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Speaker 1: At the beginning, even liberal economists would say this is impossible. Companies have always been greedy. Why is it that all of a sudden they're able to raise prices more than they would otherwise?

Brooke Gladstone: So is greed to blame for our current inflation woes? From WNYC in New York, this is On the Media. I'm Brooke Gladstone. Meanwhile, some Americans are looking at capitalism and wondering if they've been conned.

Speaker 3: Nobody wants to be a sucker. In a sense, we've been suckered by the market fundamentalism narrative.

Brooke Gladstone: To round out the hour a rereading of The Communist Manifesto.

Speaker 4: If you cannot in good faith engage with the way that the substance and the style are working together, you will never understand what kind of book this is.

Brooke Gladstone: It's all coming up after this. From WNYC in New York, this is On the Media. I'm Brooke Gladstone. For well over a year, the Federal Reserve has been waging war against inflation. Prices started climbing back in 2021 and quickly broke records in summer 2022.

Speaker 5: Inflation in the United States is again surging to the highest level in 40 years.

Brooke Gladstone: Even though prices have come down since then, everyone, Feds, economists, and pundits were trying to get a handle on what exactly was happening and what would fix it. When data points stuck out, prices were up sure, but profits in some sectors were skyrocketing far past post-COVID predictions.

Speaker 6: Pepsi's prices last quarter were up 17% from a year ago. Profits were up 21%. Chipotle prices last quarter up 13% profits up 26%.

Speaker 5: Chevron is reporting a profit of roughly $36 billion for 2022.

Speaker 6: It's a record high for the company.

Brooke Gladstone: Which gave birth to an idea that quickly moved from the halls of academic research and left-wing think tanks to the political arena.

Speaker 6: This has been a criticism from the left-hand politicians like Bernie Sanders and Elizabeth Warren, that companies are engaged in what they're dubbing greedflation.

Speaker 1: Everyone is talking about this, whether you call it greedflation, profit-lead inflation, seller's inflation.

Brooke Gladstone: Seller's inflation, that's the preferred term of Isabella Weber, an economist from the University of Massachusetts Amherst who helped popularise the idea. She argues that companies like Pepsi have actually contributed to keeping inflation alive by keeping their prices high, even as the cost of production starts to come down. The theory was dismissed as either imprecise or unfounded by some economists and dubbed a conspiracy theory by some in the press but over the course of 2022 and '23, the concept of greedflation has slowly crept into the mainstream.

OTM reporter, Micah Loewinger, spoke to Lydia DePillis, a reporter on the business desk of The New York Times. He asked first, how she defines it.

Lydia DePillis: I think of it as having basically three parts. The first is that companies are raising prices above what their costs would justify. It's not simply a function of they have to pay more for inputs, and therefore they charge more for the final product. It's that they're taking higher margins. The other part is the fact that it's happening in an inflationary environment. The nice thing about an inflationary environment for companies is it becomes very unclear to the consumer why prices are going up.

If they're like, "Oh my God, my snack crackers are 30% more expensive so is my guess sot that must be the reason." Actually what's happening is companies are taking advantage of that opportunity to raise prices more than they would otherwise, which in turn, fuels inflation further, creating a little bit of a spiral or at least slowing what otherwise might be a decline in inflation. The third component is the idea that market consolidation that's happened over the last few decades makes this a little bit easier to pull off if you are someone that has 30% of the market for a given product. Folks have just fewer places to go.

Micah Loewinger: Could you give an example of a company that has benefited from using inflation as a justification for raising prices and that also controls a large portion of its market?

Lydia DePillis: Yes. Take a company like PepsiCo, which has a number of consumer packaged goods, brands, things that you don't even know are owned by them.

Micah Loewinger: We got Lay's, Mountain Dew, Quaker Oats, Fritos, I guess Starbucks Frappuccino drink.

Lydia DePillis: That creates the opportunity to raise prices more than are justified by the price of aluminum that goes into cans or the price of plastic that goes into bottles or the price of corn syrup that goes into all your drinks.

Micah Loewinger: One common rebuttal that I've seen on Fox Business Channel to the notion of greedflation is if corporations can really lift prices at will anytime, why did they wait until this past year? Why didn't they do it--

Lydia DePillis: It's very simple. They couldn't have raised prices at any time. What they required was an opportunity and that came in the form of other shocks that were already increasing prices and made it easier to hide opportunistic price increases within them.

Micah Loewinger: How do we know that this is a deliberate decision on the part of companies?

Lydia DePillis: Let me describe it in terms of how this has wound its way through the commentariat on Twitter and Fox News. At the beginning, even liberal economists would say this is impossible. Companies have always been greedy. Even the competition example, even the fact that companies have gotten more consolidated over the years that hasn't increased dramatically over the past three years. That's fair, but what you can start to look at is profit margins, which had already been high following the tax cuts in 2017. They skyrocketed to record levels in 2021/2022.

With that came payouts to shareholders, which are just an indication that the company has gained windfall profits that they don't have any way to productively invest and they don't have any incentive to pay out in the form of wages to their workers. That is data that is very clear-cut. If you don't believe that though, you believe that it's simply supply and demand. They're just letting the market clear, which is also at play, but you have to consider companies just tell people.

