The Economic Inflation Blame Game

BLUF: They Are All Liars – you can quote me on this (LOL).

Angry consumers tend to place blame for the nation’s economic woes based on no more evidence than a one-sided news story, social media (like minded) scrolling, headlines from self-proclaimed subject matter expects with no credentials, or bootlegged economic insight from our local bickering circles – perhaps there’s more to consider than this.

Not only do we haphazardly place blame, but we do so with great passion and confidence – leveraging only sound bites, memes, or things that “sound” right to us – this is the way many of us see, react, and deal with our current economic woes – even though we’re well educated, insightful, experienced, and simi-sophisticated…   we act like simple minded buffoons as well.

To be fair, our nation’s economic woes are not simple, and have many complex contributing factors – there are also layers of blame aimed at elected officials & government agencies, industry & corporations, distribution & supply chain, labor, pricing, plus greater impact factors like fuel prices, preexisting regulatory requirements, and a pandemic (just to name a few) – each of these contributors come with unique perspectives on the cause of these economic woes – it can all be very confusing and misleading.

What’s really frustrating for me is how quickly we draw conclusions to place blame with so little information – remember, our “go to” sources are typically sound bites, memes, or things that “sound” right to us – also remember, we’ve compartmentalized ourselves into three basic camps: Right Leaning, Left Leaning, and Independent Leaning – furthermore, our allegiance to these self-assigned camps are ever more codified with each new crisis on the horizon – so, we find ourselves being more loyal toward our camps, and doing less basic research about the economic woes the nation is facing.

Interestingly, reference our economy – there is a collective think tank lead by the US Economic Administration and the Department of Labor which is made up of (Left, Right, Independent) resources that research, follow, and report on economic statuses and conditions – this collective effort has been quietly sharing notes and ideas since 2014 – some of their better-known participating organizations are: The Balance, Equitable Growth, Groundwork Collaborative, Economic Policy Institute, and National Bureau of Economic Research, plus half dozen lesser know players.

This think tank’s objectives are to “…work with economic theories & policy experts, conservative & progressive economic ideals, industry insiders & activists from economic causes at community & national levels to: Develop and advance more equitable economic practices. Collaborate & foster ideas and pathways to share economic trends & information. Break down economic crisis silos. Research and investigate critical economic issues and campaigns.”

As it turns out, there are many think tanks out there evaluating and researching any number of national level challenges from multiple perspectives – some are more agenda driven than others, but they all collect and share impactful information relevant to national challenges – they also make this information available to the public – meaning, their findings are easy to research – almost as easy as hearing a clever sound bite, and running with it as though it were Biblical.

Here’s my first point: There are a lot of facts to consider beyond our respective agendas, sound bites, memes, or things that “sound” right to us, if we’ll just put a little effort into it – in fact, “putting a little effort into it” was the only option we had, before social media, agenda driven news, and our respective camps started force feeding our opinions to us.

I’m so tired of slanted news, agendas, sound bites, or memes, that I welcome any collective, collaborative effort on topics pertaining to subjects that divide us – specifically since our expanding national divide hits on so many topics, not the least of which is our economy – collective efforts naturally provide less biased facts and insight – they leverage quotes for CEOs/CFOs and stockholders, reference quarterly and annual profits and earnings reports – spending and cost trends, distribution and inventory challenges, etc., etc.

So, when I consider our economic woes, and I hear positive or negative takes on our economic factors, I try to dig into it – I’ll confess, I tend to follow and embrace theories I like, or fit my personal agenda – this is the easiest, and most natural way to evaluate information – but it’s also the worst way to validate information – so, I try to avoid chasing my own tail down my own information rat hole (like most of us do),  and to the point of this rant…  I try hard to seek facts from sources with nothing to gain other than transparency, fairness, and balanced agendas – these collective, collaborative efforts pull information from multiple sources, consider questions from left, right and center, and present their findings supported with source documents.

So, here are some fun economic story lines discovered by looking deeper than sound bites and memes – because it’s important for the American people to clearly know the real cause, cost or harm associated with economic factors being considered.

One of the most telling sources of economic insight came from participants in, and reading minutes from hundreds of corporate quarterly earnings calls – these are routine calls CEOs and CFOs have with investors and shareholders – lately, the chatter has been focused on the origins of inflation, specifically pricing – not surprisingly, inflation takes on a unique perspective if you’re in the top 5% of a multi-million (or billion) dollar corporation, and are trying to make a profit for your investors and shareholders.

