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Listener supported. WNYC Studios. This is the On The Media Midweek Podcast. I'm Michael Loewinger. In 2021, when inflation started to rise rapidly...
Economists and pundits tried to get a handle on what exactly was happening and what exactly would fix it. But as 2022 rolled around, one data point stuck out. Prices were up, sure, but profits in some sectors were skyrocketing far past post-COVID predictions.
Which gave birth to an idea that quickly moved from the halls of academic research and left-leaning think tanks to the political arena.
This has been a criticism from the left and politicians like Bernie Sanders and Elizabeth Warren that companies are engaging what they're dubbing greedflation. Everyone is talking about this, whether you call it greedflation, excuseflation, profit-led inflation, seller's inflation. Seller's inflation, that's the preferred term of Isabella Weber, an economist from the University of Massachusetts Amherst who helped popularize the idea.
She argues that companies like Pepsi have actually contributed to keeping inflation alive by keeping their prices high, even as the cost of production has started to come down.
The theory was dismissed as either imprecise or unfounded by some economists and dubbed a conspiracy theory by some in the press. But over the course of 2022 and 2023, the concept of greedflation slowly crept into the mainstream. Lydia DePillis is a reporter on the business desk at the New York Times. I asked her when the term greedflation first appeared on her radar.
I think it started getting kicked around in the spring of 2022 when inflation really started to get underway. And people on the left especially noticed that it wasn't just a phenomenon of supply chain snarls and also wage increases, right? Maybe there was something else going on that could...
be explaining inflation, at least in part. And so they wanted to highlight it. And that's where this term came into circulation. When you say people on the left, you're talking about politicians like Bernie Sanders and Elizabeth Warren and, you know, more left-leaning economists from think tanks and the like. Is that correct? Right. So there is an emerging philosophy on the left. I mean, it's been
been longstanding, but it's starting to get a little bit more pronounced, that the economy is affected by large actors that have been consolidated through mergers and acquisitions throughout the years that get in the way of
smooth supply and demand. When prices go up, demand goes down, which bring prices back down, kind of functioning. So it played into their desire to explain the economy in a way that lends itself more to direct government intervention rather than letting it do its thing and everyone will be better off for it. Can you give me a definition of greedflation as you understand it? I think
I think of it as having basically three parts. The first is that companies are raising prices above what their costs would justify. It's not simply a function of they have to pay more for inputs and therefore they charge more for the final product. It's that they're taking higher margin. Yeah, we know that energy costs and transportation costs and supply chain issues are driving the input costs. But do those really explain how high these prices are?
And the other part is the fact that it's happening in an inflationary environment. The nice thing about an inflationary environment for companies is it becomes very unclear to the consumer why prices are going up. So they're more likely to give people a pass if they're like, oh my God, my snack crackers are 30% more expensive. Well, so is my gas. So that must be the reason. But actually what's happening is companies
companies are taking advantage of that opportunity to raise prices more than they would otherwise, which in turn fuels inflation further, creating a little bit of a spiral or at least slowing what otherwise might be a decline in inflation. And the third component is the idea that market consolidation that's happened over the last few decades makes this a little bit easier to pull off.
If you are someone that has 30% of the market for a given product, folks have just fewer places to go. So it's easier to keep things at a higher level.
Could you give an example of a company that has benefited from using inflation as a justification for raising prices and that also controls a large portion of its market? Yeah, I mean, take a company like PepsiCo, which has a number of consumer packaged goods brands, things that you don't even know are owned by them. So we got Lay's, Mountain Dew, Quaker Oats,
Sabra, Fritos, I guess Starbucks Frappuccino drinks are sold by PepsiCo. So it's a lot of stuff. So that creates the opportunity to raise prices more than are justified by like the price of aluminum that goes into cans or the price of plastic that goes into bottles or the price of corn syrup that goes into all your drinks.
So there's the food market. And then when you start talking about meatpacking, like a notorious example of where supply is funneled through a bottleneck of the processors, and these are multinational companies, they not only control the supply of meat,
They have influence over independent ranchers who sell to them. They also have a degree of control over the prices to consumers. So they can depress prices from their suppliers and inflate prices to their consumers.
One common rebuttal that I've seen on Fox Business Channel to the notion of greedflation is prices at will, any time. Why did they wait until this past year? Why didn't they do it over the last 40 years?
