Many Democrats have blamed price-raising agencies for the worst increase in the cost of living for Americans for more than a generation. But some left-wing economists disagree.
Desperate to avoid a waiver in the November congressional election, House Democrats are preparing to vote Thursday on a bill they have touted as the focus of a response to record high gas prices. This will give consumers the power to block the sale of fuel at “unreasonably high” prices.
It is part of a broader narrative that President Joe Biden and his team have championed that many companies – meat packers from energy companies – are taking advantage of epidemic-related hurdles to raise prices in an effort to boost profits. But most economists, including many allied with the Democrats, have little evidence of such practices behind the inflation crisis.
“Corporate power is probably playing a very small role in the inflation we’re seeing now,” said Jason Farman, a Harvard professor who has chaired President Barack Obama’s Economic Advisory Council. “The initial solution has to come from the primary cause of inflation, which is much more in demand.”
Jeff Bezos, the world’s second richest man, has been seen on Twitter in recent days arguing with the Biden administration over what to do about inflation. Biden, the founder of Amazon.com Inc., has been accused of “misleading” by saying that raising corporate taxes could lower prices.
Lawrence Summers, perhaps the most prominent critic who last year portrayed the Democrats ‘$ 1.9 trillion epidemic-relief bill as an inflationary surrogate, refuted Bezos’ allegations – showing how the talks have become multi-layered. Summers said raising taxes was “absolutely reasonable” to reduce demand and thus inflation.
And Summer colleague Obama team veteran Furman has backed the Biden administration’s move to increase distrust verification of the condensed industry.
“Inflation is a matter of demand and supply,” said Treasury Secretary Janet Yellen, reflecting the view of most economists earlier this month. He acknowledged that the March 2021 relief bill boosted demand – while its value proved to be the key to increasing job gains and limiting the risk of a deep recession.
Many congressional Democrats, by contrast, have focused on the role of the company.
“Price increases need to stop,” House Speaker Nancy Pelosi said after announcing plans to vote on a gas-price bill on May 12. “It’s a big exploitation of consumers.”
Senator Elizabeth Warren, a Massachusetts liberal, and fellow Democratic senator Sheldon White House have worked on a windfall-profit tax on “big oil” on Rhode Island. The bill was also endorsed by Roe Khanna, a California representative in the House.
Oil companies have reported historically high profits, with plans to return more cash to shareholders if the price of unrefined and refined products, such as petrol, rises.
Josh Bevens, research director at the Institute for Left-Leaning Economic Policy, argues that profit margins are responsible for inflation. Overall value in the non-financial corporate sector grew at an annual rate of 6.1% from the second quarter of 2020 to the end of 2021, he calculated. Some 53.9% of this could be attributed to profit margins, less than 8% of labor costs, he says.
Voters also feel that large corporations are using the epidemic to drive up prices and increase profits, according to a survey conducted earlier this month by Progressive Think Tank Data for Progress in partnership with Groundwork Collaborative. At least 60% support both crackdowns against large companies raising taxes as well as unjustly raising prices.
Despite this kind of analysis and overall impression among many voters, most economists go back to Yellen’s point about supply and demand. The recent gains in US retail sales have shown a lasting appetite for spending among Americans. And narrowed profit margins on target corporations have shown that inflation is proving detrimental to some companies.
Biden and Fed Chair Jerome Powell have all said it is the central bank – not the politically elected officials – that has the main responsibility for controlling inflation.
“The reality is that companies are always ‘greedy’ and always trying to maximize profits,” said Mark Goldwyn, senior policy director at a responsible federal budget committee. “The ability to raise prices and therefore gain only if demand supports it.”
‘Greed inflation’ argument
Many of the arguments for “greed inflation” are “unequivocally wrong and misleading,” Furman tweeted earlier this month.
Robert Reich, who served as Secretary of Labor under President Bill Clinton, said legislation could be successful even if companies are not the main problem.
“No one believes that inflation is the main cause of inflation,” said Rich, now a professor of public policy at the University of California, Berkeley. “The real question is whether the power of corporate prices is making matters worse. And there is ample evidence of that.”
Pelosi and his leadership team have had a difficult time gathering votes for the House price increase bill and may decide to pull it off schedule. As this week passes, there is little chance that Republicans will need a vote in the Senate. What’s more, Senate Energy Committee Democratic Chair Joe Manchin told reporters this week that he would like to see evidence of gossip before announcing his support.
Florida Moderate Democrat Stephanie Murphy said “I have some real concerns about the contents of this bill – the ambiguity of what is defined as price increases, as well as potential price controls and regulations that will affect small businesses like real gas station owners”.
The law would give the Federal Trade Commission the power to impose fines on companies that “exploit situations related to fuel emergencies to unreasonably raise prices.” Heat-fuel subsidy funds will be used for low-income people.
Critics say it gives the FTC too much leeway in pricing and could be used to fix prices.
“My concern is that this is how a socialist government works,” said Kathy McMurray Rogers, a top Republican in Washington’s House of Energy and Commerce, at a hearing this week.
That argument resonates beyond GOP.
Such moves could make matters worse – like a long line for gasoline in the 1970s – said Ben Ritz, director of the Center for Funding America’s Future’s Progressive Policy Institute, a center-left group. And if consumers expect shortages, they will go out and try to stockpile more, which could push prices even further, he said.
“The problem is we have a lot of dollars behind very few commodities – I don’t think you can fix it by simply banning price increases in industries where prices are rising,” said Adam Ozimek, chief economist at Economic Innovation Group. “It’s a huge distraction from focusing on the real issues that are driving inflation.”
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