‘Their Inflation Strategy Is Working’: Corporate Profits Soared to Record High in 2021

Yves here. We’ve regularly described how the corporate profits as a share of GDP has been at close to 12% for years, which is twice the level Warren Buffet deemed to be unsustainably high in the early 2000s. These egregious profits are at the expense of low and mid level worker. We’ve seen how top executive have come to see their lofty pay as a matter of right when they are short changing their own front line staff to line their pockets. One of the most grotesque examples is hospitals, where C-level executives, who never faced contagion risk, exhaustion, and the emotional distress of dealing with dying patients, give themselves hefty bonuses, while barely boosting nurse pay.

We noticed this pattern way back in 2005, in a Conference Board Review article titled The Incredible Shrinking Corporation:

In a 2002 Brookings Institution paper, Yale economist William Nordhaus noted a decline in corporate profits, reflected in the National Income and Product accounts, from mid-1997 through early 2000 and a further slight fall into 2001. But S&P-reported profits for that period showed a very different picture—they grew 70 percent from the beginning of 1998 through early 2000, before fall ing by nearly 50 percent from early 2000 to early 2001.

What created this divergence? Robert Gordon, a professor at Northwestern University and a member of the
National Bureau of Economic Research, commented on Nordhaus’ analysis: “During the 1990s corporate com-
pensation had shifted to relying substantially on stock options, leading first to the temptation to engage in accounting tricks during 1998-2000 to maintain the momentum of earnings growth, and then sheer desperation to cut costs in response to the post-2000 collapse in reported S&P earnings and in the stock market. The stock market collapse had an independent impact on the pres sure for corporate cost cutting . . . by shifting many corporate-sponsored defined-benefit pension plans from overfunded to underfunded status.”….

Part of the problem is that companies have not recycled the fruits of their growth back to their workers as
they did in the past. In all previous postwar economic recoveries, the lion’s share of the increase in national income went to labor compensation (meaning increases in hiring, wages, and benefits) rather than corporate profits, according to the National Bureau of Economic Analysis. In the current upturn, not only is the proportion going to workers far lower than ever before—it is the first time that the share of GDP growth going to corporate coffers has exceeded the labor share.

Notice the profits issue is central. High profits serve as the justification for fat executive compensation. And it does not have to be this way. In Japan, also a capitalist society, entrepreneurs are revered not for making themselves rich but for creating employment.

By Jake Johnson. Originally published at Common Dreams

Federal data released Wednesday shows that U.S. corporate profits jumped 25% to record highs in 2021 even as the coronavirus pandemic wreaked havoc on the nation’s economy, disrupting supply chains, hammering low-wage workers, and helping to push inflation to levels not seen in decades.

According to the Commerce Department’s Bureau of Economic Analysis (BEA), domestic corporate profits adjusted for inventory valuation and capital consumption reached $2.8 trillion last year, up from $2.2 trillion in 2020—the largest increase since 1976.

Employee compensation also increased in 2021, just not at the pace of corporate profits. Citing the new BEA data, Bloomberg reported that “employee compensation rose 11%, but the so-called labor share of national income—essentially, the portion that’s paid out as wages and salaries—fell back to pre-pandemic levels.”

“That tends to undermine the argument that soaring labor costs are what’s driving the current surge in inflation, a case the Federal Reserve is starting to make as it accelerates interest-rate increases,” Bloomberg noted.

Lindsay Owens, executive director at the Groundwork Collaborative, argued in a statement that the new profit figures show that corporate America is successfully weathering inflationary pressures across the economy by pushing higher costs onto consumers—a tactic some CEOs have openly touted during recent calls with investors.

“CEOs can’t stop bragging on corporate earnings calls about jacking up prices on consumers to keep their profits soaring—and today’s annual profit data shows just how well their inflation strategy is working,” Owens said. “These megacorporations are cashing in and getting richer—and consumers are paying the price.”

