Episode Details

Memo to President Biden (and the Democrats)

From: Robert Reich

Re: Inflation

Prices were 8.5 percent higher last month than they were a year ago, the Bureau of Labor Statistics reported this morning — the highest rate of inflation since 1981. The buying power of Americans is being squeezed more and more each day. You must explain what’s happening and put responsibility where it belongs. As America slouches toward the midterm elections, you need an economic message that celebrates your accomplishments to date – job creation and higher wages –- yet also takes aim at the major abuses of economic power that are fueling inflation and widening inequality.

You should put these ten indisputable facts centerstage:

1.  Corporate profits are at a 70-year high. Yet corporations are raising their prices.

2.  They are not raising prices because of the increasing costs of supplies and components and of labor -- which are real but expected when an economy goes suddenly from a pandemically-induced deep freeze to meeting the soaring demands of consumers who are emerging from the pandemic. Corporations enjoying record profits in a healthy competitive economy would absorb these costs.

3.  Instead, they’re passing these costs on to consumers in the form of higher prices. In many cases they’re raising prices higher than those cost increases, using the cover of inflation to increase their profit margins even more.

4.  They’re doing so because they face little or no competition. If markets were competitive, companies would keep their prices down to prevent competitors from grabbing away customers. As the White House National Economic Council put it in a December report: “Businesses that face meaningful competition can’t [maintain high profit margins and pass on higher costs to consumers], because they would lose business to a competitor that did not hike its margins.”

5.  Since the 1980s, two-thirds of all American industries have become more concentrated. This concentration gives corporations the power to raise prices because it makes it easy for them to informally coordinate price increases with the handful of other companies in their same industry — without risking the possibility of losing customers, who have no other choice.

6.  Corporations are using these near-record profits to boost share prices by buying back a record amount of their own shares of stock. (Buybacks reduce a company's shares outstanding, pushing its profit-per-share figure higher.) Stock buybacks hit a new record last year. So far this year they’re on track to exceed that record. In the first two months of 2022, S&P 500 companies have disclosed authorizations to buy back $238 billion in stock -- a record pace, according to Goldman Sachs, which expects $1 trillion of buybacks this year – an all-time high.

Chevron engaged in $1.4 billion in stock buybacks and spent $500 million more on shareholder dividends than it did in 2020. This year, the oil giants are planning to buy back at least $22 billion more.