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
By: Andrew Glover, José Mustre-del-Río and Alice von Ende-Becker
“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.”
https://www.kansascityfed.org/research/economic-review/how-much-have-record-corporate-profits-contributed-to-recent-inflation/#:~:text=Although%20corporate%20profits%20and%20inflation,current%20marginal%20cost%20of%20production.
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…
03/21/2023 @ 2:21 pm
That’s beautifully done.
And it’s why one of the most important issues out there is campaign finance reform. We are currently keeping legislators in corporations’ pockets.
03/22/2023 @ 11:25 am
Is it really just campaign finance? Or, is it more like candidate financial assistance and subsidy?
Too many legislators leave office exponentially better off than could possibly be attributed to legislative salary or attained by frugality of lifestyle…
This is to say nothing of the plush employment and publication contracts given to certain individuals after serving but a few terms in elective office….
03/23/2023 @ 6:21 pm
I’d concentrate on campaign finance reform rather than graft because the system forces most legislators to seek contributions from the wealthy whether they (the legislators) are honest or not. Media buys are expensive. In major markets and statewide it’s very expensive. One might be able to squeeze by without a ton of funding if you’re running for a House seat and can do a ton of legwork like AOC did, but that’s not how most seats are won. It takes way more time to fundraise among small donors than large ones and fundraising is not only necessary to get into office but to stay there. That forces candidates to be beholden to wealthy donors and also means that wealthy donors get way more face time with candidates than the general public does. And so we’ll see a lot of Congressmen and Senators who do well on social justice issues but not so well on taxing the wealthy and regulating corporations. We need candidates to have access to office without wealthy donors and the ability to stay there without wealthy donors. If we don’t we’ll get half a century of huge growth with no middle class rise in standard of living, having a whole lot of worries, while the rich get filthy rich.
What you’re talking about is certainly an issue and not only for public office but in the military. However, I think access to office is a bigger structural problem. We have a system now that not only allows graft but basically invites it.
I lived in Maryland for many years. More than one governor there got indicted for graft. Why? Maryland was paying their governors something like $25,000 a year in salary. What the Hell did the voters expect? That tells governors that graft is expected.
03/23/2023 @ 7:12 pm
Far too much American wealth is concentrated in the hands of far too few people to support and sustain the principle and practice of American democracy.
I researched and scoured many of Robert Reich’s videos on the matter of wealth and income disparities and inequities and, oddly enough, he alludes to politics and political power of the wealthy but makes no direct mention of campaign finance reform as an element of the solution to the threat of concentrated wealth and political power:
Here’s the short course in Reich’s discourse on the Economics and Politics of Income and Wealth Disparities and Inequities:
No mention of campaign finance reform that I could see or hear…
03/24/2023 @ 10:45 am
Kosh;
I finally found a Robert Reich video that mentions campaign finance reform directly:
Not as much emphasis as you might like or prefer, but there it is nonetheless…
03/25/2023 @ 1:29 am
Reich is talking about policy. The problem is that he’ll never get that policy passed by legislators beholden to wealthy interests. The most important thing we need to do is weaken or cut the link. We need to reduce the dependency of legislators on wealthy donors. We need elected officials who worry about what the general public thinks for electoral reasons rather than concentrating on what wealthy donors think.
I like a lot of what Reich says. Actually I like basically all of it. I learn from him. I love what he says about shares of wealth and about how much the tiny percentage at the top has compared to the rest of the population. That’s important stuff, though I’d go into more detail to hammer the point home harder. (Biden is now concentrating on some interesting things about how corporations gouge Americans per The NY Times, particularly about hidden fees on everything.) But I don’t believe in strictly preaching to the choir. Not that I think Reich is different from other people sharing his opinions. As you know from working with me on the book, I’m a believer in knocking the opposition off their assumptions about what costs and what saves. Reich is talking about justice, but justice in this sense isn’t what the other side cares about. To the extent that they do, he’d need to hammer harder on inheritance. We can say that self-made people (no such thing really, but we’ll use that concept anyway) might deserve what they get, but why do their kids deserve it to the same extent? We’re not talking about denying kids their inheritance, but we are talking about taxing it more heavily. Not in a confiscatory way because that isn’t popular, but a heavier share. Why does Eric Trump or Don jr. deserve to be taxed at much lower rates than you are? (Truth be told, the same applies to their father given that he didn’t generate his own wealth either, but we’ll leave that alone at first.) I do like that Reich talks about what small percentages it takes to do such big things. As you know, I favor that approach a lot.
