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Corporations’ Price-Gouging May Hurt Them in the Long Run, Says Economist

Consumers can afford to buy more when prices are lower; thus, corporations will make more money, says Chris Becker.

A customer shops at a supermarket in Millbrae, California, on August 10, 2022.

Janine Jackson: In a section labeled “Core of the matter,” the Economist declared: “Despite rosier figures, America still has an inflation problem. Is higher unemployment the only cure?”

I guess we’re meant to find solace in the idea that the magazine thinks there might conceivably be other responses, in addition to what we are to understand is the proven one: purposely throwing people out of work, with all of the life-changing harms that come with that.

CNBC’s story, “Inflation Fears Spur Shoppers to Get an Early Jump on the Year-End Holidays,” encouraged us to think that “inflation is a Scrooge.”

So — an abstraction that is somehow stealing Christmas, to which the healthy response is to make more people jobless while corporate profits soar. It makes sense to corporate media, but if it doesn’t make sense to you, you are far from alone.

Chris Becker is the associate director of policy and research, and senior economist, at the Groundwork Collaborative. He joins us now by phone. Welcome to “CounterSpin,” Chris Becker.

Chris Becker: Thank you so much for having me, and just having this very important discussion.

I know that lots of people don’t really understand much about how the economy works, and I don’t hold it against them, frankly. I do hold it, in part, against corporate news media, who I think rely on that lack of knowledge to sell ideas that people wouldn’t buy if they understood them.

So if you’re having a first conversation with someone who says, “Boy, prices are high, this inflation is killing us. And, you know, the paper says it’s wages,” how would you try to reorient that conversation? Where would you start?

Right. I think there is a lot of misinformation and misunderstandings floating around that are perpetuated by the media at times. And so where I would start with the conversation is to say that when we’re thinking about inflation, we need to understand that there are stark differences in how American households and consumers are experiencing the post-pandemic economy, versus how corporations are faring.

So for consumers, what this has meant is higher prices: higher prices at the grocery store line, at the pump, even for essential goods like baby formula that are required for basic nutrition of infants. And so the bottom line for consumers is that it’s become harder and harder to make ends meet.

But corporations have turned consumers’ pain into their own gain. So what we’ve seen corporations do is that they’ve used all these crises as an excuse to pass on higher prices to consumers, padding their pockets in the process, and then funneling the extra money back to their wealthy shareholders and investors.

And like you mentioned, there are a lot of narratives going around that corporations were forced to raise these higher prices, that they had higher input costs, or that wage demands were simply too large, and they had to raise prices to compensate for that.

But what we’ve seen, actually, is that not only have corporate profits hit record highs, far exceeding what we saw prior to the pandemic, but also profit margins have hit their highest level in 70 years.

And so what that means is that for every dollar that these corporations are earning, a larger percentage of that is going to corporate profits, rather than paying off input costs or paying wages, than what we’ve seen since the 1950s. So not only are corporations making a lot of money, they’re actually squeezing consumers for more than they have in 70 years.

And so, yes, input costs have gone up, wages have gone up, but corporations have passed all of that onto consumers in the form of higher prices, and then a little bit more, so they’re actually making more and more profits than they used to.

And I just want to add, the way that media framing tends to talk about workers and consumers as though they were different people is very frustrating in terms of understanding what’s going on, right? I’m the one paying at the pump and at the grocery store, and I’m also the one working for wages. So it’s very obfuscating to separate those groups rhetorically.

Yes, absolutely. And one of the biggest problems is that wages are not rising fast enough. We’ve seen that wages have gone up, but not by as much as inflation has gone up.

So the purchasing power of these workers, in terms of what their wage actually buys them, has gone down. And so we actually need higher wages, not lower wages. We need to ensure that workers are being fairly compensated for the higher prices that they’re seeing. That’s exactly right.

When I see outlets like the Economist toss off phrases like the “remorseless mathematics” of economic policy-making, that’s sending a message, right, to readers that choices aren’t being made. It’s as if it’s the hand of God.