They tell us on their earnings calls, they tell their investors very proudly, that they've managed to say "take price" or increase their margins. Take the car companies, in 2020, all of their factories shut down and it was very difficult to get semiconductors so the supply was artificially constrained. What do we do with the semiconductors that we have? We're going to put them in our most expensive models. They produced almost exclusively trucks, high-end SUVs, and those have higher profit margins on them.

Coming into 2022/2023, the lower-end lower margin models just got cut from their production lines.

Speaker 5: Talk about sticker shock, right now only three new cars on the market three, have the sticker price below 20,000. That comes as car companies discontinue more of their low-priced models.

Speaker 6: That means the average car right now costs more than $48,000.

Lydia DePillis: They came to like the idea of a lower volume, higher profit kind of business, and that has endured.

Micah Loewinger: How do you see greedflation is fitting into a larger political battle over assigning blame?

Lydia DePillis: Inflation has been very illuminating in some ways because there is a fight over explaining what drove it. If you believe that wage is really the problem, and it's workers who are demanding higher salaries and they're quitting all their jobs. Nobody wants to work anymore, they say.

Micah Loewinger: Yes.

Lydia DePillis: Then that leads to certain policy prescriptions. We don't want to encourage unions. We want to try to tie people into jobs with non-compete agreements. We want to make sure that employers are able to get workers at an affordable price. Now, if you believe that supply chain bottlenecks were the main driver, then that's an explanation for trying to break those down. This is a big part of industrial policy, the Biden administration has architected its economic policies around saying we need to make sure that there's competition in shipping so that we're not so reliant on these very fragile supply chains.

Now, another explanation for inflation is that we just gave away too much money. There's too much money chasing too few goods and that's why the price of everything has gone up.

Micah Loewinger: You're talking about stimulus, low-interest rates.

Lydia DePillis: Fiscal and monetary stimulus. Stimulus checks, but also really low-interest rates. The truth is that all of these things played a role. Probably wage is the least of those. Wages are generally a trailing indicator.

Micah Loewinger: Because their wages are not keeping up with inflation.

Lydia DePillis: That's right. It can create a wage-price spiral and that's a little bit of what we saw in the last big episode of out-of-control inflation in the 1980s, which is the last time that economists really had to study this at depth. That's been very much burned into their memories. Greedflation comes in when you could say, yes, all of those things are problems but it's all become worse because corporations have more control over pricing. They have more leverage, and that amped up all of these problems.

It's saying that there's something broken about the economy, and there's policy prescriptions to fix it, either fix it or at least compensate for it. You could fix it through antitrust policy, at least somewhat. You could compensate for it by just taxing the money out of that sector.

Micah Loewinger: Like for instance, the windfall profit tax proposals that we heard from Bernie Sanders and Elizabeth Warren. Have these types of policies worked in the past.

Lydia DePillis: They were used in Europe during this period because energy prices were making life really difficult for regular people. I haven't reviewed the literature on what happened there, but generally, the theory is supply is artificially constrained. In that case, Russia was no longer as much of an option and there was no immediate backup for them to turn to. Because usually, the wrap on windfall profit taxes is this, destroys the incentive to produce more of the thing that you need.

That wasn't going to happen anyway in this case, so it might have been the efficient policy. Another way you could go about this is price controls, which obviously have a terrible reputation, but back in the 1940s, price controls and rationing were how we got through World War II. There are those who were saying COVID is really a similar kind of shock. Maybe we just had a more public-spirited attitude back in those days, an idea of national sacrifice. You could only consume so much of a good, but it was also only going to cost so much.

That's how they distributed scarce supplies. Now we distribute scarce supplies by allowing companies to charge as much as they want, which means that those who have the ability to pay are the ones who get the thing.

Micah Loewinger: You first wrote about greedflation a year ago. What's changed in our economy or in our understanding of inflation that reflects the new openness to this idea?

Lydia DePillis: I read this paper by an agricultural academic entitled, higher sales are good, but higher margins are better. Sure, you'd love huge revenues, but if you're only making 2% or 3% on that, then that's not very impressive for your shareholders. I think that has allowed this thesis to gain a little bit more traction because if the story about the run-up was in doubt in prices, the story about the really, really gradual rundown has, I think only added to the evidence.

Micah Loewinger: Has this round of analysis and this era of the economy, has it changed how you see your job or how you think about our economy?

Lydia DePillis: I always wanted to make sure that I wasn't presuming that the economy works according to clear-cut and dry rules. I took ECON101 in college. I wasn't that good a student. I think it's generally true that folks who don't know much about ECON will say, well, it's ECON101. This is how the world works, supply, demand, boom, you've got your price. ECON was never that simple. Most of the advances in economics have been about how those simple rules are broken under certain circumstances.

My lesson from this is you should always be open to the idea that stuff doesn't work according to black-and-white explanations, and there's a lot of weirdness. Last time might not be how it goes this time.

Micah Loewinger: Lydia, thank you very much.

Lydia DePillis: Thank you.

Micah Loewinger: Lydia DePillis is a reporter on the business desk at The New York Times.

Brooke Gladstone: Coming up one of the most blockbuster PR campaigns in American history. This is On the media.