is he right or wrong

is he right or wrong?

With just five days to go until the Midterm Legislative Elections, the climate in the Democratic sphere is on the brink of panic. The President’s party has forebodings, fearing it could lose control of both the House and Senate. We are therefore skeptical of Joe Biden’s recent argument for a comeback in extremis: an attack on large companies that feed inflation with excessive price hikes that are not justified by developments in commodity or labor costs. The tactical explanation is obvious: at the top of the causes of voter dissatisfaction is inflation, which contributes to the unpopularity of the president and his party. Hence the suspicion that Biden’s attack is instrumental and even demagogic.

Even when he proposes a special surcharge on oil companies’ extra profits, Biden has been accused of representing a left-wing version of populism. The Republican counter-argument is: If we are in a phase of global energy shortages, also because the left has uncritically taken up the arguments of the ultra-environmentalists, demonized and hindered all activities of extraction, refinement and transport of fossil energies. Rather than keep hitting energy companies, Republicans say, we must stop banning the fossil fuels we still need and incentivize their production to drive down world prices (also to the benefit of European allies). Among other things, the extra profits of American oil companies are small compared to those just announced by Aramco, Saudi Arabia’s state giant: confirming that in today’s world, energy is more controlled by emerging market public shareholders than by Western multinationals .

The controversy against Biden is not unfounded. Because there is one fact that gives reason to the Democratic President. Many large American companies across industries from staple foods to catering to aviation are seeing robust earnings growth. The explanation: These companies manage to impose price increases on consumers that go far beyond the increase in production costs (raw materials and wages). The year will end with healthy balance sheets for many of these companies, with the exception of a few big tech behemoths who instead face headwinds. As such, there is speculation that the high cost of living is being inflated by predatory behavior, not all of which is justified by the increases upstream.

But here’s another counter-argument challenging Biden. When companies manage to impose exorbitant increases because consumers have been paying, rather than forgoing purchases or cutting spending. Neither the price hikes nor the rate hikes by the Federal Reserve have really depressed American household spending. This means that there is still a lot of purchasing power in the hands of the citizens; otherwise, at the extremes of the high cost of living, they would be forced to tighten their belts. Please note: for certain essential items such as groceries, it is sometimes not possible to tighten your belt. However, spending on discretionary services remains, from restaurants to air travel. And here’s the other accusation against Biden: he would have been the one to fuel inflation, with a huge payout in subsidies early in his tenure. Adding together the Trump and Biden administrations’ aid to citizens and businesses totals $5 trillion, much more than Europe (even relative to GDP). It would be this extra income provided by public spending that would be the treasure that consumers continue to spend even today, allowing companies to engage in exorbitant pricing policies.

Nov 3, 2022 10:36 am – Change Nov 3, 2022 | 10:36