Thursday, March 31, 2022

Largest American wind farm ever built all-at-once opens in Oklahoma, saves customers $1 billion over fossil fuel

Even in a gas and oil state, customers are saving a billion dollars by switching to wind.

March 26, 2022

This week, American Electric Power (AEP), which operates in several states, inaugurated what it called the largest wind farm in the U.S. ever built all at once. That is, there are larger wind facilities, but they were actually a congeries of several projects built over many years.

The nearly 1 gigawatt Traverse Wind Energy Center, in Blaine and Custer counties in western Oklahoma, generates power not only for that state but also for Arkansas an Louisiana.

Mark Williams at the Columbus Dispatch writes, “Traverse has 356 turbines that are nearly 300 feet tall. Most of the blades go up to nearly 400 feet in height.”

He adds, “AEP says it is on track to have half of its generating capacity from renewable sources by 2030 and that it is on track to reduce emissions of carbon dioxide by 80% from 2000 levels by 2050.”

AEP will get there in part by closing its sole remaining coal-fired plant in 2026. So we can see the realities on the ground, and the future does not belong to coal barons like Joe Manchin.

Wind farms accounted for 35 percent of Oklahoma’s electricity production before Traverse came online. The state has about 4 million residents and about a million and a half households.

The $2 billion Traverse wind farm and two smaller facilities will power 440,000 households, around 30 percent of all households in the state.

It is remarkable that so many large investments are being made in wind power in Oklahoma, since the state is known as an oil and gas giant. It accounts for 8.7% of the methane gas produced in the U.S. annually.

There is a difference, however, between fossil fuels and wind power. The fossil fuels are expensive, and wind has been dropping rapidly in price. Rhett Morgan at Tulsa World reports that the North Central Energy Facilities (NCEF) wind complex will save consumers $1 billion over the next 30 years.

Oklahoma ranked third in the nation for wind power before this addition.

The new wind farm, moreover, has “cold packs” allowing it to operate in freezing weather of the sort that hit Oklahoma and Texas in February of 2021. Despite the lies and propaganda of Texas governor Greg Abbott, the problems Texas had last year mainly derived from the failure of methane gas plants in the freezing weather, and most wind turbines worked fine. The Traverse facility will be even better, designed for operating even in such cold conditions.

It is estimated that if Oklahoma had already had the Traverse facility operating in February, 2021, it would have saved consumers $200 million.

The North Central Energy Facilities of which Traverse forms a part generate 1,484 megawatts of power. This makes them one of the biggest wind facilities in the country. They are not the very biggest, however.

USA By Numbers writes, “With a nameplate capacity of 1,550MW, Alta Wind Energy Center is by far the biggest wind farm in the US. It is located in Tehachapi Pass, Kern County, California and occupies a total area of 130 square kilometers. Alta was established in 2010 and had a construction cost of over $2.8 billion.”

So there you have it. Even in a gas and oil state, customers are saving a billion dollars by switching to wind. That is the future, my friend. As for the gas and petroleum, most of it will become worthless and will stay in the ground as wind and solar costs continue to plummet.

CRIMINAL CAPITALI$M
Big Oil Should Pay Windfall Tax to Offset Pain at the Pump

There’s a word for this sort of action to restrict an essential supply like energy during a crisis: profiteering.

And when it's done in a coordinated way? That's called racketeering.

The gas price sign at a Chevron gas station in West Linn, Oregon. Oil and gas prices are soaring due to Russia's war in Ukraine and price-gouging by the fossil fuel industry. (Photo: hapabapa/iStock/Getty Images)

JAMIE HENN

March 30, 2022

There’s one group of people who aren’t worried about high gas prices this month: Big Oil executives.

While millions of Americans are cursing the price at the pump or struggling to pay their home heating bills, oil companies like Exxon, Chevron, Shell and BP are raking in massive windfalls. Industry profits had already surged to $174 billion in 2021 due to high prices, and while the first quarter numbers of this year have yet to come in, they are likely to be astronomical.

While millions of Americans are cursing the price at the pump or struggling to pay their home heating bills, oil companies like Exxon, Chevron, Shell and BP are raking in massive windfalls.

