The many union-backed, pro-Democratic Party emails that my cousin has been sending me bewail “corporate greed” and “greedflation.” Somewhat surprisingly, President Joe Biden kept those words out of his State of the Union address. Don’t be surprised, though, if they pop out of his mouth on the campaign trail this year. Progressives/Democrats perennially employ anti-corporation demagoguery as a political tactic.
The terms “corporate greed” and “greedflation” need to be debunked.
First, “corporate greed.” Why is it “greed” for a corporation to take steps to increase profits, but not greed for labor unions to demand that corporations increase their wages? But this is more than a management/labor dispute, so let’s take an example closer to home.
As prices soared in 2021 and 2022 due to the bipartisan foolishness of the federal government (yes, both Presidents Trump and Biden are to blame), housing prices soared in many parts of the country. Was it “greedy” for homeowners to place such high price tags on their houses? I think not. The economic law of supply and demand was pushing prices higher, and homeowners were happy to be able to sell their homes for prices that would have been considered ridiculous just a year or two earlier. Do you think the federal government should have intervened to prohibit homeowners from taking advantage of market conditions to sell their houses at those higher prices? You would protest such a law with righteous indignation, I hope. After all, it is your house, your property, and you should be free to sell it at whatever price you can get in the marketplace.
Similarly, corporations should be free to sell their property to willing buyers at as high a price as the market will bear. Private property is private property, so why discriminate against property owned by a business versus property owned by an individual? And yet, there was Joe Biden in his SOTU address, talking about cracking down on corporations for “price gouging” when he would never dare accuse an individual American of doing the same when selling his or her property at a high price.
One of the corporation-bashing emails my cousin sent me cited Pepsi as an example of a “greedy” corporation. Pepsi’s supposed sin? It was to have raised its prices while inflation was raging, but not lowered those prices now that the official inflation rate is moderating. The critics say that this is evidence of Pepsi’s “monopoly power.”
In the first place, it is a fallacy to assume that because official price indexes are coming down from their recent elevated levels, then all prices should fall uniformly. Indexes obscure the fact that prices for different products rise and fall not according to some index of various prices, but due to conditions of supply and demand in the market for each particular good. Just because an index of many prices is falling does not mean that, say, prices for various foods should fall at the same rate, or even that they should fall at all.
As for Pepsi’s alleged “monopoly power,” take a look at the beverage and snack aisles at your local supermarket: There are plenty of options for consumers other than just Pepsi products. There is nothing close to a monopoly there. In fact, it is richly ironic that unions would make such an accusation when they themselves enjoy monopoly power to represent the workers in a unionized workplace in accord with the monopoly privileges granted to them in the Clayton Antitrust Act of 1914 and the National Labor Relations Act of 1935. Talk about the kettle calling the pot “black”!
If Pepsi or any other corporation is not rolling back their price increases from the last few years, there is a very simple and innocent explanation for that: They can keep their prices high because consumers are willing to continue paying the higher prices. If you object to the profits that Pepsi is earning, then stop buying its products. If enough consumers did this, those profits would turn into losses, and Pepsi would likely reduce prices to regain market share. The reason this isn’t happening is due to the basic principle of exchange in an economy based on private property: both sides are marginally improving their sense of well-being by exchanging even at today’s higher prices. That is, both consumer and corporation value what they get in the transaction more than what they give up—Pepsi values the consumer dollars more highly while consumers value the Pepsi products more highly. Of course, we all would prefer to pay lower prices, and if you are like me, you are lamenting the shrinking purchasing power of our Federal Reserve Notes. Nevertheless, we continue to voluntarily pay today’s higher prices for the same reason we have always made all our purchases: because what we buy makes us feel marginally better off than if we didn’t buy; otherwise, we wouldn’t make the transaction.
Another variation on the theme of corporate greed is “greedflation”—defined rather sloppily and with an ideological slant at dictionary.com as “a rise in prices, rents, or the like, that is not due to market pressure or any other factor organic to the economy, but is caused by corporate executives or boards of directors, property owners, etc., solely to increase profits that are already healthy or excessive.” As President Biden put it in SOTU, “Too many corporations raise their prices to pad their profits, charging you more and more for less and less.” That indeed describes the insidious nature of inflation. The term “greedflation,” however, is a red herring.
I don’t blame you for being frustrated with and concerned about higher prices. But don’t let politicians deflect the blame from themselves to corporations. The engine that has been driving prices higher (and the purchasing power of our currency lower) is not “greedy corporations,” but Uncle Sam and the Fed.