For example, in April 2022 Coke’s CEO was pressed on corporate pricing – were price increases being passed on to consumers justifiable – he was clear, there will be more price increases – Coke’s CEO, “If we’ve got a choice, we’re going to take the price increase as far as our sales goals can weather it.” Coke’s CEO is not alone in this position – the Hostess Cakes CEO, “When all prices are going up, it helps us take more.” – consumers don’t really know which price increases are justified, verses which price increase are gouging simply because corporations can.  

Now, to be fair to Coke and Hostess Cakes, capitalism is going to capitalism (so to speak) – it’s the reality of the economic concept of “what the market will bear” – but as it turns out, the underlying theme in many of these earnings and profit meetings is, how far can we press price increases under the guise of uncontrollable factors, inflation being the current factor – perhaps the question corporations need to be asking themselves is, “During these moments of national crisis, and transitioning of our economy, how much is enough?”  Ultimately for CEOs and CFOs, it boils down to satisfying investors and shareholders, verses consumers – a CEO or CFO could get fired for not taking advantage of a profit opportunity – the cold hard facts are, corporations in in business to make money, not friends – but is it that narrow? Could corporations increase their profits, without further stimulating inflation?

From the consumer’s perspective, are corporations to blame for opportunistic higher prices, or are corporations unable to avoid higher prices? Consumers simply do not trust corporations or government to do or enforce the right thing – this is a tragic position for citizens of a nation that can be anything it chooses, and afford every citizen to be well off, but chooses to be greedy.   

Let’s not only kick Coke and Hostess in the face – other corporations like Chevron, Tyson, Hormel, Exxon, etc… also share in the same flavor of earnings and profit meetings – themes in these meetings kept coming back to these same four points, from the corporation perspective:

1. Unsure of when this inflationary moment would end, and not want to miss the chance to “capitalize” on making a profit increase.
2. Everybody else is doing it, which provides corporations with pricing “air cover” – for context: the head of research and market analysis from Barclays Bank said, “This inflationary moment is giving corporations air cover to raise prices and extend profits.”
3. Shareholders and investors drive corporate pricing decisions (this feels like CEOs and CFOs passing the buck) – these decisions include cutting back or increasing production and jumping on opportunistic price increases.
4. Not planning on relaxing pricing even if costs of materials and distribution fall – the new prices have been accepted by the consumer.

Like many industries, increased pricing naturally generates higher profits to extended sectors of the economy – for example, banks and credit card companies – these financial institutions typically have set rates for categories and caliber of customers – the customer now spends more, due to inflation and the financial institution makes more money without effort – oddly enough, in the same earnings and profit meeting, VISA CEO announced their profit increases, and rate hikes without elaborations other than to say, “keeping in step with inflation”  – perhaps the perfect example of, have my cake and eat it too.

To be fair to corporations, there are real factors that stimulated inflationary conditions which lead to natural price increases – but to also be fair to consumers, there are widespread “opportunities” for price increases that are largely ungoverned, and actually add to worsening inflationary conditions – corporations know there are no “checks” in place to prevent unjustified price increases.

The road to our ongoing inflationary conditions looks something like this (broad strokes, so don’t nitpick) – buckle up – COVID drove a number of challenges like supply chain problems, and available labor – then crude oil supplies were challenged (we’ll discuss oil factors in greater detail further down) causing fuel price increases, which impacted cost of product and  material distribution – these are very real factors for corporations to digest and still remail solvent – on the other hand, consumers did see price increases, but are now seeing even more price increases with no other cause except “the other guy’s” prices went up – the economy (triggered by corporations and markets) placed projected and intangible stressors (from quarterly reports/meetings, opportunistic behavior, and air cover) on itself which further drove inflationary conditions higher – we know this because instead of major corporations struggling alongside consumers, their profits are raising at record levels – to worsen the plight, major corporations indirectly set production, distribution, and pricing rhythms for smaller corporations extending the impact of inflationary cause and effect –  during all this the FED bumps interest rates (twice) causing a slight pause in inflationary conditions, only to restart itself with little tangible cause – each rate bump came during a higher inflation stress point, at increasing rates of inflation – each time one of these eight contributing factors hits, markets are also impacted – futures and projections ebb and flow – market gaming kicked in – investor opportunists fleece fellow traders, family and friends – value of the dollar stair steps up and down – GDP projections further roller coaster market gains and losses – all recking havoc on consumer’s savings/investments – my point, inflation isn’t spinning itself out of control, WE are spinning it out of control – which didn’t have to happen – this is a very high level view, but it’s also in line with many economist who do not find themselves tethered to a political party.

