“Inflation” is the new buzzword of the year. It is the reason for the Federal Reserve’s interest rate hikes designed to increase the costs of some loans. It is the excuse given against renewing the expanded child tax credit program that briefly lifted millions of American families out of poverty. It forms the name of one of the key pieces of legislation that may salvage President Joe Biden’s first term: the Inflation Reduction Act. And, it is the basis of Republican complaints against Democrats heading toward the midterm elections this fall.
With all this concern over inflation, one wonders why so little heed has been paid to another “i” word: inequality.
For decades, government officials, media pundits, mainstream economists, politicians, and others were content to allow and even enable money to flow upward, enriching the already wealthy. They paid little heed to increasing inequality, beyond shrugging their shoulders and lamenting the injustice of it all.
To fiscally conservative politicians, it seems that inflation equates to trouble, but inequality is perfectly tolerable.
Senate Minority Leader Mitch McConnell (R-KY) last year decided that inflation was the result of the government “flooding the country with money,” via modest benefits to low-income Americans. Interestingly, he didn’t view his party’s massive tax cuts in 2017 aimed at the rich as similarly responsible for unleashing excess wealth.
For years, wages stagnated, and the federal government did little in response. The last time Congress raised the federal minimum wage was more than 13 years ago. The Economic Policy Institute in a recent analysis found that, “(a)ccounting for price increases in June, the current federal minimum wage of $7.25 per hour is now worth less than at any point since February 1956.”
According to EPI, “A national $15 minimum wage would raise the incomes of tens of millions of workers, including servers in restaurants, grocery store employees, and essential health care workers.” But if politicians insist that more money in people’s pockets is the cause of inflation, raising the minimum wage may be the last thing they want.
There has been some state intervention to address inequality, especially since the COVID-19 pandemic began. After two years of a devastating pandemic during which millions of Americans suffered in terms of health and wealth, many were able to make ends meet because of policies like the unemployment benefits via the CARES Act of 2020, monthly checks from the 2021 expanded child tax credit legislation, limited student debt loan forgiveness, and a temporary pause in student loan repayments.
As millions of Americans resigned from jobs that paid too little or inflicted indignities upon them, employers were forced to begin offering higher wages – but not high enough to keep up with inflation.
Higher food and gas prices have undercut those very modest gains. Inflation is indeed a serious issue, precisely because it hurts the lowest-income people the hardest – not because they may have had a modest amount of excess cash for a minute.
Politicians and pundits, attributing inflation to the meager rise in people’s financial well-being, are now making that extra cash worth even less by raising interest rates. The Federal Reserve just increased the national base interest rate by three-quarters of a percent to a range of 2.25 percent to 2.5 percent.
It isn’t hyperbole to suggest that such policies are designed to keep people poor. For example, a New York Times story earlier this year headlined, “How Do Higher Interest Rates Bring Down Inflation?” gave a clear explanation of how “the Fed sets off a ripple effect” by raising rates. This means that, “directly or indirectly, a number of borrowing costs for consumers go up.”
In real terms, the paper offered examples of how “consumers can expect to pay more on any revolving debt.” Additionally, “[c]ar loan rates are expected to rise,” and “(p)rivate student loan borrowers should also expect to pay more.”
If more money in poor people’s pockets is supposedly the reason for inflation, why is more money in rich people’s pockets not an incriminating factor? In fact, some feared in 2017 that Trump’s tax cuts could spur inflation.
Fiscal conservatives like to see inflation as the natural and predictable outcome of reducing wealth inequality – “too much money in the hands of the plebs!” – rather than increasing it. The conventional economic view is that when people suddenly have more money to spend, prices will rise (magically). But corporate manufacturers and distributors are the ones setting prices and taking advantage of that excess cash in people’s hands to inflate their profits.
According to EPI, “the already-excessive power of corporations has been channeled into raising prices rather than the more traditional form it has taken in recent decades: suppressing wages.”