“We have more cash than we know what to do with,” Murray Auchincloss, the Chief Financial Officer of BP bragged back in February—and that was before the war in Ukraine drove prices even higher.

What Big Oil is doing with all its cash is rewarding its wealthy investors and billionaire CEOs. Oil companies are on track to spend a near-record $38 billion this year on stock buybacks to reward their shareholders. Oil company CEOs are stuffing their bank accounts too: since Russia began threatening Ukraine and prices began to skyrocket, just 5 CEOs cashed out nearly $99 million worth of their company stock.

Lining their own pockets at the expense of American consumers has been the oil industry’s plan ever since the economy started coming out of its Covid-19 induced recession. A series of recordings from corporate shareholder calls and industry conferences executives admitting that they are intentionally restricting supply in order to boost their share price.

This is what’s helping drive up prices for consumers: an intentional, industry-wide campaign to make massive profits at our expense. The economic bounceback from Covid-19 and embargo on Russian oil created the conditions for this perfect storm, but it's the industry’s malfeasance which has kept prices high. Rather than do everything they can to help the public, the oil companies have put their own profits first.

There’s a word for this sort of action to restrict an essential supply like energy during a crisis: profiteering. And another word when it's done in a coordinated way: racketeering. Both are illegal.

Whether or not oil companies can be held accountable in the courts, they ought to be made to pay a price. New legislation recently introduced in Congress would do just that. The idea is called a windfall profits tax and in this case, it would apply a 50% tax to the excess profits that the industry is making right now. The revenue raised—which could be upwards of $40 billion a year—would then be used to send a check to Americans who need help with high gas prices and energy bills. Taxpayers below the $70,000 a year income threshold could expect to receive around $240 based on current prices.

The real solution to escaping all the price volatility, insecurity and pollution that comes with fossil fuels is a rapid transition to clean, renewable energy.

That may not be a lot of money to a billionaire CEO, but it could mean the difference between being able to pay the bills or going deeper into debt for many families. It’s been heartbreaking to see stories on TV of mothers who are having to cancel their child’s birthday party because they have to spend the money on gasoline. These checks could help provide some immediate relief and help carry people over until prices go down.

Oil companies and their allies in Congress and the media will argue that this sort of tax is just punishing industry success, will restrict supply, and will just be passed off to consumers. All those arguments are false. The massive profits companies are making right now are from exploiting multiple crises, not from any innovation of their own. As for restricting supply, the industry has more than enough capital and leases on our public lands to drill new wells – as BP said, they have more cash than they know what to do with. And the idea they’d pass the cost off to consumers? The tax would only apply to the largest oil producers who don’t have enough market share to control the price at the pump without being undercut by other suppliers. Besides, the companies will still be making billions in profits, just not the absolutely obscene windfalls they’re making now.

The real solution to escaping all the price volatility, insecurity and pollution that comes with fossil fuels is a rapid transition to clean, renewable energy so that we’re no longer dependent on greedy CEOs and tyrants like Vladimir Putin. But in the meantime, a windfall profits tax can provide some immediate relief to consumers and send Big Oil a message: you can no longer get away with profiting at the expense of the American people.

Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.

Jamie Henn is the director of Fossil Free Media and a co-founder of 350.org

Sanders introduces legislation to impose a 95 percent windfall tax on excess profits of major companies

"The time has come for Congress to work for working families and demand that large, profitable corporations make a little bit less money and pay their fair share of taxes.”

Ashley Curtin

March 27, 2022

SOURCENationofChange

First implemented by the United States during the first and second World Wars and the Korean War, Sen. Bernie Sanders’ legislation models the tax rate that reached 95 percent in WWII to ensure that companies could not profiteer off the war. The legislation, which was introduced in the Senate on Friday, would impose a 95 percent windfall tax on the excess profits of major companies.

The temporary emergency measure, which is part of Sanders’ Ending Corporate Greed Act, “could raise an estimated $400 billion in one year from 30 of the largest corporations alone and would apply only in 2022, 2023, and 2024,” according to a press release. Sanders said it will combat rising inequality, inflation, and corporate profiteering.

