President Joe Biden into office with a plan to address inflation, but not the specific inflationary challenge that the country is currently facing.
His opinion is that a small group of firms controls too many sectors, reducing competition for both customers and employees. This results in higher costs and lower incomes, with the White House estimating that the average yearly cost for American households is $5,000. Biden is now attempting to correct the issue with 72 separate efforts, ranging from new requirements for cell phone repairs to meatpacking restrictions to further merger reviews.
“The contemporary American economy’s features – greater consolidation and lack of competition — have warped market incentives in significant ways,” said Brian Deese, head of the White House National Economic Council. “The president gave us the guidance that he wanted us to come back and tell what we could do to address the issue of industry consolidation in a long-term fashion.””
However, even administration officials admit that the actions described by the president’s seven-month-old competitiveness committee aren’t intended to rapidly halt the 7.5 percent inflation that is upsetting Americans and harming Biden’s popularity. Furthermore, business organisations disagree with the underlying assumption that competition has waned in the United States economy, and they are prepared to contest the administration’s new measures in court.
“It will choke off economic progress,” said Neil Bradley, executive vice president and chief policy officer of the United States Chamber of Commerce. “Ironically, this will result in even greater inflation.”
Part of Biden’s quandary is that reorienting a bureaucracy to encourage competition takes time, and people want to see inflation, which is at a 40-year high, begin to fall right away. Voters feel the pinch of inflation with every trip to the grocery store or petrol station, while the president is touring the country to offer alternatives such as competition and new infrastructure, which predate the present crisis and would have a far more gradual impact.
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The epidemic is to blame for America’s present inflation issues. Supply chains for computer chips, clothing, furniture, and other commodities are strained. At the same time, consumer demand has risen as a result of historically large amounts of government help flowing into the economy. Despite efforts to iron out the kinks in the supply chain, price rises have remained significant in recent months, rather than decreasing as many early estimates anticipated. As a result, the Federal Reserve is prepared to raise interest rates in order to reduce inflation.
In a January study conducted by the University of Chicago, two-thirds of top economists stated that the present epidemic of inflation is not explained by the concentrated influence of corporations.
New York University economist Thomas Philippon has praised the administration’s strategy, even if he believes it will do nothing to reduce costs. Philippon, the author of the 2019 book “The Great Reversal: How America Gave Up on Free Markets,” is the source of the administration’s claim that market concentration costs an average family $5,000.
Philippon noticed that other countries had adopted a degree of antitrust regulation and competition that did not exist in the United States, resulting in cheaper costs for mobile phone service, internet, and plane tickets in Europe relative to the United States.
“As a means of combating current inflation, it is unlikely to have a significant influence in the short term, but it can still be beneficial, “According to Philippon. “I see it as a beneficial byproduct of something that should be done in any case.”
The Biden administration maintains that, even if a lack of competition did not directly cause the current price increase, it did contribute to it. In July, the White House Council of Economic Advisers tweeted on how fewer firms effectively dominate larger parts of the economy.
It referenced research demonstrating how mergers increased the cost of hospital services, health insurance, airline tickets, and alcohol. It also identified a decrease in government merger assessments and stated that the 2020 federal lawsuits against Google and Facebook, respectively, were the first major monopolisation proceedings in 22 years.
The White House documented its progress following the second meeting of the government-wide competitiveness council in late January. According to a White House statement, the Food and Drug Administration has recommended selling hearing aids over-the-counter, “reducing their cost from thousands to hundreds of dollars.”
The Federal Trade Commission will step up enforcement against corporations that set limitations on consumers who fix their own electronic gadgets. The Transportation Department believes that by opening up 16 slots at Newark Liberty International Airport to a low-cost carrier, it may reduce the cost of aeroplane tickets in the New York City region.
Administration officials use the example of eyeglasses to demonstrate how increased competition may lead to reduced pricing. Prior to 1979, consumers could only purchase eyeglasses from doctors who issued prescriptions. The FTC subsequently enacted a regulation requiring doctors to provide prescriptions, lowering the average price of glasses by 30.4 percent to $178. (in 1979 dollars).
The subject is not clearly divided along party lines. Republican Senators Todd Young of Indiana and Kevin Cramer of North Dakota have introduced legislation to curb employers’ use of non-compete agreements, which can prevent employees from seeking better pay elsewhere.
Many business leaders, however, disagree with Biden’s central premise that the US economy has grown less competitive. They say that mergers help businesses to run more effectively, and that the increased production benefits customers.
According to the US Chamber of Commerce, market concentration has decreased by 2017 and the organisation expects to fight some of the administration’s regulatory moves in court.
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Airlines for America, a trade organisation, claims that industry consolidation benefits consumers. It claimed that in inflation-adjusted terms, the average price of a roundtrip ticket had dropped over $100 since 2010 to $306 in 2020.
According to the Business Roundtable, a CEO-led organisation, amid a time of rising inflation, “More onerous government rules are not what the economy or the people of the United States require.”
Despite the epidemic and inflation, businesses have found methods to make historically high profits. In the second quarter of last year, corporate earnings after taxes accounted for 11.8 percent of the overall US GDP, the largest percentage on record dating back to 1947. According to the Biden administration, government policy can assure that more of that money flows to employees and customers.
According to Barry Lynn, executive director of the Open Markets Institute, the Biden administration’s focus on corporate profits and structure may eventually limit how much corporations can charge, which may dissuade some inflation.
“It conveys a message,” Lynn explained. “Just having officers walking the beat, having cops out there saying, ‘Hey, we’re watching,'” says one. We’re on the hunt. We’ll be checking your profit margins. We’re going to go after those who appear to be abusing their monopolistic power.’ That will have an effect.”