by Nicolás Cachanosky
The American Institute for Economic Research
Some myths are stubbornly persistent. Count the greedflation myth among them. A recent poll conducted by Navigator indicates a notable uptick in the number of people attributing inflation to corporate greed. That’s worrisome: public opinion eventually becomes public policy. Senators Warren, Casey, and Baldwin are again pushing for executive powers to “crack down” on what they see as “corporate price gouging.”
Despite its popularity, the greedflation narrative fails to hold up when subjected to standard economic analysis.
In brief, proponents of the greedflation narrative maintain that businesses deliberately hike prices in order to increase their profits. Of course, if businesses increase their minimum willingness to accept (i.e., the supply schedule), the quantity demanded will fall. Hence, proponents of the greedflation narrative implicitly assume that higher prices will more than offset the revenue foregone as a consequence of selling fewer units.