I mean, it's very simple, right? They couldn't have raised prices at any time. What they required was an opportunity. And that came in the form of other shocks that were already increasing prices and made it easier to hide opportunistic price increases within them. And also, when you...
just are totally disoriented. You don't know what things are supposed to cost anymore. That means that there's no incentive to lower prices as inputs decrease. So for example, the cost of energy was a huge driver of price increases. Everybody could see it posted on gas stations. And energy prices came down precipitously in 2022. And they're still fairly low and not going back up.
And yet the cost of things like beef, certain kinds of dairy, certainly housing haven't come down all that much. And that's because it's easier to pad margins when your prices have already gone up quite a bit. So it's not just about motive. It's also about means and opportunity to put this in a sort of criminal context.
How do we know that this is a deliberate decision on the parts of companies? Like, is this something we can glean from the companies talking themselves during, say, earnings calls? Or are these just conclusions that economists are coming to through their research? Like, how are we putting this picture together? Let me describe it in terms of how this has wound its way through the commentariat on Twitter and Fox News, etc. Because at the beginning...
even liberal economists would say, this is impossible. Companies have always been greedy. Why is it that all of a sudden they're able to raise prices more than they would otherwise?
Even the competition example, right? Even the fact that companies have gotten more consolidated over the years, that hasn't increased dramatically over the past three years. Yeah. So that's fair. But what you can start to look at is profit margins, which had already been high following the tax cuts in 2017. But they skyrocketed to record levels in 2021, 2022. And with that came payouts to shareholders, right?
which are just an indication that the company has gained windfall profits, that they don't have any way to productively invest, and they don't have any incentive to pay out in the form of wages to their workers. That is data that is very clear cut.
If you don't believe that though, right? Like you believe that it's simply supply and demand. They're just letting the market clear, which is, you know, it's also at play, but you have to consider companies just tell people, right? They tell us on their earnings calls, as you mentioned, they tell their investors very proudly that they've managed to say, quote, take price or, you know, increase their margins because analysts will ask them like, what are you doing to defend your margins? This is really great. Like take the car companies, right? In 2020,
2020, all of their factories shut down and it was very difficult to get semiconductors. So the supply was artificially constrained. So they're like, well, what do we do with the semiconductors that we have? We're going to put them in our most expensive models. So they produced almost exclusively sort of trucks, high-end SUVs, and those have higher profit margins on them. Coming into 2022, 2023, the lower and lower margin models just got cut from their production lines.
Talk about sticker shock. Right now, only three new cars on the market, three have a sticker price below 20 grand. It comes as car companies discontinue more of their low-priced models. That means the average car right now costs more than $48,000. They came to like the idea of a lower volume, higher profit kind of business, and that has endured.
I don't think it's a coincidence that greedflation was dismissed by, say, free market zealots at right wing economic groups or Fox News, which was obviously trying to energize voters in the lead up to the midterms against Biden and the Democrats by pinning the blame on the president's $1.9 trillion stimulus. Is that fair to say that it kind of fit into the political discourse of that moment?
It did. I mean, it made inflation into even more of a political issue than it already was.
But I think that, you know, a lot of these economic debates get litigated through politics. And there's in some ways nothing wrong with that. It does have to come down to whatever evidence we have at our disposal. And, you know, there was a lot of fighting in the economics Twitter sphere about what we could say based on the numbers that were coming out at the time. And all of this comes with a lag and it's hard to decompose with any precision. But
Basically, how the White House put it to me, because the White House was also making this argument, not with the term so much, but fundamentally, that's how they were trying to explain what was going on. And they said, listen, do we have conclusive evidence that this is what's going on? I mean, other than all the earnings calls where companies are telling us this is what's going on? No, not really. But we don't have evidence that it's not. And sometimes when you have a plausible explanation, like the vehemence with which it was dismissed by sort of mainstream economists is
a quality of like, doth protest too much. It was just a little bit like, why do you find this...
so objectionable in a time when we don't really know precisely what's going on? Why would you dismiss this out of hand? Why do you think they found it so objectionable? Because it flies in the face of a lot of economic doctrine, theory, and history. We sort of thought we understood why inflation got so bad in the 1980s. And there was a resistance
to the idea that this time could be different and that there could be separate explanations for what was showing up in front of our faces. And I do think that as time wore on, the vehemence with which this thesis was dismissed has receded. How do you see greedflation as fitting into a larger political battle over assigning blame?
