What’s causing inflation?

Rising wages?

Gas prices?

The war in Ukraine?

The pandemic and supply chains?

Corporate profits?

Federal pandemic aid?

Rising wages?

No. Some people are trying to blame workers for inflation, but from April 2021 to April 2022, inflation went up almost twice as much as wages—8.3 percent vs. 4.3 percent.

Put another way: since mid-2020, overall prices in the nonfinancial sector – companies that actually make goods or provide services – have risen at 6.1% per year. Over half this increase comes from fatter profit margins. Less than 8% come from labor costs.

“Wages are driving inflation” is being pushed economist Larry Summers, who recently said that if we want to stop inflation we’ll need five years of a 5% unemployment rate. That’s a diversion from the big factor: increased corporate profits. (Supply chain bottlenecks are another big cause.)

For more details:

Dean Baker, Gallup Podcast, 6/9/2022 (for the increase in wages) https://news.gallup.com/podcast/393587/dean-baker-inflation-bad-really.aspx

https://www.nbcnews.com/business/economy/inflation-numbers-april-2022-cpi-data-rcna28194 (for the increase in the inflation rate).

https://www.epi.org/blog/corporate-profits-have-contributed-disproportionately-to-inflation-how-should-policymakers-respond/ (for corporate profits vs labor costs).

https://www.bloomberg.com/news/articles/2022-06-20/summers-says-us-needs-5-jobless-rate-for-five-years-to-ease-cpi (for Larry Summers)

Gas prices?

That’s a huge part of the story. High gas prices cause price hikes across the economy.

Why are gas prices so high?

There are a lot of reasons. Here are two of the biggest.

Speculation and corporate profit-taking

About half the cost of gas is the cost of crude oil. Supplies of crude oil globally and in the US haven’t dropped significantly. (The war in Ukraine led to a European-US boycott of Russian oil, but Russia is still exporting nearly the same amount overall, just to different countries like China and India.) Oil production did drop a lot – 8% -- during the pandemic lockdown with people staying home. But this year the world is producing more oil than last, so you’d expect prices to level off or even go down.

But crude oil prices aren’t just dictated by crude supplies. Crude oil and other commodities are traded on the global futures market – basically, investors betting that the price of oil will go up or down. In other words, speculation.

The war in Ukraine didn’t cut into US oil supplies much. We get most of our oil from US wells, the Mideast, Asia, the Americas – not Russia. But the threat of a supply crunch, especially for Europe, got a lot of investors betting that the price of crude oil would go up. And some of those investors are making a killing.

Who are those investors? Many are oil companies. $4 billion of Shell Oil’s $55 billion profits in 2021 came from futures trading. Oil company profits rose ___ from the last quarter of 2021 to the first quarter this year.

2. The refinery bottleneck

Over the past few years, major oil companies have been buying small companies’ refineries. Some of them have shut down. The result is that there’s less competition and less capacity to manufacture gas and diesel just when more people are getting on the road post-pandemic.

Now oil companies don’t have to build more refineries if they want to increase their incomes. They are making a lot more money producing the same amount of oil. What are they doing with that extra money? A lot of it is going into stock buybacks – buying back their own stocks to increase the wealth of their stockholders and CEOs.

Can Biden or Mills do anything about it?

Biden has called on oil companies to reopen their capped wells and increase crude oil production, but that won’t solve the refinery bottleneck. Nor will exploring and drilling new wells, or sucking up to Saudi Arabia.

Biden is calling on refiners to increase production – their profits have tripled – and he’s said he’s prepared to use emergency authority to increase refinery capacity. That could help. But he can’t create new refineries; the permitting alone takes years.

For more details:

To come from Bill Barclay.

The war in Ukraine?

It’s destabilizing oil markets and creating worldwide shortages of wheat, soybeans, and fertilizer – causing inflation in gasoline, natural gas, and food.

Can Biden or Mills do anything about it?

Not Mills, but Biden could redirect US policy from “screw Russia” to “negotiate an end to the war.”

[There are a lot of signs that Washington is making it harder for Ukraine and Russia to negotiate an end to the war. The Minsk accords, negotiated after Russia’s invasion of Crimea, laid out a roadmap that Ukraine and Russia accepted – but Washington pressured Ukraine to ignore it. Now, Biden and his defense secretary are saying that the war provides an opportunity to cut Russia down to size. And the president of Ukraine depends on Washington for survival.]

The pandemic / supply chains?

Yes, big time, and don’t take our word for it. Business journal Fortune Magazine said: “Consumer prices jumped 6.7% in 2021 as snarled supply chains caused by the COVID-19 pandemic sent commodity prices and other products that businesses rely on soaring.”

But Fortune doesn’t talk about the corporate strategies that set up today’s fragile supply chains – and the decisions that snarled them.

How did the failure of global supply chains drive inflation?

Here are some choke points. (I am looking for the excellent article that laid them out)

-A shortage of shipping containers, which carry a huge part of global trade – leading to a shortage of goods people are trying to buy.

-Backups at US ports, with ships at anchor waiting for days or weeks to unload – adding to shipping costs.

-Backups at rail terminals – the goods that are getting into the country aren’t getting to customers.

-A shortage of truck drivers – wages and working conditions are worsened ever since the industry was deregulated.

-And now, a new COVID lockdown in China is shutting factories and ports that supply the US market.

Behind all this is a global supply chain that is stretched so thin, any disruption snarls it and causes price hikes. Remember the freighter that got stuck in the Suez Canal? Just one ship messed up the whole supply system.

