Paul Constant is a writer at Civic Ventures and co-host of “Fork Economy” podcast.
He writes that a recent Twitter feud says a lot about who gets what in the US economy.
We often see powerful people using “mere market forces” to justify policies that benefit them at the expense of everyone else.
The thoughts expressed are those of the author.
Over the 4th of July holiday weekend, some of the most powerful people in the world found themselves in a Twitter battles high gas prices. The interaction, which was covered by the media in terms of who soaked on whomactually reveals a lot about the conversation around who gets what and why in the US economy.
It all started when President Biden tweeted a message to Big Oil producers and distributors: “Reduce the price you charge at the pump to reflect the cost you pay for the product. And do it now,” he wrote. Crude oil prices this week have fell to its lowest point in monthshitting around $98 a barrel on Tuesday, just $5 more the price per barrel before Russia’s invasion of Ukraine in February sent global gas prices skyrocketing. But the national average price of a gallon of gasoline on February 7 before the invasion was $3.44 per gallonwhile at the time of this writing, the national average price for a gallon of gasoline is still stuck at $4.72.
Biden’s tweet was quickly criticized by Amazon founder Jeff Bezos, the world’s second richest man, who tweeted that Biden’s assertion was “either direct misdirection or a deep misunderstanding of basic market dynamics.”
A response from the US Oil & Gas Association, a trade organization representing US oil companies, was more scathing: “I’m working on it, Mr. President.” the organization tweetedadding, “In the meantime, have a happy 4th and make sure the WH intern who posted this tweet enrolls in Econ 101 for the fall semester…” The US Oil & Gas Association didn’t specify how they are “working to” lower prices.
The media covered the exchange as if it were a boxing match, with rowdy, catchy and overused verbs like “to roast,” “trolled” and “slapin the headlines. But if you look behind the posturing, you’ll notice that Bezos and the industry organization framed their bashings of Biden’s tweet in the same way: Bezos argued that the high prices are the result of “basic market dynamics”, in which the free market sets the price, and the tweet from the US Oil & Gas Association implied that any Econ 101 student could understand that high prices are beyond the control of the companies that set the costs.
The market is not an all-powerful invisible hand
We often see politicians and wealthy people using “simple market forces” that anyone in “Econ 101” would understand as the rationale for economic policies – like lower wages and corporate tax cuts – that benefit the rich at the expense of everyone else. But growing evidence shows that tax cuts for rich people and companies are bad for economic growth, and that raising the minimum wage has positive impacts for all. The market is not an all-powerful invisible hand that sets prices, profits and wages. CEOs, executives and wealthy investors make these decisions – and these decisions usually benefit them at the expense of everyone else.
In this week’s episode of Fork Economyhost Nick Hanauer explained that US corporate profits have gone from 5 or 6% of GDP to just over 12% over the past year or so, approaching an all-time high. “This increase in corporate profits isn’t because it has to be, or has to be, or should be. It’s because powerful people prefer it that way,” Hanauer said.
Bezos has mocked Biden’s recent suggestions that corporate greed, not mere market forces, are responsible for the price hike. But a March survey of oil and gas executives of the Federal Reserve Bank of Dallas found that nearly 60% of respondents blamed “pressure from investors to maintain capital discipline” as a reason they weren’t drilling more oil in order to increase supply and to lower prices. In other words, Wall Street likes the record profits which are the result of high gas and oil prices, and Big Oil doesn’t want to let Wall Street down – or reduce their own extravagant bonuses — by taking measures to lower these prices.
So when you see wealthy people and corporations pounce on politicians to popular cheers, it’s important to keep in mind who benefits from the policies being discussed. If the “market forces” we are told are taught in “Econ 101” benefit organizations that make billions of dollars in profits while everyone else pays more to go on vacation or get to work, it chances are it’s not an immutable law in action – it’s just plain greed.
But if Biden expects Big Oil executives to feel shame and lower prices out of the goodness of their hearts, he’s going to be waiting a very long time. Leaders must take steps to penalize price gouging and corporate profits with smart policy. Congress is consider an invoice it would tax Big Oil’s extraordinary profits and return those earnings to ordinary Americans in the form of quarterly checks. And California Governor Gavin Newsom recently signed legislation to send some 23 million Californians anti-inflation checks of up to $1,050 to ease some of the high price sting.
Whichever political solution you prefer, it should be clear by now that simply tweeting about the problem won’t make it go away. It should also be clear that when powerful people use the free market as an excuse for high prices, they don’t necessarily have the best interests of most Americans at heart.
Read the original article at Business Intern