This week, Nick and Goldy are joined by Lindsay Owens, Executive Director of the Groundwork Collaborative, to discuss Groundwork’s recent reports on corporate profiteering and price gouging during and after the pandemic. Owens attributes the record increases in corporate profits in the last few years to growing corporate concentration and lack of competition. She argues that these two factors gave companies an unprecedented level of market power, and therefore pricing power, which allowed them to exploit the supply chain crisis caused by COVID to drastically raise prices. Owens stresses the need for policy interventions to promote competition, transparency, and fair pricing in the market to ensure a more competitive and consumer-friendly economy.
Lindsay Owens is the Executive Director of the Groundwork Collaborative, known for her expertise in economic policymaking and her work on exposing corporate profiteering in price increases. She leads the organization’s mission to create a more equitable economy, providing media commentary and advising policymakers such as Senator Elizabeth Warren, Minnesota Attorney General Keith Ellison, and Congressional Progressive Caucus Chair Pramila Jayapal.
Twitter: @owenslindsay1
Further reading:
New Groundwork Report Finds Corporate Profits Driving More Than Half of Inflation
Inflation Revelation: How Outsized Corporate Profits Drive Rising Costs
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
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Nick’s twitter: @NickHanauer
Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
Joe Biden:
It’s time to build our economy from the bottom up and from the middle out, not the top down.
Nick Hanauer:
Middle out economics is the answer.
Joe Biden:
Because Wall Street didn’t build this country. Great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Speaker 3:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Speaker 4:
I’m curious, Nick, when you’re as rich as you are, do you actually look at prices?
Nick Hanauer:
Sometimes. Depends on what it is.
Speaker 4:
Like the price of a yacht or a private jet or something like that?
Nick Hanauer:
Yeah.
Speaker 4:
But I know even if you don’t care that much about what you’re paying for groceries, you do read the news. And we’ve had this conversation, you hate to call it inflation, what we’ve had.
Nick Hanauer:
Yes, I hate the word inflation. We have higher prices as a consequence of a global supply chain shock. And the reason I hate using the word inflation is that inflation is best understood as a wage price spiral. And that’s not what’s driving higher prices. There’s a whole bunch of things driving higher prices, the legitimate imbalance between supply and demand created by the pandemic, but equally, probably today, and the purpose of this particular podcast is the exploration of rising profit margins.
Speaker 4:
Right. And let’s be clear, what we saw coming out of the pandemic was this supply chain shock, right? We had a supply side crisis in which I think rightly, we put money in the pockets of consumers so that they didn’t starve or end up homeless on the street at a time when nobody was working. And so people had money in their pockets, but the economy was really hard to restart a global economy. And so we had legitimate inflation due to the fact that there were shortages all along the supply chain. From computer chips that meant we couldn’t finish cars, so cars couldn’t be completed coming out of the factories, to just basic food stuffs and so forth.
So prices went up, and one of the things we saw was that costs went up for producers, for manufacturers, and you saw prices rise when their costs went up and those prices rose a little faster than their costs. But then as the supply chain unkinked itself, we saw those costs go down and those prices remain high, and that was no longer a supply chain crisis, that was simply now we had this new level of higher margins.
Nick Hanauer:
And that expansion is what we want to talk about today on the podcast with the executive director of Groundwork Collaborative, our old friend, Lindsay Owens, whose organization has been at the forefront of investigating this stuff and exposing how companies have used the pandemic as an opportunity to expand their profit margins at the expense of consumers and the economy overall. And I think it’s a really important subject. I think it’s something that everybody should understand and that the country needs to grapple with. So with that, let’s talk to Lindsay.
Lindsay Owens:
I’m Lindsay Owens. I’m the executive director of Groundwork Collaborative, a Washington, D.C. based think tank, and I’m the forthcoming author of a new book called Gouged.
Nick Hanauer:
That’s a pretty good intro to our first question, which is why Groundwork Collaborative is so focused on tackling corporate profiteering?
