To slow inflation focus on profits, not wages

How we talk about the economy matters.

I have written before about how the personification of financial markets obscures how powerful entities manipulate those markets. The Federal Reserve Board’s current effort to combat inflation is another example of how language helps to create inequitable economic conditions.

When Jerome Powell, the Fed chair, speaks, Wall Street listens. A suggestion that the Fed will raise interest rates causes stock prices to plummet. No one likes high inflation, and the Fed’s primary tool to combat inflation is to raise interest rates, but the recent use of this strategy has been ineffective because it is based on a limited conception of what causes inflation.

Any vocabulary is comprised of what the rhetorical theorist Kenneth Burke calls “terministic screens.” No terms are neutral. Any terminology, Burke writes, “must be a selection of reality” and therefore also “a deflection of reality.” It draws our attention to some concerns and distracts us from others.

Robert Reich writes that the Bureau of Labor Statistics’ monthly reports about prices, jobs, and wages shape our views of what causes inflation and how to combat it. The media and policymakers feature those three terms when they assess the state of the economy. Most explanations of inflation, therefore, emphasize that it is a function of how jobs and wages affect prices. When wages, or other forms of income, rise too much, inflation ensues. And what common sense suggests should be good things – wage increases and low unemployment rates – become something bad.

A New York Times column illustrates how the three terms function as screens that direct attention to particular strategies: “Federal Reserve officials are laser-focused on job gains and wage growth as they quickly raise interest rates to constrain the economy and slow rapid price increases. Officials are convinced that they must sap the economy of some of its momentum to wrestle the worst inflation in four decades back down to their goal of 2 percent.”

Powell is forthright about this. His stated goal is “to get wages down,” because if workers make less, businesses presumably will pass the savings on to consumers. He also states that a higher unemployment rate will benefit the economy, a controversial idea that some CEOs applaud because they believe it “puts employers back in the driver’s seat.” More unemployment means a larger supply of labor that therefore costs less to hire.

But this is where our terminology leads us astray. The focus on prices, jobs, and wages distracts us from a fourth key term that is not the subject of any monthly report: profits. While inflation runs amuck, corporations rake in huge profits. Bloomberg reports that because businesses increase prices more than what is needed to cover their increased costs, corporate profit margins are at their highest since the 1950s. For big businesses, inflation is an excuse to jack up consumer prices.

They can do this because in many arenas they have monopoly power. Albertsons, Kroger, and Walmart control more than 70% of the grocery market in 167 U.S. cities, and their dominance will increase if the proposed Albertsons-Kroger merger is approved. Delta, United, and American control most of the airline industry. Since the 1980s those three companies have acquired what used to be 25 different airlines. Drug prices in the U.S. are among the highest in the world and one reason is lax antitrust measures. In 1995 60 drug companies existed. By 2015 they had merged into 10. Their monopoly control over specific drugs enabled them to double, triple, quadruple (and more!) the prices of those drugs. Corporate profits are skyrocketing, and it’s not in spite of inflation, it’s because of inflation; or more pointedly, it’s because they can use inflation as a cover to raise prices.

Some CEOs explicitly acknowledge this strategy. William Meany, CEO of Iron Mountain Inc., a data storage company worth billions of dollars, states that he has been “praying for inflation” because “every point of inflation expands our [profit] margins.” Inflation is “a net positive,” he says, because “we’re able to price ahead of inflation.” And “FedEx, UPS, and others” do the same thing: raise prices more than required by inflation costs to garner greater profits.

As long as the Fed focuses on wages (keep them low) and jobs (keep unemployment high) to combat inflation, a major cause, corporate profits, will go unaddressed. Of the pain induced by the Fed’s interest rate hikes, Powell says, “These are the unfortunate costs of reducing inflation.” Those costs are borne mostly by workers, even though, as Pulitzer winner Matthew Desmond notes, “the United States offers some of the lowest wages in the industrialized world.” They are not borne by corporations, many of which, as noted above, reap record profits. And as the Washington Post reports, another consequence of those rate hikes is the recent bank failures, the biggest since the 2008 recession.

Inflation is a problem. But until we recognize that “prices, jobs, and wages” function as terministic screens that blind us to the problem of inflated profits, we will remain mired in ineffective solutions that disenfranchise workers and enrich shareholders.

Jeffery L. Bineham is an emeritus professor in the Judy C. Pearson Department of Communication Studies at St. Cloud State University.