How a corporate-margin expansion became a story about wages, stimulus, and the Federal Reserve — and why the sectors with pricing power preferred that telling.
In late 2021 and through 2022, a striking pattern emerged in the quarterly earnings calls of large U.S. consumer-facing firms. The chief executives of Tyson Foods, Kroger, Procter & Gamble, PepsiCo, Mondelez International, and Constellation Brands, among others, told their investors something that would have been dissonant if the public conversation about prices had been listening: pricing was working. Higher prices were sticking. Volumes were holding. Margins were expanding. Pricing was, in the language of the calls, a tailwind. Pricing was a strategy. Pricing was a story for the year ahead.
In the same months, the dominant U.S. media narrative about inflation centered on three other actors — the consumer who had been overstimulated by federal pandemic relief, the worker who was demanding too much in too tight a labor market, and the Federal Reserve, which would have to discipline both with interest rate increases. The economist Lawrence Summers, in a Washington Post op-ed published in February 2021, described the American Rescue Plan as the spark that would light the kindling of inflation. Within a year his framing had become the consensus position in the financial press, in the Federal Reserve’s public communications, and in the political reaction that followed.
The two stories — the candid one inside the earnings call, and the consensus one outside it — described the same economic event. Only one of them named the actors who were actually setting the prices. The gap between them is the subject of this article.
Begin with the question almost no one asked: what is inflation? Operationally, it is a number — the year-over-year percentage change in a specified basket of goods and services, published by the Bureau of Labor Statistics as the Consumer Price Index, or by the Bureau of Economic Analysis as the Personal Consumption Expenditures price index. Conceptually, it is whatever the dominant ontology of inflation says it is. And in U.S. economic discourse, the dominant ontology is monetarist: too much money chasing too few goods, with the Federal Reserve’s policy interest rate as the lever and the unemployment rate as the transmission mechanism. This ontology was consolidated in the response to the 1970s inflation crisis, codified in the Federal Reserve’s 2012 adoption of an explicit two-percent PCE inflation target, and elevated to near-orthodoxy through three decades of low-inflation experience that appeared, in retrospect, to vindicate it.
The monetarist ontology has a specific feature relevant to 2021-22: it has no transmission mechanism for firm pricing decisions. In the orthodox model, prices are set by markets in equilibrium, not by firms with strategic discretion. Firms are price-takers. The role of dominant firms in concentrated sectors — their ability to raise prices, observe whether competitors follow, and lock in higher margins if they do — is not in the model. Pricing power, as a category of macroeconomic analysis, was largely written out of mainstream U.S. economics by the early 1980s and replaced with the assumption of competitive markets.
This is an ontological claim about what kind of thing inflation is. It is contestable, and it has been contested. But its contestation appeared almost nowhere in mainstream U.S. coverage in 2021-22, because the ontology had been institutionalized — built into the Federal Reserve’s policy framework, into the Council of Economic Advisers’ modeling, into the Congressional Budget Office’s projections, into the curricula of the major economics PhD programs, and into the language journalists and editors had inherited from those institutions. When firms began raising prices and explaining why on earnings calls, the financial press did not have a vocabulary in which to ask whether the firms themselves were the proximate cause.
Margin defense is the process by which firms with pricing power use moments of widespread price uncertainty to convert input cost shocks into permanent markups, and then defend those markups once input costs ease. The mechanism does not require collusion. It requires only that firms in concentrated sectors — sectors where a handful of producers account for the majority of supply — observe one another’s price increases and recognize the moment as one in which raising prices will not lose them market share. The covering narrative that supply chain stress and labor shortages are forcing prices up provides the political and consumer-relations cover. The earnings-call audience hears the truer story, because that audience needs to.
This is not a single mechanism. It is a family signature: extraction (Family 1) plus manufactured scarcity (Family 2) plus burden shifting (Family 4) plus narrative-and-legitimacy defense (Family 7). Margin defense captures the extraction. Demand manufacturing — the use of pre-emptive announcements, stockpile language, and product-shortage messaging to shape consumer expectations of higher prices — is the Family 2 contribution. Cost shifting — the transfer of input cost shocks downstream to consumers, with a markup retained on top — is the Family 4 move. And narrative laundering, the substitution of a wage-price-spiral story for the margin-expansion story actually unfolding, is the Family 7 protection that allowed the mechanism to operate at the scale and duration it did.
The operational evidence emerged in stages. Mike Konczal and Niko Lusiani, at the Roosevelt Institute, in a June 2022 paper, documented that markups in U.S. nonfinancial corporations had reached the highest level on record in 2021. Isabella Weber and Evan Wasner, at the University of Massachusetts Amherst, in a working paper released in early 2023, formalized the concept of sellers’ inflation and argued that concentrated pricing power had played a substantial role in the post-pandemic price increases. The European Central Bank, in analyses through 2023, identified profits as a major contributor to euro area inflation. The International Monetary Fund, in a June 2023 paper on euro area inflation after the pandemic and energy shock, attributed approximately forty-five percent of the inflation to corporate profits. The Bank for International Settlements published similar findings.
