In a Wednesday congressional hearing, representative Katie Porter (D-CA) presented a number of shocking facts about the relative rise in inflation and corporate profits over the past two years. These findings point out the fact that exploitative business practices are contributing significantly to the ongoing inflation crisis in the country.
The direct correlation between the soaring corporate profits and inflation during the pandemic recovery period is undeniable; both have now reached record levels around the same time. Most revealingly, the proportional contribution of labor costs and corporate profits to inflation has almost completely reversed since 1979, according to data from the Economic Policy Institute, with over half of all rise in prices now attributable to higher profit margins while real wages actually continue to fall. The same discrepancy has also been pointed out by other Democratic leaders, such as Senator Elizabeth Warren.
Robert Reich, a former Secretary of Labor, wrote an op-ed long before the Russian invasion of Ukraine, explaining the precise mechanics behind corporate price gouging. According to Reich, the U.S. economy has become increasingly dominated by a diminishing number of monopolistic conglomerates. In the lack of competition, these companies can not only raise their profit margins at whim, but also retain their employees without increasing their wages along with productivity gains. This trend is confirmed by all available data.
Indeed, the lack of corporate social responsibility in the economic sphere is deafening. Rather than share their part of the burden, most industry giants have exploited the current inflationary situation to raise prices much higher than the increase in input costs. Economist Rakeen Mabud told the ABC News that as customers become used to inflation, corporations can use these new expectations for sheer excessive profit even in sectors where production costs have not changed at all.
Earlier this year, one prominent example of this practice caused public outrage, when the credit card giants Visa and Mastercard arbitrarily decided to raise their ‘swipe fees’, significantly worsening the vicious cycle of inflation for small retailers. Similar instances of opportunism have plagued the energy sector since the economy started to recover from COVID-19. In response to these insidious tactics, the Biden Administration directed the Federal Trade Commission to counter market manipulation in oil and gas prices last November.
So far, these revelations have yet to result in any major concrete development. Instead, free-market proponents continue to justify this obvious monopolization of the American economy in terms of ‘business cycle phenomenon’ or as indication of a ‘strong economy’. Unfortunately, economists have known for a long time that reported corporate profits are not a good indicator of overall economic performance outside big business.
Unless we become more aware of what this rampant capitalistic thinking is doing to the American working- and middle-class, economic inequality will continue to reach astonishing heights and the average person’s purchasing power continue to fall, ultimately taking down the entire consumer economy with it.