1 This increase does not reflect an anomalous “snap back” from a massive income decline during COVID. The largest quarterly decrease in 2020 was 2.77 percent, and 2021 first quarter personal disposable per capita income ($58,989) is 18.39 percent higher than 2020 first quarter personal disposable per capita income ($49,825). Separately, reasonable estimates of how far from potential output the economy was during 2021 suggest that (at most) government spending of $680 billion—far less than the $1.9 trillion Congress enacted—would have been sufficient to boost aggregate demand back to its potential. Olivier Blanchard, “In Defense of Concerns Over The $1.9 Trillion Relief Plan,” Petersen Institute for International Economics, February 18, 2021, https://www.piie.com/blogs/realtime-economics/defense-concerns-over-19-trillion-relief-plan.
2 Norbert Michel, “Inflation: A Brief Look Back, and A Path Forward,” Cato at Liberty, November 19, 2021, https://www.cato.org/blog/inflation-brief-look-back-path-forward. Also see Norbert Michel, “Many Consumer Prices Are Higher: Time to Eliminate Government Imposed Economic Roadblocks,” Heritage Foundation Backgrounder No. 3650, August 20, 2021, https://www.heritage.org/sites/default/files/2021–08/BG3650.pdf.
3 Brian Albrecht, “Greed and Corporate Concentration Have Not Caused Inflation,” in The War on Prices: How Popular Misconceptions About Inflation, Prices, and Value Create Bad Policy, Edited by Ryan Bourne, Cato Institute, Washington, DC, 2024, pp. 41–51; and, David Beckworth, “Our Recent Inflation Wasn’t Wholly Driven by the COVID-19 Pandemic and the War in Ukraine,” in The War on Prices: How Popular Misconceptions About Inflation, Prices, and Value Create Bad Policy, Edited by Ryan Bourne, Cato Institute, Washington, DC, 2024, pp. 53–62.
4 The CPI is used because it is the most reported measure, but the same conclusions in this testimony would be drawn had the analysis relied on other common measures of the price level, such as the Personal Consumption Expenditure (PCE) index, the core (the overall price level exclusive of food and energy prices) CPI, or the core PCE.
5 Norbert Michel, “Inflation: A Brief Look Back, and A Path Forward,” Cato at Liberty, November 19, 2021, https://www.cato.org/blog/inflation-brief-look-back-path-forward. Also see Norbert Michel, “Many Consumer Prices Are Higher: Time to Eliminate Government Imposed Economic Roadblocks,” Heritage Foundation Backgrounder No. 3650, August 20, 2021, https://www.heritage.org/sites/default/files/2021–08/BG3650.pdf.
6 Norbert Michel, “The Most Recent Inflation Trend Matters The Most,” Forbes, September 26, 2022, https://www.forbes.com/sites/norbertmichel/2022/09/26/the-most-recent-inflation-trend-matters-the-most/?sh=2a94a6f360d6. Also see Jai Kedia, “Inflation Is Still Trending in the Right Direction,” Cato at Liberty, March 15, 2024, https://www.cato.org/blog/inflation-still-trending-right-direction.
7 These calculations use the annual rates of changes reported each month. Using, instead, annual rates of inflation published at an annual frequency, the averages and standard deviations are essentially the same.
8 U.S. Bureau of Labor Statistics, Consumer Price Index News Release, May 15, 2024, https://www.bls.gov/news.release/cpi.htm.
9 The same observation holds even using the milder 1983 to 2019 subperiod.
10 With lagged recognition, price increases in, for example, owners’ equivalent rent, show up in the CPI as much as five quarters after the actual increase occurred. Jai Kedia, “Inflation Is Still Trending in the Right Direction,” Cato at Liberty, March 15, 2024, https://www.cato.org/blog/inflation-still-trending-right-direction. Also see Norbert Michel, “September Inflation Figures Are No Cause For Alarm,” Forbes, October 17, 2022, https://www.forbes.com/sites/norbertmichel/2022/10/17/september-inflation-figures-are-no-cause-for-alarm/?sh=75d453c96774.
11 Evidence and experience support these broad trends. Jeffrey Miron and Pedro Aldighieri, “The Biden Executive Order and Market Power,” Cato Briefing Paper No. 126, August 24, 2021, https://www.cato.org/briefing-paper/biden-executive-order-market-power.
12 Naturally, companies cannot charge arbitrarily high prices. They are constrained by what consumers are willing and able to pay. Holding all other factors constant, consumers will purchase fewer goods at higher prices, a dynamic that dictates what price firms can charge to cover their costs and earn profits.
13 Ryan Bourne, “Monopoly and Monopsony in the U.S. Economy – Is Big Business Too Powerful? (Part 2),” Cato at Liberty, April 12, 2022, https://www.cato.org/blog/monopoly-monopsony-us-economy-big-business-too-powerful-part‑2.
14 Miron and Pedro Aldighieri, “The Biden Executive Order and Market Power.”
15 Ryan Bourne, “Monopoly and Monopsony in the U.S. Economy – Is Big Business Too Powerful? (Part 1),” Cato at Liberty, April 11, 2022, https://www.cato.org/blog/monopoly-monopsony-us-economy-big-business-too-powerful-part‑1; and, Bourne, “Monopoly and Monopsony in the U.S. Economy – Is Big Business Too Powerful? (Part 2).”
16 In July 2021, a “fact sheet” for a Biden administration executive order tried to tie increased markups (and higher prices) to increased concentration, but a study cited in the fact sheet acknowledged that the median markup in the U.S. had not changed since the 1950s. Gabriella Beaumont‐Smith, Elizabeth Hanke, Diane Katz,
and Norbert J. Michel, “White House “Fact Sheet” on Competition in the U.S.: Long on Claims, Short on Facts,” Heritage Foundation Backgrounder No. 3652, September 16, 2021, https://www.heritage.org/trade/report/white-house-fact-sheet-competition-the-us-long-claims-short-facts.
17 Jai Kedia, ““Greedflation” Is an Accounting Identity Not an Economic Explanation,” Cato at Liberty, June 29, 2023, https://www.cato.org/blog/greedflation-accounting-identity-not-economic-explanation.
18 Kedia, ““Greedflation” Is an Accounting Identity Not an Economic Explanation.”
19 Kedia, ““Greedflation” Is an Accounting Identity Not an Economic Explanation.”
20 Romina Boccia, “Bankruptcy—Gradually, Then Suddenly?,” Cato Policy Report, July/August 2023, https://www.cato.org/policy-report/july/august-2023/bankruptcy-gradually-then-suddenly.