Revenues up, profits down: ‘Greedflation’ isn’t a thing in Minnesota

Yesterday, the Star Tribune reported that “the 50 largest public companies in the state [ranked] by revenue…saw revenue increase 7% to a total of $750.7 billion” in 2022. But, as an old saying goes, “Turnover is for show, profits are for a pro.” The Star Tribune went on to note that:

…profits suffered, and income before extraordinary items declined 6.4% to $59.7 billion, and the collective market caps of the companies dropped even further, down 8.3% to $1.15 trillion.

Ten companies lost money over the past year with the biggest loss coming from struggling Bright Health Group. Another 13 companies saw their profits decrease.

Bright Health also lost 91% of its market value from April 29, 2022, to April 28, 2023, while iMedia Brands also lost 87% of its value during that time and its stock listing moved to a lower tier of Nasdaq. It has been late filing its latest quarterly and annual reports with the Securities and Exchange Commission, but did complete a complicated sale/leaseback deal for several of its properties that gives it a little financial reprieve.

As inflation has surged in the last couple of years, there has been a concerted attempt by some to blame “corporate greed” for rising prices — so-called “greedflation.” These numbers show what a crock that is.

As an explanation for why the rate of inflation suddenly increased, greedflation fails on even a basic level. If the change in the inflation rate was driven by greed, we have to ask what caused the change in greed: why did businesses suddenly become so much greedier in 2021 and 2022 than they had been for four decades? Why have they become less greedy since last summer? There is never any coherent answer to these questions.

If you want to explain the change in a variable, like the inflation rate, you need to pick something that has, itself, changed, like the rate of growth of the money supply.

As I’ve written before, in early 2020 the Federal Reserve rapidly expanded the monetary base, printing up new money to buy Treasuries and keep federal government borrowing costs down as COVID-19 struck and economies were shut down and people were locked at home. This fed through almost immediately into a rapid growth in the broader money supply, M2. The rate of expansion of M2 is closely tied with the rate of growth of the Consumer Price Index — inflation — with a lag of 16 months. That is where our current inflation came from.

A look at the numbers for Minnesota’s companies shows us this. In 2021 and 2022, all that new money began bidding up consumer prices and profits surged: of the top ten companies in 2023, eight saw double-digit increases in their profits in 2022, ranging from 10.0% for 3M to 79.9% for Ameriprise Financial. But these companies have now bid up the prices of their inputs and this has squeezed profits even as revenues have generally continued to rise. This is what explains the fall in profits, not any decline in corporate greed over the last year.