By late 2023, the pricing-power thesis had been absorbed into the working models of the Federal Reserve, the European Central Bank, and the IMF. By that point, the wage-discipline interest rate cycle had run its course in the United States. Two years of rate increases had been justified to the public on the basis of an inflation story that the central banks themselves were beginning, quietly, to revise.
The structure that allowed the mechanism to operate at scale was four decades in the making. It rests on three pillars.
The first is sector concentration. Forty years of weakened antitrust enforcement, beginning with Robert Bork’s 1978 The Antitrust Paradox and consolidated in the consumer-welfare standard adopted by the Reagan administration’s Department of Justice, produced consumer-facing sectors in which a handful of firms account for most U.S. supply. Four firms control roughly eighty percent of U.S. beef processing — Tyson, JBS, Cargill, and National Beef. Three firms controlled most of the U.S. infant formula market when the 2022 Abbott Laboratories shutdown produced nationwide shortages; the consolidation was the proximate cause of the shortage being national rather than local. Two firms dominate the U.S. eyeglass market through the EssilorLuxottica vertical chain. The pattern repeats across packaged goods, grocery retail, agricultural inputs, telecommunications, airlines, pharmacy benefit managers, and pharmaceuticals. Pricing power is the operational consequence of this concentration. It is what the firms have because no one stopped them from acquiring it.
The second pillar is the absence of any federal price-monitoring or price-regulation capacity for non-utility consumer sectors. The Office of Price Administration, which during World War II operated comprehensive price controls covering roughly ninety percent of consumer goods at its peak, was shuttered in 1947. Federal price-control authority was used briefly under the Nixon administration — the August 1971 wage-price freeze and the subsequent phased controls administered by the Cost of Living Council — and abandoned by 1974. Since then, no federal agency has had standing capacity to monitor, much less regulate, prices in concentrated consumer-facing sectors. State-level price-gouging statutes exist in most states but apply narrowly, typically only during declared emergencies. The institutional vacuum is not an accident. It is the product of a deliberate decision, carried across multiple administrations, to remove price formation from the realm of public policy.
The third pillar is the asymmetry of the Federal Reserve’s policy toolkit. The Fed has one inflation lever: the federal funds rate. Raising rates is supposed to reduce demand by raising the cost of credit. The pathway by which this disciplines wage growth is well understood and explicit in the Fed’s own communications: higher unemployment reduces wage pressure. The pathway by which raising rates would discipline corporate pricing power is not specified. There is no transmission mechanism in the orthodox framework that connects a higher federal funds rate to a decision by Tyson or Kroger to lower prices. Workers and small businesses bear the cost of monetary tightening directly. Concentrated firms with pricing power bear it only indirectly, if at all. The instrument was wrong for the problem.
The beneficiaries of the arrangement are visible in corporate earnings data. After-tax corporate profit margins, as reported in the Bureau of Economic Analysis’s National Income and Product Accounts, reached the highest level since the 1950s in 2021 and remained near that level through 2022. The S&P 500 closed 2021 with a record annual return; consumer staples, energy, and selected industrials were among the sectors with strongest margin expansion. The wealthiest ten percent of U.S. households, who hold roughly ninety percent of U.S. equities according to the Federal Reserve’s 2022 Survey of Consumer Finances, captured the bulk of the resulting asset gains. Senior executives whose compensation is tied to earnings per share — the dominant compensation structure in the S&P 500 — were direct beneficiaries.
The burden fell where it usually falls. Real wages — nominal wage growth minus inflation — declined for most U.S. workers through 2021 and 2022 even as nominal wages grew at the fastest pace in decades. The Federal Reserve’s interest rate increases, beginning in March 2022 and totaling 525 basis points by July 2023, raised mortgage rates, auto loan rates, and small-business credit costs. The unemployment rate did not rise sharply, but the labor market cooled — quits declined, openings declined, wage growth at the bottom of the distribution decelerated faster than at the top. Renters faced lease renewals that locked in the new pricing baseline; the median asking rent in the U.S. rose roughly twenty percent from January 2020 to mid-2023. Households on fixed incomes — most prominently older Americans on Social Security, whose annual cost-of-living adjustments lag the price increases they are meant to offset — absorbed the loss of purchasing power directly.
And the burden fell, again, on the political imagination. The two-year debate about U.S. inflation was conducted almost entirely in the vocabulary of consumers, workers, and central bankers. The vocabulary of firms with pricing power did not enter mainstream coverage at scale until late 2022 and remained marginal even after the IMF, the ECB, and the BIS had absorbed the thesis. The political reaction — congressional hearings on grocery prices, executive orders on competition, the Federal Trade Commission’s revived merger guidelines — followed the thesis with a lag of roughly eighteen months. Most U.S. households learned that pricing power had played a major role in their cost of living, if they learned it at all, after the policy response that ignored it had already disciplined their wages and their borrowing.