Lindsay Owens:
Groundwork is interested in building an economy that works for all of us, an economy that you might say is built from the middle out. We think that the economy does better when the workers who power it do better, when the consumers whose spending fuels it do better, when the caregivers whose unpaid labor powers it do better. And we are less interested, and we actually think it is sort of contraindicated when the economy is extractive, when sugar highs, things like Wall Street rallies are determining how policy makers make and build our economy and shape our economy. And it does better when folks focus on the workers and the consumers who power our economy. So corporate profiteering is a great example of the kind of extractive behavior that is great for quarterly earnings, that’s great for shareholders, that’s great for CEOs whose bonuses and pay packages are tied to quarterly earnings, but that isn’t good for consumers and often, or rarely, I should say, benefits the rank and file workers in those very firms who are profiteering.
Nick Hanauer:
But let’s just zoom in on the word profiteering because I don’t think you mean to say that corporations should make no profits.
Lindsay Owens:
Correct.
Nick Hanauer:
So I think what you’re getting at is profits beyond the norm.
Lindsay Owens:
Yeah. When we’re talking about corporate profiteering in the context of inflation, which groundwork has spent a lot of time on, it’s a topic and a phenomenon that many Americans have been dealing with for several years now. Of course, inflation is finally starting to cool, which is great news, but for several years now, prices have been quite high. When we’re talking about corporate profiteering in the context of inflation, what we’re really thinking about is companies who are pricing well beyond the level that is required to cover their own costs and bring in a hefty profit, let’s say the amount of profit they made before the pandemic or before this period of high inflation, which in most cases, was quite a nice amount of profit, right? What we’re seeing in this pandemic and post pandemic period is companies who are pricing at levels that put their profit margins at historic highs, at 70-year record highs.
In the case of non-financial corporate profits, what we saw at the end of 2023 is profit levels hitting their all-time record high, highest ever recorded. So these aren’t your sort of standard issue quarterly returns, and these are profits that are being enabled by really aggressive pricing, what some might call price gouging. And so that’s really what we’re talking about here.
Nick Hanauer:
Lindsay, let me run some numbers by you based on my own understanding. You can tell me if I’m on the right track or not, but corporate profits is a percent of GDP in the ’60s, ’70s, ’80s, ran 5, 6%, something like that. Today, I think in 2013 they hit 12%. So that’s an additional 7% of GDP devoted to profits, not to wages or frankly lower prices and between before the pandemic and after the pandemic, corporate profits rose, I think, from about 11% to 12%, which is a lot, right? I mean, it sounds like a little bit, but it’s a lot of money when you consider that GDP is $24 trillion. Are those numbers about where you think they are?
Lindsay Owens:
Yeah, that’s exactly right. But I would just add that the number that I hone in on the most is the profit margin level. And the reason for this is, look, it’s possible that these companies are making more profits because they’re selling more stuff, right? You sell more glasses of lemonade at the lemonade stand, you bring in more money at the end of the day, fine. That’s how the world goes around. But what we’re seeing here is companies making record levels of profit per glass of lemonade. And what’s so interesting about that is that in this post pandemic period where inflation is high, all the stuff to make the lemonade, the cost of all that went up. So the cost of lemons was up, the cost of sugar was up, the cost of the paper cup was up, the cost of labor was up a little bit for the guy operating the lemonade stand.
And yet, despite rising costs of their own, companies were expanding profit margins. How were they doing that? Well, it’s a pretty simple algebra here. You pass along all of your rising costs, the consumer covers your rising costs, and you go for more. You gild the lily, and that’s how you build record profit margins during a period in which your own costs are rising.
Speaker 4:
And there’s a clear contrast to what the expectations were before the pandemic when we had just come out of a decade plus of what people were calling secular stagnation, where it was really hard to hit the fed’s inflation target in the other direction. We were undershooting the 2% target consistently. What changed? Why are corporations suddenly able to demand these higher profit margins? Was it something they could have done all long and didn’t know it? Or did something fundamentally change in the economy?