“We cannot allow big oil companies and other large, profitable corporations to continue to use the war in Ukraine, the COVID-19 pandemic, and the specter of inflation to make obscene profits by price gouging Americans at the gas pump, the grocery store, or any other sector of our economy,” Sanders said.” During these troubling times, the working class cannot bear the brunt of this economic crisis, while corporate CEOs, wealthy shareholders, and the billionaire class make out like bandits.”

According to Bernie Sanders: U.S. Senator for Vermont website, the Ending Corporate Greed Act would:

Maintain the existing 21 percent corporate tax on a company’s profit equal to or less than pre-pandemic levels.
Establish a 95 percent windfall profits tax on a company’s profits that are in excess of their average profit level from 2015-2019, adjusted for inflation.
Apply only to large companies with $500 million or more in revenue annually.
Be limited to 75 percent of income in the current year.
Be a temporary emergency measure, applying only in 2022, 2023, and 2024.

While the 95 percent windfall profits tax is on profit, not revenue, “companies would still be able to make a reasonable profit compared to previous years,” according to a press release. Companies who raise prices for “legitimate reasons” such as rising expense won’t be affected by the legislation, but companies that are in pursuit of “profiteering” would be subject to a tax of up to 95 percent on their windfall profits.

“The American people are sick and tired of the unprecedented corporate greed that exists all over this country,” Sanders said. “They are sick and tired of being ripped-off by corporations making record-breaking profits while working families are forced to pay outrageously high prices for gas, rent, food, and prescription drugs.”

Sen. Ed Markey (D-Mass.) is cosponsoring the legislation in the Senate, while Rep. Jamaal Bowman (D-N.Y.) will introduce joint legislation in the House of Representatives.

“The time has come for Congress to work for working families and demand that large, profitable corporations make a little bit less money and pay their fair share of taxes,” Sanders said.

To read the full bill text, click here.

Wall Street bonuses soar by 20%, nearly 5 times the increase in US average weekly earnings

Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street.

Sarah Anderson

March 28, 2022

SOURCEInequality.org

While inflation has wiped away wage gains for most U.S. workers, just-released data reveal that Wall Street employees are enjoying their biggest bonus bonanza since the 2008 crash.

Institute for Policy Studies analysis of new New York State Comptroller bonus data:

The Inflation Divide

The average annual bonus for New York City-based securities industry employees rose 20 percent to $257,500 in 2021, far above the 7 percent annual inflation rate. By contrast, typical American workers lost earnings power in 2021. Average weekly earnings for all U.S. private sector employees rose by only 2 percent between January 2021 and January 2022, according to the Bureau of Labor Statistics.

Unlike hourly wage data, average weekly earnings reflect the fact that many Americans had to cut back on work hours last year, largely due to Covid-related illness, lack of child care, and other family care pressures. The average weekly hours worked by U.S. private sector employees dropped from 35.0 to 34.5 between 2020 and 2021.

Return to Pre-Financial Crash Bonus Levels

The average Wall Street bonus of $257,500 in 2021 was far higher than any year since the 2008 financial crash. The second-highest was the 2017 average bonus of $209,046, adjusted for inflation. These bonuses come on top of base salaries, which averaged $254,000 in 2020.

Wall Street pay v. the minimum wage

Since 1985, the average Wall Street bonus has increased 1,743 percent, from $13,970 to $257,500 in 2021 (not adjusted for inflation). If the minimum wage had increased at that rate, it would be worth $61.75 today, instead of $7.25.
The total bonus pool for 180,000 New York City-based Wall Street employees in 2021 was $45 billion — enough to pay for more than 1 million jobs paying $15 per hour for a year.

Wall Street bonuses and gender and racial inequality

The rapid increase in Wall Street bonuses over the past several decades has contributed to gender and racial inequality, since workers at the low end of the wage scale are disproportionately people of color and women, while the lucrative financial industry is overwhelmingly white and male, particularly at the upper echelons.

