MORE EVIDENCE THAT “INFLATION” IS PRICE GOUGING

More evidence is emerging that price gouging, particularly by big corporations, is responsible for a good portion of recent consumer price increases. Inflation is normally the result of increases in production costs. In a competitive market, production cost increases result in decreased profits. However, currently, corporate profits are increasing, often dramatically. With production cost increases, profits would be expected to decline because producers will be competing for consumers based on price. Therefore, they would restrain price increases to avoid losing customers. Some of the cost increases might be passed through to consumers in order to reduce the decline in profits. With real competition in a free-market, a producer’s prices and profits can’t increase dramatically because other producers in the market (or new ones who will enter it) will take advantage of the opportunity to make good but lower profits by charging a lower price.

When consumer prices increase and profits increase dramatically, real competition is NOT occurring. Rather, it shows that producers have monopolistic power and are able to increase prices and their profits because consumers have no or few choices. In some cases, the few producers in the market may collude and raise their prices in tandem rather than actually competing with each other. This is illegal price fixing.

In 2019, before the pandemic, big U.S. corporations had about $1 trillion in profits. In 2021, during the pandemic, their profits were $1.7 trillion, a 70% increase. One estimate is that these increased profits account for 60% of the price increases that consumers are experiencing; it’s supposedly “inflation” but it’s really price gouging. [1]

For example, Proctor & Gamble (P&G) increased the prices of its Pampers brand diapers last April blaming increased costs. However, its previous quarterly profits had been $3.8 billion and, six months later, its profits were over $5 billion. These exorbitant profits allowed it to spend $3 billion buying back its own stock. Corporate stock buybacks increase the price of a corporation’s stock, benefiting big, wealthy shareholders, including corporate executives. (Note: Until 1982, stock buybacks were considered illegal market manipulation.)

In a competitive market, consumers would buy other brands of diapers to avoid the P&G price increase. However, effectively, there is only one other brand of disposable diapers, Huggies, which are made by Kimberly-Clark. These two corporations control 80% of the global disposable diaper market. Kimberly-Clark just happened to increase its prices for Huggies at roughly the same time as P&G increased its prices for Pampers.

As another example, as gas prices at the pump skyrocket, the big oil corporations’ 2021 profits were at seven-year highs, even before the most recent dramatic gas price increases:

·      Exxon Mobil: $23 billion, highest since 2014

·      Chevron: $15.6 billion, highest since 2014

·      Shell: $19.3 billion, highest since 2014

·      BP: $12.9 billion, highest since 2013

Big oil is using the smoke screen of the war in Ukraine and inflation elsewhere in the economy to engage in price gouging. The U.S. gets only about 7% of its imported petroleum products from Russia and this represents just 3% of the oil the U.S. consumes. Moreover, in 2020, the U.S. exported more petroleum products than it imported. This is hardly a situation where the loss of Russian oil would result in such dramatic price increases if the oil market was a truly competitive one.

One way to tackle price gouging is with a windfall profits tax. Democrats in Congress have introduced the Big Oil Windfall Profits Tax bill. It is estimated that this tax would raise $45 billion per year. That money would be used to provide rebates to middle and lower income households of $240 (single tax filers) to $360 (joint tax filers) per year. [2] A windfall profits tax would seem to be called for in many other sectors of the economy as well, such as meat packers, diaper makers, drug manufacturers, car dealers, and shipping corporations.

Other ways to fight price gouging include:

·      Price controls,

·      Stronger enforcement of anti-trust laws including breaking up giant corporations that have monopolistic power in their markets,

·      Stronger action to stop and penalize anti-competitive market behavior including criminal charges against executives who engage in price fixing, and

·      Banning stock buybacks, which provide corporate executives with a strong incentive for price gouging to increase profits. [3]

As President Joe Biden said, “Capitalism without competition isn’t capitalism, it’s exploitation.” He’s right. Price gouging is one important manifestation of that exploitation. This exploitation of consumers is one result of the current extreme capitalism in the U.S. that has allowed the emergence of huge corporations that reduce or eliminate competition. We need to fight price gouging and anti-competitive capitalism with both short-term and long-term strategies.

I urge you to contact President Biden and your U.S. Representative and Senators to let them know that you support a range of actions to stop price gouging. Tell them you support the Big Oil Windfall Profits Tax bill and urge them to pass it quickly. Urge them to institute a windfall profits tax on all businesses that are engaging in price gouging, not just big oil. Ask them to support stronger enforcement of antitrust laws and to penalize anti-competitive market behavior. Tell them to ban stock buybacks and, if all else fails, to institute price controls on price gouging companies.

You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414.

You can find contact information for your U.S. Representative at  http://www.house.gov/representatives/find/ and for your U.S. Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]     Hightower, J., 2/1/22, “Corporate profiteers’ pandemic strategy: Gouge consumers and blame Joe Biden,” The Hightower Lowdown (https://hightowerlowdown.org/article/corporate-profiteers-pandemic-strategy-gouge-consumers-and-blame-joe-biden/)

[2]     Germanos, A., 3/10/22, “Dems introduce windfall tax on big oil so companies ‘pay a price when they price gouge’ ,” Common Dreams (https://www.commondreams.org/news/2022/03/10/dems-introduce-windfall-tax-big-oil-so-companies-pay-price-when-they-price-gouge)

[3]     Hightower, J., 2/1/22, see above