Mainstream economists are tiptoeing around the connection between inflation and excess corporate profits. For example, economists at the Federal Reserve Bank of New York’s website wrote, “market watchers and journalists have wondered if corporations have taken advantage of high inflation to increase corporate profits.” After detailed analysis that repeatedly confirmed the aforementioned connection, they talked themselves out of it, concluding that “profit increases may not be followed by more profit increases.”
Government intervention to relieve inequality works, as the pandemic-era benefits like unemployment checks and child tax credits proved. And similar intervention to relieve inflation can also work, if aimed at the right culprits: corporate profiteers. And politicians know this.
[image_caption]Sonali Kolhatkar[/image_caption]
Over the past several years, drug prices have skyrocketed. According to the Kaiser Family Foundation, “Price Increases Outpaced Inflation for Half of all Drugs Covered by Medicare in 2020.” The Inflation Reduction Act, according to a Washington Post analysis of the bill, “caps seniors’ drug costs under Medicare to $2,000 per year, forces drug companies to pay a rebate if they increase prices faster than the rate of inflation and provides free vaccines for seniors.”
This sort of government intervention tacitly acknowledges that corporations can afford to keep manufacturing drugs even when facing controls on their excessive profits.
If prices are rising, stop those setting the prices from doing so – it’s that simple. If such a thing can be applied to drug prices, why not food, gas, and other necessities?
Mainstream economists and politicians rely on public confusion about what fuels inflation. Excess money flowing to the top of the wealth pyramid, not the bottom, is the real culprit.
Sonali Kolhatkar is the founder, host and executive producer of “Rising Up With Sonali,” a television and radio show that airs on Free Speech TV and Pacifica stations. She is a writing fellow for the Economy for All project at the Independent Media Institute.
This article was produced by Economy for All, a project of the Independent Media Institute.
“If prices are rising, stop those setting the prices from doing so – it’s that simple. If such a thing can be applied to drug prices, why not food, gas, and other necessities?”
Good grief.
What the writer is calling for of course, is government-imposed price controls. Dick Nixon tried it. We all know how he ended up. Amy Klobuchar’s cute use of the words “negotiated prices” is a misnomer. What’s going to happen is that government will tell pharmaceutical companies what they will charge for different drugs or they will be taxed or otherwise penalized if they don’t. Assuming the companies go along with this government coercion, it will result in fewer new drugs in the future. Econ 101.
Speaking of Econ 101, our inflation is being caused by too many dollars chasing too few goods. The too few goods is a result of the supply chain issues made worse by the Biden regime’s war of words with Russia and China and the nation’s manufacturing companies farming out their operations overseas. The too many dollars comes from the trillions raining down on a work-from-home citizenry, leaving them with more money than they know what to do with and itching to spend it. Supply and demand, Ms. Kolhatkar. Check it out.
1. There isn’t a scrap of evidence that governments negotiating prices for drugs with Big Pharma will result in “fewer new drugs in future”, so don’t try to drag Econ 101 into your assertions. And how in the world would you ever prove this claim? Think about that when you listen to drug company propaganda.
2. A “war of words” with Russia and China has nothing to do with inflation, although the ACTUAL war begun unilaterally by Putin the Terrible did result in Biden leading a coalition of most of the developed world to sanction Russian economic production, which has fueled inflation in energy. As for a “war of words with China” supposedly causing inflation, have you forgotten Trumpolini’s (lost) Tariff War already? They put up with that nonsense without much effect on manufactured goods. Their difficulties with covid however have caused real supply chain problems. We shall see how much global economic disruption China really wants to undertake via a war of words (and military exercises) in the coming days. My guess is, not too much.
3. The “trillions raining down” was undertaken to get us out of the Trump Recession, which at one point had unemployment figures worse than the Great Depression. Those trillions are why we are no longer in a recession and didn’t have bread lines. I’m convinced that when the economic analysis is finally undertaken on this episode it will conclude that the various rounds of stimulus made precious little contribution to this bout of inflation compared to covid-related disruptions in manufacturing and the energy crush that was greatly exacerbated and extended by Putin’s War of Ukrainian Annihilation.
