Say what you will about the Biden administration, but subtlety is not one of its stronger points. The current transitory inflationary surge is by no means solely down to its policies — far from it — although the $1.9 trillion American Rescue Plan passed earlier this year will certainly have played its part.
Brian Riedl, writing for Capital Matters a couple of weeks back:
ARP’s more urgent failure is its significant contribution to today’s soaring inflation. In early February, CBO estimated that the baseline economy would operate $420 billion below capacity in 2021, and a total of $857 billion (or about 1 percent) below capacity over the next four years before returning to full employment in 2025. Even for those soft Keynesians who believe that government spending has a small multiplier, a $1.9 trillion stimulus bill would vastly overshoot the output gap. And once America’s output capacity taps out, any additional stimulus will simply bring inflation. Don’t take my word for it. Top Clinton and Obama White House economist Lawrence Summers warned Democrats that ARP would accelerate inflation.
And inflation is precisely what occurred. . . .
Larry Summers has now returned to the debate (yet again) with an enjoyably brutal thread on Twitter, taking down the administration’s idea that antitrust can be deployed as a weapon against inflation.
Antitrust?
Yes, antitrust.
As rising inflation threatens his presidency, President Biden is turning to the federal government’s antitrust authorities to try to tame red-hot price increases that his administration believes are partly driven by a lack of corporate competition.
Mr. Biden has prodded the Agriculture Department to investigate large meatpackers that control a significant share of poultry and pork markets, accusing them of raising prices, underpaying farmers — and tripling their profit margins during the pandemic. As gas prices surged, he publicly encouraged the Federal Trade Commission to investigate accusations that large oil companies had artificially inflated prices, behavior that the administration says continued even after global oil prices began to fall in recent weeks.
The push has extended to little-known agencies, like the Federal Maritime Commission, which the president has urged to search for price gouging by large shipping companies at the heart of the supply chain.
The turn to antitrust levers stems from Mr. Biden’s belief that rising levels of corporate concentration in the U.S. economy have empowered a few large players in each industry to raise prices higher than a more competitive market would allow…
As left-populist conspiracism goes, this narrative, which Elizabeth Warren has been pushing for a while, is not the most original, but there we are.
In the course of his tweets, Summers refers to the NYT article (which is well worth reading) and makes what I suspect he thinks is a necessary disclaimer:
I hope the Admin is simply using inflation as a way of adding urgency to the promotion of competition. That is a possible reading of this important . . . article. I strongly support much of the Admin’s competition agenda.
Fine, fine, but inflation?
Summers:
The emerging claim that antitrust can combat inflation reflects “science denial”. There are many areas like transitory inflation where serious economists differ. Antitrust as an anti-inflation strategy is not one of them.
And:
However, as described, hipster Brandeisian antitrust, with which the Admin and its appointees flirt, is more likely to raise than lower prices.
Hipster Brandeisian antitrust!
Summers:
To start, increases in prices and profit margins are what happens when competitive industries experience increases in demand. That is what calls forth increased supply. This is how a market system operates.
There is no basis in economics for expecting increases in demand to systematically [yield?] larger price increases for monopolies or oligopolies than competitive industries.
Monopoly may lead to high prices but there is no reason to expect it to lead to rising prices unless it is increasing. There is no basis whatsoever thinking that monopoly power has increased during the past year in which inflation has greatly accelerated.
Rising demand, with capacity and labor constraints, are fully sufficient to account for what we observe in meat packing — Administration claims notwithstanding.
Breaking up meatpacking would in the short run lead to reduced supply which would further increases prices. In general, when government goes to war with industries it discourages investment and subsequent capacity.
Note that last sentence. For a classic example of what going “to war with industries” does, please take a look at the effects of decades of Peronist (or quasi-Peronist) policies in Argentina (where the government has, incidentally, spent much of the year messing around with the beef market), policies which have contributed to a remarkable history of economic decline, and have not exactly done much to curb inflation. If the Biden administration is adopting an approach with some resemblance to what’s been tried over the years in Argentina, that is . . . not a good sign.
Summers:
The traditional approach to antitrust is based on consumer welfare. This means seeking the lowest possible prices for consumers. To the extent that alternative Brandeisian approaches embraced by some in the Administration are different that will mean HIGHER prices.
If, for example, Walmart had been stopped from expanding, or Amazon had been kept from entering new markets, prices would be higher not lower today.
Resisting bigness per se, even when it comes from efficiency or seeking to protect competitors from efficient rivals, is a prescription for higher not lower prices…
Throw in the way that other administration policies are likely to boost inflation (not least through Greenflation), and it is not hard to see why the White House is looking so hard for scapegoats to blame for today’s rising prices, but no one should expect this search to lead to lower prices. If anything, it will mean the opposite.