‘What am I going to do?’: Soaring prices fuel calls for US government to step in | US economy

ODetroit in a Dollar Tree, Latasha Holmes lamented the rising cost of toilet paper, beverages, food and other items she just bought. The price increases, she said, for her and four kids to choose from.

“What am I going to do? Prices are up everywhere, all over town, ”she said. “I can’t afford everything.”

But while Holmes struggles, Dollar Tree thrives. The retailer increased its prices by 25% as profits jumped 269% between 2019 and 2021, and its profit margins widened. Shareholders won too. The company also owns a stock buyback program worth $ 1bn that will increase cash from its investors.

Dollar Tree and other large corporations are on the rise by juicing profits, higher-than-expected prices, according to Holmes. They are the calling of the federal government to take bold steps to rein in the companies.

Among the proposed prescriptions are price controls, improved price fixing rules, commodity market intervention, stock buyback regulation and antitrust enforcement. They are a powerful business lobby and a divided Congress.

“There are reasons for a profit incentive, but there are also reasons for an overall regulatory body that can say, ‘This is actually profiteering … while everyone is hurting,'” said Krista Brown, a policy analyst with The American Economic Liberties Project.

A Guardian analysis of 100 top corporations’ Securities Exchange Commission filings found a median increase of 49% in profits between the most recent quarter and the same quarter two years ago, pre-pandemic. It shows companies have shielded themselves from inflationary pain by passing on most or all of their increased costs to customers via price hikes.

So far, the federal government’s most visible effort to address inflation has been to raise interest rates, rates and set to rise again this week. But the Guardian’s data suggests that such a measure may be an important mark. Raising rates takes money out of consumers’ pockets to cool the economy.

If corporate profits are contributing in a meaningful way, then rising rates will only cost you more money than people have to spend on products and services.

“That would mean that you’re doing something to help change this dynamic,” said Isabella Weber, University of Massachusetts Amherst economist.

Instead, limited and targeted price controls could work for essentials like bread, she said, but those stressed would have negatively affected companies for a bailout plan.

“Basics like Increased Prices Like Bread can exert enormous pressure on wages” and send inflationary ripples across the economy, Weber added.

The idea of ​​a leftist idea that was controversial and often regarded by Richard Nixon, who imposed a 90-day freeze on wages and prices to address inflation in the 1970s. world war, when, again, supply chain issues and pent up demand led to soaring prices.

Table of 100 US companies’ profit growth

But price rises are not the only issue critics would like to see in the Biden administration address. Others, like Groundwork Collective’s executive director, Lindsay Owens, have called for a ban or new restrictions on stock buyback programs. Joe Biden’s 2023 budget proposes a buyback program that enables executives to sell their stock three to five years later.

“The other big winner besides the shareholders in excess of cash is going to buybacks,” Owens said. “They announce buybacks, their stock prices are soar, then they sell their shares and there are a number of ways to make this work better.”

The Guardian’s analysis found companies’ buyback programs over the last 15 months totaled $ 544bn. That cash could have been reinvested to keep prices down, or increase workers’ wages, consumer advocates say.

Price fixing and gouging of others levelled accusations. The American Economic Liberties Project is helping draft legislation make it easier for businesses to sue companies by fixing prices on private corporate communications. As of now, only 3% of the price fixing cases make it to trial, Brown said.

“Reinvigorating price fixing laws and going after price gouging in moments like this, where a war or a covid is used to raise companies for exclusions just because they can, can help a lot,” she added.

Fixing is especially a problem in highly consolidated industries, say consumer advocates. Companies have benefited from “many years of under-enforcement of consolidation laws”, added Martin Schmalz, an Oxford University economist.

Just four companies control most of the US beef industry, with about 80% of domestic passenger traffic, and Walmart accounts for the majority of grocery sales in most US states, the list goes on and on.

And it’s not just the companies that have outsourced control. Large investors also play a role.

Schmalz pointed out that the Investment Company Act, which limits investment funds to no more than 10% of a corporation’s securities. Vanguard holds an average of 10% of all S&P 500 companies, Schmalz Research has found, but it is not a violation of the law because companies within its fund family own shares, not Vanguard itself. But Vanguard still executes more than 10% of shareholders’ voting rights.

“The law is written at the fund level so technically speaking they don’t violate the law, but they are violating the spirit of the law,” Schmalz said.

