Does ‘Greedflation’ Explain High Prices?

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If former President Donald Trump wins next week’s election, perhaps no issue will have been more pivotal than inflation. Earlier this year, Gallup polling showed that the number of Americans who worry “a great deal” about inflation was larger than the number worried about crime, homelessness, health care, immigration, and even Social Security.

And the anger has perhaps been fiercest over the cost of groceries. People buy groceries regularly, and unlike other goods, food is a necessity—you can’t simply opt out of food because prices have gotten too high, the way you might wait out buying a car or a couch. At their recent peak, in August 2022, grocery prices had increased 14 percent since the previous year. Although inflation has cooled significantly since then, that doesn’t mean prices have actually gone down; it just means prices have stopped rising as dramatically.

But why did all this happen? One explanation that has become more popular is “greedflation,” the idea that corporate greed, via excessive markups, is responsible for the pandemic-era price increases. But the word is used so differently by politicians, economists, and regular people that it’s become a confusing term of art. It can’t be that companies suddenly just got greedy in 2021, yet there’s a growing belief—particularly in some parts of the Democratic Party—that corporate greed is at the heart of the inflation problem.

Today’s episode of Good on Paper features a discussion with the director of economics at the Yale Budget Lab, Ernie Tedeschi. Tedeschi was the chief economist for the White House’s Council of Economic Advisers until earlier this year and had a front-row seat to the inflation narratives and data of the past four years. On today’s episode, we talk about what greedflation is, what it can explain, and what it can’t.

The following is a transcript of the episode:

Jerusalem Demsas: From February 2020 to this July, grocery prices grew nearly 26 percent, outpacing overall inflation.

Inflation is one of the key issues concerning voters this year, and it’s been a pain point that Kamala Harris has been working to address and that Donald Trump has been seeking to weigh her down with. Searching for a politically expedient explanation for why inflation happened is a difficult problem.

People don’t want to hear that supply chains were snagged. And the only other go-to explanation—that there was too much demand—would make President Biden’s $1.9 trillion stimulus package that Congress passed seem too generous in retrospect, which helps explain why another idea has taken center stage. When asked at her CNN town hall last week about the cost of groceries, this is what Harris had to say:

Kamala Harris: We will have a national ban on price gouging, which is companies taking advantage of the desperation and need of the American consumer and jacking up prices without any consequence or accountability.

Demsas: But how good of an answer is this to a voter worried about inflation? Can we really blame price gouging or corporate greed for the pain felt by consumers over the past four years?

The idea that corporate greed is responsible for inflation is sometimes called “greedflation,” a catchy and simple portmanteau that helped root the idea into the minds of consumers. But like many careful and interesting economic arguments, when it begins to be used by politicians, it can lose its analytical rigor.

[Music]

Demsas: This is Good on Paper, a policy show that questions what we really know about popular narratives. I’m your host, Jerusalem Demsas. I’m a staff writer here at The Atlantic. And today, I’ve invited Ernie Tedeschi onto the show. Ernie is the director of economics at the Yale Budget Lab and formerly the chief economist at the White House’s Council of Economic Advisers. And I wanted to talk with him about the ways the greedflation narrative simultaneously illuminates and obscures the inflation debate.

Ernie recently published a piece for Bloomberg, showing that grocery prices can’t be blamed on greedflation. He does this by showing that markups can, at the very best, explain just a quarter of why grocery prices rose so much.

Ernie, welcome to the show.

Ernie Tedeschi: Thank you for having me.

Demsas: Yeah. So we’re here to talk about inflation, greedflation. You’re going to solve all of it for us.

Tedeschi: (Blows raspberry.) We should end the show now.

Demsas: Yeah. Exactly. (Laughs.) So let’s just start at what the standard macro theory of inflation is. Under this model, what happens? Why does inflation occur?

Tedeschi: Sure. Inflation happens when there is too much demand chasing after too few goods. So it can happen because demand increases and supply doesn’t respond, and/or it can happen because the supply of goods contracts, for some reason, and demand doesn’t respond. It can happen for any combination of those two things happening at the same time. Either way, the net result is the same, which is that prices go up.

Demsas: And so when we think about the COVID shock, can you just talk us through that story and 2020, 2021, 2022 inflation based on that theory?

Sure. The COVID shock is kind of interesting because the story is a little different when you look in aggregate, overall—like, 30,000 feet—and when you drill