The American Economic Liberties Project expressed a similar view on Twitter:

A number of major U.S. corporations, from Amazon to Starbucks to the Dollar Tree, have announced in recent months that they’re moving to hike prices on consumers, often blaming the broader “inflationary environment.” Outgoing Starbucks CEO Kevin Johnson—who saw his compensation soar by 39% to $20.4 million in 2021—said during his company’s fourth-quarter earnings call that impending price increases are aimed at mitigating “cost pressures including inflation.”

But recent survey data indicates that Americans aren’t buying the companies’ justifications for higher costs. A Data for Progress poll released last month found that a majority of U.S. voters believe that “large corporations are taking advantage of the pandemic to raise prices unfairly on consumers and increase profits,” a position also taken by progressive members of Congress.

Next week, Senate Budget Committee Chair Bernie Sanders (I-Vt.) is planning to hold a hearing titled, “Corporate Profits Are Soaring as Prices Rise: Are Corporate Greed and Profiteering Fueling Inflation?”

During a separate hearing Wednesday on President Joe Biden’s latest budget proposal, Sanders said that “to a significant degree, pathetically, large corporations are using the war in Ukraine and the pandemic as an excuse to raise prices significantly to make record-breaking profits.”

“This is taking place at the gas pump, at the grocery store, and virtually every other sector of the economy,” said the Vermont senator. “This is why we need a windfall profits tax, and why this committee will be holding a hearing on Tuesday of next week on the unprecedented level of corporate greed that is taking place in America today.”

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    1. John R Moffett

      That would be over 90%, since that was the upper rate during the Eisenhower administration.

  1. Adam1

    I haven’t seen any data on it specifically, but I have a strong hunch that the pandemic did the most damage to small businesses. This has likely just increased the concentration of market power to larger businesses (note, it was already very concentrated before covid). They’re now using that power and the cover of covid to jack up prices across the board and with it their bonuses.

    1. TimH

      The USA will end up as the place where you can only rent the roof over your head, buy from big chains, and where the lower middle class full time jobs have gone.

  2. Roquentin

    Not that we shouldn’t reign in corporate profits via taxation, but I get frustrated with pieces like this because they are clearly, to me at least, conflating separate issues. This idea that corporate profiteering caused inflation implies that somehow this new, as if corporations would have paid people as little as possible and set prices as high as possible on 2018. That’s obviously false, so something must have been preventing inflation back then. I just don’t understand why the left finds it almost impossible to acknowledge that monetary policy and the actions of central banks have been the primary contributor to inflation, or even acknowledge that it was a factor at all. They wll literally blame anything and anyone else first.

    I don’t know why people can’t admit quantitative easing had an effect on the economy, but the red herrings are starting to get under my skin.

    1. Roquentin

      Sorry, meant to write this

      “This idea that corporate profiteering caused inflation implies that somehow this is new, as if corporations wouldn’t have paid people as little as possible and set prices as high as possible on 2018. That’s obviously false, so something must have been preventing inflation back then. ”

      Trying to write long form on a phone is tough.

      1. lyman alpha blob

        I think the idea here is that there was already some inflation caused by the pandemic and related supply chain and labor issues, and then large corporations used that as cover to jack up prices even higher to fatten up their bottom lines, hoping nobody would notice their gross profiteering.

        And yes, the Fed’s monetary policy has had a huge effect on the economy, and not in a good way for those who depend on an income for their living rather than investments. That’s why my modest Maine neighborhood has in recent years become a colony for rich New Yorkers.

        1. Roquentin

          Even if that were the case, and I still fail to see how any of this means corporations are any greedier now than they were before the pandemic when we were totally capable of maintaining the Fed’s 2% target, I don’t see how any other outcome would have been possible. Firms are going to set the highest prices they think they can get away with, period. Even if you taxed corporate profits at a higher rate, I don’t even see how this would stop them from setting prices at the highest level the market will bear. It’s frustrating because on the surface this argument makes sense, and lord knows its easy to hate corporate America, but if you apply even a little scrutiny it starts to get very incoherent very fast.

          1. Left in Wisconsin

            Firms are going to set the highest prices they think they can get away with, period.