Right. So inflation has been very illuminating in some ways because there is a fight over explaining what drove it. And it tends to confirm people's priors. So if you believe that wages are really the problem and it's workers who are demanding...
higher salaries and they're quitting all their jobs. Nobody wants to work anymore, they say. Yes. Then that leads to certain policy prescriptions, right? We don't want to encourage unions. We want to try to tie people into jobs with non-compete agreements. We want to make sure that there's not so much mobility, right? Like you want to make sure that employers are able to get workers at an affordable price.
Now, if you believe that supply chain bottlenecks were the main driver, then that's an explanation for trying to break those down. And so this is a big part of industrial policy that the Biden administration has architected its economic policies around, saying we need to make sure that there's competition in shipping so that we're not so reliant on these very fragile supply chains.
Now, another explanation for inflation is that we just gave away too much money. So there's too much money chasing too few goods. And that's why the price of everything has gone up. You're talking about stimulus, low interest rates. Exactly. People just have cash and they're just down to buy stuff. Fiscal and monetary stimulus, right? So stimulus checks, but also really low interest rates. And the truth is that all of these things played a role, right? Probably
Probably wages the least of those. Wages are generally a trailing indicator. Well, because their wages are not keeping up with inflation. That's right. So it can create a wage price spiral. And that's a little bit of what we saw in the last big episode of out of control inflation in the 1980s, which is the last time an economist really had to study this in depth. So that's been very much burned into their memories. So where does greedflation fit into the arena? Greedflation comes in...
When you can say like, yeah, all of those things are problems, but it's all become worse because corporations have more control over pricing. They have more leverage. And that amped up all of these problems. So it's saying that there's something broken about the economy and there's policy prescriptions to fix it. Either fix it or at least compensate for it, right? Like you could fix it through antitrust policy.
at least somewhat, you could compensate for it by just taxing the money out of that sector, right? Saying like, oh, you want to charge higher rates, then we'll charge you higher corporate taxes and somehow redistribute that through the economy. Like, for instance, the windfall profit tax proposals that we heard from Bernie Sanders and Elizabeth Warren. Have these types of policies worked in the past?
They were used in Europe during this period because energy prices were making life really difficult for regular people. And so I haven't reviewed the literature on what happened there, but generally the theory is...
supply is artificially constrained, right? Like in that case, Russia was no longer as much of an option and there was no immediate backup for them to turn to because usually the wrap on windfall profit taxes is this destroys the incentive to produce more of the thing that you need. And that wasn't going to happen anyway in this case. So it might've been the efficient policy. You know, another way you could go about this is price controls, which obviously have a terrible reputation. They have a terrible reputation?
Now, in our fairly economically conservative time, but back in the 1940s, price controls and rationing were how we got through World War II. And there are those who were saying COVID is really a similar kind of shock.
Maybe we just had a more public-spirited attitude back in those days and idea of national sacrifice. But you could only consume so much of a good, but it was also only going to cost so much. And that's how they distributed scarce supplies. Now, we distribute scarce supplies by allowing companies to charge as much as they want, which means that those who have the ability to pay are the ones who get the thing. You first wrote about greedflation a year ago.
What's changed in our economy or in our understanding of inflation that reflects the new openness to this idea? You know, I read this paper by an agricultural academic entitled Inflation.
Higher sales are good, but higher margins are better, right? Sure, you'd love huge revenues, but if you're only making 2% or 3% on that, then that's not very impressive for your shareholders. So I think that has allowed this thesis to gain a little bit more traction because if the story about the run-up was in doubt in prices, the story about the really, really gradual run-down has, I think, only added to the evidence. Yeah.
So has this round of analysis and this era of the economy, has it kind of changed how you see your job or how you think about our economy? I always wanted to make sure that I wasn't presuming that the economy works according to rules.
clear-cut-and-dried rules. Like, I took Econ 101 in college. I was not a good student. But, like, I think it's generally true that folks who don't know much about econ will say, well, it's Econ 101, right? Like, this is how the world works. Supply, demand, boom, you've got your price. And...
econ was never that simple, right? Like most of the advances in economics have been about how those simple rules are broken under certain circumstances. I guess, you know, my lesson from this is you should always be open to the idea that stuff doesn't work according to black and white explanations. And there's a lot of weirdness and last time might not be how it goes this time.
Lydia, thank you very much. Thank you. Lydia DePillis is a reporter on the business desk at The New York Times. Thanks for listening to this week's Midweek Podcast. On the big show this week, Brooke and guest host James Fallows are talking Trump indictments and the inescapable tropes of election coverage. I'm Michael Onger.