1. It’s called “financial disincentive.” It’s one of the early chapters.
2. The “war of words” with Russia and China prevents this regime from engaging in common diplomacy … the tact that enabled Trump to get along with both Putn and Xi. Neither of them would give Biden the time of day, much less cooperate in solving our economic problems.
3. The trillions came from paying people to stay home from work during the pandemic due to the total shutdown of the economy by the geniuses advising the demented one.
Your 1. doesn’t remotely justify your initial claim. Your 2. is counterfactual as to China and the “Tariff War”; as to Russia, I’m sure Trumpolini’s “diplomacy” would indeed have been “getting along with” (i.e. appeasement of) Czar Putin, since the overawed Putin disciple already had kowtowed to his master beginning a civil war in Ukraine, so what harm is an actual Russian invasion going to do?
As for 3., without the pejoratives it does describe the Trump Recession and why the stimulus was needed, so Im glad I could convince you.
“There isn’t a scrap of evidence that governments negotiating prices for drugs with Big Pharma will result in “fewer new drugs in future”, so don’t try to drag Econ 101 into your assertions. And how in the world would you ever prove this claim? ”
And you can’t prove that it won’t be true. We’ll find out sometime around 2030 (the first 10 drug price reductions will occur in 2026) but in the meantime prices will likely increase now to make up for lost income later. Some drugs will be cheaper once the Medicare changes happen, others will be more expensive to make up the difference.
By the way, SUV prices are way too high as are Vikings tickets and Springsteen tickets. Slippery slope?
Those metrics won’t “prove” the assertion. And I don’t have the burden of proof here, you do.
Did you see that the Congressional Budget Office also thinks that there will be less incentive to produce new drugs?
No, missed it. My point however is that this is a “prediction” that will be impossible to know if it ever came about in the future or not. Simply talking about reducing drug company “incentives” because of some level of profit reduction doesn’t get you where you want to go.
It appears that every nation on earth can negotiate drug prices for government programs without Big Pharma claiming they will need to cut back crucial R&D efforts as a result, except those programs that provide drugs to American seniors. Very convenient!
Feel free to look it up. The CBO is kind of a big deal.
“the Trump Recession”
Which affected the whole planet due to a worldwide pandemic. The first and second quarter GDP in 2020 was indeed negative. The first and second quarter GDP now in 2022 was also negative (the definition of a recession). Note the absence of the term “Biden Recession” and the lack of a worldwide pandemic.
“Those trillions are why we are no longer in a recession and didn’t have bread lines”
We are in a recession and you can’t prove that the trillions in spending prevented bread lines.
Sorry to have to drag facts into this argument, but a very short but deep recession was officially declared for 2020, and has not yet been for 2022. The drops in GDP in 2022 are rather small, and I doubt one will be declared. And the stimulus spending greatly aided the economy’s recovery in 2021; that was my point, which I think was clear.
And you may want to Google how recessions get declared and hence “defined”, since I’m sick of explaining it.
Yes, I can’t prove that absent the direct payments to people and firms there would have been breadlines given the massive level of nationwide unemployment and shuttered businesses in 2020, all very similar to the Great Depression when we did have them. Your analytical mileage of these facts almost certainly varies!
“And you may want to Google how recessions get declared and hence “defined”, since I’m sick of explaining it.”
I did. Two consecutive months of declining GDP is the standard definition. Just because the present administration denies the standard definition doesn’t make it so.
Then you failed your course in Google.
No. You fail to admit the truth. Two straight months of GDP decline constitutes a recession.
First of all, you mean “quarters” not months. And that metric is only one of the criteria which are examined when the relevant authority is determining whether a recession occurred. But, persist!
Nixon’s price controls actually did have some good effect and would have been more effective if they had been instituted and enforced like the WWII price controls which were effective. Nixon was criticized as much for not implementing sufficiently effective price controls as he was criticized (as usual by the plutocracy-loving right) for instituting them at all. Nixon was done in by his corruption not for his many other beneficial programs such as the Clean Water Act, the Clean Air Act and the National Environmental Policy Act which were enacted during his administration and which it supported.
