The Free Market Failed
Corporations have been price gouging our most basic needs
For months and years countless people have been rightfully complaining about, agonizing over, and critiquing the rampant greedflation that’s wracked the United States and driven up the price of everything from eggs to rent. If you’ve somehow eluded this endless, and needed, discourse, the essential claim made by me, numerous readers of this publication, and serious people everywhere is that corporations have used the specter of inflation to jack up prices far beyond the actual cost increases they were incurring. Especially since the onset of the pandemic, and the attendant supply chain issues, companies have been raising prices far faster than they were for most of the past several decades, and the result was record profits — at our expense.
For much of the last four years this greedflation idea was more of a hypothesis than a fact, at least in the eyes of much of the media and more than a few pundits. When I wrote about it back in February I cited what I thought was some strong evidence, but in the intervening months, and in just the last week, indisputable new evidence has come to light. What this latest evidence, provided primarily by federal investigators, shows, is that companies haven’t just been engaged in price gouging or extreme profit extraction, they’ve been conspiring and colluding to take our money hand over fist.
On the one hand, it’s now clearer than ever that customers aren’t crazy, we weren’t losing our minds when we started seeing grocery prices skyrocket and landlords jack up our rent by 25% year over year. So, that’s the good news. On the other hand, corporations and landlords are using software to form some nasty, 21st-century cartels that keep prices high, break the law, and take our money. And, they’re doing it for the most essential goods, things that shouldn’t even be commodities: food and shelter.
While the rampant corporate greed that’s hurting all of us isn’t limited to just housing and food, two federal lawsuits launched over the past week bring our attention to these two, vital sectors. The first is the RealPage suit. This company is so extractive, so harmful to so many people that I likely won’t be able to get to the bottom of it in this piece. In short, RealPage is a software company for landlords. And I don’t just mean small landlords, I mean landlord corporations that own thousands and thousands of apartments and houses. As Democracy Now explains: “ProPublica reporter Heather Vogell, whose investigation first exposed RealPage, says as much as 70% of big apartment buildings in some neighborhoods are owned by property managers using RealPage.”
What these big landlords use this software for is raising rents and maximizing profits. RealPage promises revenue increases up to 5%, and then gets those results by driving rent across large swaths of the market, so renters have little to no choice but to pay more and more. One way they get those results is by being willing, eager even, to increase vacancy rates. RealPage’s math is simple – if rents go up 10% and 95% of renters pay it, vacancy rates going up 5% is just a relatively minor cost of doing business.
Except that for renters the equation is different. What RealPage and landlords are doing means that millions of people have to resort to paying more, moving in search of cheaper rent, or homelessness. And given the fact that rents are now 33.4% higher nationwide than they were before the pandemic, some markets have been hit even harder, and homelessness has reached record highs, we know that none of this is hypothetical. The free market has failed renters. The simple logic of supply and demand has been proven to be an inadequate model when landlords are eager to work together, increase vacancies, and collectively increase their profits at the expense of their clients. Competition has taken a backseat to collusion in the rental market.
In the food business we’re unfortunately seeing the same thing, and it’s manifesting in multiple ways. This week federal regulators launched their suit against Kroger and Albertsons, two grocery giants who want to merge and form the largest supermarket chain in the country. The FTC says that, contrary to what the corporate food sellers argue, the merger would be bad for both shoppers and workers. Both companies argue that the $24.6 billion merger would help them compete with Walmart, but the FTC is arguing that further consolidation in the grocery industry, namely the merger’s creation of a $200 billion company with about 5,000 stores, would create disproportionate market power that would allow for further price gouging of customers, who have already been ripped off at the supermarket in recent years.
Kroger, already a gigantic company, has been raising prices more rapidly than inflation in recent years – something the FTC brought up on day 1 of the trial. If it combined with Albertsons and became an even more powerful corporation, it’s hard to see how that wouldn’t continue. Other parts of the food pipeline have already been caught engaging in collusion to raise prices. Last year the Department of Justice sued Agri Stats, a software company, for “organizing and managing anti-competitive information exchanges” meat processors. Now that might sound boring, but think of it like RealPage for food.
