Editorials, Opinion

‘Greedflation’ theory no longer the fringe

“Greedflation” is an economic theory that emerged around 2021 as an explanation for the sky-high inflation we were experiencing. At first, even mainstream economists considered greedflation a left-wing fringe theory, bordering on conspiracy. But now, some mainstream and even conservative economists are starting to see some merit in the idea.

In essence, greedflation is the idea that the various factors large corporations kept citing as justification for price increases couldn’t be the whole story. Yes, there was a pandemic. Yes, there was a tight labor market. Yes, there were supply chain issues. And yes, all things would drive companies to increase their prices to protect their bottom lines.

Despite all those factors, large corporations weren’t just maintaining pre-pandemic profit margins — they were posting record-breaking profits.  Companies were spending millions on stock buybacks and bonuses for shareholders.

The painfully high prices, the theory of greedflation posits, aren’t a result (or not entirely the result) of external factors; rather, companies keep pushing prices up simply because they can, and consumers will accept it.

We’re three years from the start of the pandemic — with the COVID-based emergency policies largely no longer in effect, the supply chain mostly smoothed out, and the labor market stabilizing — yet prices still continue to climb. Inflation is still much higher than it should be — despite the Federal Reserve’s efforts to tamp it down with high interest rates. And large companies are still posting record profits.

Which is why greedflation no longer seems so far-fetched.

In January of this year, then-vice chair of the Federal Reserve, Lael Brainard, said in a speech that “Retail markups in a number of sectors have seen material increases in what could be described as a price-price spiral, whereby final prices have risen by more than the increases in input prices.”

Then, according to Axios, “In March, the chief economist at UBS Global Wealth Management, Paul Donovan, published a note on ‘profit margin-led inflation,’ describing how in late 2022 and into this year, companies — particularly retailers and consumer goods makers — convinced consumers that they needed to raise prices. (They didn’t really.)”

In April, Bloomberg Opinion published a column by former Financial Times reporters Chris Bryant and Andrea Felsted. They wrote, “The idea that corporate profit expansion has been a big driver of inflation was once mostly confined to trade unions and left-wing academics, but it’s now taken seriously by central bankers.”

In May, the New York Times reported, “Some of the world’s biggest companies have said they … will continue increasing prices or keep them at elevated levels for the foreseeable future. That strategy has cushioned corporate profits. And it could keep inflation robust, contributing to the very pressures used to justify surging prices. … policymakers at the Federal Reserve may feel compelled to keep raising interest rates, or at least not lower them ….”

Also in May, the Wall Street Journal — well-known for its conservative stances — published an article on how some

corporations were raising prices faster than costs have increased. That article cited an assistant professor of economics at the University of Massachusetts Amherst, Isabella Weber, who wrote in December 2021 about an “explosion” in corporate profits and suggested price controls as a way to fight inflation.

Weber was mocked for her ideas. But it now seems she may have been onto something.

Corporate greed likely is not the entire reason for our current inflation. After all, there was a pandemic, with its related problems, and now a war, with its related problems.

However, it’s impossible to look at the current economic conditions, sticker prices and record profits and not see that the math isn’t adding up.