Lindsay Owens:
I love this question. This is the central question in this debate, and it’s the central question that policymakers need to be able to answer if they want to solve for this problem. So there’s been a sort of derisive characterization of arguments like I just made that attribute profiteering and link profiteering to these record high profit margins and say that they’re contributing to the inflation that Americans are experiencing. And the sort of classic sort of derisive straw man is, “Well, these people think the level of greed increased.” Are they saying that corporations weren’t greedy in 2020 before inflation started to increase? Of course, the answer to that question is no. I promise. I swear on my whatever that I always believed that corporations were out to make a buck. I believed that in 2019. I believed it in 2020. I believe it today.
But something did change. This is such a critical question. So I like to use the following example. You need means, motive, and opportunity to commit the perfect crime. The motive is clear. Corporations are in it to make a profit. That’s a motive as old as capitalism itself. The means are actually quite clear. Companies that are bigger have more market power and therefore more pricing power. But they had that market power and pricing power before the pandemic. They’ve been amassing that for years. As companies got bigger, as the FTC and the DOJ green lit every merger under the sun for decades, regulators asleep at the wheel on this front, corporate concentration, a big hallmark of our economy over the last few decades. What changed during this period, the real key to understanding this problem is they finally got opportunity. Opportunity was the final piece of the puzzle. And what do I mean by opportunity?
Well, you had these supply shocks. Folks had real constraints on supply, and so there was some real inflation that resulted from that, and Americans understood that. They were looking out at news programs that showed ships lined up outside the Port of LA, right? I mean, they were going to grocery stores where shelves were empty, there wasn’t toilet paper, there wasn’t frozen pizza, there weren’t any semiconductors, there weren’t any cars for sale. All of this stuff was real, it was happening. But companies seized on this moment where there was some real inflation, to use it as cover for price hikes that were in excess of what was required to cover their costs. And so inflation itself presented this sort of perfect storm moment for companies to go bigger on prices and a moment in which consumers weren’t necessarily going to balk because they expected it and understood some of it to be sort of rational and driven by fundamentals themselves.
They didn’t know which part of the price increase was due to the rising costs of lemons and sugar and paper cups and lemonade stand workers, and which part of it was just gilding the Lilly? And companies took advantage of that. And we know this because they talked about it on their earnings calls. CEO after CEO, during this early period of inflation, these CEOs were not CEOs 40 years ago during the last period of high inflation. So this was their first bite at the apple. This was their first time sort of in the real time experiment of navigating a company and making pricing decisions during a period of high inflation.
And what you saw in these earnings calls is CEOs puzzling over the fact that they were able to pass along pricing. It wasn’t affecting volume. And so they were like, “Well, let’s see if we can go a little higher.” And they were patting themselves on the back every time they found out they could. And they were telling their investors and shareholders and analysts that they were going to go for more in the next quarter and see how far they could take it.
Nick Hanauer:
Do you have any specific examples?
Lindsay Owens:
Well, I mean, there were dozens of these instances. I remember the CMO of 3M, he’s literally giddy on his earnings call, sort of patting his staff on the back, saying, “The team has done a marvelous job with price this quarter.” We had the CEO of Constellation Brands, big beverage company, does all the large beers, saying, “We’re not leaving any pricing on the table. We’re going to take as much as we can.” I mean, those were the kind of snippets that you heard over and over and over again. There was a CEO of an outdoor sporting brand talking about, and I quote, “doing his inflation happy dance.”
There were CEOs talking about new price points. We’ve never gotten the 20 ounce Pepsi to the $3 mark. We’ve been stuck in the $2 mark. This is a great day for Pepsi. We finally were able to get to that $3 mark we’d always wanted to get to. So I think the CEO of Kroger said a little bit of inflation is always good for business. The CEO of Visa, the credit card companies do pretty well during inflation for a number of reasons. Point of sale transactions, they take a cut of those, prices go up, their standard level of the percentage take rises without them having to raise the percent. The ticket price is up, and so they get more. The Visa CEO says things like, “Historically, inflation has always been good for our business.”
