Tangle - Were we wrong about "greedflation"?

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 10 minutes.

Ever since inflation settled in, there has been a blame game happening among pundits, economists, and politicians.

There seem to be two concepts garnering broad consensus across the political spectrum: 1) There is more than one reason for the current inflation, and 2) The coronavirus pandemic had a lot to do with it.

In the past, we've shared arguments about the federal government's decision to inject trillions of dollars of pandemic aid into the economy. There is a very basic, traditional economic argument about that decision. Steve H. Hanke and Kevin Dowd put it like this:

Since February 2020, the Fed has flooded the “monetary bathtub” by increasing the M2 money supply by a cumulative 41 percent. Money has been flowing into the bathtub much faster than it is draining out of either the real GDP “drain” or the money-demand “drain.” When more money flows into the bathtub than drains out, money “overflows” as inflation.

When too many dollars begin chasing too few goods, prices go up. This is basic Economics 101 stuff.

Another argument around drivers of inflation has been more hotly contested and carries much more interesting ramifications. That's the role — in one way or another — of corporate greed.

This dynamic has been dubbed "greedflation" by many economic writers. The idea is that corporations have used the pandemic, supply chain issues, and blame directed at the federal government as an opportunity to squeeze as much profit out of this moment as possible, thus raising their prices disproportionately to the cost of doing business. Put differently: Corporations are seizing an opportunity to maximize profits in an unprecedented way, and this is driving prices up more dramatically, which is making inflation more persistent, even as interest rates are raised by the Fed. Worst of all: These corporations are doing this without even being blamed for it.

Let me start by saying I don't love the term "greedflation" because it strikes me as a bit squishy. It means different things to different people, and we convolute the debate when we start assigning human characteristics (like greed) to inanimate things (like corporations), making this economic discussion a much more politically charged one.

So, to be clear, the question we are trying to answer is not about whether greed is driving inflation, but whether corporate price hikes are. I'll reference "greedflation" in this article, but only because so many other writers do, and because it has become a common catch-all term for attempts from corporate leaders to maximize profits and hike prices beyond what might be expected in normal times.

In May of 2022, after reading some opinion pieces about "greedflation," I wrote that "corporate opportunism" was indeed behind inflation, laying out the basic argument for greedflation and giving it my stamp of approval. Then, in September of 2022, I wrote that I had changed my mind, citing arguments like this one and this one that exposed some fallacies in the "greedflation" takes. The simplest retort is this: Corporate “greed” is a constant, and inflation is not. You can't rein in inflation by trying to convince corporations to want to profit less. Profits are rising, yes, because prices are rising — and because many customers were flush with cash during the first years of the pandemic. These are all conditions we'd expect in any inflationary time period.

In my mind, those arguments basically ended the conversation. But then something odd happened in recent months: As Axios's Emily Peck reported, the once fringe theory of greedflation — which was largely perpetuated by progressive economists and pundits — has started picking up mainstream traction.