What planet does President Joe Biden occupy when he talks about corporate profits and rent controls? At his Thursday press conference, Biden said: "I’m not anti-corporate. But corporate profits have doubled since the pandemic — doubled. It’s time things get back in order a little bit. It’s time — for example, if I’m reelected, we’re going to make sure that rents are kept at 5% increase, corporate rents for ... apartments and the like and homes are limited to 5%."
Biden does not understand economics. Profits help make America great. The Left's supporters are apoplectic when former President Donald Trump exaggerates, but when their hero, good old Joe, lies about the corporate sector, they are OK. That's because business is bad and profit is evil.
But profits have not doubled since the COVID-19 pandemic. According to the Federal Reserve Bank of St. Louis, corporate profits are up about 50% since Trump’s Operation Warp Speed saved the nation from COVID-19. The profit data from the St. Louis Federal Reserve include inflation that was caused by the Biden administration’s embrace of Modern Monetary Theory, which says deficits and too much money don’t matter. Biden and the Federal Reserve unleashed inflation, not the corporate sector. Under Biden, the country experienced the highest inflation in 40 years. Without Biden’s inflation, corporate profits as a percentage of gross domestic product would have been relatively flat.
Economic research from the Federal Reserve says point blank : After adjusting for poor fiscal and monetary policy, profit margins appear much less notable. Under Trump, Congress passed the Tax Cuts and Jobs Act of 2017. Wages increased across the board. Business investment surged . The economy operated at full employment, and inflation remained under the Federal Reserve’s 2% price target for all of Trump’s time in office.
Put simply, Biden and COVID-19 wrecked the strong Trump economy. Biden's talk about corporate greed is nonsense. Business is not greedy. When a business engages in monopolistic behavior, its goodwill, its corporate reputation, suffers. Consumers push back. Households substitute consumption choices. The market determines prices. Business accepts the prices determined by the market.
Corporate profit margins have been stable over the past decade. Biden does not understand that profits are a necessary component of capitalism. A business that does not generate profit goes bankrupt. Corporations need profits to invest in more productive assets and in more efficient business operations. Corporations need profits to raise wages. After the TCJA, corporate after-tax profits increased. Economic models demonstrate that fully half of the increase in corporate profits was distributed to labor in the form of higher wages.
What about rent control?
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Nonpartisan economic research shows that price controls reduce supply, create shortages, and raise prices. A negative flywheel effect occurs, and inflation follows. Economic data demonstrate beyond debate that rent controls exacerbate the current housing crisis that so many communities and the nation are experiencing.
Top line: Greed is not good, but corporate profits are very good. Profits help make America great.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society.
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