The Wall Street Journal editorial and opinion page is a staunch defender of sound economics and free markets. But, unfortunately, an anti-business bias and unsound grasp of economics has started to influence its news division’s ostensibly objective coverage. The latest example comes courtesy of reporter Paul Hannon, who just penned a piece titled: “Why Is Inflation So Sticky? It Could Be Corporate Profits.”
In this article, Hannon regurgitates a socialist theory about inflation that is illogical, unsubstantiated, and not supported by the vast majority of economists. However, he presents it as facially reasonable and does not include a single critic or alternative viewpoint in his coverage.
“Inflation has proved more stubborn than central banks bargained for when prices started surging two years ago,” Hannon writes. “Now some economists think they know why: Businesses are using a rare opportunity to boost their profit margins.”
“According to economists at the [European Central Bank], businesses have been padding their profits,” the article continues. “That, they said, was a bigger factor in fueling inflation during the second half of last year than rising wages were.”
Hannon then goes on to cite a paper by economists Isabella Weber and Evan Wasner of UMass Amherst—a fringe, far-left economics department—that purports to show corporate profits at historical highs and blames that for the ongoing inflationary period we’re in.
As economist Gene Epstein pointed out, this research is deeply flawed. It looks at post-tax profits. However, corporate taxes were recently slashed, so post-tax profits were always going to be higher on paper. If you look at pre-tax profits, Epstein notes, “profit margins aren’t unusually high historically & are generally similar to low-inflation decades of 1950s & 1960s.”
3)This chart replicates Weber's calculations (same denominator), except the blue & red lines more accurately track pre-tax profits. Note recent profit margins aren't unusually high historically & are generally similar to low-inflation decades of 1950s & 1960s. 3/3 pic.twitter.com/kL2IAa4Auy
— Gene Epstein (@GeneSohoForum) May 3, 2023
That might’ve been a useful point to include in Hannon’s article. Or, he could have included an IGM Chicago survey of economists where, weighted for confidence, 80% said that “dominant corporations in uncompetitive markets taking advantage of their market power to raise prices in order to increase their profit margins” was NOT a “significant factor” in inflation.
Alternatively, the article might’ve simply mentioned the fact that corporations are always greedy and always profit-maximizing. That didn’t change between 2019 and 2021. But inflation did. It further could’ve discussed the other causes of price inflation that actually have had an effect, like government money-printing and spending, that it completely omitted.
To be clear, I’m not saying that a reporter shouldn’t discuss or cover a prominent left-leaning theory of inflation. After all, these same talking points have been echoed by the likes of Bernie Sanders and Elizabeth Warren. They’re clearly newsworthy. That said, there’s a big difference between covering a range of ideas and uncritically parroting talking points.
We all know the mainstream media has a liberal bias. But the Wall Street Journal is supposed to be different, and actually offer sound coverage of the economy that’s not distorted by progressive ideology. Yet at least one Journal reporter is woefully failing at that important task.