Prices are rising because corporations have the power to raise them. They're using "inflation" as an excuse. The Fed is about to apply the wrong medicine.
I think you need to grab the Biden administration by its ears and make sure they’re hearing this!
Isn't price fixing illegal? Maybe I have an overactive imagination, but there could be a more sinister motive as well. Corporations generally prefer Republicans in office because they basically allow them to do whatever they want. By drastically raising prices while Democrats are in power, they can turn the population against Democrats and elect Republicans, even without devious election machinations. I have wondered, likewise, whether Russia's Vladimir Putin has tried to influence our politics by manipulating the price of oil.
Your solution seems reasonable, but getting Congress to do anything that involves reducing corporate profits in any way is like pulling teeth. Too many members are bought and paid for by the wealthy.
When I heard about this yesterday I shook my head, this move to protect corporate profits by raising interest rates will hurt consumers. Buying a house or car will cost more and qualifying for the loan will become harder, especially with wages still very low. The “Sherman Antitrust Act” law of 1890 was designed to prevent corporate monopolies as we’re seeing today, however they haven’t been enforced as they should have been over the past decades. Now we have a few conglomerates that own almost everything and have free reign to price gouge. Where is the Department of Justice? It’s up to them to enforce these laws!
I own a small business - 10 employees - and while I completely agree with you in many many MOST things your write about and have stances on, this one is an exception. PLEASE NOTE: I am a bluer-than-blue democrat, probably flirt close to the line of socialism on some things so keep that in mind.
For LARGE OR MEDIUM SIZED CORPORATIONS, YESSSSS I 100% agree with this thought process. Generally speaking, they were already underpaying employees, over-rewarding investors and shareholders, and GROSSLY overpaying C-suite and so for THOSE corporations increasing prices is bonkers. Probably.
I own a cleaning company in Cincinnati and since 2015 I have always tried to pay well for a M-F, 30 hours/week job (House cleaning is a workout and 40 hours isn't possible unless it's just offices which isn't us). I've paid at or above $15/hour, several cleaners over the years have made closer to $18-$20/hour as a trainer etc. The past 20 months has been the most chaotic climate to run a small business in, and I'm grateful for all the extra stimulus so that when I had to lay someone off for a bit they were covered with extra unemployment. I was blessed with PPP and used it for payroll and that was such a blessing to my employees.
Ohio is a relatively low cost of living state, and I was charging $40/hour for cleaning services, starting people at $14, with $1 raise at 5-6 weeks, another $1 by 6 months. That’s pretty decent for a part time job first shift. But it just wasn’t enough to keep labor and by this past June I had to increase client prices 25% (from $40 to $50/hour) so that I could ALSO increase wages by 25% ($4/hour across the board). This move, along with a 2-page essay ahem I mean letter to my clients, is what saved my business and solved our labor bottleneck and we’ve been able to double billable work since the summer because we finally have a fantastic crew and can take on as much work as we want to.
So for MY BUSINESS, in which about 40% of my client rate goes to base wages (fully-loaded payroll that includes employer taxes, mileage, and paid travel time between clients, and office staff that’s not billable) ends up being about 65-70% of each billable hour. My employees all make $18/hour to start, $1 raise in 5-6 weeks, another $1 within 6 months means my average wage is right around $20/hour.
FOR MY BUSINESS, I had to increase prices (adding to inflation) because though I paid well, it wasn’t good enough. And I don’t even make 2x my average employee’s salary. Please, do NOT lump my small business that had to increase client rates in order to increase wages in order to be able to actually sustain my business and provide for 10 families with Kellogs. Or P&G.
PS If you ever want a small-business incubator/experimental example of what we are facing in post-pandemic times, I volunteer!!
I hear Republicans complaining about how Biden is causing inflation/higher prices. But it is the corporate power structures and price gouging by large American industries, Big Pharma, etc. that is to blame. If they ALL have the excuse of inflation to hide behind, it seems to be true, and all the while they are bringing in record profits! "The aggressive use of anti-trust laws to bust up monopolies" sounds like a fair remedy. And the "windfall profits tax" seems like a just solution. I learned much from today's newsletter. We need to somehow convince the American people and tell our neighbors and friends the truth by talking to them and spreading the word on social media. Biden has a lot on his plate right now, but hopefully we can legislate these solutions in Congress.
