Clinton-Era Labor Secretary Blames Corporate Price Gouging for Inflation, Calls for Price Controls

Former U.S. Labor Secretary Robert Reich participates in a discussion at the Center for American Progress Action Fund in Washington, on Mar. 5, 2019. (Mark Wilson/Getty Images)

Former Secretary of Labor Robert Reich is blaming “corporate greed” as the driving force behind soaring inflation, insisting that wages are not to be blamed for the phenomenon.

The Federal Reserve’s notion that inflation is being supported by rising wages triggered by a tight labor market, and that the solution to the problem is to keep raising interest rates, is “dead wrong,” Reich wrote in an op-ed for The Guardian. Wage increases have not kept up with inflation, and the paychecks of most workers are shrinking in the context of real purchasing power. Rather than causing inflation, wages are “actually reducing” inflationary pressures, he states.

“The underlying economic problem is profit-price inflation. It’s caused by corporations raising their prices above their increasing costs,” wrote Reich, who served in the Clinton administration.

“Corporations are using those increasing costs—of materials, components, and labor—as excuses to increase their prices even higher, resulting in bigger profits. This is why corporate profits are close to levels not seen in over half a century.”

Reich went on to blame the monopolistic or near monopolistic powers of corporations for their ability to keep raising prices without losing customers.

Just four companies, for example, control 85 percent of poultry and meat processing, two giant firms dominate consumer staples, one corporation sets the price of most of the seed corn used in the country, and five big pharmaceutical firms are causing drug prices to soar, Reich claims in the article.

In addition, five giant banks control Wall Street, three cable companies control broadband, and Big Oil has the power to raise gas prices at the pump far higher than the costs of crude, he insisted. “All are raising prices and increasing profits because they can.”

Price Controls, Profit Recession

Reich called on the Biden administration and Congress to take direct action against “profit-price inflation” rather than allowing the Fed to raise interest rates and put the inflationary burden on the average American people.

He called for enforcing “bold antitrust” standards, saying that even the credible threat of such enforcement can force corporations to not raise prices above their costs.

Reich also suggested implementing a tax on windfall profits, a temporary tax on price increases that exceed the Producers Price Index (PPI) cost of producing consumer products.

The ideas put forward by Reich are not something new, and have been opposed by other experts. In an interview with Wharton Business Daily, Wharton marketing professor Z. John Zhang, for example, stated that corporations have become a convenient scapegoat for inflation.

“I think that firms are actually doing exactly what they’re supposed to do. Where you could raise prices, you raise prices to make more money to invest for more production. That’s what we want the firms to do,” Zhang said.

Forcing companies to “stay put” with their prices can lead to shortages, he warned. In such a situation, consumers will start to hoard products, which will create “even more shortages.”

In an interview on the Wealthion program in July, MacroMavens founder and economist Stephanie Pomboy pointed out that a measure she relies on as a proxy for corporate margins has crashed to lows not seen since the mid-1970s.

“It’s not only forecasting a profit recession, it’s forecasting the worst profit recession in 50 years,” she said. Pomboy predicted that Wall Street earnings forecasts will likely face sharp downward revisions and put more pressure on the equity markets.