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'All of Us Are Paying the Price' as Corporate Profits Surge to Record-High $2 Trillion
"Astronomical corporate profits confirm what corporate executives have been telling us on earning calls over and over again: They're making a lot of money by charging people more."
Aug 26, 2022
Federal data published Thursday shows that nonfinancial corporate profits in the U.S. surged to an all-time record of $2 trillion in the second quarter of 2022 as companies continued jacking up prices, pushing inflation to a 40-year high to the detriment of workers and consumers.
According to figures released by the Commerce Department's Bureau of Economic Analysis (BEA), corporate profit margins over the past three months were the widest they've been since the 1950s as ongoing price hikes pad the bottom lines of large businesses--and eat into the paychecks of employees.
"Megacorporations are a key driver of high prices--and we need bold action to rein them in."
"We can argue until the cows come home about the cause of inflation," Chris Becker, senior economist at the Groundwork Collaborative, wrote in response to the new data. "But we can't lose sight of the basic moral point that it is outrageous that corporations are seeing skyrocketing profits while purchasing power for so many American households is declining."
Bloomberg noted Thursday that "with household budgets squeezed by the rising cost of living, some firms have been able to offset any slip in demand by charging more to the customers they've retained."
"Across the economy, adjusted pretax corporate profits increased 6.1% in the April-to-June period from the prior quarter--the fastest pace in a year--after falling 2.2% in the first three months of the year," the outlet continued. "Profits are up 8.1% from a year earlier."
Rakeen Mabud, the Groundwork Collaborative's chief economist, said in a statement that the "astronomical corporate profits confirm what corporate executives have been telling us on earning calls over and over again: They're making a lot of money by charging people more, and they don't plan on bringing prices down anytime soon."
"Corporate profiteering continues in full force--and all of us are paying the price," Mabud added. "This data should be a wake-up call for policymakers. Megacorporations are a key driver of high prices--and we need bold action to rein them in."
The BEA numbers came after oil companies, food giants, and other major businesses reported record-shattering profits in the second quarter of this year as they take advantage of Russia's war on Ukraine, the ongoing coronavirus pandemic, and supply chain disruptions to drive up prices.
According to one recent analysis, the profits of eight top oil companies--including Chevron, ExxonMobil, and Shell--are up 235% compared to last year.
"Working families are still reeling from the immoral price-gougers who jacked up their expenses under the guise of inflation."
"The glaringly obvious takeaway from this new data is that market power is a key driver of rising prices," said Sarah Miller, executive director of the American Economic Liberties Project. "Policymakers need to use this new information--which confirms what working families across the country know all too well--to attack concentrated corporate power immediately and aggressively across the board."
"That means levying excess profits taxes, ensuring big penalties for price-fixing, and resourcing enforcement agencies to prosecute price-gouging and other forms of corporate abuse," Miller added. "And it means banning large mergers, stock buybacks, and 'payoffs for layoffs' to help build durable market power for working people and consumers and level the playing field for small businesses and entrepreneurs."
The newly enacted Inflation Reduction Act includes a corporate minimum tax, limited drug-pricing reforms, and a small levy on stock buybacks, but experts say the measure by itself is unlikely to meaningfully curtail companies' power to set prices as they please for the benefit of their executives and shareholders.
The Federal Reserve, meanwhile, appears poised to continue hiking interest rates aggressively in its bid to tame inflation, risking mass layoffs and a recession that would disproportionately harm ordinary people.
"While corporations enjoy record profits and CEOs get millions more in bonuses, workers are still waiting in vain for better working conditions and working families are still reeling from the immoral price-gougers who jacked up their expenses under the guise of inflation," said Helen Brosnan, executive director of Fight Corporate Monopolies.
"Our politicians have a choice: stand up to corporate monopolies and their corrupting influence or stand by while they take advantage of working people trying to pay their bills," Brosnan continued. "Until then, it's fair for voters to continue to wonder whose side you're on, and whose interests you're protecting."
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Recession Fears Spark Calls to Stop Hiking Interest Rates and Rein In Corporate Greed
"As Americans stare down the abyss of a potential recession, Fortune 500 c-suite executives are doing better than ever," noted one critic, "while their workers' wages have severely lagged behind."
Jul 28, 2022
As new government data on Thursday stoked fears of a looming recession--and even led to some claims that the nation is already experiencing one--progressives renewed calls for the Federal Reserve to stop hiking interest rates and policymakers to take on the corporate profiteering driving inflation.
"Reining in corporate greed is the key to bringing down costs for families and kickstarting economic growth."
The Bureau of Economic Analysis at the U.S. Department of Commerce released gross domestic product (GDP) figures that show two consecutive quarters of negative growth, which prompted some Republican lawmakers--hopeful to regain control of Congress later this year--to declare that "America is in a recession" and it is the Democrats' fault.