I mean, over and over and over again, during this early period, you really heard these kind of internal monologues being delivered out loud on these earnings calls. They were quite compelling. Interestingly, now that costs are declining, you hear something similar. So we listen in on the earnings calls of the Procter & Gamble and Kimberly-Clark CEOs, and we do that because they own about 70 to 80% of the diaper market. Diapers are a necessity for parents, and they can be a sizable line item in the grocery list and in the family budget. And during the early part of the pandemic, you’ll remember timber prices were up quite a bit, right? You had a number of things driving that, including the fact that people were redoing their lawns while they were hanging out at home, and putting in new fencing and all of that.
Timber prices were up. Timber is what makes wood pulp. Wood pulp is the absorbent material in the diaper. And so diaper prices rose to accommodate the increasing cost of the wood pulp. Well, eventually, the price of the wood pulp started to decline because the price of timber started to decline. And when you listen to those earnings calls from Kimberly-Clark and Procter & Gamble, what you heard these CEOs telling their shareholders is they were going to stick with the same high prices. They were going to enjoy the decline in their own input costs, but stick with the pricing levels that they had put in place when their own costs were higher. And they talk about it as a big opportunity for them to expand their profit margins. And so they got you on the front end and they’re planning to get you on the back end too.
Nick Hanauer:
Yeah. And the big problem, the structural problem within the economy, the American economy, is that because we have allowed all these industries to consolidate so much, there isn’t the sort of real competition that we once had in these markets. Right?
Lindsay Owens:
Yeah, I mean, that’s exactly right, Nick. I mean, economists will tell you that what happened with Procter & Gamble and Kimberly-Clark, where they maintain their high pricing levels, despite the fact that timber costs have come down, can’t happen, theoretically can’t happen. Because if that is happening, if these companies are taking rents, a competitor, another player will enter the diaper market, sell at a lower cost, and consumers will flock there, putting downward pressure on Kimberly-Clark and Procter & Gamble to lower the price of diapers. Well, Kimberly-Clark and Procter & Gamble have 80% of the diaper market, so good luck getting in when they have that level of economies of scale.
And oh, by the way, there’s all sorts of other ways in which the game is rigged when you’re that large. I mean, go into a Target, go into a Kroger, go down the diaper aisle, because of slotting fees, basically pay for play on store shelves, the big guys have all the shelf space too. I mean, if you wanted another diaper brand, you need to get on your hands and knees and look at the bottom shelf, and you might find a small, organic product or something like that. But these guys have amassed a large amount of power, and they have preferential deals with suppliers, they have preferential deals with large retailers like Walmart and the grocery stores. They have preferential deals for the shelf space. I mean, the market power that they’ve been able to amass over decades put them in pole position when the pandemic hit, and they were able to really exploit that market power in the form of pricing power.
Speaker 4:
It’s interesting because it seems like they’re behaving… When you have that large a market share, you’re behaving both as a monopolist and a monopsonist. You are forcing down the price of your component costs as the supply chain straightened itself out while maintaining high prices at the retail end of it.
Lindsay Owens:
Yeah, that’s exactly right. This was a huge issue, particularly early in the pandemic where you’d go to a large retailer like Walmart and the shelves would be stocked, and you’d go to a smaller retailer, like in D.C., we have this sort of organic market called Yes! Market, and it was a ghost town in there. There was nothing on the shelves because in a world in which the ships were backed up and goods from China were coming in more slowly, the big boys were getting the first load off the ship and the small guys just weren’t able to get in at all.
Speaker 4:
We’ve seen something, I just read an article locally on Washington’s cherry industry, we’re the largest cherry growers in the country, and there’s a lot of consolidation on the farms, but there’s been even more consolidation on the retail side. And so even as their costs have gone up, the prices they’re able to command are way down. They’re not making ends meet in the cherry industry because the supermarket chains are really setting the price.
