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US Should Break Monopolies, Not Punish US Workers for Rising Prices | Robert Reich

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Employment and wage growth is slowing. Employers added 223,000 jobs in December, the Labor Department reported Friday — below the average for recent months.

The average hourly wage rose 4.6% in December, according to Friday’s report. This is a slowdown from 4.8% in November.

All of this is music to the ears of Federal Reserve Chairman Jerome Powell, as the Fed blames inflation on rising wages. The Fed raised interest rates to slow the economy and thus reduce workers’ bargaining power for wage gains.

At his Dec. 14 press conference announcing the Fed’s latest interest rate hike, Powell warned that “the labor market remains extremely tight, with the unemployment rate near a 50-year low, still very high vacancies and high wage growth”.

But aren’t higher salaries a good thing?

The typical American worker’s salary has been stuck in the mud for four decades.

Most of the gains from a more productive economy have gone to the top – to leaders and investors. The richest 10% of Americans now own more than 90% of the value of stocks held by Americans.

Powell’s solution to inflation is to crush workers even more. He says that “the labor market continues to be unbalanced, with demand far outstripping the supply of available workers.”

But if the demand for workers exceeds the supply, isn’t the solution to pay workers more?

Not according to Powell and the Fed. Their response is to keep raising interest rates to slow the economy and put more people out of work, so that workers can’t get higher wages. Thus, “the conditions of supply and demand in the labor market [will] balance out over time, easing upward pressures on wages and prices,” says Powell.

Putting people out of work is the Fed’s way of reducing workers’ bargaining power and ‘upward pressures on wages and prices’”.

The Fed projects that by continuing to raise interest rates, unemployment will reach 4.6% by the end of 2023, resulting in more than a million job losses.

But fighting inflation by putting more people out of work is cruel, especially when America’s safety nets — including unemployment insurance — are in tatters.

As we saw at the start of the pandemic, because the United States does not have a single national system for paying money to the unemployed, it must rely on state unemployment insurance, which varies considerably from state to state.

Many fall through the cracks. When the pandemic began, less than 30% of unemployed Americans were eligible for unemployment benefits.

The problem is not wages increase. The real problem is that companies have the power to pass on these wage increases – along with record profit margins – to consumers in the form of higher prices.

If companies had to compete vigorously to attract consumers, they could not do so. Competitors would charge lower prices and attract these consumers.

Firms do not even invest their extra profits in new investments that would generate higher productivity in the future. They buy back their shares to drive up the stock price. Through the end of 2022, corporate America has announced share buybacks exceeding $1 billion.

A rational response to inflation, therefore, not increase unemployment in order to reduce the bargaining power of workers to obtain higher wages.

This would mean reducing the pricing power of firms to pass these costs on to consumers with increased profit margins, making markets more competitive.

The pricing power of companies is out of control because companies face so little competition.

Worried about sky-high airfares and poor service? This is largely because airlines have grown from 12 carriers in 1980 to four today.

Concerned about drug prices? A handful of pharmaceutical companies control the pharmaceutical industry.

Upset by the cost of food? Four giants now control more than 80% of meat processing, 66% of the pork market and 54% of the poultry market.

Worried about grocery prices? Albertsons bought Safeway and now Kroger is buying Albertsons. Together, they would control nearly 22% of the US grocery market. Add Walmart and the three brands would control 70% of the grocery market in 167 cities nationwide.

Etc. Evidence of corporate concentration is everywhere.

It gets worse. There were over a thousand large corporate mergers or acquisitions last year. Each had a meltdown value of $100 million or more. The total value of the transaction was $1.4 billion.

The government must stop blaming the fight against inflation on workers whose wages have not changed for four decades.

Put the blame where it belongs – on the big corporations that have the power to raise their prices.

One possibility: Any large company in an industry dominated by five or fewer giant companies that raises its prices more than the Fed’s 2% target should be presumed to have monopoly power and face an antitrust lawsuit.

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