Inflation or profiteering?

Have you noticed how gas prices are fast to go up with any bump in the economy but very slow to come down when the “crisis” is over? Or how about the price of a box of cereal going up while the size of the box gets smaller and smaller? The common wisdom is that these things are caused by the “rate of inflation,” a term everyone throws around but almost no one knows what causes it or, more importantly, how to stop it. 

Depending on your political leanings, the explanation for inflation rests with the policies of your political opponents. If you are Republican, you point to government spending. If you are a Democrat, you point to huge tax cuts given to the wealthy. Both of these views leave out a huge driver in our current inflation rate. Profiteering.

Earlier this year the economic research organization, Groundwork, issued a report which found that, from April 2023 to September 2023, 53% of inflation was driven by corporate profits. Prior to the pandemic, that figure was just 11%. Groundwork also reported that, while prices increased 3.4%, the cost of “inputs” to make those products have only risen 1%. Corporate profits have risen 29% since the beginning of the pandemic.  

In 2022, ExxonMobile announced that it was “on track” to buy back $15 billion in stock and $15 billion in distributions to investors. Taking $30 billion in buybacks and distributions is scooping the money off the table and putting it in their investors’ back pockets. Of course it could have gone to keeping prices stable for consumers. That’s not how we do business these days.

The Federal Trade Commission issued a report in March which examined the impacts of grocery supply chain disruptions from the pandemic. Among the conclusions, grocery profits rose significantly and remain elevated today. The FTC report found that, in the first three quarters of 2023, total revenue rose to 7%, exceeding the previous peak in revenue of 5.6% in 2015. It is a 25% increase, and it comes out of your pocketbook.

Our electricity bills keep going up, particularly here in Montana. Northwestern Energy was recently granted a 28% rate increase. Recently it announced plans for an additional 8% increase. The Public Service Commission hasn’t protected consumers for a long time, and there is no indication they are going to any time soon.  

NorthWestern’s rate of return (profit) hovers around 10%.  Not bad for a corporation that has virtually no risk once that rate is locked in by the PSC. But corporate largess comes in many forms. At the end of 2022, the top three executives at the energy company were paid more than $7 million.  

In 1970, conservative economist Milton Friedman wrote an influential essay titled “The Social Responsibility of Business is to Increase Its Profits.” In it, he argued that corporations have no obligation to act in a socially responsible manner. Their only obligation is to increase the profits of their stockholders. Since that time, Friedman’s view has become dominant in American business. 

It should come as no surprise that corporate leaders see an opportunity to maximize their profit in the face of a crisis like the pandemic. The surprise is that the rest of us let them get away with it.

Ken Toole served on the Public Service Commission from 2007 to 2011. He was a member of the Senate Tax Committee in 2001, 2003 and 2005. He was also the president of The Policy Institute, a private group which conducted research on economic issues including taxation. He currently is semi-retired on a small ranch/farm near Cascade.