(NEW YORK) — While sky-high inflation has crunched budgets for essentials like gas and groceries, many large corporations have reported record profits, eliciting anger from some everyday people and public officials over price-gouging.

Such frustration recently rose to the fore over eye-popping gas prices. Earlier this month, President Joe Biden sent a letter to major oil refinery companies accusing them of taking advantage of the market environment to reap profits while Americans struggle to afford gas.

The problem extends well binfeyond gas, according to progressives like Sen. Elizabeth Warren, D-Mass., and Sen. Jeff Merkley, D-Ore., who backed a bill last month that would empower a federal agency and state attorneys general to enforce a ban on excessive price hikes.

But economists disagree over the role that elevated corporate profits have played in driving inflation, as some say they account for more than half of the increase in prices while others say they have caused little or none of the hikes.

Some who do blame corporate price-gouging for a portion of the price increases said it arises from market concentration that allows a handful of dominant companies in a given sector to raise prices without fear of competitors undercutting them with lower-priced alternatives. But others doubt that explanation, noting the unlikelihood that a major shift in corporate concentration took place over just a couple years amid the pandemic.

The divide among economists also owes in part to mixed assessments over whether corporate profits have driven inflation or merely responded to it, since a global market rocked by pandemic-induced supply-demand shocks has created a favorable environment for many companies to hike prices.

“It’s a very intense time for people and their pocketbooks — I understand why these debates are very heated,” Michael Konczal, the director of macroeconomic analysis at the Roosevelt Institute, told ABC News. “A lot of people are on team demand, team supply, team transitory, team corporate gouging.”

“I think there’s reflection that there are a lot of causes,” he added. “Even as those causes are evolving.”

Economists agree that inflation owes at least in part to a supply-demand crunch amid the pandemic in which federal stimulus helped consumers purchase goods at the exact time that they got stuck in a production and distribution bottleneck, experts told ABC News.

But economists disagree over how much that supply disruption has contributed to inflation, as opposed to the market environment that it has created, in which companies could raise prices knowing that their competitors faced similar supply shortages that prevented any of them from flooding the market with cheaper alternatives.

“In the case of sector-wide supply chain issues, as during the pandemic, firms know that their competitors face the same bottlenecks as themselves,” Isabella Weber, a professor of economics at the University of Massachusetts Amherst, told ABC News. “The public, too, is aware of the supply issues. Taken together, this presents a pretext to increase prices.”

Josh Bivens, the director of research at the left-leaning Economic Policy Institute, published a study in April that found corporate profits accounted for more than half of the price growth between 2020 and 2021 in the non-finance corporate sector, which makes up about 75% of the private sector.

But the surge in profits stems from a confluence of factors that is likely unique to the pandemic-era economy, Bivens said.

“I view the big fattening of profit margins that boosted prices as another shock, like the pandemic, like the oil price shock,” he said.

A separate report from the Roosevelt Institute, a liberal think tank, found that companies that imposed higher-than-typical markups before the pandemic were likely to be the same companies that hiked prices during the pandemic, suggesting that certain firms exploited their market position to raise prices during the pandemic. In other words, if a company could mark up prices before the pandemic without fear of competitors, it could do so during it.

“This makes us think there’s a small but real role for corporate power to be involved with the increase in inflation,” said Konczal, the economist at the Roosevelt Institute, who co-authored the study.

But other experts contested the explanation that market power or greed has driven companies to exploit market conditions during the pandemic, arguing that high prices reflect forces of supply and demand rather than any misdeed on the part of a company.

Michael Faulkender, a professor of finance at the University of Maryland’s Robert H. Smith School of Business, compared companies charging high prices to an individual who puts his or her home on the market at a favorable time.

“Let’s say I bought a house five years ago, and I’m looking to sell it for whatever reason. Do I price it at what the market will bear or what I bought it for plus a politically correct predetermined markup?” he said. “I’m going to price it at what the market can bear.”

The high prices at the grocery store or the pump are the expected outcome of a market in which individuals have ample money to spend but few products to buy, Faulkender said.

“The limited supply available goes to those with the highest value,” he said. “The profits then generated are a consequence but not the cause.”

Treasury Secretary Janet Yellen appears to share a view that minimizes the role of corporate profits as a cause of inflation. Earlier this month, at a Senate Finance Committee hearing, Yellen refused an opportunity to blame price hikes on company greed, citing supply and demand as the primary explanation.

Bivens, the economist at the Economic Policy Institute, criticized the value of recent price hikes as market signals, which typically tell market actors where to invest resources. The pandemic-induced shift to goods like Pelotons and lumber and away from face-to-face services is unlikely to persist for a prolonged period, he said.

“The line between price gouging versus useful market signals is always a pretty tough one,” he said. “I don’t think these are useful signals.”

Where economists come down on corporate profits informs what, if anything, they think should be done about it. Bivens said he supports a tax on windfall corporate profits, a version of which was proposed by Sen. Bernie Sanders, I-Vt.., in March. Meanwhile, Faulkender said the government should promote greater supply, especially in the energy sector, as a key way to address high prices.

Personal finances nationwide will depend on the outcome for corporate profits, Konczal said.

“Whether they’re naturally competed away on their own, whether policy intervention is going to help nudge the process along, it does have important consequences for inflation and everyday people’s pocket books,” he said.

Copyright © 2022, ABC Audio. All rights reserved.

(NEW YORK) — The industry that overwhelmingly uses the most water resources in the West does so for good reason: to provide sustenance for the rest of the country.

Globally, the agriculture sector uses 70% of all freshwater withdrawals. In California, that number is ever higher — at 80% of the state’s public water supply — and farmers are being forced to transform the way they cultivate crops as megadrought that has been plaguing the region for decades intensifies.

