infected the judiciary: the cushy Manne seminars, held every summer at a luxury resort, flew in 40% of the Federal bench for indoctrination seminars on Bork’s theories. These judges learned that the only people who should be consulted on antitrust matters are economists, specifically the kind of economist who trades in the kinds of highly abstract, inscrutable mathematical models that Bork and his University of Chicago colleagues specialized in.
Whenever a merger was in question, the companies could pay a Chicago economist to build a model that proved that the merger was “efficient” and thus good for “consumer welfare.” If that merger resulted in prices skyrocketing — the one thing “consumer welfare” was supposed to concern itself with — those same economists could be paid to produce a new model to prove that the price increase wasn’t the result of a monopoly — it was due to oil prices, or labor prices, or the phase of the moon.
Pre-Bork, everyone who was harmed by a monopoly had standing to seek redress from a regulator. If monopolies resulted in pollution, or unsafe working conditions, or corruption, or the annihilation of a city’s character or a town’s way of life, the people affected could tell their stories to a regulator and expect that their experiences would be factors in the calculus as to whether to prosecute the monopoly.
But after Bork, the only people whose input mattered was Chicago-style economists whose mathematical models couldn’t be interrogated by laypeople. They became court sorcerers to the competition regulators, and when petitioners came before the regulator, they would slaughter a goat, read its steaming guts, and pronounce that “consumer welfare” was doing fine. If the petitioner had the temerity to say that they read something different in the offal, the sorcerer could smirk and dismiss them: “Look who thinks he can read the economy in the guts of a goat? He didn’t even get a economics degree from the University of Chicago!”
For 40 years, antitrust has been a coma, sleeping while monopolies formed in every sector, destroying our planet, our regulatory integrity, our national prosperity, our public safety and the confidence of people in their democracies.
But as Stein’s Law has it, “If something cannot go on forever, it will stop.” Something has to give. A new crop of “neo-Brandeisians” — lawyers, economists, activists, workers — has sprouted, insisting that Bork’s ideas have failed us and that they need to be set aside.
One of the most prominent of these is Lina Khan. Today, Khan is the chair of the FTC. Five years ago, she was a third year law student (!), whose landmark law review article, “Amazon’s Antitrust Paradox,” was a scorching indictment of Bork that tore through legal circles and upended orthodoxy:
Khan hasn’t been shy about her plans to restore American antitrust to its roots as a doctrine of economic liberty, in which workers and small business-people do not have the course of their lives determined by Sherman’s “autocrats of trade.”
She and the other top Biden antitrust enforcers — Tim Wu in the White House, Jonathan Kanter at the DoJ — worked to produce the Biden executive order on antitrust, a genuine landmark document specifying dozens of specific actions that the admin would take to blunt corporate power. Less than a year on, they’ve hit every milestone in that document.
In January, the FTC and DoJ announced that they would be reviewing the agencies’ merger guidelines — again, something that sounds like business as usual to a layperson but really marks an enormous shift in American politics. The new guidelines will make it much harder for big companies to grow by merging with each other or gobbling up little businesses before they can become competitors.
And now there’s this week’s hearings, in which the FTC and DoJ will hear from “who have experienced firsthand the effects of mergers and acquisitions beyond antitrust experts, including consumers, workers, entrepreneurs, start-ups, farmers, investors, and independent businesses.”
With the exception of “consumers,” these are the people who, for 40 years, have been laughed out of the room by antitrust enforcers. The people who have been told that they have nothing to say when it comes to the way that giant corporations undermine our quality of life, freedom of action, and economic chances.
This may sound like normal activity for a competition regulator (because it should be normal), but this is extraordinary. For the first time in a generation and a half — in ten presidential administrations — everyday people will get a say on whether corporate power should be blunted.
This is huge.
[Image ID: Norman Rockwell’s WPA painting ‘Freedom of Speech,’ depicting a working-class speaker rising to speak in a white-collar crowd at a town meeting.]
TLDR :The FTC is finally paying attention to the damaged caused by monopolistic business practices.
(Screencap is from the first link.)
Only the final meeting is yet to happen: Thurs May 12 at 2pm EDT, on Technology.
Like. Software. Apple. Google. Microsoft. And possibly things like Amazon, because “website store that buys out smaller businesses and shuts them down” may fall under “technology.”
(“What did Amazon buy?” Years ago, Mobipocket. More recently, Twitch. They’ve shut down the Twitch desktop app and are removing the friends function. Because why would you need to find friends you’re not paying following via subscription?)
