{"id":4936,"date":"2022-07-28T07:57:12","date_gmt":"2022-07-28T13:57:12","guid":{"rendered":"https:\/\/trends.ufm.edu\/en\/?post_type=articulo-semanal&#038;p=4936"},"modified":"2022-07-28T07:57:12","modified_gmt":"2022-07-28T13:57:12","slug":"greedflation-greed-cause-inflation","status":"publish","type":"articulo-semanal","link":"https:\/\/trends.ufm.edu\/en\/article\/greedflation-greed-cause-inflation\/","title":{"rendered":"Greedflation: Is Greed the Cause of Inflation?"},"content":{"rendered":"<p>A new theory of inflation has emerged: greedflation. It suggests inflation is based on corporate greed, and it is a favorite of Democratic politicians.<\/p>\n<p>Inflation is out of control. The US recorded an increase in the Consumer Price Index of\u00a09.1\u00a0percent in June\u00a02022,<a href=\"#_ftn1\" name=\"_ftnref1\"><sup>[1]<\/sup><\/a> and inflation has been above\u00a08\u00a0percent since March\u00a02022.<a href=\"#_ftn2\" name=\"_ftnref2\"><sup>[2]<\/sup><\/a> We need an explanation of why inflation has appeared, and we need it fast.<\/p>\n<p>This article will analyze the greed-inflation hypothesis, compare it with an alternative theory, and determine which has better explanatory power.<\/p>\n<h2><strong>Companies Have Not Increased Their Profits<\/strong><\/h2>\n<p>Greedflation claims that companies have been posting high profit margins lately. The US president, Joe Biden, accused ExxonMobil and other oil companies of profiting from high gasoline prices to make \u201cmore money than God last year (2021).\u201d<a href=\"#_ftn3\" name=\"_ftnref3\"><sup>[3]<\/sup><\/a> This explanation supposes that inflation is abnormally high because businesspeople are taking advantage of the worldwide turmoil caused by the pandemic and the Ukraine\u2013Russia war. The greed that motivates entrepreneurs to increase their profits pushes them to increase prices in times of economic weakness, taking advantage of the population.<a href=\"#_ftn4\" name=\"_ftnref4\"><sup>[4]<\/sup><\/a><\/p>\n<p>Figure\u00a01\u00a0shows how corporate profits have grown over the last\u00a0ten\u00a0years.<\/p>\n<p><strong><iframe id=\"datawrapper-chart-YqPjJ\" style=\"width: 0; min-width: 100% !important; border: none;\" title=\"Figure 1: Corporate Profits after Taxes (Billions of Dollars)\" src=\"https:\/\/datawrapper.dwcdn.net\/YqPjJ\/1\/\" height=\"391\" frameborder=\"0\" scrolling=\"no\" aria-label=\"Interactive line chart\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(e){if(void 0!==e.data[\"datawrapper-height\"]){var t=document.querySelectorAll(\"iframe\");for(var a in e.data[\"datawrapper-height\"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data[\"datawrapper-height\"][a]+\"px\"}}}))}();\n<\/script><\/strong><\/p>\n<p>While it is true that profits increased in 2020 after the pandemic-induced recession, this measure isn\u2019t informative. Figure\u00a01\u00a0reflects <em>nominal<\/em> changes in profits, changes driven by the inflation of the last two years (cause and effect are confused in the greed explanation). To get a clearer picture of how <em>real<\/em> profits have trended, we need to adjust nominal profits by the quantity of goods in the economy (using GDP as a proxy).<\/p>\n<p>Figure\u00a02\u00a0shows the behavior of GDP-adjusted earnings.<\/p>\n<p>\u00a0<strong><iframe id=\"datawrapper-chart-g71k8\" style=\"width: 0; min-width: 100% !important; border: none;\" title=\"Figure 2: GDP-Adjusted Corporate Profits\" src=\"https:\/\/datawrapper.dwcdn.net\/g71k8\/1\/\" height=\"400\" frameborder=\"0\" scrolling=\"no\" aria-label=\"Interactive line chart\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(e){if(void 0!==e.data[\"datawrapper-height\"]){var t=document.querySelectorAll(\"iframe\");for(var a in e.data[\"datawrapper-height\"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data[\"datawrapper-height\"][a]+\"px\"}}}))}();\n<\/script><\/strong><\/p>\n<p>Corporate profits in 2021 posted the same level as in\u00a02012, when the inflation rate was low (close to\u00a02\u00a0percent). The greed hypothesis breaks down in this case. It cannot explain why corporate profits were high in a low-inflation environment.<\/p>\n<p>Joe Biden\u2019s criticism of ExxonMobil is unfounded. Figure\u00a03\u00a0shows the company\u2019s profits over the last\u00a0ten\u00a0years.