Market Trends Impacting Inequality
A premise of this blog, Fifty Year Perspective, is that the complexity of our world obscures relationships among many issues. The Global Issues Matrix found here displays over 50 such issues and gives an example at the bottom of the page of how one issue, Governance, impacts or is impacted by 29 of the other issues in the matrix. The essence of a long-term perspective is to anticipate results from taking, or not taking, a particular action in the present.
A case in point is the current debate on inequality and how market structures impact it. Recent articles have linked inequality to government action. Writers for the New York Times, the World Post, the Economist and a study from the National Bureau of Economic Research (NBER), among others, shed light on trends in corporate concentration through mergers and acquisitions, antitrust enforcement, lobbying and competitiveness, and how those trends are impacting prices, wages and inequality.
David Leonhardt, writing online for the New York Times, used the example of smart phone service to argue that government policy enables large companies to raise prices. U.S. antitrust policy has allowed companies to grow so large that they can raise prices while holding down wages. A smart phone service which costs $100 per month in the U.S. may cost $30 less in Europe, where antitrust has been taken more seriously.
In their working paper for the NBER, German Gutierrez and Thomas Philippon asserted that U.S. markets were more competitive than European markets until the 1990s. Now they find that European markets have lower business concentration, lower excess profits and lower regulatory barriers to entry. They attribute stronger antitrust enforcement to the independence of the EU’s central bank and Directorate-General for Competition, whereas in the U.S. the Federal Trade Commission and the Department of Justice are more subject to political influence. “US firms spend substantially more on lobbying and campaign contributions, and are far more likely to succeed than European firms/lobbyists.”
A 2016 analysis by The Economist found increased concentration in two-thirds of the industries in the U.S., and the power resulting from economic concentration enabled firms to offer lower wages because workers had fewer alternative employers. Likewise, Neil Irwin, a columnist for The Upshot, wrote “Two of the most important economic facts of the last few decades are that more industries are being dominated by a handful of extraordinarily successful companies and that wages, inflation and growth have remained stubbornly low. Many of the world’s most powerful economic policymakers are now taking seriously the possibility that the first of those facts is a cause of the second.”
The theme chosen for the Federal Reserve Bank’s 2018 meeting at Jackson Hole, Wyoming, “Changing Market Structures and Implications for Monetary Policy,” directly addresses how to identify appropriate policy responses to these trends toward increased concentration and profits, slower growth and lower wages. Positions presented by economists at the meeting do not provide a single definitive direction for how the Federal Reserve should proceed.