Do you know how many people you will put out of work with your strategy by the end of the year? she asked. He did not know it. “That’s not the goal,” he said. Yes, but, she went on, since your policy provides for one more point of unemployment, that will give two million more unemployed. What do you have to tell them?
US Federal Reserve (Fed) Chairman Jerome Powell was having a bad time. The awkward questions were posed by a woman who had opposed his nomination, calling him a “dangerous man”, Democratic Senator Elizabeth Warren.
It opposes the Fed’s entire inflation-reduction strategy through consecutive interest rate hikes, similar to the Bank of Canada’s here. In the face of inflation, central banks are like hammers looking for nails. Raising rates makes credit less accessible, causing consumers to buy less, aspiring homeowners to delay their purchase, SMEs to invest less. The economy slows down into recession, and families, pushed into unemployment, consume less. Wages are no longer rising or falling, inflation is subdued.
But what happens, Warren asked, when inflation is not caused by demand or wages, but by factors over which you have no control, such as a war in Ukraine the cost of energy, supply chain bottlenecks and the corporate propensity to defraud consumers by adding a layer of superprofits on top of rising costs? Powell had to admit that was out of his hands. He only has one hammer and knocks only on one nail: us.
A more creative and more courageous anti-inflation policy would target the real culprits. Efforts to address supply chain issues are limited. But we have the necessary tools to act on two other elements: excess profits and price manipulation.
Last year in Canada, wages rose less rapidly than inflation. But corporate profits in every sector — energy, retail, finance — grew twice as fast. They made a much higher rate of profit than normal, helped themselves in passing and contributed, much more than the worker or the consumer, to the rise in prices. Yet the jobs and salaries of these business and industry leaders are under cover. Nobody hits their nail.
Are we to think that only Bolsheviks would dare to propose taxing excess profits and using these amounts to reduce costs at the pump? Yes, if you consider that French President Macron, German Chancellor Scholz and all European heads of state are Leninists. They have imposed, via Europe, a special tax of 35% on excess profits, which should generate 300 billion dollars per year, returned to consumers.
They have simply followed the example of British conservative Rishi Sunak. Minister of Finance, he had set this surcharge at 25%. When he became Prime Minister, he raised it to 35%. Within Europe, some countries go further. Belgium is at 38%, Slovakia and Poland at 50%, the Czech Republic at 60%, Greece at 90%. Obviously, there is nothing to prevent extending this special anti-inflation tax on the surplus profits of other sectors of activity, until inflation falls back to 2%, in what should be presented as a major chore for corporate citizens in favor of the common good, to which they are invited through the tax law, to be certain of achieving maximum solidarity.
There is another mechanism to reduce the propensity to exaggerate inflation: preventing too much concentration of corporate and brand ownership. A general rule indicates that when four firms control more than 40% of sales, there is less competition to reduce prices in order to attract consumers. However, in Canada, according to a report by York University, the concentration in the entire food chain far exceeds 40%, reaching 80% in distribution.
The threshold is also exceeded in the energy and banking sectors. The medium-term solution is to put an end to all company mergers beyond a much lower threshold, around 15%. Incidentally, all Quebec vacationers should thank the European Union for blocking the absurd Transat-Air Canada merger, which had the support of François Legault and Justin Trudeau, on the pretext that Transat could not survive. However, it is on track for a rapid return to profitability.
Until we have a Quebec competition office with a backbone—the law prohibits charging consumers twice the current price—nothing discourages this in-between, where the wholesaler or retailer adds without any other reason that the lure of gain is a small 33% or 50% increase. During the pandemic, the British Columbia Competition Bureau invited citizens to report these discrepancies to it. The Consumer Protection Office should here create a Price Hacking Monitoring Unit (the USB) to inform consumers in real time about the identity of the profiteers. This bad publicity would have a beefing effect on the price of, say, beef, and all the others. And with a 1-800-tweak line, we guarantee that the info will come in full door from competitors as informed as they are interested.
In short, when it comes to inflation, we are not the only nails in town. There’s no reason for us to be the star of the show.
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