Memo to President Biden and the Democrats
From: Robert Reich
Re: Inflation and the economic system
As America slouches towards the midterm elections, you want an financial message that celebrates your accomplishments up to now – job creation and better wages – but additionally takes purpose on the main abuses of financial energy which might be fueling inflation and widening inequality.
It’s best to put these ten indeniable info centerstage:
1. Company earnings are at a 70-year excessive. But firms are elevating their costs.
2. They aren’t elevating costs due to the rising prices of provides and parts and of labor — that are actual however anticipated when an economic system goes out of the blue from a pandemically-induced deep freeze to assembly the hovering calls for of customers who’re rising from the pandemic. Companies having fun with report earnings in a wholesome aggressive economic system would soak up these prices.
3. As an alternative, they’re passing these prices on to customers within the type of increased costs. In lots of circumstances they’re elevating costs increased than these value will increase, utilizing the duvet of inflation to extend their revenue margins much more.
4. They’re doing so as a result of they face little or no competitors. If markets have been aggressive, firms would maintain their costs down to stop opponents from grabbing away prospects. Because the White Home Nationwide Financial Council put it in a December report: “Companies that face significant competitors can’t [maintain high profit margins and pass on higher costs to consumers], as a result of they might lose enterprise to a competitor that didn’t hike its margins.”
5. Because the Eighties, two-thirds of all American industries have change into extra concentrated. This focus provides firms the ability to lift costs as a result of it makes it simple for them to informally coordinate worth will increase with the handful of different firms of their similar business — with out risking the potential for dropping prospects, who haven’t any different selection.
6. Companies are utilizing these near-record earnings to spice up share costs by shopping for again a report quantity of their very own shares of inventory. (Buybacks cut back an organization’s shares excellent, pushing its profit-per-share determine increased.) Inventory buybacks hit a brand new report final yr. Thus far this yr they’re on observe to exceed that report. Within the first two months of 2022, S&P 500 firms have disclosed authorizations to purchase again $238 billion in inventory — a report tempo, in accordance with Goldman Sachs, which expects $1 trillion of buybacks this yr – an all-time excessive.
Chevron engaged in $1.4 billion in inventory buybacks and spent $500 million extra on shareholder dividends than it did in 2020. This yr, the oil giants are planning to purchase again at the least $22 billion extra.
7. Most American staff have barely had a wage enhance in 40 years (adjusted for inflation). Though firms have not too long ago given out wage will increase in response to the post-pandemic surge in demand, these wage will increase have been virtually fully eroded by worth will increase.
Companies are handing out wage will increase to draw or maintain staff with one hand, after which eliminating these wage will increase by elevating costs with the opposite. When firms are having fun with near-record earnings, we’d anticipate firms to pay the upper wages out of their earnings slightly than to move them on to customers in increased costs. However they don’t seem to be. The labor market will not be “unhealthily” tight, as Fed Chair Jerome Powell asserts; firms are unhealthily fats. Staff would not have an excessive amount of energy; firms do.
8. Because of all this, earnings and wealth are being redistributed upward from common working individuals (lots of whom reside from paycheck to paycheck) to CEOs and shareholders, together with the wealthiest individuals in America. Billionaires have change into $1.7 trillion richer in the course of the pandemic. CEO pay (based mostly largely on inventory values) is now at a report 350 to 1 ratio relative to median pay.
9. Rich Americas at the moment are paying a decrease tax fee than the working class. Some are paying no taxes in any respect.
10. Massive firms have accrued a considerable quantity of political energy, with which they’ve overwhelmed again decrease drug costs, prevented increased company taxes, and amassed unprecedented company welfare.
In brief, though the American economic system is rebounding properly from recession, the rising imbalance of financial energy is unhealthy for many Individuals and for the economic system as a complete.
This should be addressed via (1) more durable antitrust enforcement, (2) a short lived windfall earnings tax, (3) increased taxes on the rich and on firms, (4) a ban on company buybacks, (5) stronger unions, and (6) marketing campaign finance reform to get large cash out of politics.
You could have a important alternative to reframe the nationwide dialog correctly framed — round these worsening abuses of financial energy by giant firms and the super-rich. Republicans have left themselves weak as a result of they haven’t any response to this. They consider their “tradition wars” will distract the general public from what’s occurring.
This isn’t and shouldn’t be a partisan problem. Common working Individuals – lots of whom voted for Trump in 2016 and 2020 – are being shafted.