The memo is an uncanny demonstration that the economist Adam Smith was right when he
described the politics of inflation in his famed 1776 work, “The Wealth of Nations.”
“High profits tend much more to raise the price of work than high wages,” Smith argued. “Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price. … They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
Thus, exactly as Smith would have predicted, Bank of America complains loudly about the bad effects of high wages in raising prices, but appears to be silent about the pernicious effects of high profits.
This is especially remarkable given the role that corporate profits have played in the recent increase in inflation. After-tax corporate profits stood at 8.1 percent of the economy at the beginning of 2020 but have since shot up to as high as 11.8 percent of the GDP. In an economy the size of the U.S., that equals an increase of more than $700 billion in profits per year. These higher corporate profits have been
the cause of over 50 percent of recent price increases.
Instead, the memo is focused on the enticing prospect of the Federal Reserve raising interest rates, slowing the economy, and bludgeoning workers back into line.
theintercept.com
