Markups and profits of businesses in the United States last year were the highest since at least the 1950s, according to an analysis published on Tues

Are Large Corporate Profit Margins Causing Inflation?

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2022-06-23 12:30:12

Markups and profits of businesses in the United States last year were the highest since at least the 1950s, according to an analysis published on Tuesday by the Roosevelt Institute, a progressive think tank. This has raised questions about a possible relationship between corporate greed and inflation.

But it’s not a simple story of businesses driving up prices to earn more money, Mike Konczal, one of the paper’s authors, who is the institute’s director of macroeconomic analysis, told me. “Is greed the sole or main reason for inflation?” he asked. “I’d say no. It’s part of the mix of explanations that should be under consideration.”

The Roosevelt Institute paper sheds light on one of the biggest economic questions of 2021: What is the chief cause of today’s high inflation — strong demand, supply shortages or rising profit margins? Those who cite strong demand blame the Biden administration, Congress and the Federal Reserve for overstimulating the economy. Those who cite supply shortages point fingers at disruptions caused by anomalies such as the Covid-19 pandemic and Russia’s invasion of Ukraine. Foes of corporate bigness focus on the excess-profits theory.

There’s some evidence for all three explanations, according to the paper, “Prices, Profits and Power: An Analysis of 2021 Firm-Level Markups,” by Konczal and Niko Lusiani, the director of the Roosevelt Institute’s corporate power team.

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