Breitbart Business Digest
May 18, 2022
Today's Top Stories From the Breitbart News Desk
It’s hard to believe that it was only last week that the Democrats were expecting to change the narrative over inflation by deflecting blame for rising prices onto greedy corporate price gougers.
In a speech on Tuesday of last week, President Joe Biden complained that “corporate executives are on earnings calls with investors on Wall Street, cheering their record profits and explaining how they’re using this period of inflation to cover the rise in prices far beyond what they need to do to cover their costs.” On Thursday, Sens. Elizabeth Warren (D-MA) and Tammy Baldwin (D-WI) and Rep. Jan Schakowsky (D-IL) proposed a bill to fight inflation by outlawing “price-gouging,” ever so broadly defined as “unconscionably excessive” price hikes.
The best evidence that the greedflationists could marshal to support their theory of a corporate conspiracy to raise profits was the expansion of profit margins last year. Gasping in horror at rising profits at a time of rising profits might be a time-honored tradition, but it is also a display of ignorance of basic economics. Inflation is typically the result of an imbalance between supply and demand. When demand surges faster than supply, prices rise. This raises the profits of the people selling the goods and services. John Maynard Keynes, who some on the left used to pretend to have read, called this phase of an inflationary era “profit inflation.”
The thing about profit inflation is that it very quickly leads to what Keynes called “income inflation.” Businesses attempt to sell more at the higher prices, expanding production and hiring workers. This pushes up the prices of materials, products, warehousing, shipping, and—most importantly—labor. The rise in demand for consumption goods that drives up corporate profits subsequently fuels demand for labor and other factors of production. This, in turn, annihilates the excess profits.
This swing could be seen this week in the quarterly reports of Walmart and Target. Both reported that sales were rising, but profits were falling. Costs on the back end were rising and were not expected to moderate. The corporate profit inflation was eaten by the cost inflation.
Note that this inflation is evidence of competition in the economy—huge businesses competing with each other for access to warehousing, workers, and shipping. They are bidding up fuel costs. Sen. Warren wants to blame inflation on anti-competitive behavior, but it’s really being fueled by competitive activity. Instead of having market power that allows them to control prices, these huge corporations are not able to raise prices to keep up with costs because they are competing with each other for customers.
Target was quite explicit about this. It said it had decided not to attempt to pass on higher costs to consumers because it hopes to win market share away from its rivals by maintaining a reputation for affordability. “While we don’t like the impact to our profitability in the short term, we know it is the right thing to do for our guests and our business over the long term,” said Target’s chief financial officer.
And with those words, the theory of greedflation was tossed into the dustbin of history.