While two straight quarters of negative growth is often seen as a signal of recession, it is not that simple. Harvard University economist Jason Furman pointed out on Twitter Thursday there is "well over a 50% chance that Q1 and/or Q2 gets revised to positive."
"That's part of why NBER doesn't rely on advance GDP to call recessions," Furman added, referring to the National Bureau of Economic Research.
\u201cWrong way to think about it. You're looking at the latest estimates which have been heavily revised from what was first published.\n\nWell over a 50% chance that Q1 and/or Q2 gets revised to positive.\n\nThat's part of why NBER doesn't rely on advance GDP to call recessions.\u201d— Jason Furman (@Jason Furman) 1659014718
Alex Durante, an economist with the Tax Foundation think tank, toldThe Hill that "there's this perception, and people are not wrong to have it--it's probably even in my economics textbook from college--that it's two negative quarters of GDP that NBER uses to determine if there's a recession. That's actually not completely true. It actually looks at a wide variety of economic indicators to make that designation."
"They'll look at employment, personal income, durable goods, housing permits, so the GDP is certainly part of it, but they're looking at other indicators, as well," Durante explained.
As Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research (CEPR), detailed Thursday:
The modest drop in GDP reported for the quarter is not good news, but it was hardly a surprise. It also was entirely due to inventory quirks, which will not be repeated in future quarters. Consumption is still growing at a respectable pace, as is investment.
The Fed has been raising interest rates ostensibly out of concern that the economy was growing too fast, causing inflation. This report should help to stem those fears. While people are apparently not so concerned about a recession to keep themselves from taking trips and going to restaurants, they are still not spending down their pandemic savings. The sharp drop in the inflation rate reported in the core [Personal Consumption Expenditures] deflator should also alleviate concerns about a wage-price spiral.
CEPR co-founder and co-director Mark Weisbrot argued in a Thursday opinion piece for MarketWatch that the Fed--which on Wednesday hiked interest rates for the second straight month--will be to blame if there is a recession.
"As many economists have noted, the vast majority of the increase in inflation that we have seen over the past 18 months has been a result of external shocks, most important the war in Ukraine, which has raised food and energy prices (the CPI energy index rose 41.6% over the past year from June); and the economic disruptions caused by the pandemic," Weisbrot wrote.
"Some of these prices have begun to reverse; and in any case it's difficult to see how the Fed's interest rate hikes are going to lower these prices, as Fed Chair Jerome Powell stated last month," he continued.
\u201c2 quarters of a shrinking economy might not be a \u201crecession,\u201d technically speaking, but should sure as hell stop the Fed from slowing the economy any further.\u201d— Robert Reich (@Robert Reich) 1659036909
Critics of the Fed's interest rate hikes--from Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal (D-Wash.) to economists who formerly served in the federal government like Robert Reich and Claudia Sahm--have called on the central bank to rethink its approach, and some have taken aim at Powell.
Rakeen Mabud, chief economist and managing director of research and policy at the Groundwork Collaborative, said Thursday that the "GDP report makes it crystal clear that Jerome Powell is willing to push millions out of work and throw away our economic recovery in the name of an arbitrary 2% inflation target he doesn't even believe he can hit."
"We can all agree that fighting inflation should be a top priority," she added, "but asking the workers and families who have been hit hardest by rising prices to also bear the brunt of a potential recession is not just cruel--it's bad policy."
\u201cThe Fed's overzealous rate hikes have not yet slowed inflation because they can't tackle the root causes of inflation: supply chain disruptions, war & plain old profiteering by monopolies. \n\nTake, for example, Shell's record $11.5 billion profit \u2b07\ufe0f\nhttps://t.co/uy5kJTo1my\u201d— Groundwork Collaborative (@Groundwork Collaborative) 1659041040
The GDP report came less than 24 hours after Senate Majority Leader Chuck Schumer (D-N.Y.) and Sen. Joe Manchin (D-W.Va.) announced the Inflation Reduction Act, compromise legislation on climate, healthcare, and taxes. While some progressives have concerns about the specifics on climate, others called on congressional Democrats to swiftly pass the budget reconciliation package, which follows months of obstruction by Manchin.
"Sky-high inflation is a major contributor to the economic slowdown, and nothing is driving up costs more on everyday families than corporate greed," said Kyle Herrig, president of the government watchdog Accountable.US, in a statement Thursday.
"Across industries, we've seen major corporations continue to post record high profits and approve billions of dollars in shareholder giveaways while disingenuously claiming to have no choice but to raise prices so high," he noted. "As Americans stare down the abyss of a potential recession, Fortune 500 c-suite executives are doing better than ever, averaging over $18 million in compensation while their workers' wages have severely lagged behind."
According to Herrig:
Reining in corporate greed is the key to bringing down costs for families and kickstarting economic growth, and fortunately Congress has the opportunity [to] do it. Passing the Inflation Reduction Act will ensure corporations will finally begin to pay their fair share in taxes. This bill will put billions of dollars more into the pockets of Americans by reducing the leverage Big Oil, health insurance, and drug companies have to charge whatever they please--all while creating thousands of new jobs. Congress must not squander the best opportunity they may have for years to create an economy that works for everyone, not just billionaires and greedy corporations.