Lindsay Owens:
Yeah, I mean, you find this throughout the economy, whether it’s agriculture, whether it’s grocery, whether it’s commodities, transportation, really across the economy.
Nick Hanauer:
Let’s shift to what are the policy solutions that you think begin to address this problem?
Lindsay Owens:
There’s a couple things I’d recommend in this space. One is absolutely an economy with far, far, far more competition. And so the way that the Biden administration and the Federal Trade Commission and the DOJ antitrust division have been more aggressively scrutinizing and even blocking mergers, looking at where companies should be broken up, that’s exactly the right prescription here. So increased competition is going to make it much, much, much harder to exploit crisis in this way in the future.
The second thing we can think about, and a couple of really top economists have mentioned this, including folks like Isabella Weber, is we should have more of things like essentials in reserve. So the fact that we got to the eve of the pandemic with not even a semiconductor to spare put us in a risky position where supply shortages enabled some of the more egregious forms of price gouging because there wasn’t a lot of supply and there was a lot of demand. And so they could charge quite a lot for the folks who really wanted it. And I think she’s talked about buffer stocks and having a more resilient supply chain, a more resilient economy where we have enough of the key items that we need in the economy, whether that’s food or things like semiconductors.
Speaker 4:
So like a strategic diaper reserve.
Lindsay Owens:
Sure, sure. I don’t know that we really had a shortage of diapers, but yeah, let’s keep a little bit of key essential items in reserve in the United States.
Speaker 4:
Let’s be clear, I’m joking. But anybody who’s raised a baby, you don’t want to run out of diapers.
Lindsay Owens:
Yeah, I have a 10-month-old, so I’m with you on that for sure. Yeah, absolutely. The third thing I’ll say, which gets again to these structural components is I do not think it was a coincidence that the Trump administration took the corporate rate from 34 to 21%, and that this incredible amount of profiteering resulted during the pandemic, for the very simple reason that it is a lot more fun to gouge you and overcharge you when you get to keep more of your winnings, when you don’t have to ship a portion of the winnings, as large of a portion of the winnings off to the Treasury Department.
So I actually think there were many folks who were calling for things like an excess profits tax or a windfall profits tax during this post pandemic period. And I and Groundwork were very supportive of those proposals. But in some ways, the simplest form of the excess profits tax is the sort of original, the OG, which is just raising the corporate rate, and that will handle some of the rent sinking behavior that you saw during this period. And so I really think tax policy has a key role to play.
Speaker 4:
So cutting the tax rate on corporate profits essentially incentivizes profiteering.
Lindsay Owens:
Absolutely. So those are the things that I would put in the structural category, increasing competition, putting in a tax regime that discourages profiteering. And then I do think resilient supply chains and buffer stocks and things like that make a lot of sense. But the second thing we have to do is we have to prevent and crack down on people who are exploiting crisis. And the interesting thing is we already do this across the economy, and we have for a really long time. In more than 30 states in America, there are some version of price gouging statutes on the books. What do these statutes look like? They look like a state saying, “Hey, we know that you could charge $35 a gallon for water after a hurricane, but you can’t do it. We know that you can charge $75 a COVID mask during a global pandemic, but you also can’t do that.”
So we have a lot of price gouging statutes on the books that really center around natural disasters and around public health emergencies. But New York State actually has a price gouging statute that includes prohibitions on price gouging during times of economic crisis. And Tish James, the Attorney General in New York did promulgate rules last year saying, “Hey, no price gouging during periods of economic crisis.” And Senator Warren introduced effectively a federal piece of legislation that would’ve made that where a pass by Congress would’ve made that law. And so I do think there is a real need to think about how much price gouging we are all willing to tolerate during a period of crisis. Just because you can charge it, doesn’t mean you should. And do we really think that companies should be able to run up the score during a period of high inflation or during a public health emergency?
