Greedflation is a story that skips the question of why greed took a break

According to a certain school of commentary, American businesses were perfectly decent, public-spirited, price-restraining institutions until sometime in 2021, when they all woke up on the same Tuesday and decided to become greedy.

Folks, I have to hand it to them. That is the first time in history that an entire economy contracted a moral failing at the same moment, like a very expensive flu. And the coverage was something to behold. The word "greedflation" was coined, caught on and spread through headlines and speeches, and the question that any fourth-grader would ask was somehow never asked: what were these companies doing in 2019?

I want to treat the argument seriously, because it has a respectable form and a serious audience, and then I want to answer it, and then I want to tell you why politicians like it so much.

The greedflation case, at its strongest

Let me state it the way a thoughtful defender would. I think the following is a fair statement.

In 2021 and 2022, many large companies reported record profits and profit margins. Corporate profits as a share of the economy reached levels not seen in decades, by some measures. Companies said in earnings calls that they were raising prices, and in some cases that they were raising them by more than their own cost increases. Concentrated industries, such as meatpacking and some other consumer-goods sectors, have a small number of large sellers who can follow one another's pricing. A shock, such as a supply disruption, gives every seller a plausible cover story for raising prices, and the sellers with market power can raise them more than costs require. Some economists argued that this behavior, which they called sellers' inflation, could spread price increases through the economy. Isabella Weber, an economist at the University of Massachusetts Amherst, was among those who made the argument, in a December 2021 piece proposing strategic price controls.

That is a real argument with real data behind it, and nobody should pretend the profit numbers were invented. Margins were high. Companies did say these things. A conservative who wants to win this debate has to start by conceding the facts.

The answer, in numbered points

One: greed is a constant

Here is the heart of it. Greed, in the sense relevant to pricing, means that sellers would like to charge more. That desire is permanent. It was there in 2019. It was there in 1995. It was there when Adam Smith wrote in The Wealth of Nations in 1776 that people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. Smith did not think that sellers had suddenly changed. He thought sellers were always like this, and that the answer was competition.

If a cause is constant, it cannot explain a change. When prices rise sharply in one year and barely at all in the five before it, the thing that changed is the explanation. Blaming greed for inflation is like blaming gravity for a plane crash. Gravity is always there. The question is why the plane fell today.

Two: what changed was demand and money

What changed in 2020 and 2021 was the amount of money chasing goods. I laid out the evidence in what caused the inflation of 2021 to 2023, weighing the honest evidence: trillions in federal relief spending, including the American Rescue Plan of March 2021, and a Federal Reserve that held its policy rate near zero until March 2022. When customers have more money to spend and the supply of goods is limited, sellers find that they can raise prices without losing sales. The seller's desire to charge more did not change. The buyer's ability to pay more did.

This is the point that the greed story skips. A seller can only charge what the buyer will pay. In a weak economy, a seller who raises prices loses customers to a rival. In a flush economy, the same seller raises prices and the customers pay. Greed is the engine that was always running. Demand is the road that opened up.

Three: look at the grocery aisle

Take the sector people feel most. Grocery retail is a famously low-margin business. Net profit margins at supermarkets and grocery retailers run in the low single digits (the industry's trade association reports an average of 2.1 percent for 2025), a few cents on each dollar of sales. A shopper who believes the store is gouging has to explain why a business that keeps two or so cents of every dollar is the villain of the story and why the other 98 cents, which pay for the farmer, the trucker, the packer, the employees, the electricity and the rent, are not.

And grocery is fiercely competitive. Stores in every town fight over the same customers. There are warehouse clubs, discounters, national chains, regional chains, online sellers, and store brands that undercut the national brands. When one chain raises prices too much, shoppers go to another, and that is precisely the discipline that keeps margins thin. Competition is the answer to greed that Adam Smith recommended, and it works. If the grocery business were an easy place to profit by collusion, one would expect to see a long line of new entrants, and in fact one does: it is a field that attracts new entrants all the time.

Four: margins fell back as policy tightened

If greed caused inflation, then profit margins should have kept rising as prices did. They did not behave that way. As the Fed raised rates through 2022 and 2023 and demand cooled, the pricing power that companies had enjoyed in 2021 weakened, and, by the measures I have seen, margins came down from their highs. I would not ask you to take that on my word: check it in the profit data published by the Bureau of Economic Analysis, and use the series you trust. A theory that says sellers raised prices because they chose to, and that offers no account of why they stopped, has a hole in the middle. The story that fits is the one in which sellers took what a hot economy allowed and gave some of it back when a cooler economy withdrew it.

I should say that the high margins of 2021 are evidence for my side. They were not the cause of inflation, they were a symptom of strong nominal demand: when spending surges and costs lag, profits per unit rise in the short run. Then costs catch up and margins narrow. That is what the profit cycle looks like in a demand-driven inflation.

