(film reel clattering) - Welcome to today's Ethnic Media Services weekly national news briefing.

I'm Sandy Close, EMS Director.

Our topic today deals with the "I-word" on everyone's lips.

Inflation, and how we know when inflation turns into recession.

What are the signs?

What can people do to prepare?

How strong is the safety net?

Why is this happening even as corporations report record margins of profit?

We're honored to have this distinguished panel today.

Now I turn the conference over to EMS Associate Editor, Pilar Marrero: journalist, author, videographer, who coordinates our briefings with fellow journalist, Sunita Sohrabji.

Pilar?

- Thank you, Sandy.

Welcome to our journalists.

This is a very timely topic.

We're all living with inflation and we try to analyze that today.

Our first speaker, unfortunately, was having, and is still having some difficulties.

So, we're gonna start in a different way.

I thought that maybe we should start with the last speaker, Dr. Rakeen Mabud, because she can talk directly about-- she can analyze directly what's going on with the inflation and recession from her point of view.

And, then, we can go to Alex, who's gonna talk about the safety net.

Is that okay, Dr. Mabud?

- Yep.

That works for me!

- [Pilar] Alright, go ahead.

- I'll just dive right in.

So, first of all, thank you, Pilar and Sandy for inviting me to speak today.

So, I'm gonna focus my comments today on three main points.

First, the ways in which megacorporations are using the cover of inflation to jack up prices on consumers.

Second, the long-running issues of concentration and consolidation that have riddled our supply chains, facilitating the profiteering that we're seeing today.

And, third, some of the key steps that we can take to address inflation, as well as highlighting some of the facts that, steps that we should absolutely not be taking to address inflation.

So, there are a range of factors that have been driving inflation over the last year or so, including: increased and shifting demand, as well as supply chain disruptions resulting in bottlenecks and supply shortages.

And, corporations across the economy are citing these challenges as the reasons for why their prices are going up.

Despite rising input costs that would normally eat into margins, shows us that megacorporations are taking advantage of this crisis to pad their profits by passing along more pricing than is justified by rising input costs alone.

So, in other words, very real price increases are giving firms cover to pad their profits and raise prices on consumers even more than their input costs would justify.

So, my organization, the Groundwork Collaborative, has come through hundreds of earnings calls over the last year or so to understand why it is that profit margins are at a record high.

And, in these calls, executives tell their investors about the last quarter's performance, as well as what investors can expect in the coming quarters.

So, over and over, in sector after sector, the message from Corporate America is clear.

CEOs are telling their investors that the current inflationary environment has created opportunities to extract more and more from consumers by raising prices.

So, I wanted to give some examples because you really don't have to take my word for it.

Constellation Brands: it's a parent company of a popular beer brand, Modelo, and Corona.

On their Q3 earnings call in January, Constellation's CFO said quote (reads): "As you know, "we've had a consumer set that skews a bit more Hispanic than "some of our competitors.

And in times of 'economic downturn', "if you will, or weakness, "they tend to get hit a little bit harder "and recover a little bit slower.

"So, we wanna make sure that we're not leaving any pricing on the table.

We want to take as much as we can", end quote.

So, in the exact same breath that they're acknowledging that their consumers are hurting, Constellation's executives are expressing excitement about exploitative and aggressive pricing to maximize their profit margins.

The other example I wanted to offer today is what I think of as one of the more egregious cases, which is Visa and Mastercard.

This is a duopoly that controls over 70% of the market that they operate in.

And, they have no excuse.

Right?

They can't blame supply chain disruptions for profiteering because credit card companies make their money on a fixed percentage fee off of each transaction.

So, if the value of a transaction is increasing because of inflation, they're automatically gonna be earning more money.

But, of course, these companies aren't content to stop there.

Both Visa and Mastercard reported this year that they'd be raising the fees themselves, right?

So, even that cut that they're taking off the top, they're just increasing that cut.

So, in short, Visa and Mastercard are using the power afforded through their market power, their control over this market, to raise fees on small businesses and consumers who have nowhere else to go.

