In the midst of a joint writer and actor strike in Hollywood, it has become evident that corporate greed is what the picketers are fighting against. As the president of the Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA) recently stated at a press conference, “We are being victimized by a very greedy entity… How they plead poverty, that they’re losing money left and right while giving hundreds and millions of dollars to their CEOs.”
It isn’t just the movie and TV industry that is getting fed up with corporate greed and it isn’t uniquely American either. The International Monetary Fund (IMF) stated in June that rising corporate profits may account for half the driving force behind inflation in Europe. Of course, not everyone agrees with this theory – many would rather point the blame to rising wages. However, let’s take a moment to look at what some are now calling ‘greedflation’ as it is something business journalists should take into account when reporting on corporations.
Explaining greedflation
The idea that corporate desire to increase profits is directly linked to inflation has always been considered a fringe theory but is one that some experts are starting to look at more seriously. A recent Insider piece noted that new earning reports for food companies show that ‘much of the price increases are going to companies’ bottom line’ rather than solely covering the rising cost of doing business.
In a competitive market, it should be difficult if not impossible for a company to boost profit by raising prices: competing firms with lower prices would happily snap up their customers. But what if a global crisis gave all companies a good excuse to hike prices at the same time?
Some of the biggest companies in the S&P 500 reported record profits last year, yet prices and inflation have continued to increase nonetheless. Additionally, non-financial corporate profit margins in the U.S. are at the highest they have been since the 1950s, averaging 14% at the end of 2022. An op-ed in the Financial Times last November stated that the power of storytelling by corporations is not one to be underestimated. Corporations are excellent at convincing buyers that price increases are necessary and justified even when they ‘really serve as cover for profit margin expansion.’
Simple explanations are never the full story
Some economists argue that the idea of greedflation is ‘nonsense’ and is merely a political tool used to hate on big corporations, but a recent paper out of the University of Massachusetts shows that it isn’t a throwaway theory and the idea does have some merit. The authors argue that, confronted with a widespread and compelling (i.e. storifiable) macroeconomic shock, companies might come to an implicit agreement to all hike their prices even without a rise in costs.
It is important to note that no single explanation can account for what is currently happening in the economy. It isn’t just supply shortages, rising wages, or pure greed that causes prices to go up. It is a mixture of all of those things combined and what has the strongest influence fluctuates from one industry to another, and even among companies within individual industries.
However, just because corporate greed may not completely explain inflation, this does not mean that it should not be considered at all. It’s easy to tell from a company’s income statement whether wage costs or other expenses are rising – as well as whether it’s able to cut costs in other areas. It is up to journalists to check if a company’s explanation of its need to hike prices fits with its published financials and to not let PR spin dictate the narrative to the public.
As a very wise business journalism student once said, “the private sector is fertile ground for investigative reporting.”
So get digging.
