Regarding inflation and corporate profits

The pandemic and supply chain disruption have damaged a lot of businesses, with many having gone bankrupt. But not all. The solidly liberal Hightower Lowdown (HL) sees corporate greed as the major factor in the inflation. The HL argument is as follows:

What the GOP bemoans as America’s inflation problem[1], is actually a corporate greed problem.

Of course, the greedmeisters and their apologists are deeply offended by this charge, huffing in outrage that their pursuit of corporate profit has not driven any price surges. In our economy of free market competition, they snap, consumer prices are established by the Holy Law of Supply and Demand. They lecture that when shortages occur, prices naturally rise, and that incentivizes additional production, which magically establishes a new supply/demand balance. Even if one producer or a monopolistic cabal of producers tries to overcharge consumers, these theoretical new competitors will draw customers from the gougers and keep prices in check. In the sanctuary of this concept, the free market is a virtuous, self-regulating circle of competitive fairness. Its zealous devotees have successfully convinced nearly all public policy makers to avoid government intrusion into its delicate mechanism.

But there’s one big problem with their virtuous circle: It’s a laissez-fairyland fraud that implodes when it hits the hard reality that our economy doesn’t remotely resemble a competitive marketplace. As the Lowdown detailed in October, nearly every economic sector in the US (from high tech to farm and food) has been locked down by a handful of overpowering corporate giants. For some 40 years, corporate-directed government policies have (1) intentionally promoted (even subsidized) mega-mergers; (2) gleefully green-lighted anticompetitive business tactics; and (3) aggressively inculcated and celebrated the economic lie that bigger is better. Thus, in short order and with practically no public awareness, much less discussion, America has been transformed into Monopoly Nation.

Brand name corporations are not being forced to markup price tags just to cover rising costs for raw materials, labor, transportation, etc. Indeed, in a competitive marketplace, they’d have to eat much of those increases by taking a bit less in profits. (The giants have been stockpiling record profits for years, so they could easily weather a downtick.) They’re now raising prices not simply to maintain exorbitant profits, but instead to squeeze even greater profits from hard-hit consumers. And then they cynically exploit the public’s worry about inflation to create more inflation.

Consider diapers, a necessity for many families. As corporate watchdog Judd Legum recently reported, the huge consumer product seller Procter & Gamble announced last April that Covid-driven production costs were forcing it to raise the price for its Pampers brand. At the time, it had just posted a quarterly profit of $3.8 billion, and P&G could easily have absorbed a temporary rise in its costs. But instead of holding the price to ease their customers’ economic pain, the conglomerate used a global health crisis to justify upping diaper prices. Six months later, P&G’s quarterly profit topped $5 billion and, in that same quarter, P&G spent $3 billion to buy back shares of its own stock–a Wall Street manipulation that artificially bloats the wealth of top execs and other big shareholders. In sum, P&G used the excuse of inflation to inflate the price of diapers, then used the extra money extracted from families to inflate the value of its stock in a ploy to further enrich its biggest shareholders. And why wouldn’t savvy consumers switch from Pampers to Huggies, the brand sold by Kimberly-Clark, P&G’s main “competitor”? Because co-monopolist Kimberly-Clark goosed up its prices at the same time. (The two companies control 80% of the global disposable diaper market.)

In 2019, the year before Covid-19 hit, big US corporations hauled in roughly a trillion dollars in profit. Only two years later, during the pandemic, they grabbed more than $1.7 trillion. Antitrust analyst Matt Stoller finds that this huge profit jump accounts for 60% of the inflation now slapping US families. The CEO of Kroger, the supermarket goliath, gloated last summer that “a little bit of inflation is always good in our business,” adding that “we’ve been very comfortable with our ability to pass on the increases” to consumers. “Comfortable” indeed. Last year, Kroger spent $1.5 billion of its monopoly profits on stock buybacks to reward executives and other big shareholders. In January, McDonald’s gushed to its shareholders that 2021 had been “a banner year.” Executives bragged that despite the supply disruptions of the pandemic and higher costs for meat and labor, they used the chain’s pricing power to up prices, thus increasing corporate profits by a stunning 59% over the previous year. And the party goes on: “We’re going to have the best growth we’ve ever had this year,” Wall Street banking titan Jamie Dimon exulted at the start of 2022. 