And, again, don't have to take my word for it.

There's also a lot of quantitative data that backs this up, right?

So, there's analysis from the Economic Policy Institute that found that nearly 54% of recent inflation can be attributed to corporate profits.

Which is in contrast to the 11.4% stake that corporate profits had in rising prices between 1979 to 2019.

And then, the Roosevelt Institute published a new report recently that finds that corporate profits hit record highs in 2021.

And, corporations increased prices at the fastest rate in decades.

It also detailed that the corporations, on average, charge consumers 72% more than their input costs compared to 56% pre-pandemic.

So, this is a widespread problem.

It's something that we're seeing consistently across sectors and across different companies.

And, in particular, it hits small businesses, right?

Because small businesses don't have price setting capability.

They can't set prices the way big companies can.

They have to sort of swallow those costs and pass them off to their consumers.

And often, that results in them losing their market share, because consumers abandon them for the Walmart down the street that can negotiate better prices or can be first in line for goods in the supply chain.

So, to go one layer deeper, you know, as I've been saying, these megacorporations are able to get away with aggressive and extractive pricing precisely because of the current inflationary environment.

And, in part that's because consumers-- there's information asymmetry.

Consumers know less-- consumers know that prices are going up and they know that maybe some of the input costs for a company are going up.

But, they don't necessarily know how much of that price increases, in that they're experiencing at the store is because of, you know, infant cost rising.

And, how much of that is corporations going in for another spoonful of sugar.

But, I think the question remains, why is it that corporations have so much power to profiteer in a moment of crisis?

And, the answer really starts well before the pandemic; decades, in fact.

And, it's that we spent 50 years allowing business executives and shareholders to really take control of our supply chains.

They built a system, that they call the Just-in-Time system, that shaved off any sort of fail/safe, any sort of cost, in order to maximize their short-term returns for their shareholders over, you know, an effective system that actually delivers goods on time.

So, that means that when we have shocks like a pandemic or, you know, a war, or other sort of economic crises, we experience bottlenecks and shortages that drive up prices.

And, again, during moments of those crisis, big corporations can use their dominant market power to jack up prices beyond what we would expect, given their input costs, by hiding under the cover of inflation.

So, the way I often describe it is that every crime needs a means, motive, and opportunity.

Motive is clear, right?

The profit motive has always been there.

Market power is really the means, right?

The dominance that they hold over market gives them the means to jack up prices and gives them that pricing power.

And then, crises, like the cover of inflation- and, increasingly the cover of a war- is giving these companies an opportunity to actually, you know, do this; lay out this tactic.

And so, I wanted to offer one example that I think is really crystal clear, which is that the ocean shipping industry is a really, really, good example of how endemic consolidation and concentration has made our economy really ripe for profiteering.

So, 95% of the East-West trade routes are controlled by three alliances: 2M, Ocean Alliance, and T-H-E Alliance.

This is not a new phenomenon.

This is-- you know, this concentration of this market is because of decades of deregulation, especially during the 1980s and 1990s, which allowed for this oligopoly of ocean carriers to build power and to consolidate.

And, this pattern of consolidation and deregulation, growth in the shipping industry, but also more broadly, has eliminated resiliency and fail/safes in our supply chain, and increased, importantly, our reliance on precarious labor.

Because one of those costs that these companies are always trying to cut are labor costs, right?

And so, they make these jobs ever more precarious.

They pay them ever less.

You know, they break apart the relationship between employers and employees and make them independent contractors.

So, in other words, these policy choices have allowed corporations to keep costs really low for themselves and reap profits, without any risk of being undercut by competition, and expenses, stability, and reliability for consumers, and safety, and quality jobs for workers.

And so, just to put a finer point on it, in Q1 of 2022, the global shipping oligopoly earned a record-breaking $59.3 billion in profits.

They expect to earn four times that in the coming year.

The world's largest carrier recently enjoyed its largest profits in 117 years.

