In the economy of the former Union of Soviet Socialist Republics, government bureaucrats decided what would be produced, how it would be produced, and its price. The result was chronic shortages, long lines at stores with empty shelves and inferior products.
American progressives don’t understand how fortunate they are to live in a relatively free market economy. All they know about economics is that they hate capitalists. Biden, Democrats and liberal pundits bellow baseless claims of “unbridled capitalism, greedy corporations, record profits, price gouging, and exorbitant CEO pay.” Here’s the reality.
In our competitive market economy, businesses aren’t price setters, they’re price takers. Competition and anti-trust laws protect consumers. The interaction of buyers and sellers creates a market clearing price balancing supply and demand. You shop and compare at competing stores in your neighborhood for groceries, liquor, clothing, furniture, TVs, cars, etc. On-line marketing companies like Amazon shower consumers with choices and prices, and deliver products in a day or two from warehouses (and make it easy to return what doesn’t please you.). This level of competition is unrivaled in history, depriving businesses of the power to be greedy.
Inflation isn’t caused by “capitalist greed.” It’s a monetary phenomenon measured by the decline in the value of the dollar. In recent years, massive government overspending has greatly exceeded our tax revenues, creating staggering deficits driving up the national debt. The Federal Reserve Board has accommodated this with loose monetary policy creating money and credit far in excess of our economy’s productivity and its output of goods and services. When the supply of money and credit grows faster than the output of goods and services the purchasing power of those dollars declines, requiring more of them to buy something. That’s what inflation is.
Don’t confuse inflation with the Consumer Price Index. The CPI is a measure of the cost of living, based on current prices for a typical “market basket” of goods and services, the average of which is about 9% higher than a year ago. Inflation affects everything in that CPI market basket, but it’s only a part of the CPI increase. For example, the price of a gallon of gas is up about 50% in the last year while the increase in the price of beer or clothing is only up about 5%. (Thanks to technology and competition, TVs are actually down 6%.)
Irrespective of inflation, price changes — up or down — for individual items are the consequence of supply and demand for those particular items along with all the respective costs or producing and bringing those goods and services to market. Hence, disruptions in the supply chain and increases in the cost of raw materials and labor affect the CPI and your standard of living. As do Biden’s policies to restrict domestic oil and gas development, production and pipeline transportation.
(I dislike the term “price inflation” referring to price increases of specific items. It confuses the mix of inflation and the CPI which are different things with different causes.)
Misrepresenting CEO pay is a common ploy of labor unions, progressives and the liberal media. Median CEO pay among S&P 500 companies was $14 million last year. That’s a lot of money but along with it comes a lot of responsibility, even more so in multi-billion dollar companies. Many pro athletes, movie, music, and media stars make a lot more. Why not pick on them?
Only a small share of big CEO payouts comes from salary. Apple CEO, Tim Cook, made $98 million last year, only $3 million of which was salary. The rest was from stock options. The proceeds of that come from stock market capitalization not company revenues. Apple stockholders, in aggregate, make a great deal more than Cook if he’s successful.
Demagogues habitually complain about corporate profits. It’s good for all of us that businesses are recovering from their record losses during the pandemic when many failed, entire industries neared extinction and restaurants shut down nationwide. Progressives distort math, harping on “record profit” increases that are exaggerated because of the collapse that brought them so low. They’re also simplistic in their measurement of those profits. Are they in current dollars, or real dollars adjusted for inflation? Are they pre-tax or after-tax? As a percentage of sales, assets or equity? These concepts are foreign to those ignorant of economics and finance.
And capitalism certainly isn’t “unbridled.” Mountains of government laws and regulations bridle every business along with oversight by the SEC, FCC, EPA, IRS, DOE, DOJ, DOL, FBI, OSHA, ADA, etc., not to mention the stupid, biased progressives who dominate the mass media.
Longtime KOA radio talk host and columnist for the Denver Post and Rocky Mountain News Mike Rosen now writes for CompleteColorado.com.
