Greedflation And Corporate Price Gouging

 

 

Musing Over Greedflation And Corporate Price Gouging

 

 

Inflation has been in the news for quite a while now, and many report we have more money in circulation than ever before – and that devalues currency – creating inflation.

And, to a degree, they are right. But first, let’s define inflation.

 

What Is Inflation?

 

When you google inflation, you see that it’s defined as “a general increase in prices and fall in the purchasing value of money.”

The IMF (International Monetary Fund) defines it this way: “Inflation is the rate of increase in prices over a given period of time.”

Lastly, Investopedia says, “Inflation is a gradual loss of purchasing power, reflected in a broad rise in prices for goods and services over time.

If I’m honest, I like Investopedia’s definition the best; it appears to be the broadest definition while also being concise. What’s more, we can see that IF we have too much money in circulation, it could be a factor when it comes to inflation – but is that the only reason? I maintain it’s not.

And I’m not alone.

Bob Casey, Senator of Pennsylvania, detailed how corporations – under the guise of inflation – are actually raising prices to obtain record profits.

Yahoo Finance reported in January 2024 that more than half of inflation in 2023 was due to corporate greed. They write – and I quote:

“Corporate profits drove 53% of inflation during the second and third quarters of 2023 and more than one-third since the start of the pandemic, the report found, analyzing Commerce Department data. That’s a massive jump from the four decades prior to the pandemic, when profits drove just 11% of price growth.

‘Businesses were really, really quick, when input costs went up, to pass that on to consumers. [But] had they only passed on those increases, inflation would have been maybe one to three points lower,’ Liz Pancotti, a strategic advisor at Groundwork and one of the report’s authors, told Fortune.”

This is defined as Greedflation; it’s what we are talking about today – and it needs to be talked about more.

 

What’s Wrong With Corporate Profits?

 

I mean, doesn’t the title say it all?

Milton Friedman, the economist who so many “free market” advocates love referring to, believed that corporations have no social responsibility except to make profits. In that very same article discussing inflation, he wrote:

 

“On the one hand, suppose he could get away with spending the stockholders’ or customers’ or employes’ money. How is he to know how to spend it? He is told that he must contribute to fighting inflation. How is he to know what action of his will contribute to that end? He is presumably an expert in running his company—in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his holding down the price of his product reduce inflationary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could answer these questions, how much cost is he justified in imposing on his stockholders, customers and employes for this social purpose? What is his appropriate share and what is the appropriate share of others?” [quoted verbatim]

 

In other words, the corporation is justified in its actions.

This one-dimensional nature of capitalism – and especially “free market” advocacy – is precisely what Peter Drucker noted in his stellar book Managing In The Next Society. It’s worth reading, and you can read my book review of it.

 

Related: Read Managing In The Next Society – Book Review

 

What’s more, there are some who believe greedflation is actually good for the economy, like this article details from the Wall Street Journal.

Or how bout this article from the Economist in which they argue greedflation is nonsense?

 

Yahoo Finance debunked that by reporting,

“Meanwhile, consumer-facing companies have been upfront with investors about their price-raising strategies—and they don’t seem interested in a reversal. PepsiCo’s CFO Hugh Johnston said last spring the company could “increase margins during the course of the year;” construction materials giant Holcim said in October it would raise its margins to make up for falling demand, and consumer-products giant Procter & Gamble this summer boasted of an $800 million profit increase, thanks to falling commodity costs that it would not pass on to consumers.”

 

A Predictable Tipping Point

 

That was January 2024. Six months later, they are singing a different tune.

Barrons reports Pepsi’s sales were weak – and they aim to lower prices. Washington Post writes that Conagra’s bottom line has taken a hit – and they, too, will lower prices.

And those retailers who sold the goods? They were in on it, too.

Yahoo Finance reported that Amazon, Walmart, and Target are some of the largest retailers out there – and they are rolling back prices – because, at some point, price gouging via greedflation not only diminishes the little trust consumers have in you but also eventually, hits your bottom line.

 

Shareholder Value – The Natural Outcome Of Our Current Economic Policy

 

The price gouging and greedflation plaguing the United States is a natural outcome of our current economic policy: one where shareholders are the most important and other stakeholders (customers, employees, vendors, etc.) are inherently deemed less important. Not only is this a dumb idea – but it also hurts the company in the long run.

Economists have recognized the problems with corporations – some earlier than others, like John Kenneth Galbraith. This article writes that, “Galbraith’s first major book, published in 1952, is American Capitalism: The Concept of Countervailing Power. In it he argued that giant firms had replaced small ones to the point where the perfectly competitive model no longer applied to much of the American economy. But not to worry, he added. The power of large firms was offset by the countervailing power of large unions, so that consumers were protected by competing centers of power.”

23 Things They Don’t Tell You About Capitalism, written by Ha-Joon Chang, is a MUST-read for anyone who genuinely wants to broaden their understanding of current economic theory and the problems it has.

Angus Deaton, once a proponent of current economic theory, has since acknowledged his errors and now believes corporations have too much power – and need that “countervailing power” Galbraith mentioned.

 

A Change Is Needed

 

It’s telling how many people have started to understand not only how prevalent exploitation is but also how a system of checks and balances is desperately needed today – most notably in the United States.

And outside the United States? What do we see happening with Greedflation?

“Outside the U.S., corporations as well as governments have pushed back against price hikes. The European supermarket chain Carrefour, which first tried to embarrass PepsiCo by pointing out price increases on its products with in-store signs, last month said it would stop carrying PepsiCo products altogether. Belgian chain Colruyt also dropped products from Mondelez, the maker of Oreos and Philadelphia cream cheese, after price hikes.”