Drug companies and other corporations awash in monopolistic profits are able to charge monopolistic prices because of patents they generate through R&D programs. Studies have shown that large firms do not cut back on R&D when their profits are reduced by taxation or otherwise. Many, if not most of these patents generated are for “routineering”, to extend the lives of existing patents (20 years by law) or to build on other patents. They are engineered patents in other words not true ” inventions” created by lone geniuses in their basements. But once granted, they furnish the grounds for charging monopoly prices. Why was insulin available for cheap for decades and suddenly unaffordable because of price hikes by the manufacturers? Government policy had something to do with it but it was “conservative government policy” of laissez faire that encouraged them and allowed (and allows) them to get away with it.
“Too many dollars chasing too few goods” has something do with inflation but it’s not that the “government” is merely printing more money. Money is created by the banking system when it lends money. Government borrowing is one source of the increase in money supply but a greater source is borrowing by business, especially corporations when they issue bonds and stocks based on capitalized expected earning capacity. Inflation can thereby be traced to business and corporate borrowing from the banking system based upon anticipated monopoly profits from inflationary price increases. One reason why the inflation of the 197o’s and 1980’s lives on as the baseline for even more inflation today from the same corporate and banking industries that gave it to us before.
Appealing to “Econ 101” is one of my favorite tropes of conservatives. It’s like they’re unaware that there are courses in economics beyond Econ 101. Econ 101 is microeconomics. When the government gets involved it becomes macroeconomics – that’s usually Econ 102. The whole concept of macroeconomics exists because economists very quickly realized that the supply and demand concepts in Econ 101 were not sufficient to understand what happens when the government becomes involved in the economic activity. Any time I see someone point to Econ 101 in a macroeconomic debate I know that they are unable to comprehend what is going on because they only have a beginner’s level of knowledge of the field of economics.
“When governments attempt to control the economy for the good of the people, they end up controlling the people for the good of the economy.” – Econ 102
Governments cannot successfully “control profits.” What they can do is shape markets in ways that better serve the public interest.
Not a single argument was made here based on economics. Even the author’s primary source acknowedges that there are many factors at play right now and that fatter profits are only partially to blame.
I’ll need a lot more convincing before I’ll agree to allow Congress or any agency it controls to set prices or determine how much profit is too much. The current effort to cap insulin costs at an arbitrary level is an excellent example of a poor idea.
Why is capping the price of insulin a “bad idea?” Insulin is a life-saving or life-sustaining medication for millions, and it can be very expensive. Why is limiting the price bad?
Just as a side note: my wife is an insulin-dependent diabetic. Even though our insurance has good prescription coverage, we pay hundreds out-of-pocket for a medication whose co-inventors sold the original patent for $1.
“Why is limiting the price bad?”
Ask any manufacturer or producer of goods that same question. Once producing insulin is non-profitable, less companies will manufacture it. Kind of like all of the old insulin products that were effective, and still could be, if anyone manufactured them any more. Drug manufacturing companies are not charitable organizations. They make widgets and sell them for a profit. We are all free to step in and produce our own drugs and sell them for a lesser price.
“Drug manufacturing companies are not charitable organizations. They make widgets and sell them for a profit.”
Except these “widgets” are necessary to preserve life. Not all “widgets” can be addressed in the same manner.
“We are all free to step in and produce our own drugs and sell them for a lesser price.”
I’m sorry, I see I was laboring under the misapprehension that you were making serious comments and wanted to be taken seriously.
“Except these “widgets” are necessary to preserve life. ”
Whose life? Insulin, hypertension, cholesterol medications, anti-depressants, etc. are all wonderful things. For some people. Where is the line drawn where the government pays for your drugs or you pay for your drugs? 1 in 100 people? 1 in 1000 people? 1 in 100,000 people?
Air bags save a lot of lives and the government decided that all vehicles must have them which raises the cost of automobiles but the government doesn’t subsidize air bags.
Gas cans have those funky spouts that everyone hates and add cost to gas cans but the government doesn’t subsidize them.