The share of the five largest U.S. investment banks’ senior executives and top managers who are male: JPMorgan Chase: 74%, Goldman Sachs: 75%, Bank of America: 64%, Morgan Stanley: 74%, and Citigroup: 64%.
In 2021, the leadership of the largest Wall Street banks became slightly more diverse when Jane Fraser, a white woman, became the first female leader of a top-tier U.S. investment bank. The CEOs of the other four banks in that tier are all white males.

Nationwide, men make up 62 percent of all securities industry employees but just a tiny fraction of workers who provide care services that are in high demand but continue to be very low paid. Men make up just 5.4 percent of childcare workers, an occupation that pays $26,790 per year, on average. Men make up just 13 percent of home health aides, who average $27,080 per year.

At the five largest U.S. investment banks, the share of executives and top managers who are Black: JPMorgan Chase: 5%, Goldman Sachs: 3%, Bank of America: 5%, Morgan Stanley: 3%, and Citigroup: 4%.
Nationally, Black workers hold just 7.2 percent of lucrative securities industry jobs but 27.4 percent of home care and 16.3 percent of child care jobs.

These jaw-dropping numbers are just the latest evidence of unequal sacrifice under the pandemic. While ordinary workers are struggling with rising costs for basic essentials, Wall Street bankers have seen their bonuses rise further into the stratosphere.

Actions to crack down on runaway Wall Street pay are long overdue. Since 2010, the year the Dodd-Frank financial reform became law, regulators have failed to implement that law’s Wall Street pay restrictions. Meanwhile, Congress has failed to raise the minimum wage.

“These two failures speak volumes about who has influence in Washington — and who does not,” Anderson said.

Powerful Wall Street lobbyists have succeeded in blocking Section 956 of the Dodd-Frank legislation, which prohibits large financial institutions from awarding pay packages that encourage “inappropriate risks.” Regulators were supposed to implement this new rule within nine months of the law’s passage but have dragged their feet — despite widespread recognition that these bonuses encouraged the high-risk behaviors that led to the 2008 financial crisis, costing millions of Americans their homes and livelihoods.

In contrast to the Wall Street lobbyists, advocates for the working poor have seen their efforts to raise the federal minimum wage and secure other important worker benefits stalled in Congress. Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street

‘Jaw-dropping’: Wall Street bonuses have soared 1,743% since 1985

A new analysis finds that if the federal minimum wage had increased at the same rate, it would currently be $61.75 an hour.

Jake Johnson

March 24, 2022

SOURCECommon Dreams

Wall Street bonuses

A new analysis out Wednesday estimates that if the federal minimum wage had grown at the same rate as Wall Street bonuses over the past three and a half decades, it would currently be $61.75 an hour instead of $7.25.

According to fresh data from the New York State Comptroller, the average bonus dished out to Wall Street employees jumped 20% to a record $257,500 in 2021 as big banks reported huge profits despite widespread havoc caused by the coronavirus pandemic. Last year’s average Wall Street bonus was the highest since 2006, prior to the Great Recession.

The comptroller’s office points out that while the securities industry comprises just 5% of private-sector employment in New York City, it makes up one-fifth of total private-sector wages.

Taking the new figures into account, Sarah Anderson of the Institute for Policy Studies notes in a report that the average Wall Street bonus has soared by 1,743% since 1985.

“By contrast, typical American workers lost earnings power in 2021,” Anderson writes, noting that high inflation has eroded the modest wage gains seen by ordinary people. “Average weekly earnings for all U.S. private-sector employees rose by only 2% between January 2021 and January 2022, according to the Bureau of Labor Statistics.”

“These jaw-dropping numbers are just the latest evidence of unequal sacrifice under the pandemic,” Anderson adds. “While ordinary workers are struggling with rising costs for basic essentials, Wall Street bankers have seen their bonuses rise further into the stratosphere.”

Anderson argues that Wall Street bonuses have been soaring in recent years partly because Section 956 of the Dodd-Frank Act—a financial reform measure enacted in the wake of the 2008 crash—has never been implemented.

