The Washington PostDemocracy Dies in Darkness

Opinion Greed is dead. Long live greed!

A screen on the floor of the New York Stock Exchange on Monday. (Justin Lane/EPA-EFE/REX/Shutterstock)
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Has it finally happened? Is greed … dead?

After months of complaining that “profiteering” corporations were driving up inflation, progressive populists seem to have gotten their wish. Corporate profits fell last quarter. Target, for instance, reported its net income shrank roughly by half in its most recent fiscal quarter from a year earlier and warned last week that its margins will narrow further in the current quarter. Walmart and other erstwhile “profiteering” retailers have also recently reported slimmer profits.

Who knew self-righteous tweets about “price-gouging” corporations could be so effective?

On Monday, stocks entered a bear market, meaning they closed 20 percent below their recent peak. Sure, maybe investors are worried about lower returns because monetary policy is tightening; or maybe, just maybe, investors believe all that anti-corporate browbeating worked and companies will simply stop trying to make so much money.

Unfortunately, despite what those populists predicted, the declining fortunes of Big Business have not coincided with any reduction in inflation. Inflation reached yet another 40-year high in May.

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It is almost as though rapid and unpredictable price growth does not create an awesome environment for companies to operate in.

Anyone who’s looked at economic basket cases such as, say, Argentina might have predicted as much. But this seems to be news to some progressive Democrats, who have argued for months that corporations love today’s inflationary environment because it gives them an “excuse” or “cover” to gouge consumers.

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These populists claim that rising prices are not, primarily, caused by changes in supply and demand related to the pandemic and other shocks. Rather, they say that greedy corporations are conspiring to push prices ever higher, using inflation as a “smokescreen.”

“This isn’t about inflation. This is about price-gouging,” Sen. Elizabeth Warren (D-Mass.) argues. Grocery prices, she claims, have been rising because “greedy corporations are charging Americans extra just to keep their stock prices high.” Echoes her colleague Bernie Sanders (I-Vt.): “The problem is not inflation. The problem is corporate greed.”

Their evidence for the greedflation theory was that prices companies charge had risen faster than input costs, which meant (at least for a while) that profits were growing.

That does sound sort of suspicious.

But this is what you’d expect if consumer demand is really strong and supply remains constrained. Goods flew off shelves last year, and companies had trouble keeping items in stock because supply chains remained snarled. Their costs rose, but they were also able to sell their limited wares at higher prices because consumers were flush with cash and eager to buy whatever was available.

Today, companies’ revenues are still rising — but their costs (labor, fuel, materials) are rising even faster. What’s more, some supply chains seem to have improved; the volume of cargo coming through the ports of Los Angeles and Long Beach, for example, is near record highs. After struggling to keep products in stock for much of the past two years, many companies have now replenished their depleted inventories.

That means many firms are spending more per product sold and have accumulated more products in hopes of selling them. Some items they’ve been stocking up on aren’t selling, though, as consumer tastes have shifted (more dress clothes, fewer yoga pants).

The result is that even as consumer spending continues to rise, companies’ costs are rising even more. So their profits have shrunk.

That’s not because American companies suddenly turned altruistic, after having been shamed by the viral TikToks of grandstanding greedflationists. As I’ve written several times: Companies are always greedy, meaning they always hope to maximize profits. Their ability to raise prices and make money is determined by demand and supply, which have been wacky and unpredictable lately.

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Somehow the greedflationists failed to notice that the fact pattern no longer fits their preferred narrative — that is, prices and profits have recently been heading in opposite directions.

Warren tweeted Friday that “giant corporations are using inflation as a cover story to jack up prices and pad profits.” Apparently progressive activists who’d been listening to corporate earnings calls for evidence of “ruthless profit-rigging schemes” have tuned out the last few.

There are, of course, some sectors where profits are still booming. Oil and gas companies are doing phenomenally well. But, again, that’s not because they suddenly turned up the greed dial. There was a huge supply shock, in which Russian energy was effectively taken offline. Meanwhile, demand for energy has remained quite strong.

That has driven up energy prices and profits.

As I’ve also said before: Greedflationist demagoguery was at best a source of confusion. At worst, the misdiagnosis of inflation’s causes has distracted from remedies that might modestly help (repealing tariffs and shipping restrictions or fixing the immigration bottlenecks contributing to labor shortages) and has created momentum for policies that might make inflation worse (such as price controls).

But if greedflationists continue to promote their theory, the least they can do is update their talking points.

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