Corporations are reporting record profits while inflation rates are running at the fastest pace in decades. Small businesses and low-income workers, meanwhile, are bearing the brunt of the crisis even as access to safety net programs becomes increasingly tenuous.
That was the assessment of a group of economists who joined Ethnic Media Services for a media briefing to discuss what many see as a looming recession.
“CEOs are telling their investors that the current inflationary environment has created opportunities to extract more and more from consumers by raising prices,” explained Dr. Rakeen Mabud, chief economist at the left-leaning Groundwork Collaborative. “These mega-corporations are able to get away with aggressive and extractive pricing because they dominate the market and know more than the consumers.”
Mabud gave two examples of this kind of “profiteering” by mega-corporations.
The first involved the CFO of Constellation Brands, parent company of Modelo and Corona beers, who during an earnings call instructed shareholders not to “leave any pricing on the table” in these “times of economic downturn.” The message: keep prices high now matter the impact on consumers.
Mabud also pointed to Visa MasterCard, the duopoly that controls over 70% of the credit card market, which alerted credit card users that the company would be raising transaction fees despite inflationary profits.
“This hits small businesses because they can’t set prices the way big companies can. They have to sort of swallow those costs and pass them off to their consumers,” Mabud said. “Small businesses can’t compete with the Walmart down the street.”
A June analysis from the Roosevelt Institute found that corporations hit record high profits in 2021, charging consumers 72% more than their input costs compared to 56% pre-pandemic.
And according to an April report from the Economic Policy Institute, nearly 54% of recent inflationary pressure can be attributed to corporate profits, compared to 11.4% during the last inflationary period between 1979 to 2019. Less than 8% of current inflation can be attributed to rising labor costs.
Concentration and consolidation in specific industries – including shipping, which raked in $53 billion in profits last year – have also rattled global supply chains and contributed to rising costs.
To discourage profiteering, Mabud explained, Congress should reinstate a historic tax on excess profits, and the Department of Justice and the Federal Trade Commission (FTC) should aggressively crack down on monopoly power.
‘Not prepared for the next crisis’
Economists argue the Fed needs to raise interest rates and stop wage growth to tamp down inflation, essentially putting the economy into a deep freeze until prices begin to settle.
But during the briefing, analysts warned that artificially pushing the economy into a recession — defined as two straight quarters of negative growth — could be catastrophic for black workers and other marginalized groups with high unemployment rates.
“Wages are not driving inflation and workers at the bottom of the pay scale have not benefited from the job growth,” said Chad Stone, chief economist at the Center for Budget and Policy Priorities.
According to June’s job report the unemployment rate remains at 3.6%, suggesting a recession may in fact not be in the offing, though Black and Latino unemployment rates (6.8% and 4.3%, respectively) are high when compared to whites.
“If a recession comes, it’ll be relatively shallow,” Stone said. “Still, we have demographic groups that get hurt even by a short, shallow recession… We don’t have targeted safety net programs that can help the most vulnerable folks and we are scrambling to get any kind of additional policy.”
Stone explained that the last recession in April and May of 2020 — at the height of the Covid 19 pandemic — lasted only two months thanks in part to the American Rescue Plan implemented by President Joe Biden, which “gave juice to the recovery.”
Still, even during that short two-month period, the impact on women, people of color, the LGBTQ community and the undocumented was demonstrably more pronounced than on the nation at large.
“Our unemployment insurance system is broken. We are relying on band-aids,” said Alix Gould-Werth, director of family economic security policy at the Washington Center for Equitable Growth. “We don’t have enough money to pay for benefits, so we are not prepared for the next crisis.”
On average, unemployment benefits replace only 40% of a worker’s wages.
Gould-Werth called the current unemployment system “weak,” noting programs like Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), Social Security, Disability Insurance (DI), and Supplemental Security Income (SSI) are very limited in their number and availability.
“Many or all of them are only available to specific subpopulations – like people with disabilities or older adults – and they tend to have onerous eligibility criteria,” she added.
The panel agreed on the need for a better understanding of the impacts of economic fluctuations beyond Wall Street, on the lives of ordinary people and communities, and how corporate and government decision making can either help or harm conditions.
“When we do well, the economy does well,” said Mabud from Groundwork Collaborative. “We need to prioritize the real experience of everyday people living in this country.”