No surprise here: businesses are admitting they use inflation as excuse to further jack up prices

The Intercept headline says it all:

“CEO SAYS HE’S BEEN “PRAYING FOR INFLATION” BECAUSE IT’S AN EXCUSE TO JACK UP PRICES.”

THE CEO OF Iron Mountain Inc. told Wall Street analysts at a September 20 investor event that the high levels of inflation of the past several years had helped the company increase its margins — and that for that reason he had long been “doing my inflation dance praying for inflation.”

The comment is an unusually candid admission of a dirty secret in the business world: corporations use inflation as a pretext to hike prices. “Corporations are using those increasing costs – of materials, components and labor – as excuses to increase their prices even higher, resulting in bigger profits,” Robert Reich, former Labor Secretary under Clinton, recently argued. Corporate profits are now at their highest level since 1950.

There has been so much evidence that this has been happening that it’s sort of ridiculous to make a big deal out of another CEO being stupid and greedy enough to say it out loud.

But it’s worth repeating, if only to counter the right-wing narrative that Democrats and Biden are to blame for inflation despite the fact that we know — and evidence for it continues to pile up — that American industry has been raking in record profits despite alleged problems with supply chains and employees demanding increased wages.

Greed and inefficiency, not higher wages, are the main drivers of inflation

The good people over at the Center for American Progress (CAP) are calling bullshit on the Wall Street-inspired myth that high worker wages are the main cause of inflation, and that the only way to tame inflation is through Fed rate hikes and higher unemployment.

Historically, countering inflation has been left to the remit of the interest rate policy of the Federal Reserve. In recent months, the Federal Reserve has been sharply increasing interest rates in an attempt to reduce demand, slow the economy, increase unemployment, and lower inflation. This risks sending the country into a recession. While low-income households often feel inflation the hardest, a Federal Reserve-induced recession would be far worse, as millions of the most economically vulnerable Americans could lose their incomes entirely.

Alternative methods exist to fight inflation and reduce the costs of essentials over the longer term that would not adversely affect low- and middle-income households. Congress and the Biden administration have pursued some of these alternatives, including through the newly passed Inflation Reduction Act. These measures reduce inflationary pressures by investing in domestic production, boosting the United States’ productive capacity, tackling long-standing issues of corporate concentration, and more. These efforts have been underway for some time now and have already helped ease inflationary pressures. They should also help the economy better absorb some future demand and supply shocks so that it is more robust overall.

CAP points out an economic question that much of the mainstream press seems unable to understand clearly: if worker wages are at the heart of corporate America’s inflation-causing price increases, why are corporate profits at an all-time high?

From 1979 to 2019, inflation-adjusted wages for the bottom 10 percent of households rose by just 6.5 percent; the median household saw growth of just 8.8 percent over those 40 years, while the 90th percentile of earners saw a whopping 41.3 percent growth.

Meanwhile, data from the AFL-CIO show that profits of S&P 500 companies rose by 17.6 percent in 2021—and the earnings of their CEOs grew by 18.2 percent. That’s more than twice as fast as inflation that year and almost four times as fast as nominal wage growth for regular workers. There is no evidence that typical worker wages are eating into profits either, as profit margins reached 15.5 percent in the second quarter of 2022 for nonfinancial companies, the highest they have been since 1950. (see Figure 2)

Companies could be using their profits to expand their productive capacity for the future and ease the supply constraints that have contributed significantly to inflation. They could also be using their profits to reinvest in their workforces by paying workers better. As Walmart and many other brands have recently discovered, even slightly higher wages result in lower worker turnover and higher productivity, which ultimately boost overall economic growth. Instead, however, many corporate executives have chosen to enrich themselves.

Some business executives have admitted on shareholder calls and in surveys that they have been taking advantage of inflation to boost profits by increasing prices beyond what is needed to offset any increase in their input costs.

You can read the rest at this link.

