No More Hustleporn: Antitrust Won't Combat Inflation

Tweet by Lawrence H. Summers

Charles W. Eliot Professor and President Emeritus at Harvard. Secretary of the Treasury for President Clinton and the Director of the NEC for President Obama.

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.

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 @nytimes @jimtankersley @arappeport article. I strongly support much of the Admin’s competition agenda.

As Prices Rise, Biden Turns to Antitrust Enforcers

However, as described, hipster Brandeisian antitrust, with which the Admin and its appointees flirt, is more likely to raise than lower prices.

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 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.

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.

Inflation is basically a macroeconomic, not a microeconomic, phenomenon. Its primary root going forward is going to be labor shortage.

If the Admin wants to push some prices down, perhaps it can stop advising the already overeager antitrust authorities to pursue cases like meatpacking where they have little chance to win...

....and instead consider scaling back "buy America" in favor of buying cheap, reduce restrictions on entry into energy productions, scale back tariffs and anti-dumping actions and reduce regulatory delays that preclude capacity increases.