And, these companies raised spot rates for freight shipping, from the U.S. to Asia, so export rates, by over a hundred-?

Excuse me-- over a thousand percent over the same period.

So, this is a real problem, and it really shows how endemic concentration has facilitated this profiteering and allowed these companies to take advantage of a crisis.

So, I'm just gonna talk for a little bit longer, and then I'll stop!

I'm looking forward to questions.

So, now that we've dug into what is causing price hikes, I wanted to talk a little bit about what is not causing price hikes, right?

So, the two often that you hear in the news are: worker wages, and investments in our economy, like the ARP, the American Rescue Plan.

So, just some basic research shows us that those two things are not a factor in what is driving inflation right now.

A recent analysis by Economic Policy Institute found that less than 8% of inflation could be attributed to rising labor costs.

And, in fact, even in today's jobs report, we saw that wage growth is starting to decelerate, which is bad news for workers, to be clear.

We want workers who have a really low baseline of wages to experience higher wages.

Unfortunately, rising wage growth does give fuel to the fire that somehow the Fed needs to take care of this, which I'm gonna talk about in a minute.

And, you know, on the other hand, Mark Zandi, who's the chief economist of the ratings agency, Moody's, found that government spending, like the American Rescue Plan, accounts for 0.1% of the 8.6% of inflation we're seeing.

So, absolutely minuscule.

So, some economists have said that we need to aggressively raise interest rates, crush wage growth, and raise the unemployment rate in order to tamp down inflation.

But, this remedy for inflation would be worse than the disease itself, and I'm sure Chad is gonna get into this in his comments, as well.

Artificially pushing the economy into recession, by aggressively raising interest rates, will be catastrophic for Black workers and other marginalized workers, who face sky-high unemployment rates, even when the headline numbers are relatively strong.

Even in the best of situations, Black workers consistently have double the unemployment rate of white workers.

So, choosing to condemn millions of workers to crisis level unemployment rates is very obviously a horrific and harmful policy choice that will weaken our economy, and backtrack on the important gains workers and families have experienced in this recovery.

You know, turning to the Fed to solve all of our inflation problems also reflects a fundamental misunderstanding of why we have rising prices in the first place.

And, you know, as I've talked about today, the issue is not high demand.

In fact, we should have a system that is able to be responsive to ebbs and flows of demand, right?

Instead, our issue is that we have broken supply chains, unbridled corporate power, and pandemic profiteering.

So, constraining demand by making people poorer, which is exactly what aggressive interest rate hikes would do, is deeply flawed and dangerous to the economic well-being of marginalized workers in particular.

So, the good news is that there are a lot of tools in our toolbox that we can use to address these power dynamics, and to take on the issues that I've talked about today.

You know, just a couple here.

You know, Congress could reinstate a historic tax on excess profits to discourage profiteering by companies across sectors, and incentivize them to increase productivity by actually making investments in the firm.

Regulators could enforce laws on the books to reduce illegal activities, like price fixing and collusion, that could include a federal price gouging standard, like one that exists in three quarters of U.S. states.

The Department of Justice and the FTC, the Federal Trade Commission, should be empowered to aggressively crack down on monopoly power.

And state attorneys general also have a lot of power here.

And then, the last thing I'll say is, you know, investments are critical.

Yes, we must invest in our supply chain.

We should build a system that actually works.

But, we care about inflation because we care about people's lives, right?

We care about people's ability to live a good life.

And so, making investments that make life easier for people in healthcare, in housing, in a care infrastructure, in climate, you know, enacting policies that strengthen labor standards and protection.

All of those are an important role in building economy that allows people to live a good life.

And, that has to be seen as part of this toolbox and toolkit that we have, because ultimately right now, the inflation we're facing is a problem with deep roots.

And, there's no surface-level solution that's gonna get rid of it.

And so, I'll stop there.

And, I'm really looking forward to your questions and comments.

- Thank you so much.

Stay around, please, for a little bit.

We're gonna go to Chad Stone, chief economist of the Center for Budget and Policy Priorities.