Unrig Our Economy campaign director Sarah Baron similarly asserted that the legislation "is a significant step towards combating corporate greed and making an economy that works for working people," highlighting the same provisions as Herrig.
"The vast majority of Americans rightly blame corporate greed for driving inflation, so it is heartening to see Democrats unite around a bill that addresses the issue at its source," Baron said. "As the bill is considered by Congress, Unrig Our Economy urges all members to decide where they stand--with corporations or with the hardworking constituents they were elected to represent."
Groundwork Collaborative executive director Lindsay Owens also backed the bill, saying that "the Inflation Reduction Act gets it exactly right: We bring down costs for families by making needed public investments, not pulling back on spending when we need it most."
"We bring down energy costs when we invest in clean energy and lessen our dependence on Big Oil profiteers. We bring down healthcare costs when we use public power to counter Big Pharma and get a fair price for seniors. And we strengthen our democracy and our economy when the largest corporations contribute to these investments, instead of buying politicians to oppose them," she added. "Congress should send the Inflation Reduction Act to the president's desk as quickly as possible."
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'Their Inflation Strategy Is Working': Corporate Profits Soared to Record High in 2021
"CEOs can't stop bragging on corporate earnings calls about jacking up prices on consumers to keep their profits soaring," said one expert.
Mar 31, 2022
Federal data released Wednesday shows that U.S. corporate profits jumped 25% to record highs in 2021 even as the coronavirus pandemic wreaked havoc on the nation's economy, disrupting supply chains, hammering low-wage workers, and helping to push inflation to levels not seen in decades.
"Megacorporations are cashing in and getting richer--and consumers are paying the price."
According to the Commerce Department's Bureau of Economic Analysis (BEA), domestic corporate profits adjusted for inventory valuation and capital consumption reached $2.8 trillion last year, up from $2.2 trillion in 2020--the largest increase since 1976.
Employee compensation also increased in 2021, just not at the pace of corporate profits. Citing the new BEA data, Bloomberg reported that "employee compensation rose 11%, but the so-called labor share of national income--essentially, the portion that's paid out as wages and salaries--fell back to pre-pandemic levels."
"That tends to undermine the argument that soaring labor costs are what's driving the current surge in inflation, a case the Federal Reserve is starting to make as it accelerates interest-rate increases," Bloomberg noted.
Lindsay Owens, executive director at the Groundwork Collaborative, argued in a statement that the new profit figures show that corporate America is successfully weathering inflationary pressures across the economy by pushing higher costs onto consumers--a tactic some CEOs have openly touted during recent calls with investors.
"CEOs can't stop bragging on corporate earnings calls about jacking up prices on consumers to keep their profits soaring--and today's annual profit data shows just how well their inflation strategy is working," Owens said. "These megacorporations are cashing in and getting richer--and consumers are paying the price."
The American Economic Liberties Project expressed a similar view on Twitter:
\u201cCorporate America is celebrating record-breaking profits while jacking up prices for working families and small businesses. \n\nThat\u2019s not inflation \u2014 it\u2019s corporate profiteering, plain and simple.\u201d— American Economic Liberties Project (@American Economic Liberties Project) 1648682308
A number of major U.S. corporations, from Amazon to Starbucks to the Dollar Tree, have announced in recent months that they're moving to hike prices on consumers, often blaming the broader "inflationary environment." Outgoing Starbucks CEO Kevin Johnson--who saw his compensation soar by 39% to $20.4 million in 2021--said during his company's fourth-quarter earnings call that impending price increases are aimed at mitigating "cost pressures including inflation."
"Pathetically, large corporations are using the war in Ukraine and the pandemic as an excuse to raise prices."
But recent survey data indicates that Americans aren't buying the companies' justifications for higher costs. A Data for Progress poll released last month found that a majority of U.S. voters believe that "large corporations are taking advantage of the pandemic to raise prices unfairly on consumers and increase profits," a position also taken by progressive members of Congress.
Next week, Senate Budget Committee Chair Bernie Sanders (I-Vt.) is planning to hold a hearing titled, "Corporate Profits Are Soaring as Prices Rise: Are Corporate Greed and Profiteering Fueling Inflation?"
During a separate hearing Wednesday on President Joe Biden's latest budget proposal, Sanders said that "to a significant degree, pathetically, large corporations are using the war in Ukraine and the pandemic as an excuse to raise prices significantly to make record-breaking profits."
"This is taking place at the gas pump, at the grocery store, and virtually every other sector of the economy," said the Vermont senator. "This is why we need a windfall profits tax, and why this committee will be holding a hearing on Tuesday of next week on the unprecedented level of corporate greed that is taking place in America today."
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