And then the last bucket of stuff that I think is really important, and the Biden administration’s just making a huge amount of progress on this front, it’s not just the price level, it’s not just that prices got higher. It’s also that folks are really upset with how pricing works. And increasingly, pricing feels tricky, it feels deceptive, it doesn’t feel transparent or fair. And fair pricing is really the bedrock of the economy in many ways. And I think the Biden administration’s efforts to take on junk fees, junk fees, what are those?
This is the situation in which you go and you buy something online like a ticket to a concert or an airline ticket, and then you go to check out, and before you can check out, there’s 5, 10, even up to 15 different fees you’ve got to contend with to finish your purchase. It’s a deceptive pricing practice. They use it because they know you anchor on the original price, and by the time you’ve put it in your cart, you’re a bit invested and probably going to pull the trigger anyways. And so now’s the time to sort of layer on all manner of fees. Taking on junk fees makes a lot of sense.
Other deceptive pricing practices, things like skimpflation and shrinkflation, at some point, you can’t really take any more pricing from the consumer, but you can sub out all the olive oil for water in the salad dressing or sub out the milk for coconut oil in the ice cream or cut down on the number of chips you put in the bag, all that kind of stuff. I think there is a host of things that Congress and the administration and state policy makers should consider to make pricing more fair in this country.
And I would frankly include on that list prohibitions on things like surveillance pricing and personalized pricing. I think it’s time to restore a public price in America. If they can’t get away with charging me $4 for a loaf of bread and you $5 for a loaf of bread when we’re next to each other in line for the supermarket, I don’t think they should be charging you $4 for a loaf of bread and me $5 for a loaf of bread when we’re checking out online. And so I do also think leveling the playing field and restoring a fair price by banning all manner of deceptive pricing practices across the economy, including in e-commerce, is another important step that policymakers should be taking here.
Speaker 4:
It’s amazing to me that personalized pricing is legal at all anywhere. It’s just so blatantly immoral.
Nick Hanauer:
Yeah.
Lindsay Owens:
Well, we’ve had it for so long in certain sectors. So your credit score is the sort of ultimate form of personalized pricing, right? They’re using your credit history to determine the price you pay for credit. In insurance markets, for a long time in healthcare, they could charge you more based on your medical history. They can still charge you more based on your driving history, and that’s still perfectly legal. But we’re seeing this expanded into areas where there is little to no sort of business case or sort of risk profile case for personalized pricing, right? They don’t need to charge me more than you for a sweater because I am less likely to finish paying for the sweater.
So this technique or this pricing technique tactic, if you will, is really being deployed across the economy in a whole host of sectors that don’t require it. And I do think you’re exactly right. I think it is incredibly immoral, and I think it helps explain why when you ask folks why they’re still mad about high prices and you wonder how that could be, given that inflation has cooled, I think the answer’s pretty simple. It’s not just the high prices folks are upset about, it’s also the fact that they’re increasingly upset with how pricing works.
Nick Hanauer:
Couple of final questions, but you’ve gone a long way towards answering certainly the first one. If you were in charge, what are the policy solutions that you would lay down? The top three.
Lindsay Owens:
Yeah, so my top one right now, because we’ve got an opportunity next year potentially, is let’s get the corporate tax rate up. Let’s make overcharging you less lucrative for companies across the country. Option two, because I’m really fixated on it right now, is let’s put a stop to personalized pricing before it takes over, before there is never again a straightforward public price for anything in the United States again. Let’s put a stop to it before we end the fair price, if you will. And then option three is, I really would like to see a federal price gouging statute, like the one that Senator Warren proposed, like the regulations that were put in place in New York. I think if we don’t think that you should be overcharged during a hurricane or during a global pandemic, inflation should also not be a period. Economic crisis should also not be a period where companies are allowed to run up the score.
Nick Hanauer:
And one final question. Why do you do this work?