Any new gas grill has a bar to keep you from storing a second propane tank under your grill, which adds to the cost of the grill, but the government doesn’t subsidize gas grills.
What Great and Powerful Oz is allowed to decide when and where price controls are allowed?
The cost of mandatory safety measures is indeed passed on to consumers as a way of avoiding the more expensive harm that would result from not having them. This is what’s known as a “cost-benefit analysis,” in case you were wondering. The increase in the price of a gas can because of “those funky spouts” that few rational people have given sufficient thought to hate is less than the cost of the injuries they are designed to prevent.
Now, tell me how you do that same analysis for insulin. Who is paying more for what if the price of insulin is controlled?
“Now, tell me how you do that same analysis for insulin.”
No, that’s your burden. The drug manufacturers can probably tell you though. The older versions of insulin are no longer cost effective, that is, the cost of producing the drugs outweighs the price that they can be sold for due to improved (and more costly) versions and physician recommendations. In case you were wondering.
“The older versions of insulin are no longer cost effective, that is, the cost of producing the drugs outweighs the price that they can be sold for due to improved (and more costly) versions and physician recommendations.”
Once again demonstrating that conservatives have no idea how economics or science work.
Older versions of insulin are not as easily used, and are not as effective (requiring, as I understand it, larger and more frequent doses). The cost of producing them is not especially high, and they are sold comparatively cheaply.
You still haven’t explained how safety measures on gas cans relates to pharmaceutical prices.
The exact same fallacious argument can be made in opposition to regulating utilities. Or any monopoly, for that matter.
Your comment assumes that the manufacturer of insulin is just like “any manufacturer of goods”. In Mr. Holbrook’s comment, he’s talking about the manufacturer of insulin, the patent for which he states was sold by the original co-inventor for $1. I have to chime in here to ask: how is it that insulin, a product which has been on the market at low affordable prices for decades (at least for much longer than 20 years, the life of a patent) is still subject to any patent? US patent law grants the owner a literally monopoly profit for an invention but only for the limited 20 year time of the life of the patent monopoly. Is insulin subject to a patent because some manufacturer “invented” some “new” molecule in the insulin drug tying it to the entire insulin product? The US petroleum industry used this tactic for decades and is still probably using it by branding their products (which is just refined oil) with things like “Ethyl”, a compound used to fix prices by this industry in the 1930’s.
So, it’s not just that insulin manufacturers “aren’t just making it (insulin) any more”. It’s because they choose not to make enough supply in order to control the price which they can and do by asserting their patent rights from a patent of dubious validity that should have expired decades ago. When you own a monopoly, even a technically “legal monopoly”, you get to withhold supply as much as you want to get the price you set.
As I understand it, there are newer, more effective formulations of insulin. These are the ones still protected by current patents. The “$5 at WalMart” formula one hears about sometimes will work, but there is a transition time if one is going from a more expensive formula.
While there might be more recent developments in insulin production (or, more likely, delivery) that might be patented, the problem isn’t that insulin, per se, is covered by a patent. There are 2 main reasons that generic drugs are expensive: 1. regulatory (drug companies don’t like regulations until they do, and it’s amazing what a properly lobbied regulation can do to protect the market); and 2. because profit margins on generics are smaller, the number of companies that are willing (and able) to compete on the same drug is smaller, often resulting in monopolies (sometimes by agreement, sometimes simply because the market can only support one) that can control the price any way they like.
For insulin, 90% of the global supply is made by 3 companies – those companies might have the benefit of patents to protect certain formulations and/or delivery systems. But their patents are not preventing a generic company from making older versions of the drug and/or delivery systems. Actually, insulin is a bit special because it’s not a “drug” per FDA rules, it’s a biologic. Generic drugs can rely mostly on the original data that shows a drug is safe, and don’t have to do the same rigorous testing that the originator company did to get it to market. For biologics, that’s not true. Why? It’s not entirely clear…other than effective lobbying (feel free to put in the following phrase into Google: “why are generic biologics different”).