<\/p>\n<p><strong><iframe id=\"datawrapper-chart-tSVxx\" style=\"width: 0; min-width: 100% !important; border: none;\" title=\"Figure 3: ExxonMobil Profits\" src=\"https:\/\/datawrapper.dwcdn.net\/tSVxx\/2\/\" height=\"400\" frameborder=\"0\" scrolling=\"no\" aria-label=\"Column Chart\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(e){if(void 0!==e.data[\"datawrapper-height\"]){var t=document.querySelectorAll(\"iframe\");for(var a in e.data[\"datawrapper-height\"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data[\"datawrapper-height\"][a]+\"px\"}}}))}();\n<\/script><\/strong><\/p>\n<p>Again, the greed hypothesis does not hold true: in\u00a02012, Exxon earned much higher profits than it did last year. The company that supposedly benefited the most from inflation was actually more profitable when inflation remained stable.<\/p>\n<p>This implies that the greed hypothesis does not explain inflation well. It is nothing more than a desperate attempt to blame inflation on anyone other than the government. Unfortunately for the narrative, the government is indeed behind the inflation we are currently suffering.<\/p>\n<h2><strong>A Better Explanation<\/strong><\/h2>\n<p>Inflation has one cause: more money chasing the same amount of goods. Since the beginning of the pandemic, the US government has done two things: increase government spending to unsustainable levels and increase the amount of money in the hands of the public.<\/p>\n<p>Figure\u00a04\u00a0shows how the public deficit in the United States has increased.<\/p>\n<p><strong><iframe id=\"datawrapper-chart-cxB7M\" style=\"width: 0; min-width: 100% !important; border: none;\" title=\"Figure 4: Total Public Debt\" src=\"https:\/\/datawrapper.dwcdn.net\/cxB7M\/1\/\" height=\"400\" frameborder=\"0\" scrolling=\"no\" aria-label=\"Interactive line chart\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(e){if(void 0!==e.data[\"datawrapper-height\"]){var t=document.querySelectorAll(\"iframe\");for(var a in e.data[\"datawrapper-height\"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data[\"datawrapper-height\"][a]+\"px\"}}}))}();\n<\/script><\/strong><\/p>\n<p>A significant increase can be observed in the US public deficit in\u00a02020. How did the federal government finance this spending? The answer can be found in figure\u00a05.<\/p>\n<p><strong><iframe id=\"datawrapper-chart-q9d0o\" style=\"width: 0; min-width: 100% !important; border: none;\" title=\"Figure 5: US M3 (Trillions of Dollars)\" src=\"https:\/\/datawrapper.dwcdn.net\/q9d0o\/1\/\" height=\"400\" frameborder=\"0\" scrolling=\"no\" aria-label=\"Interactive line chart\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(e){if(void 0!==e.data[\"datawrapper-height\"]){var t=document.querySelectorAll(\"iframe\");for(var a in e.data[\"datawrapper-height\"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data[\"datawrapper-height\"][a]+\"px\"}}}))}();\n<\/script><\/strong><\/p>\n<p>Figure\u00a05\u00a0shows the quantity of money in circulation as measured by M3, a broad monetary aggregate that includes practically all means of payment in an economy. The increase in the public deficit and in the quantity of money occurred at the same time. Between the first and second quarters of\u00a02020, the public deficit grew\u00a014\u00a0percent while M3\u00a0increased by\u00a015\u00a0percent. This does not imply a causal relationship between the two; rather, it indicates that they moved in tandem.<\/p>\n<p>But the way the government obtained the money indicates a possible causal relationship. The Fed has been forced since\u00a02020\u00a0to use quantitative easing (QE) to finance the deficit. QE consists in buying financial instruments from the private sector, usually US Treasuries.<\/p>\n<p>Figure\u00a06\u00a0shows the amount of government debt on the Fed\u2019s balance sheet, while figure\u00a07\u00a0shows the value of US Treasuries held by the Fed.<\/p>\n<p><strong><iframe id=\"datawrapper-chart-UQVXQ\" style=\"width: 0; min-width: 100% !important; border: none;\" title=\"Figure 6: Public Debt Held By the Federal Reserve\" src=\"https:\/\/datawrapper.dwcdn.net\/UQVXQ\/1\/\" height=\"400\" frameborder=\"0\" scrolling=\"no\" aria-label=\"Interactive line chart\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(e){if(void 0!==e.data[\"datawrapper-height\"]){var t=document.querySelectorAll(\"iframe\");for(var a in e.data[\"datawrapper-height\"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data[\"datawrapper-height\"][a]+\"px\"}}}))}();\n<\/script><\/strong><\/p>\n<p><strong><iframe id=\"datawrapper-chart-gyNyp\" style=\"width: 0; min-width: 100% !important; border: none;\" title=\"Figure 7: US Treasury Securities Held By the Federal Reserve\" src=\"https:\/\/datawrapper.dwcdn.net\/gyNyp\/1\/\" height=\"400\" frameborder=\"0\" scrolling=\"no\" aria-label=\"Interactive line chart\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(e){if(void 0!