Biden has a long term inflation plan, but voters are impatient
President Joe Biden came into office with a plan to fix inflation — just not the particular inflationary problem that the country now faces.
He believes too many companies can control too many industries which results in less competition for both workers and customers. This results in higher prices and lower wages, which is why the White House estimates that Americans spend an average of $5,000 per year on their homes. Biden is now trying to remedy the situation with 72 distinct initiatives — everything from new rules for cell phone repairs to regulations on meatpacking to more merger reviews.
“The dynamics of the modern American economy — the increased consolidation and lack of competition — has distorted market incentives in important ways,” said Brian Deese, director of the White House National Economic Council. “The president gave us the direction that he wanted us to come back and say what could we do to address this issue of consolidation across industries in a way that would be durable.”
But even administration officials acknowledge that the initiatives outlined by the president’s seven-month-old competition council aren’t designed to quickly stop the 7.5% inflation that’s frustrating Americans and damaging Biden’s popularity. Furthermore, business groups dispute the fundamental premise that competition has faded within the U.S. economy and they are prepared to challenge the administration’s new initiatives in court.
“It will strangle economic growth,” said Neil Bradley, executive vice president and chief policy officer of 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 — running at a 40-year peak— start dropping now. Voters feel the impact of inflation every time they go to the grocery or gas station. Yet, the president is touring the country to discuss ways to improve competition and create new infrastructure that would have a more gradual effect.
America’s current inflation woes stem from the pandemic. Computer chips, clothing, and other goods are in stress. Consumer demand has risen despite the fact that the government has provided a significant amount of aid to the economy. Despite attempts to remove the supply chain problems, price increases have remained high over the past months rather than falling as originally forecasted. This has led to the Federal Reserve being ready to increase interest rates in order to lower inflation.
In a January survey by the University of Chicago, two-thirds of leading economists said that the concentrated power of companies does not explain the current rash of inflation.
New York University economist Thomas Philippon has welcomed the administration’s approach — while allowing it would do little to bring down prices. As the author of the 2019 book, “The Great Reversal: How America Gave Up on Free Markets,” Philippon is the source of the administration’s statement that market concentration places a $5,000 drag on an average family.
Philippon noted that other countries had adopted a level and type of antitrust enforcement and competition which is not available in America. This has resulted in lower prices for European cell phone and internet services, relative to the U.S.
“As a way to fight current inflation, it is unlikely to have a big impact in the short term, but it can still be useful,” Philippon said. “I think of it more as a positive side effect of something that should be done in any case.”
The Biden administration contends that even if the lack of competition didn’t directly trigger the recent spike in prices, it has contributed to inflation. The White House Council of Economic Advisers blogged in July about how more sectors of the economy are effectively controlled by a smaller number of companies.
It also cited studies showing how mergers lead to higher prices of hospital services, beer and insurance. It also noted a decline of government reviews for mergers and pointed out that the 2020 federal lawsuits filed against Google and Facebook, respectively, were the first major monopolization cases after 22 years.
After the second meeting of the government-wide competition council in late January, the White House charted its progress. The Food and Drug Administration has proposed selling hearing aids over-the-counter, “lowering their cost from thousands of dollars to hundreds of dollars,” according to a White House statement. The Federal Trade Commission will intensify enforcement of restrictions companies place on individuals repairing their electronic devices. According to the Transportation Department, it is possible to reduce the cost of airline tickets in New York City by opening 16 slots for a low-cost carrier at Newark Airport in New Jersey.
Administration officials use the example of eyeglasses to show that there is more competition and lower prices. Eyeglasses were only available to those who could write their prescriptions before 1979. The FTC issued a rule that required doctors to provide prescriptions. This resulted in the average price for glasses falling by 30.4% to $178 (in dollars 1979).
The issue doesn’t split along partisan lines. Republican senators. The bill was sponsored by Todd Young from Indiana and Kevin Cramer from North Dakota. This would limit the use of non-compete agreements by companies. It can prevent workers from moving to another employer to make more money.
But many in the business sector dispute Biden’s core premise that the U.S. economy has become less competitive. They claim that mergers enable companies to work more efficiently, and that the resulting productivity gains benefit consumers.
The U.S. Chamber of Commerce says market concentration had waned by 2017 and it intends to challenge some of the administration’s regulatory actions in court.
Airlines for America, a trade group, claims that industry consolidation will benefit consumers. In inflation-adjusted terms, it said, the average price of a roundtrip ticket has fallen nearly $100 since 2010 to $306 in 2020.
The Business Roundtable, a group representing CEOs, said that at a time of high inflation “more burdensome government regulations are not what the economy or Americans need.”
Companies are still able to generate historic profits, despite inflation and the pandemic. Corporate profits after tax equaled 11.8% of the total U.S. economy in the second quarter of last year, the highest share on record going back to 1947. Biden’s administration argues that government policy can help ensure that more money is paid to customers and workers.
Biden’s administration is so focused on corporate structure and profits, it could eventually limit the amount companies can charge, which could discourage inflation, stated Barry Lynn, executive director at the Open Markets Institute.
“It sends a message,” Lynn said. “Just having cops walking the beat, having cops out there, saying, ‘Hey, we’re watching. We’re looking. We’re going to be checking your profit levels. We’re going to be targeting those who seem to be really exploiting their monopoly power.’ That’s going to have an effect.”