“Powerful Wall Street lobbyists have succeeded in blocking Section 956… which prohibits large financial institutions from awarding pay packages that encourage ‘inappropriate risks,'” Anderson writes. “Regulators were supposed to implement this new rule within nine months of the law’s passage but have dragged their feet—despite widespread recognition that these bonuses encouraged the high-risk behaviors that led to the 2008 financial crisis, costing millions of Americans their homes and livelihoods.”

“In contrast to the Wall Street lobbyists, advocates for the working poor have seen their efforts to raise the federal minimum wage and secure other important worker benefits stalled in Congress,” she continues. “Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street.”

GIGAZILLIONAIRES

Mega-Billionaires and the Gushing Upward Redistribution of Wealth

So how much is a $100 billion anyway?

"If you’re a regular billionaire, you can afford a private jet," notes Reich. "If you’re a centibillionaire, you can afford a brand-new Gulfstream jet every single day for more than ten years."

(Image: Inequality )

ROBERT REICH

March 30, 2022

by RobertReich.org

The word “billionaire” didn’t even exist until 1844. Fifty years later, we got “multibillionaire.” And for the next 127 years, that was enough.

But in 2020, while the working class faced near-record unemployment during the pandemic, the wealthiest Americans faced a different problem. Some of them had gotten so rich, there was no longer a word to describe just how rich they were.

That’s why I want to bring you one of the newest additions to the English language: “centibillionaires,” people with $100 billion or more.

What’s it like being one of history’s first centibillionaires? It’s hard to even imagine, but let’s try it by comparing them to the less fortunate. By which I mean just … regular … billionaires.

If you’re a regular billionaire, you can afford a private jet. If you’re a centibillionaire, you can afford a brand-new Gulfstream jet every single day for more than ten years. (Not sure what you’d do with a new Gulfstream every day — maybe give one to each of your closest 4,000 friends?)

A regular billionaire would struggle to buy their own professional baseball team. Sad, I know. But a centibillionaire could easily buy every team in the entire major league.

If you’re a regular billionaire, you can donate to your alma mater and get your name on a building. If you’re a centibillionaire, you could single-handedly give every teacher in America an $8,000 raise for 5 straight years.

Of course, that’s not all you could do. $100 billion is enough to wipe out all the medical debt in the United States. Or provide permanent shelter for every homeless person in America. Or buy Covid-19 vaccines for the entire world.

Basically what I’m saying is, $100 billion is a lot of money.

More than two and a half million times what the average American worker makes in a year.

So here’s the big question. Are these centibillionaires so rich because they work two and half million times harder than the average American? Are they really 100 times smarter than the typical billionaire?

I don’t think so. The reason for the rise of centibillionaires is that for decades, wealth hasn’t trickled down, it’s gushed up, all the way to the very top.

That’s not an accident. As it turns out, the system that the super-rich themselves carefully crafted and lobbied for, benefits… the rich!

And while you may not own more private jets than your average centibillionaire, you probably do pay a higher tax rate. And thanks to legal loopholes and the Trump tax cuts, when the wealthiest Americans die, they get to pass on most of their centibillions to their kids tax-free.

We’ve got two choices as a country. We can tax the richest Americans fairly, and invest that money in ways that benefit all of us.

Or we can keep doing what we’re doing, and watch as centibillionaires get even richer while the rest of us get left behind.

If you think wealth and power are too concentrated in the hands of a privileged few now, just imagine what a few more years of trickle-down nonsense will bring.

Of course, it won’t be all bad. At least “trillionaire” is easy to say.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.

Robert Reich, is the Chancellor’s Professor of Public Policy at the University of California, Berkeley, and a 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 10 most effective cabinet secretaries of the twentieth century. His book include: "Aftershock" (2011), "The Work of Nations" (1992), "Beyond Outrage" (2012) and, "Saving Capitalism" (2016). He is also a founding editor of The American Prospect magazine, former chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." Reich's newest book is "The Common Good" (2019). He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.

The hidden link between corporate greed and inflation

Don’t fall for the fear mongering about inflation. The real culprit here is corporate power.

Robert Reich

March 22, 2022

SOURCENationofChange

Inflation! Inflation! Everyone’s talking about it, but ignoring one of its biggest causes: corporate concentration.