And so, let's go back to the way we hoped to start this panel.

And, it is to explain, why do we have a threat of a recession if we're supposed to be in a recovery?

What is going on?

- So, yeah.

I'm-- I've been tasked with predicting the future (chuckles) to talk about 'what is a recession?'

That's not predicting the future, but that's complicated in its own way.

Are we in one, or is one imminent?

That's probably us predicting the future.

And, let's see.

What was the third?

Oh.

"Is one imminent?"

And so, let's start with the-- "are we in a recession?"

There are very few people who think that we're currently in a recession, even though there's-- there's some, some hints that at some point we may be defined to be in one.

But, I don't think that's true.

Recession, in popular mind-- well, in the popular mind for humans, a recession is an economy that's not performing the way you would like it to.

And that, that you just-- you, you feel bad about it.

For formally, or rather journalistically, recession gets defined as two quarters of negative growth in GDP.

Which is not the official definition of a recession, either.

It's-- it doesn't always qualify as a definition of recession.

So, there's this group of people at the National Bureau of Economic Research, a small group of economists who have for years have been the acknowledged arbiters of what a "recession" is, and what a "recovery" is.

And, they define a recession as (reads): "a decline in "economic activity, spread across the economy, that lasts more than a few months."

And, it's something that they don't reach a decision about, when that happened, until long after the recession is over, because they look at-- they look at a bunch of data.

So, they're not gonna be any help telling us whether we're in a recession or not, coming up.

And-- and even, even their definition doesn't really work that well, because the last recession we had lasted only two months: that was April and May of 2020.

Now did-- did the, did excess unemployment last much longer than that?

Yes, it did.

But the-- but the definition of the recession, formally, is a decline in economic activity.

So, you go from a peak of activity to the trough and everything after the trough is the expansion, the recovery that you're talking about.

The first few steps of it are the recovery and we've had a good, long, strong recovery aided substantially by the government measures that have been taken, including the American Rescue Plan, which is getting blamed for the, for-- for the-- for inflation coming up in some quarters.

It's more, more centrist economists would say that that it's part of the story, but that the supply chains are another important part of the story.

And, that this is-- this is a... an economy that's-- the pandemic economy is, much is-- is it's own thing.

It's not like any recessions we've seen in the past.

It's not a simple excess aggregate demand inflation where the economy is running too hot and, and an artful Fed, if there ever is or was one, can slow the growth of the economy to-- but not throw the economy into a recession.

But, we also have these supply chain-- these supply shocks, like oil price shocks.

When I was in graduate school, we had the first oil price shock.

Oh!

No.

My first year out of graduate school, we had the 1973/74 oil price shocks, which was the first time economists had to confront supply shocks and how they're different in, in many ways and how and how the Fed doesn't have that much influence over supply shocks.

But, we have supply and demand bumping up against each other, where supply is artificially restricted, and demand-- you don't, you don't wanna be cutting way back on demand because that does throw you into a bad recession.

And, as Rakeen said, it's really, it's really hard on vulnerable groups when, when you have a recession.

So, today's jobs report showed that the unemployment rate is still at 3.6% overall, which is .1 which is .2 of a percent higher than, than the highest, all the way back to 1999.

But-- and, it also shows that the Black unemployment rate has come down to below where it was at the start of the pandemic recession in February of 2020.

But, it's at 6.8%, which is, which is low by historical standards for the Black unemployment rate, but is, but is incredibly high relative to the white unemployment rate.

And, Hispanic or Latino unemployment rate is, is in between, but also elevated.

So, there's a-- there's the people, people who get hurt if, if you focus exclusively on getting inflation down as quick as you can and slam on the brakes and go into recession, get really hurt.

And, you certainly don't wanna do that.

So, the Fed-- Jerome Powell's been pretty good, but he, up until-- up until recently about, really, really emphasizing that-- trying to get the unemployment rate as low as it can go.

And, trying to-- to get more people into the labor force and more people working.

But, with the inflation that came, came from supply shocks.