As a consumer, we may never know what real inflationary conditions are, verses perceived (manipulated) inflationary conditions – but there are some real facts for consumers to consider when deciding where to spend their dollars – consumers should know, these quarterly and annual earnings reports include things like distinguishing the difference between real and discretionary costs and markups – the Economic Policy Institute put the national average of pricing markups at 54% discretionary of pricing mark ups – so, only 46% of markups are valid according to their own corporate reports – consumers don’t expect corporations to take losses, or fault corporations for taking profits –  but they may object to discretionary greed.

We all learned in ECON-101 that prices are set at the intersections of supply and demand, and corporations will compete to keep prices lower – today, there are evolving power dynamics that override normal pricing, due to market powers – there are no political agencies or industry standards to keep corporations for abusing their market power to control pricing, inventories, and product placement – politicians could call out corporations for abuses, if it favors their political party line – in fact, politicians will often help cast blame elsewhere, if the corporation’s market power supports a party line – ECON-101 hasn’t had a chance to be proven or played out for many years.  

I digress – I’ll try to stay focused on inflation – in the Fall 2021 the NEC called out the meatpacking industry for unjustified price increases – National Economic Council Director, Brian Deese outlined how industry consolidations were part of price problems – corporations like JBS, Tyson Foods, Cargill Meats, and National Beef Packing Corp essentially consolidated and controlled most of the market – evidence show these four industry leaders (i.e. market power) regularly raised prices and generated large profits in controlled parallel efforts – they also squeezed ranchers (supply sources) to control their costs – how was this not pandemic profiteering? Why is there not regulatory statues in place to manage unjustified price gouging?

In Jan 2022, FED Chairman, Jerome Powell was questioned by Congress about potential industry monopoly’s (due to industry consolidations) driving up prices which could lead to inflation – after several minutes of Q&A back and forth, Chairman Powell eventually acknowledged, “corporations are raising prices because they can” – meaning prices are not being competed down (ECON-101) – this interview, as well as the finding by Brian Deese were short-term indicators before inflationary conditions erupted on consumers.

Necessities are very vulnerable to unjustified price increases – pricing power is a flavor of market power – diapers, formula, gas, food, medicines, etc – our nation has done a poor job of controlling costs of necessities – the definition of necessities is “the fact of being required or indispensable” – that alone begs for leader level control, regulations, compassion, consideration, etc… to prevent necessities from being gouged by industry because they can – there are thousands of examples of inflated pricing on items of necessity, not the least of which is insulin – remember, this nation offers (for free) tons of information about profit margins for all industries – especially for industries for necessary items – no one is going broke producing and distributing diapers, but they absolutely live better, in a much larger house, with more boats and toys than you and I have.   

Remember there are lots of factors in play – consider 50 years of America building an economy that worked great for large industry and Wall Street, but maybe not so well for the consumer – we had waves of mergers and acquisitions leading to a highly concentrated sectors of industry restricting the economies ability to govern itself – a surge of deregulation across several industries saved tons of costs, but loosened safeguards and made second and third order risk factors more perilous – a rush for low cost outsourcing and offshoring fanned out across the world hungry for cheaper parts, supplies and labor – a fragile supply chain without resilience or redundancies barely held on until the pandemic snapped it – new adaptive profit ideas blossomed out of high risk, short lived, restructuring, selling off, buying in, and creative financing ventures – it’s like any endeavor that takes on risks to gain rewards – it works until it doesn’t –  the “before” picture of this economy worked until it didn’t – there was money to be made, but why not take precautions?  

