Workers earning a living wage are not the cause of inflation, as some conservative politicians and pundits keep insisting. Rather, according to a new report per the Maine Center for Economic Policy, higher costs are the result of corporate consolidation and companies using their control of the market to set inflated prices.
These companies rake in record profits while Mainers pay higher prices for everyday items like meat, milk, bread, fuel and electricity.
“The disconnect between Mainers feeling the pinch as corporate profits rise is the result of choices made by policymakers over time, particularly at the federal level, that have given corporations greater power over people to set prices and control the flow of goods and services,” reads the report by MECEP policy analysts James Myall and Arthur Phillips. “Now companies are using that power to extract even greater profits under the guise of the current global supply chain disruptions.”
Myall and Phillips explain that the problem stems from three decades of relatively unlimited corporate consolidation, where a small number of companies control most of the market for a particular product.
For example, “According to the National Economic Council, the four largest companies in the highly concentrated meat processing industry reported at the end of 2021 that their gross profits had increased by more than 120% compared to before the pandemic”, write Myall and Phillips.
MECEP analysts note that in 2021, corporate profits were the highest since the late 1940s. These record profits account for a much larger share of price increases than labor costs.
an april analysis by the progressive Economic Policy Institute found that more than half of the price increases (53.9%) from the peak of inflation in 2021 and 2022 can be attributed to higher profit margins, labor costs work contributing to less than 8% of this increase.
“During the period from April 2020 to December 2021, in the non-financial business sector, for every dollar of price increase, 54 cents went to corporate profits, while only 8 cents went to the increase in wages,” the MECEP report said.
The current dynamic is the reverse of the trend from 1979 to 2019, when corporate profits contributed about 11% to inflation while labor costs contributed more than 60%, according to PPE.
Experts call for policies that will hurt workers
MECEP and other progressive analysts point to record corporate profits as the culprit while other conservative economists, including former President Bill Clinton’s Treasury Secretary Larry Summers, call on the Federal Reserve to increase interest rate to slow inflation.
Workers, not businesses, will bear the brunt of the pain caused by higher interest rates and a potential recession, experts say.
Summers is used to prioritizing economic policies that hurt low-income workers. He previously rejected the $1.9 trillion US 2021 Bailout Act – which offered working families expanded unemployment insurance, an expanded child tax credit and COVID relief checks. He, along with conservatives across the country and in Maine, blamed the relief program for the historically high number of job openings and employers having to compete for workers for the first time in decades. This demand for labor has led to wage growth in some sectors.
“Larry Summers – who [President Joe Biden] said he had spoken today – publicly saying that a 5% unemployment rate was needed to fight inflation,” Washington Post business journalist Jeff Stein tweeted June 20. “To state the obvious, a 5% unemployment rate would mean devastating unemployment for millions of poor working Americans.”
Maine policymakers can push back on corporate consolidation
Instead of punitive measures aimed at workers, Myall and Phillips explain how federal lawmakers and officials in Maine can curb rising business prices.
At the federal level, the US Department of Justice and the Federal Trade Commission are responsible for enforcing antitrust laws. But these agencies have not aggressively pushed back against corporate consolidation. MECEP analysts say Maine Attorney General Aaron Frey doesn’t need to wait for federal regulators to enforce antitrust law, he can do it himself.
Myall and Phillips also advise Gov. Janet Mills to enforce a Maine law that prevents companies from raising prices more than 15% above their previous prices during a period of “abnormal market disruption” for a product. specific. They note that this law was invoked at the start of the pandemic but has since lapsed.
MECEP analysts also suggest that state legislators, in addition to immediately investing in backstop programs, pursue long-term strategies that discourage corporate consolidation, such as eliminating tax laws that favor large companies versus small companies like Maine’s Business Equipment Tax Reimbursement (BETR), in which 46% of profits go to the top 1% of applicants.
“The rapidly rising cost of living is clearly hitting many Maine residents hard, especially those with low incomes,” write Myall and Phillips. “Legislators must act to protect the most vulnerable Mainers while tackling the corporate giants whose profits compound people’s struggles.”
Pictured: An employee stock shelves at a supermarket in Plainview, New York. | Bruce Bennett, Getty Images