These WSJ reporters do a good job of answering student debt forgiveness questions

I’ve seen a few articles thus far which purport to give you “Six Takeaways About Student Debt Forgiveness” or something like that.

However this Q&A with Wall Street Journal personal-finance reporter Julia Carpenter and WSJ podcast host host J.R. Whalen cleared up more questions I had than any other:

J.R. Whalen: All right. So first of all, Julia, who’s eligible to have part of their student loans forgiven?

Julia Carpenter: Borrowers with federal student loan debt are eligible for up to $10,000 in relief if they earn less than $125,000 a year or under $250,000 a year for couples. The other thing is people who received Federal Pell Grants in college will also be eligible for up to $20,000 in forgiveness, and Pell Grant recipient graduates hold about $4,500 more in debt than other graduates.

J.R. Whalen: Yeah. And usually Pell grants are usually awarded only to undergraduate students who have exceptional financial need. Now, how about people with private loans?

Julia Carpenter: Unfortunately, only federal student loan borrowers are eligible for this loan forgiveness.

J.R. Whalen: Okay. So how about Parent Plus Loans, where families borrow money to help a student pay for their education? How do they work into this?

Julia Carpenter: So the forgiveness applies to borrowers of both Parent PLUS and Grad PLUS programs. Families can borrow the total cost of attendance, that’s room and board, other expenses. And this forgiveness applies to federal loans for both undergraduate and graduate programs, as well as to Parent PLUS Loans.

J.R. Whalen: Now, we should also mention that the pause on student loan repayments that’s been in place since early in the pandemic, that’s also been extended. And now the date that payments are set to resume is December 31st. But I want to ask about the timing for the debt forgiveness. When does that kick in?

Julia Carpenter: The Department of Education says we’ll get more details in the next few weeks, but the timing’s a little unclear right now. We know that this will definitely happen before student loan payments are set to resume in January 2023.

J.R. Whalen: Okay. So what does a borrower have to do to take advantage of the forgiveness?

Julia Carpenter: Nothing yet. Wait until you receive a notification from your loan servicer. Before that happens, beware of any friendly-sounding phone calls or suspicious-looking emails from addresses you don’t recognize. Even before the announcement was made official on Wednesday, I personally received two different phone calls with voicemails and friendly-sounding people saying, “Hi, I’m your student loan servicer. Just call me. I have to confirm some details with you.” So this might be an opportunity for some scam calls, spoof messages, anything from people trying to get your personal data. And in the meantime, double check the information you’ve already shared with your loan servicer and the studentaid.gov website. If you’ve recently moved, or if you’ve changed any of your contact information, you’re going to want to make sure that they have the most up-to-date addresses.

J.R. Whalen: Oh, okay. Now what if somebody owes less than $10,000 in federal loans?

Julia Carpenter: So if you owe less than $10,000 on your loan, congratulations! You’ll now be student debt-free.

J.R. Whalen: Well, that’ll be a relief to some people. Now how about those who have already paid off their student loans?

Julia Carpenter: Unfortunately, the forgiveness isn’t retroactive and won’t apply to balances that have already been paid off.

J.R. Whalen: Julia, debt forgiveness is often treated as income and has to be accounted for on tax returns. What’s the situation in this case?

Julia Carpenter: Fortunately for borrowers, this canceled student debt is federally tax-exempt, and we’ve seen that in other federal student debt forgiveness programs. And so in this case, you would not have to account for this federal forgiveness on your tax return.

I had student loans I paid off, and I do not feel at all cheated that someone else is going to get something I didn’t. That is how the world works, time marches on, and I am happy that anyone is able to spend $10K or $20K in what are likely to be more productive ways for the economy than sending the money to loan servicers every month.

After all, as many others besides me have noted, Wall Street and the GOP didn’t think twice about giving massive economy-busting tax breaks to business in 2017. And some of the loudest voices in the right-wing echo chamber screaming about a piddling $10K to students, got hundreds of thousands of dollars in government COVID relief loans forgiven 100% — just wiped out. They didn’t have to pay a penny, no matter how much profit they are making.

