The ‘greedflation’ narrative is still wrong
Jack Elbaum
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Of all the theories trying to explain the causes behind inflation, the “greedflation” narrative is surely the worst. In short, the theory posits that inflation was primarily driven by corporate greed. It was an idea that had heavy support from far-left lawmakers, such as Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA), along with a few liberal economists. However, on the whole, it was rejected. Seventy-nine percent of economists disagreed that corporations taking advantage of their market power to raise prices arbitrarily and increase their profits played a significant role in rising inflation.
Nevertheless, last week, Axios published a piece titled “Once a fringe theory, ‘greedflation’ gets its due.” In it, they explain the “greedflation” idea is now gaining greater respect among those who previously wrote it off, including some prominent economists. Importantly, they redefine the term such that it now refers to “companies taking advantage of a window of opportunity to raise prices more than normal.”
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But there are more than a few problems with the depiction. First, they really only cite three economists to back up their assertion that it is no longer a fringe theory — including one who is now somewhat notorious for taking stances far outside the economic mainstream. There is no evidence presented that would suggest the dominant opinion among economists is actually shifting.
Second, even the analyses cited don’t necessarily prove what they think they do. For example, a prominent economist’s “note” detailing what he calls “profit-led inflation,” which is the most substantive claim in the article, does not attribute the majority of inflation to corporate greed or profiteering. Rather, he argues “demand-led inflation” was dominant into mid-2022 and it was not until the end of last year and the start of 2023 that “profit-led inflation” became dominant. But those paying attention know that inflation began to decrease in mid-2022. How could decreasing inflation at the time when it apparently became “profit-led” suggest that corporate greed is to blame for the majority of inflation?
There are also basic economic problems with the “greedflation” idea in the first place. Primarily, it ignores the expansionary monetary policy of the Federal Reserve from February 2020 until February 2022. In that time, the Fed increased the money supply as measured by M2 by 42%. When asked if he simply “‘flooded the system with money’ during the pandemic,” Fed Chairman Jerome Powell replied, “Yes, we did.” Considering the strong empirical link between money supply and inflation, it is ill-advised to leave this out of one’s analysis.
Then, as journalist Brad Polumbo has pointed out, there is the commonsense point that corporations are just as greedy, or profit-seeking, today as they were in the past — when there was not rising inflation. Greed cannot be the primary cause of inflation if it was just as present when there was no inflation. One bizarre conclusion of the “greedflation” narrative is that if rising inflation can be attributed to greed, then falling inflation can be attributed to altruism. Of course, both ideas are untrue.
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Last, there are data available that definitively disprove the “greedflation” narrative. As of May 2022, when inflation was nearing its peak, producer prices had risen by 10.8% year over year while consumer prices had risen by 8.6%. In other words, producer prices had risen more than consumer prices. How, then, could inflation be attributed to producers simply being greedy when they raised prices less on consumers than the prices they paid rose? The answer: It can not.
The issue for liberal politicians and talking heads is that it is not as easy to investigate why a phenomenon is occurring as it is to label it as greedy, racist, or unfair. But while it may be difficult, it is also quite fulfilling because it reveals the world is far more interesting and complicated than one-word labels driven by liberal dogma would suggest.
Jack Elbaum is a summer 2023 Washington Examiner fellow.