Why aren't Democrats talking about the real cause of inflation?

It would be a political winner for them — and has the virtue of being true

Despite the Federal Reserve’s most aggressive campaign in generations to slow the economy and bring price increases under control, prices continued to climb at a brutally rapid pace in September — with a key inflation index increasing at the fastest rate in 40 years.

Even though the Fed has quickly raised interest rates from near zero to a range of 3 to 3.25 percent, overall inflation — 8.2 percent over the year through September — continues to roar. Worse, it’s headed in the wrong direction. After stripping out volatile fuel and food, inflation increased. No wonder investors expect the Fed to announce another rate increase at the end of its next meeting, on Nov. 2.

All this could have severe political consequences for Democrats in the midterm elections three weeks from today. Republicans are focusing on inflation because voters see it as their biggest immediate problem, and it’s easy to pin blame on the Democrats because they’re in charge. Biden and the Democrats have provided no retort except to talk about their efforts to reduce drug prices.

Why are Democrats so reluctant to blame inflation on one of its major causes — corporations raising their prices faster than their costs in order to fatten their profit margins?

The evidence of this is now all around us. “The companies who set prices are really reluctant to stop increasing them,” says Jeanna Smialek, who writes about the Fed for the New York Times. “What we saw was that corporations were actually pocketing quite a bit more profit off this…. They’re still putting up prices very rapidly, even in instances where their own costs are starting to fall.”

As a result, corporate profits continue to climb, even as consumers are taking it on the chin. It’s a giant redistribution from consumers to corporations.

The Fed’s rate hikes aren’t working because they’re based on an anachronistic idea — that slowing consumer demand causes prices to fall (or climb more slowly).

But with monopolistic corporations raising prices to preserve or enlarge their profits, the Fed would have to raise interest rates far higher, bringing the economy to a crawl before having the desired effect — by which time the human cost will be overwhelming.

Better to wait out the global supply shocks and deal with corporate power with a temporary windfall profits tax and more vigorous antitrust enforcement.

Would this truthful message be helpful to the Democrats?

I defer to my favorite (and most accurate) pollster, Stanley Greenberg, who did a large survey last month of more than 2,000 registered voters.

Greenberg found that the following statement had the biggest impact on moving voters toward the Democrats:

Corporate profits are at a 70-year high, yet corporations are raising their prices. They are not raising their prices because of their increasing costs. They’re using the cover of inflation to increase their profits. They’re doing so because they face little competition. Most American workers haven’t seen a real wage increase in 40 years. Income and wealth are being distributed up to CEOs and shareholders, while working people are living paycheck to paycheck. And the CEOs are now paying a lower tax rate than working people. Republican leaders in Congress won’t stop price gouging and letting working people pay higher taxes. Democrats say enough. They are cutting taxes for working people and raising them on big corporations and billionaires. And they are fighting against unlimited secret campaign funds.

Greenberg believes this is a winning message for Democrats. Hitting big corporations and Republicans on price increases wins them a large portion of voters under 50 and the working class overall.

So why aren’t Biden and the Democrats hammering away with this message?

I’ve wondered the same thing. Nine months ago, the White House’s National Economic Council was putting out research papers on the relationship between corporate power and inflation — but then abruptly stopped.

At the time I suspected this was because more conventional economists from the Obama administration, such as Larry Summers and Jason Furman, were claiming that the theory didn’t hold water because monopolistic corporations would have exercised their pricing power all along, not just during this burst of inflation. (The reason they’re doing more of it now, by the way, is that inflation has given them cover.)

But after speaking to several insiders, both in the White House and in Congress, I believe I’ve found the real reason — and it’s more troubling. To put it bluntly: Corporate funders of Democrats have made it clear they don’t want the White House or the Party to blame this inflation on them.

That’s a pity, because until Democrats tell it like it is — and talk accurately and clearly about such abuses of corporate power — their electoral majorities will continue to be fragile. And they’ll never get the political mandate they need to take on corporate power as directly and forcefully as it must be taken on.