Bill Clinton's Secretary of Labor blames soaring corporate profits for inflation and says the US government should consider directly controlling prices

• Corporate greed, not wages, is fueling inflation, says former President Bill Clinton's Secretary of Labor.
• Robert Reich says antitrust enforcement — and potentially price controls — are needed to combat inflation.

The Federal Reserve's interest rate hikes might not solve the US' inflation problem. Some experts say government antitrust enforcement and even price controls deserve consideration.

This includes Robert Reich, who served as Secretary of Labor for former President Bill Clinton and is currently a professor of public policy at the University of California at Berkeley.

"Profit-price inflation" — caused by companies "raising their prices above their increasing costs" — is the key factor fueling inflation, Reich wrote in a Guardian op-ed Sunday.

"The inflation we are now experiencing is not due to wage gains from excessive worker power," he said. "It is due to profit gains from excessive corporate power. It's profits, not wages, that need to be controlled."

As the Federal Reserve takes steps to combat inflation, there is concern among some economists that the central bank will go too far and cause unnecessary "pain" for American workers. Some have predicted that pandemic supply chain delays and excess demand for certain goods will normalize without interest rate hikes. Others have argued that prices are already slowing, or that elevated inflation is worth tolerating if it means avoiding a recession and significant job losses. Still others, like Reich, believe cracking down on record-high corporate profits is the best way to cool prices in the US.

"Congress and the administration need to take direct action against profit-price inflation, rather than rely solely on the Fed to raise interest rates and put the burden of fighting inflation on average working people who are not responsible for it," Reich wrote.

Corporate power could be the reason shoppers can't catch a break

The Fed has pointed to a tight labor market as among the key drivers of rising prices in the US — as companies become more desperate to hire, they increase wages to attract talent. But Reich argues that given pay increases largely haven't kept pace with inflation, wages are actually "reducing inflationary pressures."

"This is why corporate profits are close to levels not seen in over half a century," he wrote. "Corporations have the power to raise prices without losing customers because they face so little competition."

Business profitability rose to a record-high $2 trillion in the second quarter, according to a Commerce Department report. With regards to business competition, Reich cites prior research that found at least two-thirds of US industries have become more concentrated in recent decades. He says this lack of competition has translated into rising prices for consumers in the pharmaceutical, airline, banking, broadband, automobile, and oil industries.

If antitrust enforcement is a problem worth tackling, Congress and the Biden administration — not the Fed — would be tasked with this. In recent years, antitrust cases have been filed against Facebook, Google, Apple, and Amazon for instance, and a lawsuit against American Airlines and JetBlue begins this week. Some have argued that the government should be going further to prevent monopolies.

Reich also argues a "windfall profits tax" — a temporary tax on earnings from price increases that exceed a certain level — would be effective. And if all else fails, he says price controls — or government imposed restrictions on prices — should be a "backstop."

"The current inflation, emerging from the pandemic, is analogous to the inflation after the second world war when economists advocated temporary price controls to buy time to overcome supply bottlenecks and prevent corporate profiteering," he wrote. At that time, government price controls were instituted on steel and iron for instance, to control the costs of these important defense materials.

To be sure, many economists do not believe price controls would be wise. In a January University of Chicago survey of 43 economists, only 23% said price controls could successfully reduce US inflation" over the next year, compared to the 58% who disagreed with this statement.

In the same vein, many economists are also hesitant to blame corporate greed for inflation.

There is agreement, however, that the Fed's actions could cause a recession. Where disagreement remains is on whether a recession may be necessary, and if not, the best way to prevent this from happening.