Let’s get this out there, because I know many of you are thinking it – What about the workers? Aren’t workers demanding more money and benefits which are causing prices to go up? YES, but not all situations fit all causes – this is very true for small businesses and micro-sectors of industry – however, as the size and scope of a business/industry increases, so does it’s potential to provide adequate wages and benefits to workers – the national average of prince increases attributed to labor was 8% in 2021 (which is a subset of the 46% validated cost markup mentioned earlier) – so labor did contribute to price increases, but only 8% of the total markup – let’s do the math, 8% = labor and 54% = profit – meaning, at the national level, we can certainly afford to pay our workers adequately – but we also know this is not always true for small business and micro-sectors of industry – but the resources are there (54% of markups went toward profits at a national average) – short of regulating them, industry and the market can bear the cost of paying workers – how to make them do it (if they don’t) is another (very long) rant for another day.

One more hot button item then we’ll wrap this up – gas prices – I’m going to share numbers and facts I hope you’ll look up and validate – I recommend going to The US Energy Information Administration (EIA) and scroll through their oil and gas artifacts, statistics and charts – the Oil and Gas Industry itself also has extensive records to explore – high gas prices have a direct impact on pricing of products that require distribution (land, air, or sea) – the price of fuel at the pump is already a crisis – gas prices are directly connected to many things, but the most significant is amounts of crude oil reserves (national and industry reserves) – crude oil is staged, and in phases of distribution all over the world for eventual production into gas/diesel – let’s take this on a little at a time.

There are a great many theories of why crude oil supplies are pinched – first oil reserves:

1. Government and industry records indicate a three-year decline in domestic crude oil production – this only refers to licensed sources of crude oil already in use.
2. There are 6000+ approved oil leases available to industry for domestic production that are not in use.
3. Imports (foreign) are down slightly, and prices are up respectively.

Now, even though US is the largest producer of crude oil, industry, government and watch dog organizations all indicate different causes for this reduction, and no increase of production, creating a shortage of crude oil – my opinion based on research of all three sources as to why we weren’t drilling more… oil executives blamed Wall Street – nearly 60% cited “investor pressure to maintain capital discipline” as the primary reason oil companies weren’t drilling more despite skyrocketing prices – in simple terms, it appears the oil and gas industry leaders are limiting production in order to keep prices high.

In addition to reserves of crude oil, the next major contributing factor for gas prices is the pace of refinement of oil into gas/diesel – referencing the same sources above, US oil refinement is also down for the second year in a row – gas refinement is down, and demand is up due to lifting of COVID restrictions – this creates a natural price hike – low inventory, higher demand (ECON-101) – but gas prices are surging well past the lifting of COVID restrictions – just like reduced production of crude oil, industry, government and watchdog organizations also differ about why oil refineries are producing less gas/diesel – I could venture a guess, but you already know what I’m thinking.

Finally, oil and gas industry profits are up for the third year in a row – oil and gas profits are in the multiple billions of dollars, and the trend is continuing into 2022 – market research by IBISWorld, a leading business intelligence firm reports total profits for the oil and gas drilling sector total $22.1 billion dollars in 2021 – this total is cumulated of companies that explore for, develop, and operate oil and gas fields – the oil and gas industry should be fine if they place some control measures on gas prices.

So, inflation is a hot damn mess and we’re responsible for a lot of it – what are the possible fixes?

There’s talk of pricing gas on actual cost instead of futures costs – this will make the cost more in line with actual cost without also funding Wall Street.

We need to communicate to industry with our spending – don’t reward high pricing with profits – this applies to all of our spending, banking, investing, etc.

There is talk of “profit taxes” for industry whose profit margins exceed certain standards without investing back in predetermined ways.

There is also talk of “flat taxes” to balance the availability of profits with previously avoided taxes.

How can government, or watchdog organizations prove when prices exceeded trends or norms?  There are already several non-profit organizations that have collected and tracked prices of necessities for many years – there are 2-3-5 year periods to evaluate for trends or surges.

Perhaps, Modern Monetary Theory (MMT) can help – it illustrates two competing drivers to our economy – fiscal policy (taxes and govt spending) verses monetary policy (the Fed investing, interests rates, and inflation) – today we leverage monetary policies much more than fiscal policy – many economist believe we need to apply more MMT in conjunction with managed traditional inflation control measures instead of riding the pain-train as long as possible – the Economic Policy Institute agrees with this, and has several ways to apply these options.

Truth – industry is not going to stop charging every additional penny they can get away with – they need to pay for overhead, employees, research, etc, etc – I get it – and I expect them to make a healthy profit – but I can’t stand silent while the nation suffers through a needless inflation that could have been prevented if we were a little less greedy.