Biden’s monopoly bet – Axios
Monopolies cause inflation – so cracking down on monopolies will cause inflation to fall. In any case, this is the assertion of the Biden administration.
Why is this important: It is very difficult to find good faith arguments on any side of this debate. But one thing is clear: the US government is currently largely blamed for the rapid rise in prices. If inflation goes down, for whatever reason, it will surely claim the credit.
Driving the news: The White House said in december that the rise in meat prices was due to four monopolies in the meat processing industry abusing their 85% market share.
- “Their goal is to control the market so they can control the price,” said NYU professor Marion Nestle. told the NYT Last week.
The other side: The North American Meat Institute said that the White House does not understand agricultural economics.
- They are supported by a Twitter feed by Harvard economist Larry Summers, asserting that increases in demand will not create higher inflation in monopolistic industries than in competitive industries.
- That said, Summers also thinks that “competition helps to limit inflation”, which is well established in the litterature.
The big picture: Corporate profits have skyrockets during the pandemic, thanks in part to the fact that in the current inflationary environment, companies are not finding themselves being punished by consumers for raising prices.
- However, the more competition there is in an industry, the harder it is to raise prices.
Be smart: Monopolies tend to find it easier to raise prices and cause inflation – think of the pharmaceutical companies that regularly raise the price of the drugs they control. Monopsonies, on the other hand, where there is a single buyer and multiple sellers, tend to keep consumer prices low.
- When demand increases, for example in the meat industry, where a small number of meat packers sell to many buyers, supermarkets are forced to compete with each other to buy beef, which means offering to pay more.
- One stage in the supply chain, however, is the reverse: cattlemen do not see prices for their beef increase, as the handful of buyers are able to keep wholesale prices low.
Between the lines: White House Brian Deese told the NYT last month that the focus on antitrust issues “will immediately lower prices for Americans.” It seems unlikely. Supply chain issues and labor shortages aren’t going away anytime soon, especially given anemic immigration.
- But as long as inflation subsides ahead of the 2022 election, the Biden administration now has a way to take credit for it.
The bottom line: Inflation is both a microeconomic phenomenon, a macroeconomic phenomenon and a vector of political attack. Republicans will blame Democrats for causing it — and Democrats will blame greedy societies. Both attacks are stronger against political expediency than against explanatory power.