The Problem is Lack of Competition

The glass half empty media’s economic headlines are overwhelmingly focused on inflation. But if you look deeper you’ll see there’s plenty of good news. Retail sales rose in October for the third straight month. October job growth was strong and Goldman Sachs is predicting a significant drop in the unemployment rate over the next year. Child poverty dropped by 29% in one month thanks to expanded child tax credit. Thanks to the Biden administration average food stamp benefits increased by more than 25%. Medium and long term interest rates for car and home loans are still rock bottom.

Sure, inflation is real at 6.2% in October. Regardless of that, “It’s safe to say the bottom 40 percent of Americans are definitely better off in the past year from a combination of rising wages and government aid, even with inflation,” University of Massachusetts economist Arindrajit Dube told The Washington Post. Even after you factor in inflation disposable income has been about 9.5 percent higher in 2021 than it was before the coronavirus pandemic according to Julia Coronado, president and founder of MacroPolicy Perspectives.

All this good news and Republicans with the help of the media choose to focus on inflation without bothering to discuss the causes. Why is that? Because they can rile up the public with fear which allows them to obscure things like the fact that the federal minimum wage, which affects millions of Americans, has been $7.25 an hour for over a decade even though we’ve seen significant inflation over that period.

Republican politicians complain of rising fossil fuel prices but don’t say anything about the possible benefits of investment in green energy, or they sound off on rising food prices but fail to mention that climate change is fueling droughts and/or floods that hit farming areas has made food more expensive.

A major reason for price rises is supply bottlenecks as the chair of the Federal Reserve, Jerome Powell, has pointed out. But there’s a deeper structural reason for inflation which is growing worse: the economic concentration of the American economy in the hands of a relative few corporate giants with the power to raise prices. When markets are competitive, companies keep their prices down in order to prevent competitors from grabbing away customers. But they’re raising prices while raking in record profits. The fact that corporate giants like Pepsico announced it was increasing prices, blaming “higher costs for some ingredients, freight and labor” then recorded $3bn in operating profits through September shows that they didn’t have to raise prices. Their supposed competitor Coca-Cola also raised prices at the same time, increasing its profit margins to 28.9%. Such behavior speaks to potential collusion because it doesn’t happen in a truly competitive market.

There’s a similar pattern in energy prices. If energy markets were competitive, once it became clear that demand was growing, producers would have quickly increased production to create more supply. But they didn’t. Industry experts say oil and gas companies saw more profit in letting prices go higher before producing more supply. They can get away with this because big oil and gas producers don’t operate in a competitive market. They can manipulate supply by coordinating among themselves.

Since the 1980s, when the US government all but abandoned antitrust enforcement, two-thirds of all American industries have become more concentrated. Only aggressive use of antitrust law can correct this structural problem. Don’t expect Senators John Cornyn and Ted Cruz to support that approach, it wouldn’ t sit well with their corporate campaign donors.

Published in the Seguin Gazette - November 24, 2021