But the story shouldn’t only be about how little wealth most Americans have. It should also be about how little they can spend and what that costs the business community and also what it costs us in deficits. It should be about how many of them need Federal assistance but wouldn’t need to if we distributed money a little more equitably than we do now. Sucking all the money out of the top results in people at the bottom needing welfare. Small businesses need to be healthy enough to hire them, and that won’t happen if the general public doesn’t have enough income for discretionary spending. It should be about how poverty leads to crime and that employing people gainfully reduces crime because it reduces the necessity for it. These Republicans, the low tax for the rich Republicans, like small businesses, and so this line of thinking has a chance at reaching them.
03/25/2023 @ 10:49 am
Kosh;
I’m looking at the question of how some legislators are able to leave office exponentially better off than they were when they first took office…
They shouldn’t be able to enrich themselves at the expense of the taxpaying voters and the general public…
People shouldn’t have to pay millions to get a job that doesn’t (shouldn’t) offer the opportunity to earn millions.
We should:
Limit the amount of money that can be spent on a political campaign by publicly funding political campaigns;
We should limit campaign spending to a specific period of time;
We should establish term limits for legislators;
We should require financial audits of elected officials at the beginnings of their terms and during each legislative session in which they serve;
We must close the door on post legislative employment loopholes;
We must prohibit the accrual of non-salary. income for legislators while in office…
In other words, we must find ways in which to disincentivise and discourage running for and holding elective office purely for personal monetary and financial gain…
We need legislative warriors who can and will do battle on a wide range of issues against the legitimized corruption of so-called “free market capitalism” and the weaponization of the marketplace:
We need a great deal more than just campaign finance reform, and we need it in a hurry!!!
03/26/2023 @ 12:31 pm
I don’t believe that Representative Porter has campaign finance reform in mind here:
03/26/2023 @ 2:15 pm
More from Representative Porter on the civic cost of corporate price gouging viz a viz ‘inflation’:
03/28/2023 @ 11:48 am
Finally, Robert Reich nails the ‘Koshersalaami solution’ to the creeping ‘corporatocracy’, or ‘corporate plutocracy’ that has been an existential threat to American democracy for decades:
03/28/2023 @ 12:46 pm
I’m very glad to see it. It shows at least some attention to the part of the problem I concentrate on, and I don’t mean Campaign Finance Reform.
Reich – and you, generally speaking – and Paul Krugman worry a whole lot about the What. They don’t worry enough about the How, not the How of how the problem needs to be fixed but the How of how to get the necessary parties to the solution in the first place. This should sound familiar. This is exactly why I participated in Talking To The Wall.
As long as federal legislators are dependent on the wealthy and corporate interests to get into office and stay there, they’re not in a position to take on those donors. If they do, they’ll be replaced by other people dependent on the same donors. Everything Reich talks about is dependent on reducing that dependency, and that’s why I favor concentrating on campaign finance reform – because that’s the biggest key to reducing that dependency. Without that, none of these suggestions go anywhere.
There is a contingency for this. In part, there’s a bipartisan contingency for this. Ask Mike Huckabee. More tellingly, if you paid attention to the crowds at Trump’s 2016 campaign rallies, they chanted one thing he did not inspire, did not ask for, and did not respond to. “Drain The Swamp!”
03/28/2023 @ 2:43 pm
Kosh;
“…if you paid attention to the crowds at Trump’s 2016 campaign rallies, they chanted one thing he did not inspire, did not ask for, and did not respond to. “Drain The Swamp!”
Your assertion suggests that you might not have paid close attention to Trump’s repeated ‘projection’ re draining the swamp.
03/30/2023 @ 1:45 pm
The one-two punch on taxing the wealthy:
04/28/2023 @ 8:18 pm
Here’s Katie Porter again:
Then they use their ill-gotten gains for:
Stock buy-backs;
Obscene salaries and bonuses;
Lobbying and campaign contributions…