How companies use inflation to steal your money

Imbalance: hardly any wage increases for employees, prices soaring, record profits for companies. The balance of power must change, says former US Secretary of Labor Robert Reich. Image: Mat McDermott / License: CC-BY 2.0

Growing imbalances in the economic and social fabric. Companies divert profits into the pockets of their CEOs and shareholders. Citizens are left behind. A guest comment

Inflation is a hedge that companies use to squeeze more money out of you. But as I will explain, there are five things we can do to counterattack.

Robert Reich is a professor of public policy at the University of California, Berkeley. He was Secretary of Labor in the Clinton administration.

Companies are using inflation as an excuse to raise prices, harming workers and consumers, and reaping record profits. Prices are going up, but to be clear, companies aren’t raising prices just because of the rising cost of materials and labor. They could easily absorb these higher costs, but instead pass them on to consumers, raising prices even more than these cost increases.

So what are companies doing with their record profits? They use them to raise stock prices by repurchasing a record amount of their stock.

Companies get away with it because they face little or no competition. If markets were competitive, companies would keep their prices low to prevent competitors from grabbing customers. But in a market with few competitors who can coordinate their prices, consumers really don’t have a choice.

As a result, companies are reaping the highest profits of the past 70 years.

Are they using these record profits to raise their workers’ real wages? No With one hand they spend meager wage increases to attract or retain workers, with the other hand they sweep away those wage increases through price increases. Wages rose 5.6% last year, but prices rose 8.5%. This means that workers suffered an inflation-adjusted wage cut of 2.9%.

So what are companies doing with their record profits? They use them to raise stock prices by repurchasing their own shares. Goldman Sachs expects buybacks to reach $ 1 trillion this year, an all-time high.

This means a direct transfer of wealth from the pockets of middle income to the pockets of CEOs and shareholders. Note: Billionaires earned at least $ 1.7 trillion during the pandemic, while CEO salaries (which are largely based on stock values) are now 350 times the average wage of a worker.

The US Federal Reserve wants to curb inflation by further raising interest rates. It would be a big mistake because it has no effect on business concentration and will slow down employment and wage growth. The job market is not “unhealthily tense,” as Fed Chairman Jerome Powell puts it. Corporations are unhealthy bloated.

So what’s the real solution?

First, a stricter application of antitrust to counter the growing concentration of the economy in the hands of a few large companies. Since the 1980s, more than two-thirds of American industries have become concentrated, allowing companies to coordinate price increases.

Second, a temporary windfall tax that absorbs record corporate profits and distributes them as direct payments to citizens struggling to cope with rising prices.

Third, the ban on repurchasing company shares. Share buybacks were illegal before Ronald Reagan’s US Securities and Exchange Commission made them legal in 1982 – and they were about to be made illegal again.

Fourth: higher taxes for the rich and corporations. Corporate tax rates are at historic lows even though corporate profits are at historic highs. And much of the billionaires’ profits during the pandemic were not taxed at all.

And finally: stronger unions. As corporate power increased, union membership decreased and economic inequality increased, which is why most workers haven’t received a real pay rise in 40 years. All workers deserve the right to bargain collectively for higher wages and better benefits.

In short, the real problem is not inflation.

The real problem is the rise in corporate power and the decline in worker power over the past 40 years. Unless we address this growing imbalance, corporations will continue to divert the profits of the economy into the pockets of their CEOs and shareholders, while ordinary Americans will be robbed.

The article first appeared on the US news platform Common Dreams.

Robert Reich is Professor of Public Policy at the University of California, Berkeley, and Senior Fellow at the Blum Center for Developing Economies. He was Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the 10 most effective cabinet secretaries of the 20th century. Reich’s latest book is The Common Good (2019). He is co-author of the Netflix documentary Saving Capitalism, airing now.

(Roberto Reich)

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