The little secret about corporate profits

The power of big corporations to raise their prices higher than their costs are rising.


Have you noticed that when workers get better wages, the media blames them for rising prices, but when corporations rake in record profits, there’s silence?

That’s because corporate profits aren’t tracked nearly as closely as worker wages. And the reason why comes down to power.

Every month we get measurements of prices, jobs, and wages—these are the three economic variables we hear repeatedly because they are released each month like clockwork.

They’re viewed as the core criteria for how the economy is doing, and drive the national economic conversation.

But what’s missing from this conversation?

Corporate profits.

Without a regular monthly report on profits it’s been easy for much of the media and the economic establishment to conveniently ignore them—along with the power that massive corporations wield when it comes to driving up prices.

Now, we do get reports on quarterly earnings from corporations.

But those estimates are guesswork at best because corporations often use every accounting gimmick imaginable to hide their true value and reduce their taxes—like Apple stashing profits overseas and Google depreciating assets like crazy.  

If we measured corporate profits more often and more reliably, Americans might start to get the full picture about what’s driving inflation to historic highs—the power of big corporations to raise their prices higher than their costs are rising.

We could see profit-price inflation—profits pushing up prices—and not pin the blame on so-called wage-price inflation—workers getting raises. Which, by the way, have actually been wage cuts when you account for rising prices.

Instead, the corporate media repeat data about jobs, wages, and pricesanalyzing them and framing stories around them. They are used by policymakers at the Federal Reserve and in Congress and the White House.

The conversation drives a continuous cycle: “If prices are up, well it must be because the economy is too hot and workers’ wages are too high! It’s time to raise interest rates to slow the economy, increase unemployment, and reduce wages!”

And corporations prefer it this way! Because their role in driving inflation isn’t even considered. They are given cover to exploit very real supply chain issues—while padding their profit margins.

The less up-to-date and accurate information we have about their profits, the harder it is to respond with policies that will combat their pricing power. Not to mention that they cut major checks for political campaigns, so there’s little incentive on behalf of many politicians to change this.

The way we try to fix the economy—particularly inflation—is skewed in favor of big corporations and against regular workers, because the way we measure the problem disregards the role of corporations.

If we had timely and accurate information about corporate profits, rather than assuming by default that the Fed must hike interest rates to cool the economy by weakening workers’ purchasing power we would weaken corporations’ pricing power—through, for example, a windfall profits tax, selective price controls, and tougher antitrust enforcement.

Ultimately, we must build an economy that values workers at least as much as profits.

Doing this starts with measuring the right things.  

Read it on Robert Reich’s blog.


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Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fourteen books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "Saving Capitalism." He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, co-founder of the nonprofit Inequality Media and co-creator of the award-winning documentary, Inequality for All.