At the same time, we were getting some demand increase from the American Rescue Plan.

But, let me, as an aside, say the American Rescue Plan did a lot of good.

And, if the alternative was not to have it, then maybe we would've had a little less inflation, but we would've had a lot more hardship.

And, we would've had inflation anyway from the supply shock side.

Not necessarily as much maybe, but to-- so it's-- it's a mistake, it's a mistake to act as though you could have just not had the rescue plan and everything would be great.

The economy was actually had slowed in late 2020.

Job creation had slowed.

And, we actually had negative month of, of job growth in December 2020.

But the, the end of the year package of relief measures in 2020 and the American Rescue Plan gave juice to the recovery.

And, we've had, we've had a long string of positive job numbers and substantial reductions in, in hardship.

So, I'm gonna get, get a little, I got a little off topic on just 'what is a recession, and is one close?'

The folks, the folks that, that the forecasters that I pay attention to, are raising the probability of a recession, because what the Fed is trying to do is really thread a needle.

That's very hard to do.

And, there's lots of downside risks from too much tightening, that are probably stronger than, than not tightening enough, fast enough.

There's a debate about what happens with inflation expectations in the future.

And-- and that complicates the analysis.

But-- so the risk of a recession is heightened because of the inflation that we're fighting.

And, I am skeptical that we have a lot of good policies for addressing inflation.

I-?

Short run; in the short run.

And, it's a short run problem right now.

We need to get inflation-- we need to make it look like inflation is coming down, so that, so that people believe that policy is working.

(chuckles) But, we're not in a recession yet.

The current guesstimate by people I trust, suggests that if an inflation comes, it'll be relatively shallow.

Still, we have the-- the demographic groups that get hurt even by a short, shallow recession.

And so, I think, I think we should think about as policy makers, having really targeted safety net programs, relief programs, that can help the most vulnerable folks, when a, when-- if a recession comes.

We don't have those in place now.

We're-- we're scrambling to get any kind of, any kind of additional policy in.

So, maybe-?

Maybe I should just stop there.

- Thank you so much.

We only have a couple of minutes, but I wanna ask each of our panelists to tell us reporters, what do you think we should concentrate on as we cover this issue?

What, what the-- what would the focus be that, that we are doing?

- Okay.

I think what we've been talking about at, at the end, which is, which is the importance of, of being-- I mean, leave aside the political constraints.

The importance of being ready and recognizing that even if it's a mild recession, there are people that get hurt badly.

And, we-- people have been touting the low unemployment insurance claims numbers over the last several months as, as an indication of a good economy.

It may also be an indication of a really bad unemployment insurance system that's leaving out a lot of people that should be getting unemployment insurance.

- [Pilar] Rakeen?

- Yeah, thank you.

It's a big question to end on!

I mean, I think what I-- the reason I do this work is because, you know, I think people, when we talk about the economy, we often talk about it like it's the weather.

Or inflation's like the weather: it just happens to us.

Right?

But, that's not true.

People have agency and people fundamentally make up the economy.

And, I think the-- to the extent that folks like you, who are on the ground speaking to your communities, can actually lift up those stories as a reflection of what-- how our economy is doing.

That is just fundamentally important for, for all of us, right?

For the work that I do, for the work that we're all trying to do in, in understanding what's actually happening in our economy.

Because too often, it's just-- it's come-?

The stories that we get about the economy are from Wall Street and business leaders and CEOs.

And, they're not the ones who are, you know, actually make up the system.

It's all of us.

So, that's sort of my-- that's how I would approach that question.

- Hmm.

Which makes the work that you all do more important, because you are close to the community.

Sandy, do you wanna close it off?

- I just feel this has been so informative.

And, I think we tend to look at economic reporting.

[upbeat calm music] If you're like me, rather like approaching an algebra problem.

You kind of mentally think, (chuckles) I'm not gonna get this!

But, each of you has presented an approach which is doable.

And, for that, I really thank you for your time, and your expertise.

Thank you.

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