Outside a Dollar Tree in Detroit, Latasha Holmes lamented the rising cost of toilet paper, beverages, food and other items she had just purchased. The price increases, she said, were forcing her to choose among necessities for her and four kids.
“What am I going to do? Prices are up everywhere, all over town,” she said. “I can’t afford everything.”
But while Holmes struggles, Dollar Tree thrives. The retailer increased its prices by 25% as profits jumped 269% between 2019 and 2021, and its profit margins widened. Shareholders won too. The company also announced a stock buyback program worth $1bn that will deliver cash from those price increases to its investors.
Dollar Tree and other large corporations are juicing profits by passing on higher-than-needed price increases to customers like Holmes under the cover of inflation, war and supply chain squeezes, consumer advocates and economists say. They are calling for the federal government to take bold steps to rein in the companies.
Among proposed prescriptions are price controls, improved price fixing rules, commodity market intervention, stock buyback regulation and antitrust enforcement. Ranged against those proposals are a powerful business lobby and a divided Congress that seems unable to pass major legislation.
“There are reasons to have a profit incentive, but there are also reasons to have an overall regulatory body that can say, ‘This is actually profiteering … while everyone is hurting,’” said Krista Brown, a policy analyst with the American Economic Liberties Project.
A Guardian analysis of 100 top corporations’ Securities Exchange Commission filings found a median increase of 49% in profits between the most recent quarter and the same quarter two years ago, pre-pandemic. It shows companies have largely shielded themselves from inflationary pain by passing most or all of their increased costs on to customers via price hikes.
So far, the federal government’s most visible attempt to address inflation has been to increase interest rates, rates look set to rise again this week. But the Guardian’s data suggests such a measure may miss an important mark. Raising rates effectively takes money out of consumers’ pockets to cool the economy.
If corporate profits are contributing in a meaningful way, then raising rates would only reduce the amount of money people have to spend on products and services for which prices are still going up.
“That would mean you’re exacerbating this dynamic instead of doing anything to help it,” said Isabella Weber, University of Massachusetts Amherst economist.
Instead, limited and targeted price controls could work for essentials like bread, she said, but stressed those would have to be coupled with a bailout plan for negatively affected companies.
“Increased prices for basic items like bread can exert enormous pressure on wages” and send inflationary ripples throughout the economy, Weber added.
Though price controls are controversial and generally regarded as a leftist idea, the last president to enact them was Richard Nixon, who imposed a 90-day freeze on wages and prices to address inflation in 1970. Price controls were also enacted during and following the second world war, when, again, supply chain issues and pent up demand led to soaring prices.
But price rises are not the only issue critics would like to see the Biden administration address. Others, like Groundwork Collective’s executive director, Lindsay Owens, have called for a ban or new restrictions on stock buyback programs. Joe Biden’s 2023 budget proposes prohibiting executives from selling their stock three to five years after enacting a buyback program.
“The other big winner besides the shareholders in excess cash that’s going to buybacks are the executives,” Owens said. “They announce the buybacks, their stock prices soar, then they sell their shares and there are a number of ways to make this work better.”
The Guardian’s analysis found companies’ buyback programs over the last 15 months totaled $544bn. That cash could have been reinvested to keep prices down, or increase workers’ wages, consumer advocates say.
Others levelled accusations of price fixing and gouging. The American Economic Liberties Project is helping draft legislation that would make it easier for businesses to sue companies for price fixing by making private corporate communications more accessible. As of now, only 3% of price fixing cases make it to trial, Brown said.
“Reinvigorating price fixing laws and going after price gouging in moments like this, where a war or Covid are used as excuses for companies to raise rates just because they can, could help a lot,” she added.
Fixing is especially a problem in highly consolidated industries, consumer advocates say. Companies have benefited from “decades long under-enforcement of consolidation laws”, added Martin Schmalz, an Oxford University economist.
Just four companies control most of the US beef industry, four airlines control about 80% of domestic passenger traffic, Walmart accounts for the majority of grocery sales in the majority of US states, the list goes on and on.
And it’s not just the companies that have outsized control. Large investors also a role to play.
Schmalz pointed to the Investment Company Act, which limits investment funds to holding no more than 10% of a corporation’s securities. Vanguard on average holds 10% of all S&P 500 companies, Schmalz research has found, but it is not violating the law because companies within its fund family own the shares, not Vanguard itself. But Vanguard still executes the voting rights of more than 10% of shareholders.
“The law is written at the fund level so technically speaking they don’t violate the law, but they are violating the spirit of the law,” Schmalz said.