And as well as misrepresenting what you and I know is the very contested nature of economics — if you have different goals, you want different policies — it also seems to encourage a kind of passivity on the part of people. “There’s really nothing you can do about it. It’s just math, you know, it’s just math.” It’s very frustrating.

I think that’s exactly right. And when we’re thinking about corporations, they do have options. They do have other choices of how they want to go about making profits. We often frame it as if it’s this question of, should corporations be allowed to make profits or not? And, of course, in a strong economy, where everyone’s doing well and everyone’s making money, corporations will make profits too.

The real issue is how they’ve gone about making these profits. And so, unfortunately, we’ve incentivized these corporations to really go after this price-gouging, profiteering strategy, rather than pursuing other strategies that could be good for all of us.

So, for example, one option that corporations have is that it’s not obvious that higher prices are always better for corporations either; if corporations keep their prices low, consumers can afford to buy more from them, and they’ll make more money. But, unfortunately, they put all their eggs in this price-gouging basket instead.

In the long run, low prices could be good for corporations. If you keep your prices low and the products are affordable, consumers will see that, and they’re more likely to keep shopping with you. They’re able to expand your customer base.

So I think even the high prices could, in some ways, be short-sighted for corporations, too.

Another big problem is that corporations are not investing this money. We know that corporations are making all these profits. They could be taking this extra money and saying, “Let’s actually invest it so that we can have long-term profitability, long-term sustainability. Let’s try to bring our costs down. Let’s try to expand our productive capacity, so we can produce more in the future and make more money.”

Unfortunately, they’re not doing that either. What we’re seeing instead is that corporations are taking all those extra profits and doing share buybacks and dividends, and funneling extra money to their shareholders.

These shareholders don’t necessarily have the best interest of the corporations in the long run, or the economy as a whole, in mind. They want to see a short-run return right now, make sure they make their money while they can. And so they’re incentivizing these corporations to go all in on price-gouging; funnel the money back rather than taking the more risky investments in the long run that could benefit all of us.

We need to really move away from this model where corporations are so reliant on shareholders who are really prioritizing short-run profits and profiteering over far more investment.

I was struck by a recent tweet of yours in which you said we can continue arguing about precise causes of inflation, but we have to connect it to corporate profiteering. And you said:

Whether this profiteering is a cause of inflation or just a distributional consequence, we don’t have to accept this. We can build institutions that ensure everyday Americans get a bigger piece of that pie.

I wonder if you could just finally talk a little bit about that. What institutions need to be grown? How do we build them? Just tell us a little bit about that positive vision.

Sure. I think that a lot of it goes back to what you were talking about before, where the consumers are workers.

And, unfortunately, we have built a system that relies on exploitation of labor rather than building up workers’ rights and good pay. So corporations are not paying workers well, they’re not giving them proper rights, they’re not respecting their dignity in the workplace. And we see the consequences of this.

We’ve seen it very recently in the labor strike that we’ve seen in the railroad industry. Railroad workers are workers that our economy really depends on; they’re essential workers within our supply chains that allow consumers to access the goods and services that they need. If there’s one thing we’ve learned in this crisis, it’s how important our supply chains are.

But railroads, instead of treating these workers well and taking care of them, have assumed that they can continue to exploit them over and over again, and those workers will always be there when we need them.

And, finally, these railroad workers are saying enough is enough. They’re making very simple demands, just to have basic paid sick leave so that they don’t worry about losing all their income when they get sick.

And so now we are faced with this situation where we could have a railroad strike, which will throw our economy into disruption once again, and raise prices for everyone.

And so we should be investing in workers, investing in higher wages, investing in unions because it’s the right thing to do, but also because it will allow workers to focus on their jobs, get the essential tasks they do done without having to worry about having enough money, being able to make the right choices for their family.

So I think a lot of it just starts with investing in workers first instead of corporate exploitation.

We’re going to end on that note. We’ve been speaking with Chris Becker, associate director of policy and research, and senior economist, at the Groundwork Collaborative. Their work is online at GroundworkCollaborative.org. Thank you so much, Chris Becker, for joining us this week on CounterSpin.

Thank you.