California is the nation’s fruit and vegetable basket and grows hundreds of commodities. But about a third of that water is used to grow just three crops: almonds, pistachios and walnuts — industries that amounted to about $9.5 billion in exports in 2020 — nearly half of the state’s total, according to the California Department of Food and Agriculture. Almonds, which use about 1.1 gallons of water to grow just one nut, according to Pennsylvania State University, and account for about 10% of the state’s water use alone, Arohi Sharma, deputy director of regenerative agriculture for the National Resource Defense Council, a nonprofit, told ABC News.

As a warming planet threatens to worsen drought and heat conditions in the West, farmers may be called to grow the crops that will be most resilient in the changing climate, Sharma said. That could include lessening the amount of land and water dedicated to “thirsty nut orchards,” she said.

Planting nut trees at the height of the drought

Tree nuts are an extremely valuable crop, with growers making a “pretty penny” by selling them, Sharma said. Out of California’s $20.8 billion in in agriculture exports in 2020, three of the five most common exports were almonds, pistachios and walnuts, data from the California Department of Food and Agriculture shows.

In addition, the almonds are shelf-stable for about two years, Richard Waycott, president and CEO of the Almond Board of California, told ABC News in an email.

Using figures from the U.S. Department of Agriculture, Sharma calculated that during the height of the last drought, between 2012 and 2017, farmers planted more than half a million acres of new nut trees. Sharma believes the additional plantings were a result in the rise in value of the commodity, combined with the lack of legislation in California that bars farmers from planting drought-intolerant food crops.

“And without limits or caps on water use, growers will take whatever water they save to simply plant new nut orchards,” Sharma said, adding that it will ultimately be government oversight and the implementation of new policies to force the agriculture industry to conserve water.

Those almonds, pistachios and walnut groves have now grown to more than 2 million acres of land in California — out of the state’s 43 million acres used for farming — creating a “disconnect” between the availability of water and the number of acres that are being planted with “these water thirsty, drought intolerant crops,” she said. California almonds had two record shipments in 2020 and 2021, with “steady, significant growth in the years before,” Waycott said.

California, with its Mediterranean climate, is one of the five places on Earth where almonds “can grow at any scale,” Waycott said. The almond industry has been working for decades on making the industry as sustainable as possible, he added, including the development of micro-irrigation now used on 85% of almond orchards in the state, compared to pre-1982 practices that involved flooding the fields or using large sprinklers.

Almond farmers in California have since reduced the amount of water needed to grow each almond by 33% and is committed to another 20% reduction by 2025, Waycott said.

“While almond farmers have made strides on irrigation efficiency, further improvements are underway,” Waycott said.

Reducing water while sustaining crop output

The challenge will be to reduce some of the agricultural land devoted to these crops and make the farms sustainable so they may continue providing jobs and food for the rest of the country, Pablo Ortiz, climate and waters scientist at the Union of Concerned Scientists, told ABC News. In California’s Central Valley, the low-flow drip irrigation technology that was implemented by farmers there did not save water in the end because they instead used the conserved water to cultivate more crops, Ortiz said.

“So, this deployment of technologies needs to be contained by some other policies that would allow you to actually reduce water usage,” he said, instead of using conserved water for other purposes.

The agriculture industry is one of the many sectors in California that are suffering from an antiquated water sector, experts say.

The infrastructure and business models, many implemented in the 1900s, were not created with the forecast of climate change or water shortages. The system of water rights, or legal rights to extract and use a quantity of water from a natural source based on where the property is located, as well as policies such as the California State Water Project and the Central Valley Water Project, which collect water from rivers and redistribute it to cities through a network of aqueducts provide an advantage to some, Sharma said.

“And now we’re facing the repercussions of these very old inequitable water rights systems and water infrastructure,” Sharma said.

The upshot is that farmers, especially longtime landholders are prioritized over other water customers, according to the Natural Resources Defense Council.

Decentralizing water a potential solution

Robert Bartrop, head of global business development for SOURCE Water, a company that builds custom solutions for water needs, told ABC News he envisions a future in which the water industry decentralizes, in a way similar to the telecommunications and energy industries. In that case, investments would be made to redesign the grids to more efficiently distribute water.

In order to prepare for a future with less water, California, and the West as a whole, will also need to transform its water usage in a way that invests and supports its agriculture industry, Sharma said.

Part of this entails ending the practice of massive single crop farming, which depletes the soil of nutrients, Sharma added.

Instead of growing one or two crops over thousands of acres, farmers are starting to grow a variety in 20-acre tracts to protect the health of the soil and prevent erosion, which will make it so farmers, including those who are reliant on the cultivation of tree nuts, are less reliant on one income stream as well, she added.

Farmers will also need to adapt new regenerative solutions, such as building soil health as a drought resiliency tool so that it can hold onto more water despite being watered less, Sharma said, describing regenerative agriculture as a “holistic approach to land management.”

“We need to start diversifying what’s grown on the property as a way to regenerate ecosystems, as a way to fight drought and pest pressures that are coming as a result of climate change,” she said.

The source of the water is important too, Bartrop said. Farmers will need to be more efficient with using recycled wastewater, or gray water, for their irrigation needs, as there is currently too many resources wasted on making water used to irrigate crops and feed livestock potable, he added.

Groundwater, which the agricultural industry in California has been depleting over the past century, is not the solution, Ortiz said.

“With water scarcity and climate change, it’s important to know this isn’t an emergency event,” Bartrop said of current drought conditions and the threat of water scarcity.

Copyright © 2022, ABC Audio. All rights reserved.