…In other words, inflation can provide businesses with pricing power and increase their profit margins. If profit margins are rising, it means the prices that companies charge for their products are increasing at a faster rate than increases in production costs. Investopedia, updated 12/2/21.

Rising prices are on everyone’s mind right now. Even if you can buy and sell Manhattan, you’re worried that both your purchasing power and your savings are eroding, and you’d be right. I’ve written about the rising cost of certain services, like an Amazon Prime membership, and questioned whether Amazon really had to raise its prices just as it is recording record profits. The answer is a resounding “No”, by the way, but it is important to discuss the basics of inflation, and why these indicators and the typical methods to temper inflation are no longer enough.

My thinking process is as different from an economist as my body is from an Olympic athlete—only worse. But I do have a proclivity for sniffing out a scam, particularly when presented with scenarios that don’t logically add up. After turning to a variety of economic experts and their take on today’s rising prices, there seems to be a missing link in our analysis of our country’s newest round of inflation that is being (mostly), willfully ignored. One thing I despise is to be told by “experts” that there is nothing new and different that can be done to solve a problem, and that seems to be exactly what is happening with this latest round of inflation.

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Inflation is a measure of the rise in the cost of goods and services in a particular economy and over a specific period of time. A good primer on inflation written by Investopedia states: “Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages…”. But there are other reasons for a rise in prices. See this nifty illustration, also from Investopedia:

These contributing factors to inflation are accepted without much question, and in fact, are correct—when production costs go up, companies pass those costs on to the consumer in the form of higher prices, when demand for a product goes up, like during the pandemic shutdown when there were lines around the block for toilet paper, companies raise the price of such goods so consumers pay more, when huge, international companies simply want to increase already sky-high profits, Amazon, Starbucks and many others simply raise prices so consumers pay more. Do you see a pattern here?

In response to rising inflation, the Federal Reserve, whose main functions are to control inflation and maintain robust employment, implements an array of “fiscal policies”, like raising interest rates, for example, which is known to help lower inflation by suppressing demand. And the cycle continues.

Here’s what I’ll dub a traditional economic take on our current inflation woes: Just ‘buckle up” and ride out the waves. Have a four minute listen—it’s worth it.

Fordham University @FordhamNYC

Giacomo Santangelo, senior lecturer of economics, on @KCBSRadio discussing inflation numbers. Listen here: New numbers on inflation not shocking to experts - KCBS Radio: On-Demand - Omny.fmThe consumer price index is up 8.3%, remaining at a four-decade high. For more, KCBS Radio news anchors Holly Quan and Jason Brooks spoke with Giacomo Santangelo, an economics professor at Fordham University.omny.fm

May 12th 2022

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But there is a more thoughtful (and progressive) take on what to do about inflation. The common denominator is not the rising cost of production or increased demand, but that companies raise the price of goods and services so consumers pay more. But I am not referring to small businesses that just happen to have an extremely profitable year or two, or must raise their prices to some extent to cover higher wages or increased costs. Of course businesses of all sizes are entitled to make a profit, but I don’t think corporations that routinely make billions of dollars in profit each year and pay very little to nothing in federal taxes should gouge the American public. And that is exactly what these businesses are doing.

Don’t believe me! Take it straight from Robert Reich, former Secretary of Labor and Professor at the University of California, Berkley, and the corporate CEO’s themselves.

Robert Reich @RBReich

Don't believe me? Take it from the corporate executives themselves: Opinion | I Listened In on Big Business. It’s Profiting From Inflation, and You’re Paying for It.Close your introductory economics textbooks and actually look at the economy.nytimes.com

May 5th 2022

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And who does both inflation, and the first step to correct that inflation, raising interest rates, hurt the most? Lower income to middle-class workers. Any gain in wages they’ve had over the last several years have been erased, and then some, by inflation. Meanwhile, the interest rates on their credit cards and loans will rise, so overall, their purchasing power will plummet. What to do so we don’t keep following the same pattern…and expecting the same result?

Robert Reich has an explanation of why these mega-companies can raise prices with impunity and proposes a few solutions that just might upend the paradigm…

Robert Reich @RBReich

One big, largely ignored source of inflation: Corporate greed. Too many U.S. industries are dominated by a handful of corporations, which have the ability to push prices higher, even as they rake in record profits. That requires antitrust enforcement.

May 10th 2022

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I’d love to hear your thoughts on rising inflation and what government can do about it. Do we have to just sit back and “enjoy” the ride, or are enforcing anti-trust laws and enacting federal, anti-price gouging legislation the way to go? Let’s have a discussion in the comment thread below.

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