Are corporations using inflationary times to raise prices and up their profits?
A MARTINEZ, HOST:
The latest inflation figures come out tomorrow in the form of April Consumer Price Index numbers. Americans have been dealing with 40-year highs, shelling out more for everything from gas to rent. Now, while inflation's high, so are corporate profits. We're going to get some perspective on this from Josh Bivens. He's director of research at the left-leaning Economic Policy Institute. Josh, in this moment right now, corporate profits are up, in cases - some cases, record levels. Are consumers being taken advantage of?
JOSH BIVENS: It's a good question. I mean, I think - I would say consumers are bearing the brunt of what are - what is driving this big rise in both inflation and corporate prices. And to my mind, the thing driving it is just the obviously incredibly unusual circumstances of sort of whipping back out of a pandemic after it had shut down economies across the world. So, you know, I think corporate sort of greed and market power, they're just a constant background. I think what is different this time is that that power has been channeled into much higher prices and profit margins, and consumers are definitely bearing the brunt of that.
MARTINEZ: Bearing the brunt, though, I mean, it's one or the other, right? It's either corporations bearing the brunt or consumers. There's no third party here.
BIVENS: That's right. I think - I would just want to distinguish between - you know, it's not like 15 months ago, corporations, you know, woke up and were like, you know what? We want higher profits. Like, they always want higher profits. Like, they're always trying to fatten their profit margins. In normal times, something is restraining them. I think what we want to really look at for, like, the root cause of why this is happening is what has allowed them to channel their constant demand for fatter profit margins into actually being able to realize them. And that, to me, is the distortions imposed on the economy by the pandemic.
MARTINEZ: Yeah. So Josh, let's just say we had a corporate executive with us in this conversation. They would probably say that making the stuff that we put on store shelves costs more, materials cost more, to ship it to those store shelves costs a lot more. So why wouldn't these costs, these rising costs for corporations, not play into inflation?
BIVENS: Well, if you can actually break down - it's like, how much of the cost of, like, output in the corporate sector - how much of that has risen because of higher wages, versus higher sort of non-labor input costs versus just fatter profit margins, a bigger markup on those two things. And it's the profit margins that really drive it. I mean, normally corporate profits should be about 12% of the cost of anything, whereas labor should be more like 60%. You know, since this recovery began, it's more like corporate profits accounting for 54% of the total rise in prices, whereas labor costs less than 8%. So it's not just the case that they're passing on costs given to them. They are putting on a much bigger markup than they usually do.
MARTINEZ: So they're grabbing more of the pie than they - than maybe the hunger calls for.
BIVENS: That's right.
MARTINEZ: Yeah. Now, you mentioned earlier how it's not unusual for corporations to try to maximize profits. I think that we all know that that's what corporations are here to do for the most part. But what about the current situation maybe allows for businesses to raise prices in ways they ordinarily maybe couldn't?
BIVENS: I think the big things are that sort of pandemic and just coming really rapidly out of those sort of pandemic shutdowns just really distorted the economy on both the demand and supply side. Like, on the demand side, as people sort of started economic activity again, they moved away from face-to-face services, they still weren't super comfortable with those, and they threw a bunch of money into durable goods instead. And, like, the classic example is people quit their gym membership and they bought a Peloton. And then just as they tried to channel all this demand into one narrow sector, durable goods, that sector's ability (ph) to provide those goods just collapsed, the supply chain snarls that have, you know, gotten so much attention, and those are largely COVID-driven as well. And so basically, the root of this inflation took hold in that sort of durable goods sector, just the extreme mismatch imposed by the pandemic and demand and supply that it kind of radiated outwards. But that, to me, is, like, the real driver and the real spark which caused the inflation we've seen over the past year.
MARTINEZ: Outside of corporations, though, like, just say someone that has a retirement plan, wouldn't they benefit when a company post higher profits?
BIVENS: Yeah, that's right. I mean, so any - you know, the great sort of teaching moment here, in terms of breaking down a price increase into, like, profits versus wages and input costs is one person's costs is another person's income. I mean, I will say, if you look at where most people's income generally comes from, it is not corporate profits. Basically, you know, 10% of people own about 90% of all corporate equities in the United States. So if you're looking for broad-based strategies to improve people's economic security, just boosting corporate profits really isn't a way to do it.
MARTINEZ: That's Josh Bivens, director of research at the Economic Policy Institute. Josh, thanks a lot.
BIVENS: Thank you.
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