Costco's "greed" is causing inflation?

Here's how liberal activists and Elizabeth Warren have got it wildly wrong about my favorite big-box grocer/optometrist/clothier/gas station.

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Elizabeth Warren speaks like someone who knows she’s right because she usually is. She’s right about breaking up the big tech companies, right about banking fees, and right about healthcare debt. But she lost me recently when she tried to address inflation by attacking the one major American corporation that I and pretty much everyone I know feels great about—Costco Wholesale.

That’s right, Sen. Warren is blaming inflation partly on Costco. This is the same Costco that closes on major holidays so its workers can celebrate with their families. The same Costco where I fill up my tank for less, get my eyes checked, find a pair of Levis for $20 and a tweed blazer for $40, stock up on wine and groceries, and grab a hot dog and a soft drink on the way out for $1.50.

People used to say “That dog won’t hunt” to undercut an accusation as laughable as Warren’s. But I will say that you can get everything you need for that dog at Costco and trust that what you’re getting is pretty good quality at pretty-low prices. Blaming inflation on Costco is like thinking exercise is bad for you because working out makes you tired and sore.

The reasoning goes like this: If your profits are going up, then your prices must be going up faster than your costs are rising, and rising prices equals inflation. Sen. Warren has a much more nuanced view of this which we’ll get to in a bit, but she’s happy to ascribe all this to greed. These companies are greedy, she argues, and that’s why they are raising prices. This isn’t inflation, per se, but “greedflation,” that is, using the cover of inflation to jack up prices to increase profits rather than to cover rising costs.

This certainly feels true. According to a recent poll paid for by a progressive activist group, most Americans now believe “corporations being greedy and raising prices to make record profits” is a “major cause” of inflation.

And even Pres. Joe Biden, not notably at home in the activist wing of the Democratic Party, has taken this issue on with drug costs, bank and credit card fees, and airline f*&#ery, though not as much as activist groups would like. “We’re taking on corporate greed to bring down the price of gas, food and rent, eliminating junk fees,” he said last week. Adorably, Biden likes to gripe about Snickers bars being smaller. “It’s like 20% less for the same price,” he said on CNN in May. “That’s corporate greed. That’s corporate greed. And we have got to deal with it. And that’s what I’m working on.”

“Shrinkflation” is real, but is “greedflation”? Are my groceries more expensive because Costco just wants to make bigger profits? According to three economists from the Federal Reserve Bank of San Francisco, nah, bro. Interestingly—and maddeningly—they did find evidence of “greedflation” in the motor vehicle and petroleum industries, but not in the rest of the economy. Markups, or the amount added to the cost price of goods to cover overhead and profit, “have stayed essentially flat since the start of the recovery” they concluded. “As such, rising markups have not been a main driver of the recent surge and subsequent decline in inflation during the current recovery.”

“Markups have stayed essentially flat since the start of the recovery”

It’s fair to ask why prices at the grocery store skyrocketed. First, there were the rising costs associated with suppliers, supply chains, and heck, I don’t know, probably chains, too. But then there’s you. Remember how we all sat around, depositing our relief checks, and waiting to go back outdoors? Well, a lot of us went shopping as soon as they re-opened stores. According to a new analysis out, the real cause of the inflation was all the COVID relief money flooding the economy when we went out and spent it.

But greed is much more fun to attack than admitting that there’s no such thing as free money, so when Costco reported a 29% increase in quarterly earnings year over year, liberals pounced.

“Costco’s massive uptick in earnings answers the question of whether they really needed to raise prices despite easing inflation. In a word: no. Over and over, we see big wholesalers and grocers unnecessarily squeeze American families, chasing record profits rather than stabilizing prices. It’s time these companies answer President Biden’s call to get their greed in check and bring prices down,” said Liz Zelnick of Accountable.us. There you’ve got greed, profits, and American families.¹ That’s lefty Yahtzee.

Back here on earth, though profits rose, Costco missed revenue projections thanks to falling gas prices, and their stock dropped 7.6%, their worst day in two years. The company’s CFO highlighted some bright spots, however. Sales of appliances rose 5.8% thanks to “the retailer's efforts to lower prices on select products that attracted consumers looking to shop by the penny,” reported Reuters. And because of falling freight costs, the retailer expected to soon drop furniture prices 20% to 30%. Also, memberships rose 7.3% to 132 million, which is good for Costco, because memberships are were they make their real money.

Nevertheless, Sen. Warren persisted, introducing the Price Gouging Prevention Act of 2024 to authorize the Federal Trade Commission and states attorneys general to ban “grossly excessive price increases,” which, according to economists, are not happening in this industry. Can you imagine Texas Attorney General Ken Paxton investigating non-existent crimes? What does Sen. Warren think this is? Voter fraud?

Sen. Warren also chaired a Senate subcommittee hearing during which she learned from an owner of a small Brooklyn grocery store that Costco’s prices are so low that customers “are paying almost the same, if not sometimes less than the prices that we pay to get that exact same item at the wholesale level,” he said.

Far from pantsing her argument that Costco’s greed is causing inflation, Sen. Warren took Costco’s ability to charge low prices (she called it “price discrimination”)² as proof that they were discouraging competition. Or as she put it, “So, concentration in the food industry is creating more concentration in the food industry.”³ 

“You know, that kind of price discrimination obviously hurts small businesses. It also hurts consumers, who then end up traveling further to get their groceries because the manufacturers and distributors won't give a fair price to the local grocery stores.”

Got it. Costco is charging so little for food that they’re driving up my gas costs—which I of course mitigate by getting gas 50 cents a gallon cheaper at Costco. And Costco is greedy because they’re dropping prices on big-ticket items and charging customers so little for groceries that competitors can’t get away with charging more.

Want more proof that Costco isn’t greedy? Back when Shrinkflation was first a thing, Costco was the one grocery chain that didn’t charge you more to get less. A Snickers bar was the same size as before. You just needed to buy a dozen of them at a time.

“Want a muffin the size of your head? A jar of olives to last you through 2023? A container of cottage cheese to feed a family of 10? Head to Costco, which appears to base its entire experience on the opposite of shrinkflation,” reported Eat This, Not That.

More than half of all American adults and growing are Costco members. Costco might be the one institution we can all still believe in. Sen. Warren used to be like that for me. When she described a problem and offered a solution, even if I disagreed with her I believed she was being fair with the facts. But here she’s trying to make the facts fit her argument that greed is causing prices to rise—i.e., “greedflation”—and not, in Costco’s case, that more than a hundred million of Americans are willing to give Costco money every year because they trust the company to sell them something pretty good for an even-better price.

It’s disappointing to see Sen. Warren engage in intellectual flabbiness to score political points. It’s political malpractice to do so while unfairly criticizing what is, if not America’s last trusted institution, than at least the one where you can get the best deal on a hotdog.

Jason Stanford is a co-author of NYT-best selling Forget the Alamo: The Rise and Fall of an American Myth. His bylines have appeared in the Washington Post, Time, and Texas Monthly, among others. Follow him on Threads at @jasonstanford, or email him at jason31170@gmail.com.

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1. You ever notice no one seems about American singles? American situationships? Americans who are just hanging out and not putting a label on things? Americans who don’t need a piece of paper to validate their relationship?

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3. No, I am not making that up.