Capitalism Rakes It In!  Record Profits

By Shlomo Maital     

      Two facts about the US economy:   a) persistent high inflation   and b) soaring profit margins,  widest since 1950!   15% AVERAGE profit margin, according to Bloomberg,  for non-financial corporate business.  The average profit margin since 1950 has been around 7.5%.

      Hmmm.   Any connection between inflation and record profits?

      Much of the inflation (rising prices) is driven by costs – supply chain disruptions, higher wages, slumping productivity in some cases.  AND…. On the demand side, people have money and are eager to spend it, after the many months of lockdown, and are spending more of it on actual goods, rather than services (tourism, restaurants, theme parks). 

      This is a perfect storm for businesses, enabling them to raise prices and fatten profits.   Why?  Well, first, because you can  (why do millionaires buy $20,000 watches? Because they can)….   And second, because, well, that’s what capitalists do, right? Maximize profits?   Anybody remember Prof. Milton Friedman?   Higher prices cover higher costs — and then add some, to boost profits.

     When people have money and are eager to spend it, they are less price sensitive.   That means, higher prices do not negatively impact how much people buy.  Businesses are quick to sense this and to capitalize.

      On-line buying was supposed to generate strong downward pressure on prices, by enabling people to easily and quickly search for the cheapest price.  But with Amazon’s domination, this has largely evaporated.   Amazon cleverly plays to ‘instant gratification’ by delivering goods quickly – one day, two day, or even same day, which offsets price resistance.

     What can be done?  Not much.  Maybe one key thing.  If businesses are making huge profits, then at least tax those profits fairly – and the incomes of the wealthy to whom most of those profits accrue.

     Try this on for size:  Over the past decade, US millionaires have paid an average income tax rate of 8.2%.  True!   I’ll be that what you readers pay is double, triple, quadruple.  Is that fair?    If free markets let businesses reap profits, at least make them pay their fair share of taxes.