The same monopoly pricing power that abuses consumers can simultaneously exert “monopsony” power. While monopoly refers to a market with very few sellers, monopsony is a concentrated, non-competitive market with only a handful of dominant buyers. Monopsony empowers those few buyers to dictate prices and onerous terms of business to myriad independent sellers of components, ingredients, and services.

For a brief tutorial on monopsony, let me call in Professor Hamburger. More than any of the other price hikes in 2021, the 21% spurt in the cost of hamburger and other beef products may have jolted Americans the most. Over a few short months, a restaurant burger or a package of ground beef became noticeably pricier, and tight-budget families wondered why cattle ranchers were hitting them with such an increase.

They weren’t. In fact, back at the ranch, the hardy families that raise cattle were being slammed, too–not by price increases, but by disastrous decreases. As Prof. Hamburger explains, this double whammy is the direct result of our government’s abdication of its antitrust responsibility. Since the 1980s, state and federal politicians and regulators have blithely allowed a handful of ever-bigger meat processors to buy out or force out hundreds of feedlots and packing houses that previously competed to purchase from local cattle raisers.

Consequently, we have a BS beef economy in which producers and consumers alike are now at the tender mercies of a meat cartel: 85% of the US beef market is controlled by just four multibillion-dollar goliaths. (JBS and National Beef are Brazilian owned; Tyson Foods and Cargill Inc are US-based multinationals.) Despite already wallowing in fabulous profits, this beef cartel has been raising consumer prices during the pandemic, not to stay afloat, mind you, but to profiteer. And it’s working nicely for them. Their profit margin at the end of 2021 was 300%(!) higher than the previous year.

Meanwhile, the same monopoly that’s ripping off customers has been using its monopsony power to bankrupt the beef industry’s last competitive segment: independent cattle raisers. Not only have the Big Four eliminated local and regional cattle-buying competition, but they’ve also divided the national ranching territory, so they don’t have to bid against each other. The result is a corrupted marketing system that traps and strangles ranchers.

The New York Times recently reported, Steve Charter [discussed here], a third-generation Montana rancher, hoped for a good sale when he saw supermarket beef prices rising, so he took 120 head to an auction that delivers cattle to a JBS plant. He was told he had to commit to selling only to JBS, at a price to be dictated later by the Brazilian behemoth. “I wanted to tell him to go to hell,” Charter says, “But what choice did I have?” There were no other bidders, and cattle are expensive to keep. His break-even price was $1.30 a pound. “Without any consulting or dealing,” he says, “they just decided that they were going to pay me $1 a pound.”

Question: Setting aside its liberal bias, is HL's argument convincing that big corporation profits are significantly or mostly contributing to inflation, or is this cherry picked liberal propaganda that unreasonably distorts reality?

Footnote: The GOP is pounding on Biden and Democratic politics for current inflation. According to HL, a key GOP argument asserts that Biden lavished giveaways on millions of lazy workers, which led to slackers refusing to go to work. In turn, that lead to widespread disruptions in the global supply chain, causing shortages. That forced corporations to raise prices, and that swamps the middle class with systemic inflation. 

Assuming that HL reasonably summarizes a key Republican argument blaming Biden and the Dems, (i) it is conveniently silent about high profits for at least some giant corporations with limited competition, and (ii) it ignores the fact that global supply chain disruptions, e.g., shortage of silicon chips for electronics, have little to do with American workers refusing to take jobs. Presumably, that's why this is called global supply chain disruptions, not American supply chain disruptions.