A Tale of Two Perspectives on Corporate Profits and Inflation
How Much Have Record Corporate Profits Contributed to Recent Inflation?
Firms raised markups during 2021 in anticipation of future cost pressures, contributing substantially to inflation.
The Economic Review
January 12, 2023
“Inflation reached a 40-year high in 2021 and continued to climb in 2022. Record corporate profits received significant public attention as a potential explanation for high inflation. Although corporate profits and inflation do not have a direct accounting relationship, inflation is directly affected by growth in the markup, or the ratio between the price a firm charges and the firm’s current marginal cost of production. Thus, the sum of the growth in the marginal cost of production and the growth in the markup is the inflation in a firm’s price. Markups can change over time for many reasons, including firms’ expectations for their marginal costs in the future.”
Robert Reich on the same subject:
In my view, the establishment corporate bullshit and institutional economic gobbledygook articulated in the Economic Review operates to obfuscate the principle or primary role of corporate price manipulation in an inflationary spiral…
Not only does Reich have it right, his explanation is clear, succinct, digestible, to the pont, and convincing…