Now, prices are undeniably rising. In response, the Fed is about to slow the economy — even though we’re still 2 million jobs short of where we were before the pandemic, and millions of American workers won’t get the raises they deserve.

Meanwhile, Republicans haven’t wasted any time hammering Biden and Democratic lawmakers about inflation.

Don’t fall for their fear mongering.

Everybody’s ignoring the deeper structural reason for price increases: the concentration of the American economy into the hands of a few corporate giants with the power to raise prices.

If the market were actually competitive, corporations would keep their prices as low as possible as they competed for customers.

Even if some of their costs increased, they would do everything they could to avoid passing them on to consumers in the form of higher prices, for fear of losing business to competitors.

But that’s the opposite of what we’re seeing. Corporations are raising prices even as they rake in record profits. Corporate profit margins hit record highs last year. You see, these corporations have so much market power they can raise prices with impunity.

So the underlying problem isn’t inflation per se. It’s a lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.

Take the energy sector.

Only a few entities have access to the land and pipelines that control the oil and gas powering most of the world. They took a hit during the pandemic as most people stayed home. But they are more than making up for it now, limiting supply and ratcheting up prices.

Or look at consumer goods.

In April 2021, Procter & Gamble raised prices on staples like diapers and toilet paper, citing increased costs in raw materials and transportation. But P&G has been making huge profits. After some of its price increases went into effect, it reported an almost 25% profit margin.

Looking to buy your diapers elsewhere? Good luck. The market is dominated by P&G and Kimberly-Clark, which—NOT entirely coincidentally—raised its prices at the same time.

Another example: in April 2021, PepsiCo raised prices, blaming higher costs for ingredients, freight, and labor. It then recorded $3 billion in operating profits through September. How did it get away with this without losing customers?

Pepsi has only one major competitor, Coca-Cola, which promptly raised its own prices. Coca-Cola recorded $10 billion in revenues in the third quarter of 2021, up 16% from the previous year.

Food prices are soaring, but half of that is from meat, which costs 15% more than last year. There are only four major meat processing companies in America, which are all raising their prices and enjoying record profits.

Get the picture?

The underlying problem is not inflation. It’s corporate power. Since the 1980s, when the U.S. government all but abandoned antitrust enforcement, two-thirds of all American industries have become more concentrated.

Most are now dominated by a handful of corporations that coordinate prices and production. This is true of: banks, broadband, pharmaceutical companies, airlines, meatpackers, and yes, soda.

Corporations in all these industries could easily absorb higher costs — including long overdue wage increases — without passing them on to consumers in the form of higher prices. But they aren’t.

Instead, they’re using their massive profits to line the pockets of major investors and executives — while both consumers and workers get shafted.

How can this structural problem be fixed? Fighting corporate concentration with more aggressive antitrust enforcement. And imposing a windfall profits tax on profitable corporations that are using this period of rising costs to gouge consumers.

So don’t fall for the fear mongering about inflation. The real culprit here is corporate

Inflation Won't Be Remedied by the Federal Reserve Imposing Higher Interest Rates

The result is ~~likely to be~~ a recession.

People shopping in the egg and dairy case on March 13, 2020 at Whole Foods Merket in Vauxhall, New Jersey. (Photo: Rich Graessle/Icon Sportswire via Getty Images)

ROBERT REICH

March 28, 2022

by robertreich.substack.com

As Putin’s war shakes up the world economy, the Fed last week raised interest rates by a quarter point and penciled in six more increases by the end of the year. Fed Chair Jerome Powell says he’s ready to do whatever it takes to bring inflation down, including following the example of his predecessor Paul Volcker, who increased interest rates to 20 percent in 1981.

The current inflation is the consequence of a perfect storm of unique events that won't recur—and won’t be remedied by higher rates.

Volcker’s rate rise triggered a deep recession and double-digit unemployment. We can debate whether that harsh medicine in 1981 was necessary. What should be clear is that the current inflation is nothing like the inflation of the late 1970s — a time when nearly a quarter of all private-sector workers were unionized and American corporations couldn’t easily outsource production. Today, only 6 percent of private-sector workers are unionized — which means workers have almost no long-term bargaining leverage. And today American corporations can outsource almost anywhere (although China is becoming more complicated, and Russia is now off limits).

