Brian Albrecht on ‘Greedflation’

Fortune – ICLE Chief Economist Brian Albrecht was quoted by Fortune in a story about the degree to which rising corporate profits are to blame for inflation. You can read full piece here.

“There’s a standard cyclical component to profits,” Brian Albrecht, chief economist at the International Center for Law & Economics, a non-profit, non-partisan research center, told Fortune.

Despite the jarring statistical incongruity, he said, “this is business as usual for the economy,” arguing that corporate profits are returning to trend, just like they typically do as business cycles mature. But to really understand why profits are falling you have to rewind to the brief but devastating recession caused by the pandemic just three years ago.

…Profits tend to rise as economies come out of recessions, according to Albrecht, because demand increases and supply can’t keep up. That, in turn, drives up prices and enables corporations to increase margins.

…Both Leer and Albrecht said they also believe profits will continue to sink this year, but not to the extent that many forecasters on Wall Street are claiming.“I think it would take a real mess-up from the Fed to get that kind of drop in profits,” Albrecht said, arguing that scenario is only likely if Fed officials decide to jack up rates dramatically from here.

…Both Leer and Albrecht, however, stand firmly against the Greedflation theory. They believe the rise of profits in 2020 and 2021 was purely a result of supply and demand imbalances in an economy that was flooded with fiscal and monetary stimulus while supply chains were fractured.

But, like Edwards, Albrecht noted that corporate profits’ sharp rise in late 2020 and 2021 could mean that the recent drop in profits is merely a return to trend, and a recession isn’t imminent.

“Very rapidly falling profits are a sign of recession, but I don’t know if this qualifies as that. You have to remember exactly how dramatic the profit rise was in 2020 and ‘21. So I’m not immediately concerned. They’re falling from that extreme peak. Maybe they’re just falling back to the normal business cycle setup,” he said.