The twin problem is just-in-time distribution systems. Maintaining warehouses and stocking them with parts or products costs money. So profit-hungry corporations have eliminated them. Instead, they rely on the transportation system (from container ships to truckers) to get them parts and products – just in time. Our warehouses today are on the road and on the ocean. When they get stuck or go off the road…

Globalization and just-in-time distribution networks are like understaffing your workplace. Corporations pay out as little as they can and stretch the capacity of the system to the limit in normal times. When something goes wrong, the system can’t handle it. There’s no extra capacity to step in and pick up the load.

Who’s to blame?

Corporations, and the politicians and economists who work for them. Take it from the horse’s mouth:

“decades of underinvestment and public policy choices led to fragile supply chains across a range of sectors and products. Unfair trade practices by competitor nations and private sector and public policy prioritization of low-cost labor, just-in-time production, consolidation, and private sector focus on short-term returns over long-term investment have hollowed out the U.S. industrial base, siphoned innovation from the United States, and stifled wage and productivity growth.”

-Report of the White House Supply Chain Task Force, June 8, 2021

Can Biden or Mills do anything about it?

Yeah, Biden could renegotiate global trade treaties, rebuild American manufacturing, raise the federal minimum wage, re-regulate trucking, break up corporate monopolies, raise taxes on short-term gains and CEO compensation, name Bernie Sanders and Elizabeth Warren to his cabinet… just kidding.

For more details:

“Why it’s High Time to Move On From ‘Just-in-Time’ Supply Chains,” Kim Moody, https://www.theguardian.com/commentisfree/2021/oct/11/just-in-time-supply-chains-logistical-capitalism

Corporate profits?

Definitely. They rose 25% in 2021, the highest rate in 45 years – or maybe 85 years.

How are they causing inflation?

Profits are part of the price you pay for anything you buy.

Every dollar of yours that goes to corporate profits is a dollar you could have saved.

The higher the corporate profit rate, the worse it hurts – and corporate profits went up 25% in 2021. The oil companies are leading the charge, but so are Amazon and other online companies whose business boomed during the pandemic.

Which means that…

The people who own those companies are seeing their wealth explode.

Who’s to blame?

At the start of the COVID lockdown in October 2020, Elon Musk was worth $25 billion. In May 2022, when COVID deaths in the US passed 1 million, he had $225 billion.

In the same timeframe:

Jeff Bezos went from $113 billion to $150 billion

Bill Gates went from $98 billion to $129.8 billion.

Three Waltons you know, WalMart – went from $163.1 billion to $207.7 billion.

The total wealth of US billionaires rose $1.7 trillion, up 58%. And the number of billionaires grew from 614 to 745.

Can Biden or Mills do anything about it?

Biden could call for a windfall profits tax on corporations; higher tax rates for the extremely wealthy; or a wealth tax. This Congress won’t pass it, but at least he would be naming those who are responsible.

Mills has the same power. “Maine law allows the governor to prevent price gouging during a period of ‘abnormal market disruption’ for a specified commodity,” says the Maine Center for Economic Policy. The Maine Center also says Maine could adopt a windfall profits tax.

Biden and Mills could also use antitrust laws to break up the pricing power of corporations that have near-monopolies. The Maine Center for Economic Policy says: “Price increases are greatest where….a small number of corporations [are] controlling most of the market for a particular product.” For example:

Gasoline. Gas companies consolidated in the 1990s and we’re still paying the price. Crude oil prices dropped 5% since March 8, but the price of gas at the pump in Maine went up 18 percent.

Food. A handful of firms supply most of the meat, bread, breakfast cereal, and milk we eat – and prices for those foods went up between 8% and 16% in the past year.

For more details:

Fortune magazine: https://fortune.com/2022/03/31/us-companies-record-profits-2021-price-hikes-inflation/#:~:text=U.S.%20companies%20posted%20record%20profits%20in%202021%2C%20even,increase%20since%201976%2C%20according%20to%20the%20Federal%20Reserve. Lots of great stuff in this article!

Maine Center for Economic Policy: https://www.mecep.org/wp-content/uploads/2022/06/Feeling-the-Pinch-Inflation-and-corporate-consolidation.pdf

Pandemic aid (Paycheck Protection Program)?

There’s some truth in this.

American consumers – and companies – buy stuff from around the world (partly because we’re not making it here any more). And the pandemic massively messed up those global supply chains – decreasing supply.

But demand for goods didn’t drop, for at least two reasons.

1 – People couldn’t use as many services (they weren’t going out to eat, entertain, work out at the gym…). Instead they bought more goods, especially online. That meant the demand for goods rose while the supply shrank.

2 – Federal pandemic aid allowed millions of families to keep buying essentials even if they lost hours at their jobs – or entire jobs. That kept demand up.

Who’s to blame?

“Federal spending during the pandemic caused inflation” is a great anti-Biden talking point. But let’s take a moral look at that. Are they saying people shouldn’t have gotten money that helped them pay the rent, kept them in their homes, allowed them to buy food and clothes for their kids?

Can Biden or Mills do anything about it?

The solution isn’t to cut pandemic aid. The aid already ended. A better solution is to change the supply chain: bring manufacturing back to the US, re-regulate trucking and raise truckers’ wages, help rebuild local businesses and produce what we need here, and so on.

How do you think Biden or Mills can start moving us in that direction? Whose help do they need?