WASHINGTON (AP) — President Joe Biden entered office with a plan to fix inflation — but not the particular inflationary problem the country currently faces.
His belief is that one corporate group controls too many industries, which reduces competition for customers and workers. That drives higher prices and lower wages at what the White House says is an average cost of $5,000 a year for American families. Biden is now trying to remedy the situation with 72 separate initiatives — ranging from new rules for cellphone repairs to meatpacking regulations to more merger reviews.
“The dynamics of the modern American economy — increased consolidation and lack of competition — have distorted market incentives in significant ways,” said Brian Deese, director of the White House National Economic Council. “The president told us that he wanted us to come back and say what we could do to solve this problem of consolidation between industries in a way that would be sustainable.
But even administration officials acknowledge that the initiatives outlined by the president’s seven-month-old competition council are not designed to quickly stop the 7.5% inflation that is frustrating Americans and hurting the economy. Biden’s popularity. Further, business groups are challenging the fundamental premise that competition has faded in the US economy and they are prepared to challenge the administration’s new moves in court.
“This is going to strangle economic growth,” said Neil Bradley, executive vice president and policy director for the U.S. Chamber of Commerce. “Ironically what this will do is actually lead to more inflation.”
Part of Biden’s dilemma is that reorienting a bureaucracy to promote competition takes time, and voters want to see inflation — which is at a 40-year high — start to come down now. Voters are feeling the bite of inflation with every trip they make to the grocery store or the gas station, but the president is traveling the country discussing solutions like competition and new infrastructure that predates the current situation and would have a much more gradual impact.
America has faced high inflation for decades. (Source: Senate TV/CNN/Pool)
America’s current inflation problems stem from the pandemic. Supply chains for computer chips, clothing, furniture and other goods are strained. At the same time, consumer demand surged after a historic amount of government aid was injected into the economy. Despite efforts to address supply chain issues, price increases have remained elevated in recent months rather than waning as many initial forecasts suggested. This has the Federal Reserve ready to raise interest rates to reduce inflation.
In a January survey by the University of Chicago, two-thirds of leading economists said concentrated corporate power did not explain the current surge in inflation.
New York University economist Thomas Philippon praised the administration’s approach — while allowing it to do little to bring prices down. As the author of the 2019 book, “The Great Reversal: How America Gave Up on Free Markets,” Philippon is the source for the administration’s claim that market concentration weighs $5,000 on an average family.
What Philippon observed was that other countries had adopted a level of antitrust and competition enforcement that no longer exists in America, resulting in lower costs for cell phone service, d ‘internet and plane tickets in Europe compared to the United States.
“As a way to tackle current inflation, it’s unlikely to have a big impact in the short term, but it can still be helpful,” Philippon said. “I see it more as a positive side effect of something that should be done anyway.”
The Biden administration argues that while the lack of competition did not directly trigger the recent price spike, it did contribute to inflation. The White House Council of Economic Advisers blogged in July about how more sectors of the economy are effectively controlled by fewer companies.
The annual price increase in the United States has been worse than economists had expected. (Source: CNN, POOL, KGUN)
He cited studies that show how mergers have driven up the prices of hospital services, health insurance, airline tickets and beer. He also documented a decline in government merger reviews and noted that the 2020 federal lawsuits against Google and, separately, Facebook were the first major monopolization cases in 22 years.
After the second meeting of the government-wide competition board in late January, the White House charted its progress. The Food and Drug Administration has offered to sell hearing aids over the counter, “reducing their cost from thousands of dollars to hundreds of dollars,” according to a White House statement. The Federal Trade Commission will strengthen enforcement of restrictions imposed by companies on people who repair their own electronic devices. The Department of Transportation believes it can reduce airfare prices in the New York area by opening 16 slots to a low-cost carrier at Newark, New Jersey airport.
As proof that greater competition can lead to lower prices, administration officials cite the example of eyeglasses. Before 1979, people could only buy glasses from doctors who wrote their prescriptions. The FTC then passed a rule requiring doctors to issue prescriptions, dropping the average price of eyeglasses by 30.4% to $178 (in 1979 dollars).
The issue does not cut cleanly along partisan lines. Republican Senators Todd Young of Indiana and Kevin Cramer of North Dakota have sponsored a bill to prevent companies from using non-compete agreements, which can prevent workers from moving to another employer for more money.
But many in the business sector dispute Biden’s basic premise that the US economy has become less competitive. They argue that mergers allow companies to operate more efficiently and that the resulting productivity gains benefit consumers.
The U.S. Chamber of Commerce said market concentration declined in 2017 and it intended to challenge some of the administration’s regulatory actions in court.
Airlines for America, a trade association, says consumers are better off under industry consolidation. In inflation-adjusted terms, he said, the average price of a round-trip ticket has fallen nearly $100 since 2010 to $306 in 2020.
The Business Roundtable, a group representing CEOs, said that in an era of high inflation “heavier government regulations are not what the economy or Americans need.”
Despite the pandemic and inflation, companies have still found ways to make historic profits. After-tax corporate profits accounted for 11.8% of the total US economy in the second quarter of last year, the highest share on record dating back to 1947. The Biden administration argues that government policy can ensure that more of that money goes to workers and customers. .
The Biden administration’s focus on corporate profits and structure could ultimately limit how much companies can charge and that could deter some inflation, said Barry Lynn, executive director of the Open Markets Institute.
“It sends a message,” Lynn said. “You just have to have cops keeping pace, having cops out there saying, ‘Hey, we’re watching. Were watching. We will check your profit levels. We are going to target those who really seem to be exploiting their monopoly power. It will have an effect. »
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