So according to Senator Elizabeth Warren, the inflationary surge that’s sending prices into the stratosphere is being caused by “corporate greed.”
There are two possibilities here: (1) Senator Warren is a fool or (2) Senator Warren is a liar. Actually both of those things could be true, but in this case I’m going with (2). Warren may not be the brightest bulb in the Capitol Hill chandelier, but she knows that her line on corporate greed is b.s of the purest ray serene. The thing is, she thinks that you and I are dumb enough to swallow it.
Warren and other Democrats are peddling the corporate greed canard because they’re desperate to deflect the blame for inflation away from the actual culprits—themselves. Government may not be much good when it comes to solving problems, but it’s very efficient at causing problems, then making them worse—inflation being the classic example.
First let’s review some basic economics. A picture of our market economy in the large can be formed by imagining a great circle of buyers and sellers, along whose circumference accumulating costs are constantly in motion. If, say, you buy from Giganticom Corporation one of its most popular widgets, the price you pay incorporates all the costs involved in creating it, plus the company’s profit margin.
Now Senator Warren would have you believe that inflation is caused by rising prices. But that’s putting the cart before the horse. Rising prices are a symptom of inflation, just as a killer headache is a symptom of COVID-19. What actually gets inflated is the amount of money in circulation throughout the economy. Putting more dollars in circulation increases overall purchasing power, which in turn increases the demand for goods and services.
But unlike dollars, goods and services can’t simply be conjured up out of thin air. A large, swift rise in the money supply stimulates more demand than the economy can service. In effect, an oversupply of money generates an undersupply of goods and services.
Yeah, but Tom! Why should more purchasing power force greedy corporations to raise prices? The answer is simple: There’s no hard division between economic actors who buy and those who sell—all are both buyers and sellers. Recall Giganticom Corporation’s popular widget. As demand for it rises, the company ramps up production. To do that it has to buy more raw materials, subcontracted components, physical plant and equipment, labor, etc. So do all of Gigantacom’s competitors, along with companies in related industries who use the same things. Rising demand and finite supply translate into higher costs for all those companies—costs that get passed along to its customers.
Yeah, but Tom! What about those excess corporate profits? Well, what about them? First, who exactly appointed Senator Warren to set the definitions of excess and greed? Second, nobody complains when strong demand for labor causes wages and salaries to rise, i.e. when workers’ personal profitability goes up. Anyhow, inflation isn’t discriminatory: It shrinks the purchasing power of wages, salaries and profits. Thus so-called excess profits that don’t keep pace with inflation are as illusionary as so-called wage gains that underperform inflation.
Senator Warren would have you believe that she knows how to square the great circle of the economy. Well, she doesn’t. When politicians like her denounce “corporate greed,” they’re just trying to distract you from the fact that they’re the ones who generated inflation by flooding the economy with free money. I grant you that the COVID-19 pandemic was an emergency that demanded excess spending, but the Biden Administration saw what the Trump Administration had spent as a mere down payment. The President and his party started off with a second, totally unnecessary, COVID relief bill, then added a gigantic infrastructure bill, then proposed a positively gargantuan “social infrastructure” bill. Encouraged to fancy himself as the twenty-first century FDR, Biden proclaimed—perhaps he even believed—that America could spend its way to the Radiant Future.
In reality all that excess spending, not to mention the Federal Reserve’s easy-money policies, touched off the inflationary spiral that’s busting the budgets of millions of American families. It’s not transitory. It’s not a high-class problem. Though the supply chain crisis and the Russo-Ukrainian War have exacerbated inflation, they didn’t cause it. We’re in this fix thanks to the hubris, ignorance and incompetence of the, ahem, grown-up adults whom a majority of voters so ill-advisedly selected in 2020.
But not to worry! The adults are still on the job! Senator Warren promises that inflation can be tamed by taxing “the rich” and “greedy corporations.” President Biden insists that inflation can be whipped if Congress would just let him spend an additional three or four trillion. And if you’re a fan of magical thinking, I suppose that sounds like a plan...