The Wall Street Journal is known for its staunch defense of sound economics and free markets. However, the news division of the paper has recently been influenced by an anti-business bias and an unsound grasp of economics. This is evidenced by a piece written by reporter Paul Hannon titled: “Why Is Inflation So Sticky? It Could Be Corporate Profits.”
In this article, Hannon presents a socialist theory about inflation that is not supported by the majority of economists. He claims that businesses are using a rare opportunity to boost their profit margins and are the main cause of inflation. He cites a paper by economists Isabella Weber and Evan Wasner of UMass Amherst that purports to show corporate profits at historical highs and blames that for the ongoing inflationary period.
Economist Gene Epstein pointed out that this research is flawed. It looks at post-tax profits, however, corporate taxes were recently slashed so post-tax profits were always going to be higher on paper. If you look at pre-tax profits, Epstein notes, “profit margins aren’t unusually high historically & are generally similar to low-inflation decades of 1950s & 1960s.”
3)This chart replicates Weber's calculations (same denominator), except the blue & red lines more accurately track pre-tax profits. Note recent profit margins aren't unusually high historically & are generally similar to low-inflation decades of 1950s & 1960s. 3/3 pic.twitter.com/kL2IAa4Auy
— Gene Epstein (@GeneSohoForum) May 3, 2023
An IGM Chicago survey of economists showed that weighted for confidence, 80% said that “dominant corporations in uncompetitive markets taking advantage of their market power to raise prices in order to increase their profit margins” was NOT a “significant factor” in inflation. This survey was not included in Hannon’s article.
The article also failed to mention other causes of price inflation such as government money-printing and spending. While it is important to cover a range of ideas, it is not acceptable to uncritically parrot talking points. The Wall Street Journal should be offering sound coverage of the economy that is not distorted by progressive ideology. Unfortunately, at least one Journal reporter is failing at this task.
Source: Based Politics