The phrase doing the most work was wage-price spiral — a 1970s term reanimated for 2021-22 by Lawrence Summers, by the Wall Street Journal editorial board, by Federal Reserve communications, and by the financial press generally. The term carried with it an implicit causal story: workers demand higher wages, firms pass the wage costs through as higher prices, workers respond with further wage demands, the spiral accelerates. The story has empirical problems — the 1970s spiral itself is contested in the economic literature, with much of the price increase attributable to oil shocks rather than wage demands — but its rhetorical power is durable. It locates the cause of inflation in worker behavior. It justifies a monetary response that disciplines workers. It makes the firms with pricing power invisible.
This is narrative laundering in operation: the substitution of a familiar but misdirecting story for the unfamiliar but accurate one. Adjacent variants — consumer-driven inflation, the Fed has to break the back of inflation, too much money chasing too few goods — performed the same function. Greedflation, when it appeared in 2022, was treated in much of the financial press as a partisan slur rather than an empirical claim, even after the IMF and the ECB had vindicated the substantive proposition it was awkwardly trying to express.
The narrative shield was reinforced by possibility closure and austerity framing, the Family 7 mechanisms that ruled out the price-policy interventions the situation called for. Strategic price controls, sectoral price regulation, windfall profit taxes, antitrust enforcement against the pricing decisions of dominant firms — each was dismissed in mainstream U.S. coverage as politically infeasible, economically inadvisable, or both. The dismissals appeared as if from neutral economic ground. They were operating from a specific ontology that excluded firm pricing power from the legitimate causal account.
The counter-mechanisms the dominant frame ruled out are well-established categories of public economic action. Antitrust enforcement and structural separation would address the concentration that produces pricing power in the first place. Price regulation and rate-setting would constrain the use of that power in essential sectors during periods of stress. Profit caps and windfall taxes would recover the rents extracted during such periods. The U.S. has used each of these counters in its own past.
The first precedent is domestic and historical. The Office of Price Administration, established by the Emergency Price Control Act of 1942, regulated prices on roughly ninety percent of U.S. consumer goods at its peak. The OPA employed approximately 200,000 people, set prices through a national network of regional offices, and held inflation below five percent annually for the duration of World War II despite massive wartime demand and supply constraints. The agency was contested — businesses chafed at the controls, the rationing system was unpopular, and political pressure dissolved the program by 1947 — but the operational record is unambiguous. Federal price administration at scale is a known U.S. capability, deployed within living memory of the previous generation. The infrastructure was dismantled because it was politically defeated, not because it failed.
The second precedent is recent and foreign. The United Kingdom’s Energy Profits Levy, enacted in May 2022 and subsequently extended, imposed an additional twenty-five percent tax (later increased to thirty-five percent) on the profits of oil and gas producers operating in the U.K. Continental Shelf. The levy raised approximately £6 billion in its first year. Spain enacted a comparable windfall tax on energy companies and large banks. Italy followed. The European Union as a whole adopted a coordinated framework. The taxes were not described in their countries of enactment as fiscally infeasible or economically dangerous. They were enacted because the political coalition existed to enact them. The same instrument was available in the United States and was not used.
The third precedent is recent and domestic. The Inflation Reduction Act of August 2022 authorized the Centers for Medicare and Medicaid Services to negotiate prices directly with pharmaceutical manufacturers for a specified set of drugs. CMS announced negotiated price reductions of thirty-eight to seventy-nine percent below list prices for the initial ten drugs, with the negotiated prices effective in 2026. The law applies only to a narrow set of medications and only within Medicare, but as a proof of category it is decisive: the U.S. federal government has the institutional capacity to negotiate prices directly with concentrated suppliers and to implement the resulting prices. The capacity exists. It is used in one sector and not in others by political choice.
The reframing is this: the U.S. inflation of 2021-22 was substantially a margin event, and the policy response — two years of Federal Reserve interest rate increases that disciplined workers, renters, and small businesses — was the wrong instrument for a price problem caused, in large part, by the pricing decisions of firms in concentrated consumer-facing sectors. The wrong instrument was used because the dominant ontology of inflation excludes firm pricing power from the causal account. The correct instruments — antitrust enforcement, sectoral price regulation, windfall profit recovery — were ruled out by a narrative shield that treated them as either inconceivable or illegitimate.
The pricing power was not new. The concentration that produces it was decades in the making, the institutional vacuum that permits it was deliberately constructed, and the ontological framework that conceals it has been the dominant frame in U.S. macroeconomic discourse since the early 1980s. What was new in 2021-22 was that the firms exercised the power openly, told their investors candidly, and were rewarded by markets that understood the story even as the public press was telling a different one.
The actual story of those two years is recoverable. The IMF, the ECB, the BIS, the Roosevelt Institute, and the University of Massachusetts Amherst economics department have published it. The story would have made a different policy response possible. The story was not told at scale in U.S. mainstream economic coverage in time to matter for the policy response. That gap — between the story the firms told their investors and the story the public was asked to believe — is the work scarcity accountability journalism exists to do.
Infinite Economics covers the political economy of pricing power, market concentration, and the institutional mechanisms that shape household cost of living. This piece is part of our ongoing investigation of post-pandemic inflation and the institutional vacuum in U.S. price policy.
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