Five: the political uses of blaming sellers

Now to the part that I find most instructive. Why did this story spread so fast?

Because it is useful to the people in charge. If inflation is caused by greedy corporations, then it is not caused by trillions in government spending. If it is caused by corporations, then the remedy is not to cut spending or tighten money, which are unpopular, but to punish the villains with price controls, windfall taxes or investigations, which are popular. The story shifts the blame from the people who control the money supply and the budget to the people who run the stores. It is the oldest trick in the book: when prices rise, find a shopkeeper to hang.

And the trick has a long history. The Roman emperor Diocletian tried to freeze prices in 301 with an edict that is one of the most famous failures of price controls. Nixon's 1971 freeze is another, and I covered the aftermath in The Great Inflation of the 1970s was a policy choice, not bad luck. The record of price controls is that they create shortages, because a controlled price tells producers to make less. A thought experiment about what happens when a committee sets prices is in a thought experiment where every price in town is set by a committee, and the record of rent control, where the experiment has actually been run, is in Rent control's record from Stockholm to San Francisco is the same story. The opposite case, a country that lifted price controls and got a boom, is in Ludwig Erhard ended price controls on a Sunday and launched a miracle.

Where the other side has a point

I promised to be fair. Here is what I will concede.

Some markets are concentrated, and some companies have pricing power. When a few firms dominate a sector, the competition that disciplines greed is weaker, and conservatives who love markets should care about preserving competition, not about defending whatever the largest firm in the industry wants. Antitrust enforcement against real collusion, such as price-fixing, is a legitimate function of government. A company that conspires to fix prices commits a crime, and the Sherman Act of 1890 has been on the books for a long time for that reason.

I would add that regulation is one of the main things that protects big firms from competitors, as I describe in big companies love the regulations their small rivals cannot afford. The way to make markets more competitive is to lower the barriers that keep rivals out, not to hand more power to the regulators who write them.

Second, a rise in profit margins deserves explanation, and "demand" is not a complete one for every industry. Reasonable economists argue that in some sectors the pricing power of firms was a real amplifier. I think that amplifier operates on top of a demand surge, not in place of it, and I would be glad to see more careful research on the question. But "amplifier" and "cause" are different words.

The numbers a skeptic should ask for

If a politician tells you that greed caused inflation, here are three questions to ask.

First: if companies are greedy, why were prices stable in the years before? A greedy company that could have raised prices by ten percent without losing sales would have done it in 2018.

Second: if companies can set prices at will, why do some of them go bankrupt? Companies in competitive markets fail all the time because they cannot charge what their costs require. A firm with unlimited pricing power does not go out of business.

Third: why did inflation fall after the Fed raised rates, with no change in corporate character? If greed were the cause, the remedy would be moral reform. In fact the remedy was a higher cost of money and slower growth in spending, which is what the demand explanation predicts.

There is also a plain test of the greed story that every household can run. If prices are set by greed, then the way to lower them is to put a leash on greed. If prices are set by supply and demand, the way to lower them is to reduce the excess demand and let supply grow. One of those approaches was tried at the Fed in 2022 and 2023, and the other has been tried by every government that ever froze prices. You can decide which has the better record.

Why it matters to a family

A family reading a headline about greedflation draws a conclusion: the problem is out there, in the stores, and the answer is to be angry at the store. That conclusion is useful to the people who set the budget and the money supply, and useless to the family. It does not tell them that the dollar in their pocket buys less because more dollars exist, and it does not tell them whom to hold accountable. I count the cost to a household on a fixed income in inflation hurts the poor most, and the arithmetic of a fixed paycheck. And the reason profit is a useful signal, not a sin, even when it is high, is the subject of profit is a signal, not a sin, and what a loss tells a company.

The Founders had a view of this too. The Constitution gives Congress the power "To coin Money, regulate the Value thereof." It does not give anyone the power to regulate the greed of grocers. The value of the dollar was assigned to the government, and a government that debases it should not be allowed to blame the man who sells the bread.

The case in brief

1. The greedflation story, at its best, points to record margins in 2021 and to concentrated industries with pricing power, and a fair critic must concede those facts.
2. Greed is a constant, so it cannot explain a change: companies were as eager to raise prices in 2019 as in 2021, and what changed was the supply of money and the spending power in buyers' hands.
3. Competitive sectors such as grocery retail run on thin margins, and margins fell back after policy tightened, which fits a demand-driven inflation and not a sudden moral lapse.
4. The story is politically convenient because it replaces a hard answer about spending and money with a villain at the checkout counter, and the remedy it invites, price controls, has a long record of failure.
5. Real collusion should be prosecuted, and barriers to competition should be lowered, but neither is a theory of inflation.

What you can do: pick one price that rose in your household budget, look up the producer and consumer price index series for it at the Bureau of Labor Statistics, and ask your representative to explain the spending and money behind it, not the shopkeeper.