Despite all the lobbying that keeps generic biologics off the market without a lot of $$$, I think that the fast, safe production of the COVID vaccine belies the supposed reasons for preventing biologics from being treated like drugs. Yes, there should be safety measures involved in the production of generic biologics. But, considering the number of dangerous scams out there that are perfectly legal (or at least used to be, see, e.g., “healthy” cigarettes), it seems ridiculous to prevent an essential drug, especially one as old as insulin, from being made because there’s *some* level of risk. Drug price negotiation might help with some of these issues, but the barriers to entry currently gives non-generics quite a lot of power.
Make your own, or is that illegal?
You probably could make your own. But, given the overall poor understanding of science (and hygiene) in this country, I don’t recommend anyone use homebrewed insulin unless you have the education and equipment to make it safe. And if you do, don’t try to sell it. You will get in trouble because, despite what certain companies will tell you, they can afford to sell insulin for less. But they don’t have to because they’ve created monopolies using government regulation. I don’t know whether I should hope that politicians buy into the arguments that biologics are special or not. I’d like to give people the benefit of the doubt – but politicians have a well-deserved reputation, so it’s easier to believe corruption over incompetence. Still, never rule out a combo of incompetence and malice – MTG is also a politician, after all.
To clarify, “make your own” meant create your own company, manufacture the product, and sell it for less than the other companies. Make money.
Sure, the average person is perfectly capable of doing that.
Welcome to Earth.
We will not be putting price controls on corporations anytime soon. The added benefits during the pandemic added 3 trillion to the national debt. We are in serious debt in this country. Raising interest rates will cause increased borrowing costs for for all levels of government. Biden’s new bill will tax all corporations a minimum of 15%. So all corporations will be paying taxes, and that is a good thing.
But having the government get involved in setting prices for companies is socialism. Under a true socialist system, it is the governments role to determine output and pricing levels.
Last time I checked, we are still operating under capitalism.
The inflation of the 1960’s and 1970’s was eventually brought under control after the Pal Volker-led Federal Reserve applied conservative monetarist policies to shrink the money supply and induce a recession which was painful for many individuals, farmers and smaller businesses. Not so much for the large corporations which not only got to keep the profits from their inflationary prices but also the prices themselves which were never reduced to reflect technological improvements and increased labor productivity. Somehow American voters and taxpayers were distracted by the (false) promises of Reagan conservatism that supply-side, trickle down tax cuts would stimulate economic activity and increase tax revenues. We now know after how many applications of this quack remedy that tax cuts don’t work.
The government could have instituted a massive antitrust campaign to force corporate America to reduce prices and share the cost savings. But the Reagan conservatives who believes in the supply side fairy dust didn’t believe in antitrust because, well, the Reagan Republican Party is completely owned and controlled by the same big money and the big corporate interests which jacked up the prices and made all the profits.
Mr. Evans is right: “Governments cannot successfully “control profits.” What they can do is shape markets in ways that better serve the public interest.” Right now, the US economy is under the control of the greatest concentration of finance and industry in history. “Free competitive markets” are a myth and a thing of ancient history. The American way of shaping markets is by aggressive enforcement of the antitrust laws to break up monopolistic and oligarchic corporate enterprises and actions to force these organizations to cough up the excessive profits through lower prices. Or maybe neither of our political parties can afford to allow our government to work for any “public interest.”
The idea that Government needs more control is laughable. When the Government pours Trillions of dollars into the economy, the value of the dollar will go down, basic economics. When you limit the amount of oil produced, the price of oil goes up. Yep, more Biden is what we need alright!
It might interest you to learn that the US dollar is the strongest it has been against foreign currencies in a generation and is considered a safe haven investment. So others are not quite appraising the “low value” dollar as you do.
America First!
The source I looked at presently places the U.S. dollar halfway between it’s highest and lowest points over the last 50 years. But that might not be a generation.
Besides executive pay, corporate profits benefit shareholders. The majority of retirement fund holdings are stocks. For example: The CA Teachers Union has $75 BILLION in holdings. The top investments are Apple, Google, Microsoft, Amazon, Meta and Tesla. Stock values directly impact retiree pensions.
Increase taxes on high salaries.