Government Embraces Fringe Theory To Find A New Patsy

In case you missed it, there's a term floating around economic circles that seeks to put the blame for inflation squarely on the shoulders of businesses.

It's called “greedflation.” On the left, it's a term used to describe, well, theft…the blatant effort of corporations big, small, local and foreign to raise prices while everyone else's attention is focused on other things.

Setting aside the genuine supply and demand shocks that rattled the global economy during the COVID lockdowns, coupled with unprecedented levels of government spending and easy monetary policy (all of which stoked demand…does the greedflation hypothesis have any real-world merit?

The Cato Institute's Scott Lincicome doesn't think so. His reasons vary but one that's intriguing is how the greedflation hypothesis completely ignores one side of the market equation: consumers.

Profit‐​maximizing firms could only raise prices (and earn higher profits) because consumers let them; consumers let them because they were flush with cash; and consumers were flush with cash mainly because of government policy.

The role that consumers play in companies' pricing decisions isn't exactly groundbreaking stuff; it's a standard part of mainstream microeconomics and frequently mentioned in economic analyses and business reporting—even for essentials like food. For example, a Kansas City Fed report from late last year found that consumer spending and behavior (eating more at home, and then shifting back)—not corporate profiteering—were the primary drivers of higher U.S. food prices during the post‐​pandemic recovery.

Those pesky buyers and their tendency to keep buying things. Only those roasted and basted in the fires of anti-capitalism would refuse to admit the essential role of buyers in a market. After all, you can't have a market without them.

Where, then, does the inflation problem originate? Our old friend, the state:

…numerous academic analyses have found…that “the inflation problem we're experiencing was indeed fiscally induced, though “perhaps the Fed could have been less accommodative of Congress's fiscal spending, and it surely could have started tightening a bit sooner.” Other studies show much the same. As the Journal's Greg Ip admitted earlier this month, “in retrospect, fiscal policy overdid it.”

Coupled with a decade of rock bottom interest rates, quantitative easing and other extraordinary measures to help the economy recovery from the 2008-2009 recession and there should be little wonder inflation would return. For heaven's sake, the economic powers-that-be feared deflation – or falling prices – was the greatest threat to the economic system just a few years ago. And to combat it, they pulled out all the stops to gin-up inflation. Up to and including the previously unknown policies of negative interest rates.

“Greedflation,” then, is still a fringe theory that ignores a major economic players and forces in order to bash capitalism. It also has to ignore the news cycle:

As [Jason] Furman recently noted on Twitter, the greedflation thesis requires us to believe that goods companies had (and abused) market power in 2021–22 but then passed the baton to totally different services companies in totally different industries sometime last year. That is some seriously impressive, economy‐​wide collusion!

Also, as several folks have recently noted, corporate profits are now falling and have been for three straight quarters (two if you exclude financial companies), even as inflation has persisted.

Never let the facts, figures and news get in the way of a good ideological screed, it seems.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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