Who's to blame for inflation

We will soon have another election. At my age I have seen a lot of them, some decidedly more important than others. But one common factor in most elections is concern about the economy. A growing economy is usually seen as good. We currently have a strong, growing economy, so it is a bit surprising many consider it to be poor. The reason is “inflation.” This is not the first time that inflation was heatedly argued in a past election. If you remember the economy in the 1980s, that was serious inflation.

The surprising thing to me is that very few understand inflation, its causes, and results. Inflation is a word economists use. Frankly, I believe the term is useless. But they like to talk about it regarding its trendline, drivers and possible fixes. But inflation is literally impossible to really measure. Economists use a basket of goods to measure any increase in the price of these items. If their basket goes up in combined price, then there is inflation. But they ignore millions of products. They simply can not measure all of them. The big clue is how they actually measure inflation. They measure price increases. That is the real core of the issue. Inflation is meaningless. Price increases are real.

Does it matter if so called inflation is low now? No. They only measure inflation on a rolling year cycle, so the heavy price increases of last year are still with us, even if new price increases are less than before, allowing economists to say inflation is dropping. We have all seen price increases. And we all know that once a price is raised, it almost never goes down again.

The real question we should be asking is, “Why so many large price increases and who is responsible?” The second part is easy to answer. Government does not set prices in our economic system. They have almost no control over what a corporation sets as prices, especially in the short term. Individual companies set prices. If a price increases, it is because they raised it. The ‘why’ is more difficult. Not too long ago they raised prices due to increased shipping costs and shortages of key materials largely due to COVID. Those problems ended but the price increases stayed. Since COVID, most of the price increases have been the result of corporations wanting to increase their profits even more. Pepsi/Frito-Lay has increased their prices over 10 percent each quarter for the last six quarters. Their margins and profits are way up. Their stock is up, and that means the CEO will get a bigger bonus. This is true of almost all large corporations right now.

I am reminded of a discussion I had with the manager of the golf course I played often. It was a good, tough course that was out of the way, so midweek, they only charged $25 a round. One day I was surprised to find they doubled their fee to $50. I pointed out that this price increase would cause a good percentage of players to quit coming. He said they expected that to happen, but if they only lost 50% of them, then they would break even and with less players they would spend less maintaining the course. This was the exact explanation that the CEO of Pepsi/Frito-Lay gave to stock analysts two quarters ago. “Yes, we will lose some customers in the short term, but our profits will be up, and we can lower our production costs by making less product.”

To boil it down, if you are voting against the government because of inflation, you are wasting your vote. First it is not inflation causing the pain, it is price increases, most from past years. Price increases of the items we buy are due to corporate decisions. Neither city, county, state, nor federal government has short-term control over price increases. It is easy to blame government, and often they deserve it, but the Biden Administration is not responsible for corporate price increases. Since price increases drive the measurement of inflation, the administration shouldn’t be blamed for inflation. When we are angry, it is easy to blame the President.

Me, I blame the CEO’s, CFO’s, and the board of directors of these large corporations who put their personal greed before their customers and workers. Most make many millions each year. They are well paid and lack for little. But apparently, they feel they are not getting paid enough and need even more millions. As my grandfather often grumped, “A pox on their houses.”