Economists and attorneys working on US antitrust law have proposed prosecuting mutual funds like BlackRock or Vanguard that own large stakes in multiple companies in the same sector. Such shareholders can exert an outsize influence on companies’ pricing decisions, Schmalz said, and he noted Investment Company Act language that specifically targets this scenario: “The national public interest … is adversely affected … when investment companies [have] great size [and] excessive influence on the national economy.”
Schmalz said there’s little discussion among policymakers to address that specific issue.
Biden’s budget includes over $220m for antitrust enforcement, and bills that would break up large tech companies have bipartisan Senate and House support.
The Guardian’s analysis highlighted the commodity market boom as companies trading in grain, steel, mining, wood, rubber, meat, oil, homes and other materials generally recorded higher profit increases than companies across the rest of the economy.
However, many commodity companies operate in what analysts characterize as “feast and famine” cycles in which they’re unprofitable for years before cashing in. The pendulum has swung for many commodity companies in the day’s economic climate.
“When there’s a chance to raise prices when markets are tight, companies are going to do so,” said Skanda Amarnath, executive director of the Employ America thinktank. “It’s some part opportunistic, some part greed, some part rationality, some part a response to uncertainty.”
The oil industry highlights the dynamic. After seven years of low returns, it’s restricting supply to boost profits regardless of how that hits Americans at the pump. Earnings calls transcripts reveal executives eagerly “putting shareholders first” and an investor who described industry-wide supply suppression “one of the delights of this earnings season”.
Bringing volatile commodity prices under control would require curtailing uncertainty and building supply chain resiliency, analysts who spoke with the Guardian say. That could involve some degree of government intervention to cut down on risk by establishing a floor on commodity prices. The government could do that by effectively becoming the “buyer of last resort” when material prices dip below a certain level.
But the government should also set a ceiling above which it collects profits, said commodities analyst Alex Turnbull. He suggested the federal government set up what’s effectively a state reserve board.
Turnbull pointed to lithium, which, amid increased demand for EV batteries and supply chain squeezes, jumped from $5,000 a ton to $45,000 a ton last year. Higher prices impact the pace of the clean energy transition, and the government could hypothetically set a $10,000 a ton floor price and $25,000 a ton ceiling that would limit the volatility, Turnbull said.
The federal government could also increase stockpile reserves of products like grain or oil that are released when prices spike.
“That sends the message ‘You should plant more wheat because if it goes really bad, you might have a lean year or two, but we will buy your wheat. But on the other hand don’t expect to buy a Lamborghini if you’re a farmer in Iowa because when prices get too high we’ll be out there selling the shit out of our stockpiles,’” Turnbull said.
Stabilization may also spur investment in raw material production that’s risky, which would further bolster markets against future supply shortages. Few companies have built steel plants in recent years because the prices have been so low, Turnbull noted, and now the world is short on steel.
Though price caps are “not politically palatable” Bespoke Investment analyst George Pearkes said, the government could take a number of measures to steer futures curves and markets for raw commodities like oil and wheat.
“Something in between where there are strategic efforts to smooth volatility, and provide the private sector with enough certainty that they can make decisions is a lot more compelling,” he said.
Spikes in investment for some commodities, like nickel, that are essential to the clean energy transition, can be a positive development, Turnbull said. Mining companies limped through the several years leading up to the pandemic, but reaped windfalls over the last year.
“People say ‘Nickel producers are making too much money’, well, they didn’t make money for a decade,” Turnbull said. “At some point, somebody has to put money down to dig holes because people aren’t going to drive to the middle of fucking nowhere with a truck and work for free.”
Another force in some commodity price spikes: Wall Street speculation. Commodity markets were once heavily regulated because they deal in raw materials that underpin the economy. An influx of investment capital followed the commodity markets’ deregulation about 20 years ago, and some are now treated like speculative assets similar to bitcoin, said Rupert Russell, who authored a book on the topic.
The consequences of economy-addling commodity price spikes are real, he adds, pointing to the 2010 grain prices that helped trigger the Arab spring uprising in Tunisia.
Supply chain back ups, inflation and war have generated “radical uncertainty” in which no one knows how much commodities are worth, because the prices are no longer anchored, Russell told the Guardian. He echoed others’ calls for stronger government intervention to tamp down the casino-like mentality.
“Once there’s not just radical uncertainty but markets dominated by speculators, algorithmically driven speculation that is just kind of responding to headlines, then you’re going to get that kind of Bitcoin-esque volatility,” he said.
But experts say there are few viable short-term solutions, and long-term measures don’t help Holmes. That’s forcing her to think about getting another job to survive as she feels the pressure of an economic system stacked against her.
“I don’t want to. I’ve got four kids to take care of, but what am I supposed to do?” she asked.