Conservatives and big business love when the government gives them money. When it goes to average Americans? That pisses them off.

Stock buyback tax in the Inflation Reduction Act is a game changer

One of the less-heralded but nonetheless important features of the Democrats’ just-passed Inflation Reduction Act (IRA) on its way for President Biden’s signature is the tax on stock buybacks.

As far back as 2014, even pro-business publications like the Harvard Business Review were sounding the alarm about the buybacks:

Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into widespread economic prosperity.

The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.

The buyback wave has gotten so big, in fact, that even shareholders—the presumed beneficiaries of all this corporate largesse—are getting worried. “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” Laurence Fink, the chairman and CEO of BlackRock, the world’s largest asset manager, wrote in an open letter to corporate America in March. “Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.”

Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.

As a result, the very people we rely on to make investments in the productive capabilities that will increase our shared prosperity are instead devoting most of their companies’ profits to uses that will increase their own prosperity—with unsurprising results.

So two of the key takeaways here are that corporate leaders could buy back company stocks, which has the dual purposes of shielding corporate profits from the IRS — “hey, we only had X amounts of profits this year because we used so much cash on stock buybacks.” All while simultaneously increasing their own pay because they are paid in stock and buybacks artificially increase their company’s stock price. (While actually doing nothing to make the company, its products, or its lower-level employees any better off.)

It’s gotten so much worse since that 2014 article was written

Fast forward to last week and the passage of the IRA.

As New Republic writer Timothy Noah explains:

Stock buybacks hit a record $882 billion last year, and they may reach $1 trillion this year. The biggest corporations spend the most on buybacks. Thus Apple lavished $91 billion over the previous four quarters, according to The Wall Street Journal; Alphabet (Google), $55 billion; Meta (Facebook), $53 billion; Microsoft, $33 billion; and Bank of America, $21 billion.

But even with corporate profits at record highs, earnings can no longer meet the voracious demand for buybacks. So a growing proportion of buybacks—one recent estimate put it as high as 56 percent— are now “leveraged buybacks” paid for with corporate debt. Corporations are going into hock so they can shower more cash on shareholders and their top executives.

The proposed excise tax on buybacks is only 1 percent, so its initial effect on this drunken binge will be minimal. Indeed, in the short term it will likely create an uptick in buybacks as some corporations accelerate buybacks to avoid the tax’s implementation in 2023. The initial proposal by Democratic Senators Sherrod Brown of Ohio and Ron Wyden of Oregon—Brown is the Banking Committee chairman, while Wyden leads the Finance Committee—was for a 2 percent tax on buybacks, which would have been better. Five or 10 percent would be better still.

In coming years, it can and probably will be increased. But the excise tax’s creation establishes a beachhead. In coming years, it can and probably will be increased. In the meantime, it isn’t a bad revenue-raiser. According to Senate Majority Leader Chuck Schumer, this itty-bitty 1 percent tax will raise $74 billion over the next decade. If the outlook for the stock market improves, it will raise more. And if the excise tax is increased in the coming years, it will raise even more than that. So please join me in welcoming this new provision to the tax code. Its debut is long overdue.

Another reason we have to back campaigns such as the 50+2 effort trying to increase the U.S. Senate majority from 50 to 52 so as to counter the influence of Democratic Sens. Manchin and Sinema, who both blocked Wall Steet reforms in the IRA that would be true game-changers for reigning in the excesses of corporate America — and slowing down climate change.

House Speaker Nancy Pelosi celebrates by showing off the official final tally in the House for the successful passage of the Inflation Reduction Act, for which not a single Republican voted.

Uber to give more control to drivers over which riders they choose to accept

At one point between jobs I was a rideshare driver full-time. Uber and Lyft.