Inflation is running almost 8 percent annually, which is surely a problem. But it’s not due to permanent wage or price hikes. In fact, it has nothing to do with the business cycle. So expecting the Federal Reserve to remedy today’s inflation by raising interest rates to slow the economy is like trying to cool off on a hot day by aiming a battering ram at your head. Wrong diagnosis. Wrong remedy. The current inflation is the consequence of a perfect storm of unique events that won’t recur—and won’t be remedied by higher rates.

We’re emerging from a once-a-century pandemic during which much of the world economy closed down. In March through May 2020, demand evaporated as people retreated into their homes. Because the nation’s (and world’s) productive capacity couldn’t be closed down all at once (productive capacity includes factories, offices, warehouses, and so on, all of which take a while to wind down), the resulting excess of supply over demand caused a deep recession.

Now, at the other end, and without much opportunity to buy for the last two years, American consumers are flush with cash (the national savings rate is at its highest level in decades). So they want to buy lots of stuff (and they haven’t yet gone back to spending much on services such as restaurants, hotels, air travel, movies and other places where COVID reigned for two years). Yet the nation’s (and the world’s) productive capacity can’t be fully operational all at once. The resulting excess of demand over supply is causing major inflation.

That inflation is being driven by other unique events as well. In housing, the real engine of rising prices is demographics. The huge Millennial generation (the largest in American history), born in the 1980s, is now storming into the housing market after COVID closed their world for two years. Making matters worse, the Great Recession clobbered the construction industry, dramatically reducing the number of available houses to buy or rent.

Energy prices are soaring mostly because of Putin’s war (they were rising even in anticipation of it). So are food costs. (Russia and Ukraine together provide about one-quarter of all the planet’s wheat exports.)

Another culprit is the pricing power of big corporations. In a White House briefing last fall, National Economic Council Director Brian Deese noted that half of the overall increase in food prices is due to spikes in the cost of beef, pork, and poultry, which has fueled record profits among the four biggest producers that control most of the market. "It raises a concern about pandemic profiteering — about companies that are driving price increases in a way that hurts consumers who are going to the grocery store, and also isn't benefiting the actual producers — the farmers and the ranchers," Deese said.

Profiteering is occurring over much of American industry, as I’ve chronicled on these pages, here and here.

Corporations have been raising prices even as they rake in record profits by coordinating price hikes with the handful of other big companies in their industry.

If you don't believe that corporations are taking advantage of their pricing power and inflation to raise prices, just listen to corporate executives themselves. The Chief Financial Officer of Constellation Brands, the parent company of Modelo and Corona beers, told investors in January that the company wants to “take as much as [we] can” from customers. (Publicly, however, the company has blamed rising material costs for their increased prices.) Here’s another: The grocery food brand Hormel saw a 19 percent increase in their operating income in the first quarter of 2022. Their CFO’s response to these soaring profits? “We’ve done a great job with our pricing.”

Of course corporate financial officers want to brag about profits. But if their corporations were actually competing against other corporations in the same industry, they’d absorb cost increases in order to keep their prices as low as possible so consumers didn't abandon them. Today, however, corporations have been raising prices even as they rake in record profits by coordinating price hikes with the handful of other big companies in their industry. That way, all of them come out ahead — while consumers and workers lose.

Raising interest rates won’t remedy any of this.

Which gets me back to trying to cool yourself down on a hot day by aiming a battering ram at your head. You won’t get cooler. You’ll only get a very bad headache. That’s exactly what the Fed will do to the economy if it sticks to its plan. The Fed’s rate hikes won’t remedy inflation. They will do the opposite. Since World War II, most Fed rate hikes have resulted in recession.

Over the longer term, it’s necessary to attack the pricing power of big corporations in America who are profiteering off the pandemic. For now, it’s best to ride out the perfect storm.

LA REVUE GAUCHE - Left Comment

Thursday, March 31, 2022

Sanders introduces legislation to impose a 95 percent windfall tax on excess profits of major companies

The hidden link between corporate greed and inflation

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