The Wall Street Journal reports that abnormally high corporate profits are adding to the oft-told-tales of the pandemic's effects of supply-chain congestion, labor shortages and higher consumer demand unleashed by huge increases in personal savings:
"Executives are seizing a once in a generation opportunity to raise prices to match and in some cases outpace their own higher expenses ... [since] widespread inflation makes it easier to broach the topic of raising prices with customers.
"Nearly two out of three of the biggest U.S. publicly traded companies have reported fatter profit margins so far this year than they did over the same stretch of 2019, before the Covid-19 outbreak, data from FactSet show. Nearly 100 of these giants have booked 2021 profit margins ... that are at least 50% above 2019 levels [emphasis mine].
"Oxford Economics' ... data show that a measure of profits for all U.S. corporations, as a share of gross domestic product, in the second quarter of this year was the second highest recorded since 1960."
The CEOs interviewed by the WSJ were all proud of the "fatter profit margins" they've acquired from pricing opportunism, for they answer to shareholders (and their year-end bonuses). Any sense of price restraint while retaining merely comfortable margins to reduce inflationary pressures would be met by the same guffawing as did Gerald Ford's insipid "Whip Inflation Now," which presidential candidate Jimmy Carter had so much fun with.
Atop the other factors mentioned above, the danger inherent in corporation's up-to-50% profit hauls is, of course, that the Fed may ultimately be forced to raise interest rates, harming consumers and corporations alike.
But in the latter's mind, it's only the next quarter that counts.
***
I''ve been doing a lot of updating of late, which is probably a function of what seems like 10 major news stories being thrown at us twice each day. The White House appears as vulnerable to "news lag" as the rest of us, which it really shouldn't be.
"There are signs that the White House could soon push back more forcefully [against Republican misrepresentations of Biden's economic agenda as the principal cause of inflation], saying that large corporations are partly to blame for the dramatic increase in costs," reported the Washington Post this morning.
The proposed pushback, however, is coming not internally but from "several outside advisers [who] have pitched senior White House officials." The WSJ story is a week old. I appreciate that the WH has a few other problems on its hands, but inflation is becoming a mammoth political issue which must be tackled with due haste — or for that matter, undue haste. Being "proactive" both early and relentlessly is essential.
Is there also a problem with such pushback? When isn't there? "The push could backfire," continues the Post, "should it antagonize many of the firms it is highly dependent to resolve supply chain pressures ahead of the holiday season."
The WH's political benefit would surely outweigh the risks. Taking the "populist" angle against greedy corporations would scarcely be a political loser. The corporate boys would howl, but would their anger actually lead to their self-wounding acceptance of supply chain pressures? I think not, in fact I am sure not.
Go get 'em, Mr. President.