Lindsay Owens:
Oh, man. I do this work because I really believe that the best life for the American people, the best life for all of us, where we can all thrive, is an economy that works for all of us, an economy that is built from the bottom up and the middle out, an economy that isn’t extractive. And so that’s just something that’s been motivated or motivated me for a long time, and I love getting up every day and getting to work on it.
Nick Hanauer:
That’s fantastic. Well, Lindsay, thank you so much for being with us, and thanks for this work. It’s been super, super consequential. Really, really great.
Lindsay Owens:
Thanks, Nick.
Nick Hanauer:
This is such an important issue, this issue of expanding profit margins for companies. And again, I’m a capitalist. I believe that companies should be able to make profits, but I think that one of the most important facts about the contemporary neoliberal economy is effectively more than doubling of profit margins as a percent of the economy over the last 40, 50 years, and the significant increase over the last three. And this is a consequence of all the bad neoliberal policymaking that we’ve talked about for so long, but principally, the consequence of corporate concentration, the actual radical reduction in legitimate authentic competition in the economy.
And when you have only a couple of companies making most of the important things that people buy, and only one or two retailers that people have available to them to buy them through, this is what happens, and this is where markets don’t work. I think that Lindsay mentioned several policy interventions. I don’t disagree with any of them, but I think at the end of the day, the structural solution to this problem is more robust competition and more transparency. And if American industries weren’t as consolidated as they are today, prices would be lower, wages would be higher, consumer choice would be greater, and we’d have more innovation too. And this is the problem with letting all these industries become concentrated.
Speaker 4:
Yeah, I mean, let’s be clear. Whatever the critics want to say, this is straight up math. It’s just simple algebra. If prices have risen faster than costs, resulting in a higher margin, then the difference between the old margin and the new margin is part of that, what we’re calling inflation. And so the 3, 3.5% inflation that we have now, if you took out those higher margins, we’d be down towards that fed target, that 2% target. The reason why we’re above it is not because labor costs are too high because of a higher minimum wage, which that’s what the right ones to tell us. No, it’s because profits are higher. But the thing that stood out for me, and Lindsay said it, she brought up the issue of power. That word, which is missing from orthodox economics, they ignore power. And the truth is market power corrupts and absolute market power corrupts absolutely. And that is what we have seen. The lack of competition is from concentrated market power. And there’s no way that those Orthodox models work without competition. They presume-
Nick Hanauer:
Competition.
Speaker 4:
… competition.
Nick Hanauer:
Perfect competition.
Speaker 4:
Perfect competition, right? Everything you learn in your econ 101 textbook, all of those models, all of those theories, they make a whole bunch of assumptions. And at the core, is perfect competition. And in a perfectly competitive market, theoretically, the supply would rise to meet demand, and you would get the proper, the market would properly price things. But when you only have two diaper makers monopolizing 80% of the market, that can’t happen because you just can’t break into that market and provide competition anymore. And if you did, you know what would happen? They’d either buy you out or they’d undercut you for a while to force you out of business, which by the way, I think that is what Amazon did to diapers.com. Is that the story I’m remembering?
Nick Hanauer:
Yeah, I think so.
Speaker 4:
Yeah. Yeah. When diapers refused to sell to Amazon, Amazon just lowered the prices of diapers until they drove them out of business. And that’s what you get from outsized market power. And I don’t know, people want to quote Adam Smith at me and say that this all works out in the public good, people pursuing their self-interest always works out for the best. That’s not what Smith meant, but it clearly hasn’t. So over the past few years and over the past few decades.
Nick Hanauer:
And as always, there’s a really interesting report that Groundwork Collaborative has created called Inflation Revelation: How Outsized Corporate Profits Drive Rising Costs, and there will be a link in the show notes.
Speaker 6:
Pitchfork Economics is produced by Civic Ventures. If you liked the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook @civicaction and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works and peek behind the podcast scenes on Instagram, @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.