More Competition, Less Concentration of Industries, Beef up Antitrust Powers – That’s How to Lower High Inflation

Surprised! This is perhaps what Americans have been feeling during their trips to the grocery store lately. For the same amount of food and beverages, the cost of groceries has risen substantially, particularly for goods like meats, chicken, dairy, eggs, cereal, vegetables and coffee.

According to the Bureau of Labor Statistics, inflation rose in 2021 by 7%, the biggest increase since 1982. In last December alone, food prices rose by half a percent. And it’s not just grocery that has spiked – gasoline, utilities and most consumer goods.

Widespread impact
Unlike unemployment or other social maladies, the pandemic has inflicted upon select populations, everyone feels the sticker shock of rising inflation. Essentially what higher inflation does is it makes income smaller. Suddenly what could have been purchased for $10 could now be $14. And this lowering of income is universal across the board chipping away at both high to low-income wages.

To middle income Americans, the current inflation is taking up huge chunks of their disposable income that could otherwise go toward vacation or college tuition savings. To millions of others living on a fixed budget, it’s a devastating added burden. Others less well-off have it even harder, resorting at times to credit cards to pay for basic necessities.

While certainly a real problem and something that should be discussed, the inflation surge has become too politicized. Republicans blame the Biden administration and have been talking up a storm that COVID-19 restrictions and lockdowns are responsible for the record-high inflation. Economists agree to an extent, but say that’s only part of the picture.

Drivers of inflation, the short, immediate causes
From the viewpoint of immediate causes, economists say the rise in consumer goods is partially attributed to the supply chains that broke down during the start of the pandemic and ensuing lockdowns. Supply chains have not yet caught up to pre-pandemic levels to meet the surge in demand that spiked as soon as lockdowns were lifted and the nation’s economy reopened.

Besides the lag between supply and demand, economists say the current labor shortage also adds another layer to the inflation problem. Less labor, for example in the truck driving industry, delays products from getting to their destinations, keeping supplies low and giving vendors a green light to raise prices.

Economists believe inflation should correct itself as soon as supply chains and employment get back to normal levels. But rising inflation (even before COVID-19) arguably was already too high and remains susceptible to future spikes and with more frequency unless we look at the real systemic causes.

Real systemic cause of high inflation
Economists point to a larger systemic reason behind rising inflation.  What? The increasing concentration of industries. When there are two, three, often no more than a handful of behemoth corporations dominating an industry, it’s easier for them to set prices as they desire with little competition among themselves to drive down prices.

At this moment of record-high inflation, guess what? Big corporations are experiencing record-high profits.

With a few companies monopolizing an industry, higher profits for the few companies are certain. They will make sure of that each year and inflation keeps rising. But economists say, fewer companies in an industry doesn’t grow the economy as much as it would if there were more competitors entering an industry.

But as MIT Economist David Autor says, these few companies are not leaving room for new competition to enter. He said, “Concentration could arise from anticompetitive forces whereby dominant firms are increasingly able to prevent actual and potential rivals from entering and expanding.”

“Incumbent firms” as these companies are called, are present in a wide range of industries — airlines, beer, pharmaceuticals, hospitals. And they’re wielding market power in ways that prevent rivals from emerging and thriving, Autor said.

He adds that the underlying problem is not “bigness” per se. Rather, it’s the combined effect of size, concentration, and anti-friendly competition that thwarts economic growth.

How government can help, strengthen antitrust power
What needs to be done? Government must beef up its antitrust power and set an environment for more competition in industries that give middle-size and small companies realistic opportunities to compete with the behemoths. America’s antitrust legal framework goes way back to more than a century. The first law, the Sherman Antitrust Act, was passed in 1890. But in time, big corporations’ influence and lobbying have weakened the government’s antitrust power.

Benefits of more competition
Reversing high concentration of industries will help to expand our economy, give more companies a fighting chance to enter industries currently unavailable to them, increase wages, improve workflow (employees have more options), expand product output.

Republicans believe the inflation problem is a winning issue to keep repeating leading into this year’s midterm. But if they are serious about addressing current and future inflation boosts, they should also be serious about strengthening the government’s antitrust power, something they’ve traditionally rejected for generations.

Enacting laws that help to equal the playing field for more market competition to thrive, sounds reasonable and fair.

Both Republican and Democrat lawmakers should work together on this issue. If the pandemic is solely responsible for the current inflation, let’s be reminded that both parties held leadership since the outbreak of COVID-19; and both parties have degrees of accountability to bear.

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