Tuesday, February 8, 2022

Something to Know - 8 February

Other than the continuing guessing game on what Putin's plans are for an invasion of the Ukraine, we have HCR with snippets of political matters in the wake of Trump's sludge boat.  And, in an attempt to bring together all of the previous articles relating to the disruption of the "supply chain" there is this piece, which points out that there were "winners", who made out very well.   There are those who say they are winners because that is the way Capitalism works in a free market.  But all of this unfairness and misery is just another example of what I call the Underbelly of Capitalism.   The best way out of the problems pointed out in all of the articles is to have in place the tools of REGULATION.   Regulation with meaningful and swift enforcement may have been able to repel the damage we have experienced.   It may be too late now, but if we survive the economic damage that this Covid pandemic has created, we could perhaps learn from our mistakes.....but then, again, we blindly and stupidly don't:

FEBRUARY 7, 2022
Kuttner on TAP
Inflation and Price-Gouging
The case for an excess profits tax
The Prospect's special issue on the supply chain debacle should demolish the fable that the current inflation reflects too much stimulus. As we report, most supply and price pressure is the delayed result of deregulation and concentration of the global logistics system combined with far too much offshoring. It took only a crisis like COVID to expose the system's fragility.

Want more evidence? Have a look at Europe. Inflation in the EU, which has nothing like the stimulus program of the U.S., clocked in at 5 percent for 2021, the highest in decades.

This statistic understates Europe's true consumer inflation because Germany, the EU's largest economy, cut value-added taxes for six months in July 2021, lowering net prices to consumers. Without that cut, the increase in consumer prices would have been even higher.

In 2020, the U.S. deficit was 15.2 percent of GDP. Europe's was less than half that, at 7.2 percent. In 2021, as the recovery kicked in, the U.S. deficit fell to 12.4 percent. Europe's budget deficit slightly increased, because its recovery was weaker.

In short, despite very different stimulus policies, Europe and the U.S. are experiencing similar price pressures due to supply shocks. And one result that adds to the inflation is opportunistic price hikes and excess profits.

The big investment banks booked record profits in 2021. Likewise the platform monopolies. Amazon just reported profits of $14.3 billion on the fourth quarter alone, double its fourth-quarter profits of 2020.

On an earnings call with Wall Street analysts this morning, the meat giant Tyson reported earnings per share up by 50 percent over last year, driven by price increases of 32 percent in beef, 20 percent in chicken, and 13 percent in pork. These price hikes to consumers go neither to farmers nor to supermarkets but to giant monopoly middlemen like Tyson.

Ocean shippers have quintupled their rates, and booked astronomical returns of $150 billion in 2021, up from $25 billion in 2020. This price-gouging reflects the extreme economic concentration that has resulted from deregulation coupled with a four-decade failure to enforce the antitrust laws. All of this comes at the expense of consumers and of workers whose nominal pay is up but in most cases lags behind price hikes.

So COVID has been a grotesque bonanza for America's most concentrated industries. The long-term cure for the supply crunch is drastic re-regulation of the global logistics system, as well as rebuilding domestic manufacturing and supply. The Biden administration's antitrust crackdown will also help reduce pricing power.

In the meantime, we need an excess profits tax, to tax away the opportunistic price hikes, just as we did in World War II. Profits that exceeded a normal rate of return, based on several pre-pandemic years, would be subject to a much higher rate of tax.

This idea will both spotlight the real source of the inflation and help pay for the domestic industrial policy that we need to prevent future supply shocks. Even if it's not enacted, Biden should propose it.


Insurrectionists and the destruction of the principles of Democracy have no place in the United States of America.

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