It’s not unprecedented for titans of industry to attack presidents. Henry Ford was so outraged over Franklin Roosevelt’s Hundred Days of initial policies to address the Great Depression that he huffed FDR’s “particular genius is to try to run other people’s businesses.”
Ford much preferred the laissez-faire of Presidents Calvin Coolidge and Herbert Hoover. When the collapse came, Ford said, “The Depression is a good thing generally. Let them fail. Let everybody fail! I made my fortune when I had nothing to start with, by myself and my own ideas. Let other people do the same.”
Lately, Jeff Bezos has been rhetorically bombing Joe Biden because of the president’s statements on inflation.
In a tweet Saturday, Biden criticized oil companies over needlessly contributing to inflation: “My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril. Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now.”
Bezos shot back that evening: “Ouch. Inflation is far too important a problem for the White House to keep making statements like this. It’s either straight ahead misdirection or a deep misunderstanding of basic market dynamics.” Bezos also said the president’s Build Back Better plan would have made inflation worse. (Imagine if Henry Ford had Twitter!)
In May, the two tussled over whether raising corporate taxes would bring down rising prices. As the world’s second-wealthiest person, who built a company that like many others avoided paying federal taxes some years despite billions in profits, you can guess where the Amazon founder came down.
“Raising corp taxes is fine to discuss,” Bezos tweeted in response to Biden. “Taming inflation is critical to discuss. Mushing them together is just misdirection.”
It’s curious that Bezos is taking the lead on this. In the past he’s often supported Biden.
For example, this past year Bezos wrote on the Amazon blog, “We support the Biden Administration’s focus on making bold investments in American infrastructure… We recognize this investment will require concessions from all sides — both on the specifics of what’s included as well as how it gets paid for (we’re supportive of a rise in the corporate tax rate).”
A colleague wondered if it has something to do with Biden’s volte-face toward Saudi Crown Prince Mohammed bin Salman. It was on MBS’ orders that the journalist Jamal Khashoggi of the Bezos-owned Washington Post was murdered in 2018.
During the 2020 campaign, candidate Biden vowed to make Saudi Arabia a pariah for human rights abuses and the Khashoggi murder and to stop weapons sales. President Biden continued selling arms to the kingdom and plans to meet MBS this month.
It doesn’t hurt that Saudi Arabia is the world’s largest oil supplier and keeping the kingdom happy offers a chance to moderate prices at the pump. Yet, as I’ve written, if we stand a chance at avoiding climate disaster, we need much higher oil prices, as well as investments in clean energy, transit and high-speed rail.
On the other hand, Amazon’s recent history with the administration has been strained, as the local tech blog GeekWire pointed out. Biden hosted an Amazon union organizer at the White House and the company has complained of other perceived slaps.
Jay Carney, Amazon’s top executive in Washington, D.C., was a senior aide to Biden when he was vice president. But according to The Wall Street Journal, Carney has been especially frustrated over moves his former boss has made. Among them was naming a critic of Amazon to lead the Federal Trade Commission, which is investigating the company’s competitive practices.
None of which gets us closer to understanding inflation.
The classic definition is “a sustained rise in the general price level” (this from an economics dictionary I’ve owned since I became a business writer in 1985). Some inflation is healthy, a sign of a growing economy. The Federal Reserve’s target is 2% growth annually. But it’s been considerably higher lately.
We’re seeing it now from a variety of causes. Consumer demand shot up as the pandemic eased. It’s a hot economy with very low unemployment and higher wages.
Manufacturing material and labor costs have risen. The Russian invasion of Ukraine caused grain prices to skyrocket.
Oil prices are high partly because of sanctions against Moscow for its aggression. Gasoline price rises vary around the nation, partly because of state taxes, but also because of demand, availability of nearby refineries, OPEC’s desire to keep prices high and other factors.
Are the oil companies price gouging, as Biden implies? It’s difficult to define or prove, although Big Oil has been bringing in record profits. For example, Chevron profits quadrupled in the first quarter of this year. Biden has a good point.
House Democrats have passed a Consumer Fuel Price Gouging Prevention Act. But even if it makes it through the Senate, its unlikely to offer near-term relief. Republican demands that more public lands be opened for drilling are hollow. More than 9,000 permits to drill onshore are approved yet unused
More broadly speaking, however, corporate profits are heavily to blame for high inflation.
A paper by the Roosevelt Institute, a think tank that studies corporate power and other issues, states that markups and profits rose in 2021 at the highest pace since 1955. This is based on a look at nearly 3,700 companies.
Meanwhile, according to the federal Bureau of Economic Analysis, corporate profits after taxes increased 14% in 2021, while labor costs grew by 7%. “Basic market dynamics” or price gouging?
Ultimately, taming inflation is the responsibility of the Federal Reserve, not Biden or Bezos. The Fed most recently increased interest rates by 0.75%. It was the third increase this year and the largest since 1994.
The risk: a recession.
Inflation or recession is kryptonite for the political party in power, whether deserved or not.
Interestingly, investors don’t expect medium-term inflation to run rampant. The most recent five-year break-even inflation rate based on Treasury securities was only 2.48%.
So, all may be well, unless the central bank is bullied into an overreaction.
Biden is using the bully pulpit, as presidents do. Surely Bezos has better things to occupy his time than sniping from the sidelines. But free speech is a precious American value (if we can keep it), so don’t expect the argument between the two to end soon.