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September 2023
AAM Magazine
September 2023
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Analysis: ‘Greedflation’ theory gains traction

By Paul Mackintosh   
April 19, 2023

The concept of ‘greedflation’ has been gaining a lot of traction in these inflationary times. Albert Edwards, global strategist at Societe Generale Corporate & Investment Banking, has gone as far as to warn of “the end of capitalism” if it isn’t addressed. Some sceptics might carp that SG is a French firm and therefore less wedded to robust Anglo-Saxon capitalism, but Edwards has arrived there via Dresdner Kleinwort and the Bank of America, and presumably has absorbed both tendencies.

The theory of greedflation isn’t new, mind. It was already being noised around in 2022 as firms jacked up prices amid widespread inflation and constraints in supply chains in the wake of Russia’s invasion of Ukraine. The particular edge to the understandable increase in prices was the ensuing increase in corporate profits, which were a lot less understandable and justifiable in a period of crisis.

Back in March 2022, Senator Bernie Sanders introduced legislation in the US Senate that would impose a 95% windfall tax on excess profits of major companies. But nothing seems to have got better in the interim.

Edwards was quoted in the Financial Times as citing US Bureau of Economic Analysis data on US fourth-quarter 2022 non-financial profit margins, indicating that these are still running at record highs. Further analysis in the FT showed that, as of late March 2023, 52% of global companies were still earning above their ten-year average margin.

Should companies be pressured to stop passing on inflated costs to consumers, or should price controls be taboo? The latter argument assumes that prices are efficient and market-driven in the first place. But what is still the single most influential price in the global economy? Oil. Is that price really driven purely by market rates? No way. It’s swayed by a cartel of governments and producers whose political priorities have time and again come first.

Prices of many other goods and services in most economies are dictated by a raft of subsidies, import controls, regulations and other factors, overt or covert. Simple, fair and objectively determined prices are a myth. The only question is how to regulate, and why. And that's not even touching the question of corporate profits and the taxes that should be charged on them.

In his book Capital in the Twenty-First Century, French economist Thomas Piketty argued and demonstrated through deep historical analysis that over the long term, capital aggregation and preservation far outperformed capital creation and new business formation.

Left to itself, capitalism has no intrinsic tendency to enrich or benefit anyone but capital-holders, and the myths of trickle down and free-wheeling entrepreneurialism are exactly that - myths.

In this context, laissez-faire is a dead letter. The only question is, how and how much to regulate capitalism, or hit meltdown.