While RealPage allegedly aggregates the private information that various landlords have about the rents they charge, their vacancy rates and more, Agri Stats was “collecting, integrating and distributing competitively sensitive information related to price, cost and output among competing meat processors” according to the DOJ. In other words, it was orchestrating a conspiracy among companies who pretended to compete, while really working together to raise the price of meat across America so that they could all increase their profits.
The parallels in these two cases are clear and striking. The ruling class has brazenly conspired to jack up the cost of our most basic necessities, and the market, which is supposed to magically promote competition and drive down prices, failed utterly. Only robust government investigations and good journalism unearthed and combated these corporate interests, and even with the interventions it’s unclear what the exact consequences will be, let alone whether or not there will be effective remedies.
What we do know is that the free market myth has been busted, again. None of this is new, of course. Recently numerous companies have been caught conspiring in the egg industry, tuna industry, and more. Over a longer horizon, we know that the oversimplified conception of the free market that capitalists try to sell is fundamentally flawed. While economics textbooks preach the virtues of competition, reality shows us that markets tend toward cartels and monopolies. Over a century ago the United States went on a trust-busting spree, breaking up monopolies in the oil industry, telephone industry, and more.
And yet, here we are, facing a 21st-century form of corporate collusion where companies work together in industries that profit off our basic needs. They might be using algorithms now, but the effect is the same. The supposed free market is blatantly unfree, with a handful of extremely powerful actors able to manipulate it and extract profit from us illegally and anti-competetively. These recent investigations and federal suits should anger us doubly, because not only are we being systematically ripped off, we’re being subjected to this injustice by the capitalists who control products we have no choice but to purchase – food and shelter. It’s already a gross indignity to be forced to pay for that which a decent system of economics and governance would provide to everyone as a basic necessity, but to then be price gouged on these needs is a reprehensible offense.
Needless to say, the examples discussed in this piece indict our system both because we see so clearly the lengths capitalists will go to in order to leach profit out of us, even when the product at hand is the necessities of life, and because we see the free market myth exposed once more. Capitalist Economics 101 would tell you that the scenarios detailed in this article, which have been scrupulously investigated by regulators, are unlikely to ever happen. Capitalists are supposed to compete and drive prices down. The market is supposed to magically trend towards the lowest viable price. This view has withstood mountains of evidence to the contrary for over two hundred years. Somehow the “invisible hand” notion that everyone acting out of greed will combine into an efficient force has not yet been laughed out of the room.
Well, now is the time. Powerful economic actors often prefer conspiring together to rip us off, with all of them making more money, to competing with one another so they all make less money. Imagine that. It’s time for all of us to break up with the myth of the free market and its magical, made-up efficiency. Reality shows us that a system based on endless greed is both harmful and inefficient. It’s led to a society where 806 billionaires are richer than the poorer half of the U.S. population (over 165 million people) combined—a lot richer. This system is eroding democracy, ramping up homelessness, and hurting billions. We can do much better, and getting our divorce from the lies of “free market” economics is a way to start. It’s just the beginning, but it’s a step millions of people have yet to make. Right now is the time to get started, and to then begin the work of building a truly equitable world where the roof over our head and the food we eat aren’t price gouged for a handful of people to make huge profits, at the expense of everyone else.
Adam Smith himself warned against the power of monopolists and rentiers—specifically the kinds of power conglomerates focused on here. Thank you for being one of the voices showing clearly that there is no true “free” market at play here.
As Gary Stevenson notes on his YouTubr channel Gary’s Economics, the argument that if we raise taxes on the super rich, they will just take their wealth elsewhere is totally bogus when their wealth is our homes and our grocery stores. They can’t move those assets overseas. It’s entirely possible to regulate and to tax them. And as Grace Blakeley argues in Vulture Capitalism, the “free” market is actually more planned than any planned economy through collusion between capitalists and capital and governments.