“Inflation;” It is More Than the Rate That’s the Problem

by Dean Prigelmeier, President of Proactive Technologies, Inc.

The main reason the fight over inflation lingers year after year, decade after decade, isn’t just the rate that is reported. That is important, true, but what is more important is what happens after. Once prices rise to an impactful level, do the prices return to a more acceptable level or are they just a step in a long-term plan of inflationary surges that drive the prices higher still?

Prices are, what economists call, “sticky in the upward direction” – a glossy way of saying once prices have risen higher, good luck getting them down. The term sticky was a more legitimate description associated with business cycles of 30 – 40 years ago, when inflation was more determined by consumer demand. Higher prices resulted in lower consumption, causing business analysts to find where the supply and demand curves cross; equilibrium point.

What changed was the concentration of market share, both laterally and vertically. In the past, policymakers took steps to preempt monopolies and oligopolies from forming and operating. Many remember the break-up of AT & T in the 1980s when it was thought it had too much market dominance.  Too much market share controlled by one or a small few firms meant that price coordination was easier and competition jeopardized. Since the late 1990s, a new interpretation of classical economic theories for incoming neoliberalism was needed to reexplain U.S. capitalism in a new world context, so new economists were needed to dominate the messaging. We were meant to understand that so many potential competing multinational companies, the odds of monopolies and oligopolies emerging were slim.

But in typical capitalism fashion, as multinational companies became bigger and could attract more capital, they began buying up competitors and their supply chains (“vertical monopolization” in many cases. The powerful grocery chains that remain are a good contemporary example.). Even though these powerful market drivers pleaded that there was still plenty of competition out there, one would really have to selectively analyze the data to support that claim in a material way.

Oil companies claim there is a potential war brewing somewhere that threaten the oil supply so prices of crude oil and gas have to be raised. Or one of them shuts down a refinery for “maintenance” and suddenly supply of all petroleum products are in short supply, an excuse to raise prices. Grocery chains, that now own everything from the raw materials such as corn, wheat, vegetables, poultry, beef operations as they bought them from struggling families who could not access the same capital markets as multinational operations or weather market price swings that were helped along by vested interests, claim that retail prices have to rise since suppliers (themselves) have raised their prices. Once these prices are set high and consumers who have little choice pay them, it is very difficult to back them down.

Landlords have been using rent algorithms that gather up data from all other properties in the area to determine what their increase can be based on the indirect market collusion, not the true value of the property and experience. Real estate brokers use similar software products. But with a landlord or real estate speculator being able to base rents and home prices on coordinated pricing, the price of the properties in the region continues to rise, causing property tax rates and home insurance premiums to rise with them in a spiral upward to the sky. It is no coincidence the U.S. eviction rate continues to rise.

In follow-on fashion, the other unrelated enterprises see a plausible excuse for raising their prices, and on it goes. This is why the Federal Reserve’s monetary policy of raising interest rates to force inflation down – once very effective and used to balance the economy to minimize inflation and avoid disinflation – isn’t working. What they are dealing with is monopoly and oligopoly power, with the only focus and tools Congress gave them. But there is a lot of collateral damage.

When hourly employees ask for a raise to at least keep up with real inflation (the inflation of food, housing, cars, insurance on both, healthcare – basically everything), they are given a raise based on core inflation  – far short and ineffective in keeping up to, at least, the status quo, pushing workers and families further behind.  “ CEO pay has skyrocketed 1,460% since 1978; CEOs were paid 399 times as much as a typical worker in 2021’ according to the Economic Policy Institute.  This is what adds to the “wealth gap” which has been taking place worldwide for decades but has become increasingly problematic in the United States since globalist policies started impacting it starting in the 1980s.

Obviously, a CEO’s view of the world (and the fears, obstacles and perils it offers) is much different than that of the hourly worker and their family.

The Covid-19 pandemic widened the wealth gap further as many workers were furloughed, savings used up, retirement saving was put on hold and the bottom. Also, post-Covid efforts by firms to recover losses incurred during the pandemic exacerbated the wealth gap – further eroding a worker’s wealth and/or efforts to maintain stability.

According to the Global Development Policy Center, “The distribution of wealth and resources in the United States has been extremely unequal in recent decades, as the share of national wealth owned by the top 1 percent has increased from less than 25 percent in the late 1970s to around 45 percent more recently. In 2022, the top 1 percent income earners in the US took home 20 percent of the total income, while the bottom 50 percent received just 10 percent. Based on the measure of the Gini coefficient for income, the US has the highest inequality among all developed countries and more than a quarter of the world’s billionaires live in the United States.”

Understanding how manufactured inflation has evolved and affects the bottom two-thirds of U.S. consumers helps us understand better why current monetary policy isn’t working and really doesn’t target the underlying problems it purportedly seeks to remedy. These measures and targets were designed prior to knowing the divisive effects hedge funds, private equity and privatization would have on the economy. Calls for a change to the Federal Reserve’s mandate has increased momentum following the Crash of 2008 but have yet gain real traction. Some wonder if the Crash of 2008 wasn’t a strong enough wakeup call that perhaps the U.S. is trying to moderate a modern economy with tools meant for an earlier time.

Up to 60 % of each worker’s capacity and value may be unrealized, yet most employers are kept too busy working on other issues to focus on this.  Proactive Technologies, Inc. provides systems and solutions to develop each worker to full capacity and job mastery. The value derived makes it easier to justify worker wages better aligned to sustain and support a firm’s increasing profitability. If you recognize these challenges and have shed your fear of even looking for other solutions, check out Proactive Technologies’ structured on-the-job training system approach to see how it might work at your firm, your family of facilities or your region. Contact a Proactive Technologies representative today to schedule a GoToMeeting videoconference briefing to your computer. This can be followed up with an onsite presentation for you and your colleagues. A 13-minute promo briefing is available at the Proactive Technologies website and provides an overview to get you started and to help you explain it to your staff. As always, onsite presentations are available as well.