==e.data[\"datawrapper-height\"]){var t=document.querySelectorAll(\"iframe\");for(var a in e.data[\"datawrapper-height\"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data[\"datawrapper-height\"][a]+\"px\"}}}))}();\n<\/script><\/strong><\/p>\n<p>Figure\u00a06\u00a0shows that most of the public debt was absorbed by the Fed. The gross increase is $1\u00a0trillion between March and June\u00a02020. Meanwhile, figure\u00a07\u00a0shows that, on the Fed\u2019s balance sheet, US Treasury bonds increased by approximately $0.85\u00a0trillion in the same period. The evidence indicates that the Fed used QE to provide money to the government, thereby financing the fiscal deficit and federal government spending.<\/p>\n<h2><strong>Which Explanation Is Correct?<\/strong><\/h2>\n<p>No theory is complete if we do not take into account the amount of money in circulation.<\/p>\n<p>Inflation is at its highest level in\u00a0forty\u00a0years in the United States. The main culprit is the US government\u2019s policies. Despite this, many people are trying hard to divert attention to businesses by advocating conspiracy theories. Joe Biden has argued that greedflation is not only real but reason enough to tax oil companies\u2019 excess profits.<a href=\"#_ftn5\" name=\"_ftnref5\"><sup>[5]<\/sup><\/a><\/p>\n<p>It is time to abandon theories that justify increasing the size of government; we must understand the true causes of inflation. Some events inevitably generate inflation, so it is important not to make it worse with desperate and irresponsible measures.<\/p>\n<p><strong>Legal notice: the analysis contained in this article is the exclusive work of its author, the assertions made are not necessarily shared nor are they the official position of the Francisco Marroqu\u00edn University.<\/strong><\/p>\n<p>-<\/p>\n<h2><strong>Notes<\/strong><\/h2>\n<p><a href=\"#_ftnref1\" name=\"_ftn1\">[1]<\/a> https:\/\/abcnews.go.com\/Business\/inflation-data-released-us-faces-recession-risk\/story?id=86600412<\/p>\n<p><a href=\"#_ftnref2\" name=\"_ftn2\">[2]<\/a> https:\/\/tradingeconomics.com\/united-states\/inflation-cpi<\/p>\n<p><a href=\"#_ftnref3\" name=\"_ftn3\">[3]<\/a> https:\/\/www.bloomberg.com\/news\/articles\/2022\u201306\u201310\/-exxon-made-more-money-than-god-biden-scorns-rising-gas-prices<\/p>\n<p><a href=\"#_ftnref4\" name=\"_ftn4\">[4]<\/a> https:\/\/www.advisorperspectives.com\/articles\/2022\/07\/04\/is-greedflation-real-and-how-should-that-question-be-answered<\/p>\n<p><a href=\"#_ftnref5\" name=\"_ftn5\">[5]<\/a> https:\/\/www.cnn.com\/2022\/06\/14\/energy\/biden-ally-big-oil-surtax\/index.html<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Before acknowledging their mistakes, politicians blame their favorite scapegoat<\/p>\n","protected":false},"author":701,"featured_media":4941,"comment_status":"open","ping_status":"closed","template":"","meta":{"anio":"","mes":"","id_estadisticas":"","newsletter_link":"","portada_informe":"","subtitulo":"","footnotes":""},"tags":[64],"class_list":["post-4936","articulo-semanal","type-articulo-semanal","status-publish","has-post-thumbnail","hentry","tag-inflation"],"_links":{"self":[{"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/articulo-semanal\/4936","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/articulo-semanal"}],"about":[{"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/types\/articulo-semanal"}],"author":[{"embeddable":true,"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/users\/701"}],"replies":[{"embeddable":true,"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/comments?post=4936"}],"version-history":[{"count":10,"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/articulo-semanal\/4936\/revisions"}],"predecessor-version":[{"id":4954,"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/articulo-semanal\/4936\/revisions\/4954"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/media\/4941"}],"wp:attachment":[{"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/media?parent=4936"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trends.ufm.edu\/en\/wp-json\/wp\/v2\/tags?post=4936"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}