When costs go up, so do profits? That’s not how capitalism is supposed to work, but that is the recent trend. For over a year now, consumers and businesses, both in the U.S. and worldwide, have struggled with stubborn inflation. But the soaring costs haven’t prevented corporations from raking in record profits. The companies in last year’s Fortune 500 alone generated an all-time high $1.8 trillion in profit on $16.1 trillion in revenue. Voices largely on the left side of the political spectrum have been sounding the alarm on this (…) but now an economist at one of the world’s oldest and greatest investment banks is singing the same tune.
Albert Edwards, a global strategist at the 159-year-old bank Société Générale, just released a blistering note on the phenomenon that has come to be called Greedflation. Corporations, particularly in developed economies like the U.S. and U.K., have used rising raw material costs amid the pandemic and the war in Ukraine as an “excuse” to raise prices and expand profit margins to new heights, he said. And the French investment bank isn’t just historic: It’s one of the select banks considered to be “systemically important” by the Financial Stability Board, the G20’s international body dedicated to safeguarding the global financial system. (…)
Edwards proposed a controversial solution to fix the rise of Greedflation, which he said reflects his “weakening confidence” in the capitalist system itself. In a once unthinkable twist to “those of us who lived through the failed prices and incomes policies of the 1970s,” Edwards said there is a tool for this kind of problem, and it’s from that same decade: price controls.
Price controls — or when a government mandates the prices businesses are allowed to charge consumers — have been blamed for everything from the fall of the first Babylonian Empire in 1595 BC to the long lines at the gas pump of the Nixon and Carter administrations in the ’70s. One of the most common stories about the supposed folly of price controls comes from the Roman emperor Diocletian, who enacted an “edict on maximum prices” for labor, commodities, and more to combat rampant inflation in AD 301. But the edict, which included a death penalty for anyone who broke it, eventually backfired, creating a scarcity of goods and reliance on government wheat that led to its repeal.
Edwards noted that many of his colleagues are “less sympathetic to the use of price controls” because of this history, but he argues their use may be warranted because “something seems to have broken with capitalism.” (…)