Once I figured out what I was spending on gas and and unpaid waiting/travel time, combined with upkeep and repairs on any car that gets driven that much, I realized I was making less than minimum wage.

Add to that the daily aggravations of riders who summon you for 6-block jobs where they tip nothing, or drunks who try to eat messy food on your leather seats, or rude passengers with screaming kids.

Well, it was all too much and this was before COVID and sky-high gas prices.

Before I mention the article I’m highlighting here, let’s take a look at Uber’s stock price over the last year. (See below.)

Not good.

Anyone who’s paid attention could tell you that Uber’s business model was unsustainable. It’s formerly explosive growth was dependent on investors willing to throw money at the unprofitable company, combined with a need for a steady turnover of drivers who stay just long enough to realize that driving for Uber is a losing proposition over the long term.

Now, investors are drying up and drivers are getting harder to come by.

So Uber is making a huge change:

Uber announced a series of new features Friday aimed at enhancing driver experiences on the ridesharing app as drivers continue to contend with high gas prices and inflation rates.

Drivers across the U.S. will be able to see exactly how much they’ll earn and where they’re going before they accept a trip. They’ll also be able to see more than one trip request at a time by using a new feature called Trip Radar. Uber said those changes will also help lower wait times for riders.

The company also announced the Uber Pro debit card and checking account, which offer drivers up to 7% cash back on gas at select stations. Drivers’ earnings will be deposited directly into the account.

The updates and debit card are rolling out over the coming months.

It’s the latest move by Uber to try to support drivers. The company added a surcharge on fares and deliveries in March in an effort to help offset rising fuel prices. The new options may help the company keep existing drivers and attract new ones.

One of the things that most pissed me off as a driver was if I turned down a rider who was too far away to make the trip profitable, it counted against me in terms of my overall ratings and the benefits I could access on the Uber app.

So this will be a welcome change, I am sure.

I still doubt it will make driving worthwhile because the economics just aren’t there to offer cheap rides and still compensate drivers as they should be compensated.

Actually, Uber and Lyft rides aren’t all that cheap any more, either.

You can read the rest of the article here.

Rents (and rent increases) are starting to head down, finally

Thanks, Biden!

After more than a year of record run-ups in apartment rents, growth is starting to cool off, a trend that could help housing affordability and ease the rise in overall inflation, according to several market measures.

Nationally, average apartment rents rose 9.4% in the second quarter of 2022 compared with the same quarter in 2021, according to data firm CoStar Group. While that is high by historical standards, it is down from the more than 11% annual increases seen the previous two quarters, CoStar said.

The decline also comes at the time of year when the rental market is typically at its strongest. The slowing of the growth rate in the second quarter is “a really ominous sign,” said Jay Lybik, national director of multifamily analytics at CoStar. “It’s retreating quickly.”

CoStar projects that rent growth will continue to slow in the coming months, finishing the year 6.2% higher than last year. The firm is projecting a 4.9% increase for 2023.

The rental markets that are slowing fastest include many of the cities that saw some of the country’s fastest-growing rents during the pandemic, such as Phoenix, Las Vegas and Tampa, Fla. In Phoenix, asking rent grew 10.1% in the second quarter compared with a year earlier, according to CoStar, down from the 18.4% annual increase in the first quarter of this year and the 21.3% rise in the fourth quarter of 2021. In Palm Beach, Fla., top-tier rents have actually fallen below their 2021 high point of $2,704 a month.

Much of the rental market craziness was due to COVID-related factors that were beyond anybody’s control. But there’s no doubt it added to inflationary pressures.

Biden’s support for Fed rate increases is now, of course, being blamed for a possible recession.

In some ways, presidents can’t win because many of the steps they can take to tame inflation can have deleterious effects elsewhere in the economy.

Still, I’ll bet getting inflation under control — which Biden seems to be doing — will help the Democrats more than a possible recession will hurt them.

You can read the rest of Will Parker’s Wall Street Journal article at this link.