This will cause an eventual crash, won't it? If people's salaries stagnate, they will stop buying. This may sound weird because consumer spending is very high right now, but what happens when the buying slows down? I'm confused because of course, we're being lied to, again. People are spending at a record rate, but instead of enjoying the ride, the greedy corporate bastards have found a legal form of price gouging cleverly hidden behind the supply chain slowdown. It's eventually going to go over a cliff.
As a former antitrust investigator, then corporate (very small) insurance company director, I agree with you on the Fed’s call. Powell’s easing off the QE appears a bit knee jerk. And, it’s a shame Democrats are not messaging this much, much more about corporate concentration. Isn’t it also the case that as we bring more goods back to US “on shore”production, there will be decreased competition, ergo, some higher prices? Your solution deserves championing now!
Big corporations play a similar game with suppliers. When you the only market for intermediate goods, or one of only a few big corporate buyers for those goods, you have the power to tell the supplier the price you will pay him, take it or leave it. This is a growing problem. It is called, "Monopsony".
Mr. Reich, I agree with you that an "agressive use of antitrust laws to bust up monopolies" would be a solution to the problem of inflated prices of consumer goods. The problem is that it requires an administration with the will to do so. I voted for Joe Biden because the alternative was unthinkable. But, let's face it, Joe Biden has always been a corporate Dem and he's not going to bite the hand that feeds him and most of his party as well as all Republicans. Until we have a successful grass roots movement to overturn Citizens United, we will be at the mercy of corporations and the donor class.
We must increase use of our Ant-trust laws to address corporate oligarchs like Coca Cola and Proctor & Gamble. They are causing Inflation and then using it as an excuse to jack up their prices and their profits. We must keep our eyes on the prize and Pass the Build Back Better Legislation and the Freedom to Vote and John Lewis Voting Rights Acts NOW!!!
Robert, to go back to an earlier post of yours, who is responsible for putting more money into the defense budget than the military even asked for? And how do we hold these people accountable? Charles Pohl
Guardian reports Senema still resisting changes to the filibuster rule. Let's see, why would a freshman senator with no other obvious influence want to keep a rule that makes her a pivotal figure in what happens to legislation, say anti-monopoly measures? How much does she make from corporate donations?
So many things are wrong! It is hard to know where to start, but clearly putting the brakes on the economy right now is a political move, not a warranted economic response. I have a little money in the stock market for example - big boost by this move. Ms. Alexander just below has the counter example. I think we need to think carefully and take actions in the political realm to get balanced policies that take the welfare of most people into account.
We must return the Democrats to a majority in both chambers of the Congress! Manchin and Senema are only influential, only able to block the Biden agenda, because the Democratic majority is so marginal. Two more "real" Democrats in the Senate must be a goal and is more important than increasing the Democratic majority in the House of Representatives.
It is tough to accept, but living in a blue state means that pro-Democrat activism must take the form of money. Sending money (and love) to those candidates around the country who can most likely bump out a lukewarm Democrat, or even a Republican here and there, is the surest way to move the needle on needed anti-monopoly legislations and improvements to tax law.
As usual, you provide a clear-headed and accurate analysis of the problem. The question is: will Congress and President Biden do anythinng about it, or are they simply too bogged down with other major issues e.g. COVID and the January 6 insurrection to anything about it?
This is an issue we can get all most all Americans to rally around. This is what the media should be focusing on. But, we know who pays the salaries.
Once they obtain an oligopoly they don't even have to conspire to fix prices since all parties can guess what the response of their "competitors" will be to any action they take. I don't know how much concentration in an industry is required to create an oligopoly but it's pretty clear that the many sectors of the US markets already oligopolies and there is a drive by the big companies and hedge funds to spread oligopoly to other sectors (e.g., water, toll roads, rental properties, etc.).
In addition to obtaining price control, the oligopolies also end up with a tremendous amount of power which allows them to further distort the "free" markets to their advantage. Only the federal government has the ability to take on the ravenous oligopolist by breaking them up, incentivizing competition or providing public services to wrest their oligopolist's hands from our throats.