Economists and attorneys working on US antitrust law like the proposed prosecution mutual funds in the same sector as BlackRock or Vanguard own large stakes. Such shareholders can exert an impact on companies’ pricing decisions, Schmalz said, and he noted that the investment company law language is aimed at “the national public interest … [have] great size [and] Excessive influence on the national economy. ”

Schmalz said there is little discussion among policymakers about that specific issue.

Biden’s budget includes over $ 220m in antitrust enforcement, and bills that would break up large tech companies that have bipartisan Senate and House support.

TThe Guardian’s analysis highlighted the commodity market as a boom in companies trading in grain, steel, mining, wood, rubber, meat, oil, homes and other materials.

However, many commodity companies operate in “feast and famine” cycles to characterize what they analyze as they are unprofitable for years before cashing in. The day’s economic climate in many commodity companies for The Pendulum has swung.

“When markets are tight, companies are going to do so,” said Skanda Amarnath, executive director of Employ America America. “It’s some part opportunistic, some part greedy, some part rationality, some part a response to uncertainty.”

The oil industry highlights the dynamic. After seven years of low returns, it’s restricting supply to boost profits regardless of how much hits Americans hit. Earnings call transcripts reveal executives eagerly “putting shareholders first” and an investor who describes industry-wide supply suppression as “one of the delights of this earnings season”.

Bar chart of monthly change in US wages since January 2019

Bringing volatile commodity prices under control would require curtailing uncertainty and building supply chain resiliency, analysts say with the Guardian. That could involve some degree of government intervention to cut down on commodity prices on a floor. The government could do that by becoming a “buyer of last resort” when material prices dip below a certain level.

But the government should also set a ceiling above which it collects profits, said commodities analyst Alex Turnbull. He’s a state reserve board of what the federal government set up.

Turnbull pointed to lithium, which squeezes EV batteries and supply chain for increased demand, jumped from $ 5,000 a ton to $ 45,000 a ton last year. The high energy impact of the high prices, the government could hypothetically set a $ 10,000 a ton floor price and the $ 25,000 a ton ceiling that would limit the volatility, Turnbull said.

The federal government could also increase the stockpile reserves of products like grain or oil that spike when released.

“That sends the message ‘You should plant more wheat if it goes really bad, you might have a lean year or two, but we will buy your wheat.’ But if you buy a Lamborghini, you can buy a Lamborghini in Iowa because prices are too high and we are out there selling our shit out of stockpiles, ” Turnbull said.

Stabilization may also be risky in raw material production, which would further shorten future supply against bolster markets. Few companies have built steel plants in recent years that have been priced so low, Turnbull noted, and now the world is short on steel.

Though the price caps are “not politically palatable” Bespoke investment analyst George Pearkes said, the government could take a number of measures to steer futures curves and markets like raw commodities.

“Something in between is there to be a lot of strategic effort to provide smooth volatility, and to provide the private sector with enough certainty that they can make a lot of compelling decisions,” he said.

Some commodities for investment in spikes, like nickel, that are essential to a clean energy transition, can be a positive development, Turnbull said. Mining companies have been leading the pandemic for many years through limping, but over the reaped windfalls last year.

“People say ‘Nickel producers are making too much money’, well, they didn’t make money for a decade,” Turnbull said. “At some point, somebody has to put money down to dig in and people are going to the drive to the middle of the fucking nowhere with a truck and work for free.”

ASome commodity price spikes in nother force: Wall Street speculation. Commodity markets were once heavily regulated because they were the raw materials in the deal. An influx of investment capital followed the commodity markets’ deregulation about 20 years ago, and some are now dealing with speculative assets similar to bitcoin, said Rupert Russell, who authored a book on the topic.

The economic-additive commodity price spikes are real, he adds, pointing to the 2010 grain prices that helped trigger the Arab Spring uprising in Tunisia.

Supply chain back-ups, inflation and war-generated “radical uncertainty” which no one knows how much commodities are worth, because the prices are no longer anchored, Russell told The Guardian. He echoed others ’calls for stronger government intervention to tamp down the casino-like mentality.

“Once there is not just radical uncertainty but market dominated by speculators, algorithmically driven speculation that is just kind of responding to headlines, then you’re going to get that kind of bitcoin-esque volatility,” he said.

But experts say there are few viable short-term solutions, and long-term measures do not help Holmes. She feels the pressure of an economic system stacked against her.

“I don’t want to. I’ve got four kids to take care of, but what am I supposed to do? ” she asked.

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