            While I think this is valid as a general rule of thumb, there are some circumstances in which it is clearly not the case:
            1. Some companies – Amazon, Uber, etc – while building their brands/market shares (or out of necessity) have consciously priced at or below cost, sometimes for years, which has also limited the ability of competitors to raise prices.
            2. For the last 20 or so years, among the most dominant US corporations were those whose primary advantage was low costs – Walmart, Amazon again. That strategic advantage often manifests as “low prices.” I don’t think there is any doubt that both Wal-mart and Amazon did/do not set prices as high as they possibly can, and their pricing decisions have huge knock-on effects on the pricing decisions of other corps.
            3. Many, perhaps most, non-mega companies are not continuously searching for any possible moment to raise prices. They set prices once or at most a couple times a year. Also, they sometimes do have to take into account the reaction of their customers, particularly in lines of business that rely heavily on repeat business and continuing relationships. (Even the car companies have come down against dealership profiteering via “market-based surcharges.”) I think this is a major reason for the current inflation – companies moving as a pack to raise prices knowing that the current environment will not lead anyone to single them out as specifically out of line.

            So I don’t agree with you that it is impossible for the current period to be characterized by greedier-than-normal business behavior. The proof seems to be in the data.

          2. AGR

            There’s also the thesis that prices inflate to offset the lack of economic capacity to service debt and prolong the illusion that all debts are payable…ignoring or obscuring the fact that most working people don’t have the power to raise their price (wages) to keep up…AND the long history of debts becoming un-payable as matter of reality imposing itself on the mathematics of compounding interest…

      2. Susan the other

        Maybe the forces of “cooperative competition” are leveling the value of the dollar down; the value of the rouble up; and the value of the yuan way up.

        1. Susan the other

          If so, Bernie should be drawing more pointed conclusions. He should be talking about the impossibility for ordinary people to pay medical bills and that government intervention will be necessary. And various other things. Housing. Food. Medicine. Education. Transportation. Corporate profits are just the tip of the iceberg.

  3. p fitzsimon

    If a corporation cuts or strangles wages to make more profit, which typically goes into the hands of the few, how does that cause inflation; it would seem to have an opposite effect? Can someone explain?

    1. susan the other

      Isn’t it just more deficit-hawkery by other means – other than IMF austerity imposed from outside the economy. This is the same thing – just allowed to look like some grassroots economic phenomenon.

  4. JEHR

    I think everyone should boycott big corporations that are the worst offenders (we know who they are) and buy everything at the small businesses from now on. Forward!!

    1. Carla

      Hear! Hear!

      It’s hard to do with everything, but it will help Main Street if we all do so with as many things as we possibly can.

    2. drumlin woodchuckles

      And since we live in an impure world where purity is not possible, we should remember that if we buy One Thing from a small business, that is better than not even One Thing At All.

      And people can work up from One Thing to Several Things and then as Many Things As Feasible. That at least will keep small business alive and non-extinct until better days can be forced into existence.

  5. Wukchumni

    I was down under in Mexico in the 1980’s when fairly mild hyperinflation was raging, and sometimes you’d see merchants having to put new stickers on top of old stickers in keeping up with inflation, and the same thing happened to a much lesser regard in the USA in the 1970’s, it was a pain in the arse trying to keep up with the inflation joneses…

    But that was then and this is now, and there are no stickers nor any prices on anything anymore, all it takes is a little updating on the QWERTY, change the 1 price listed in the store and you’re done in a jiffy!

    I think this has made it a lot easier for corporations et al, to anticipate inflation and raise prices accordingly, a shelf-fulfilling prophecy of sorts.

  6. Carla

    My friends at NC may be interested in this web site and effort:


    from the “About” page:

    “We believe – as many do – that the establishment, protection and enforcement of Unalienable Rights must be the constitution’s reason for being and those rights should direct freedom to govern in all things, in the hands of each community, except wherein a law would limit or violate anyone’s Unalienable Rights. We want a constitution that protects human rights, and rights of nature. We want a foundation that prioritizes People and Planet over property and profit. We want everyone to have a role in crafting how our society works — after all, that is what we believe democracy to be.”

    Also, it quotes the late, great Molly Ivins:

    “It is possible to read the history of this country as one long as one long struggle to extend the liberties established in the constitution to everyone in America.”

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