Tag Archives: Anti-Trust

It’s Complicated

The usual reason economists oppose monopolies is that when a business effectively dominates a particular market, it is able to raise prices. A monopoly has effectively eliminated the competition that keeps prices low. The higher prices harm consumers, and allow the company to rake in more profit than it would otherwise be able to generate.

One of the criticisms of the current administration (a criticism that tends to get lost among the mountain of others) is that enforcement of anti-trust laws has been somewhere between lax and non-existent.

Despite their almost-universal support for vigorous anti-trust enforcement, however, few economists identified a relationship between monopolies and the growth of  inequality. As a post from Inequality.org informs us, that may change.

Andrew Leigh is both a member of the Australian Parliament and an economist, and his recent research is making waves.

Working with a team of Australian, Canadian, and American analysts, he’s been studying how much the prices corporate monopolies charge impact inequality.

The conventional wisdom has a simple answer: not much. Yes, the reasoning goes, prices do go up when a few large corporations start to dominate an economic sector. But those same higher prices translate into higher returns for corporate shareholders.

Thanks to 401(k)s and the like, the argument continues, the ranks of these corporate shareholders include millions of average families. So we end up with a wash. As consumers, families pay more in prices. As shareholders, they pocket higher dividends.

But this nonchalance about the impact of monopolies, Andrew Leigh and his colleagues counter, obscures “the relative distribution of consumption and corporate equity ownership.” Average families do hold some shares of stock, but not many. In the United States, for instance, the most affluent 20 percent of households own 13 times more stock than the bottom 60 percent.

In other words, when prices rise, low- and middle-class families pay and wealthy families profit. According to Leigh and his fellow researchers, this redistribution from the less affluent to the wealthy via corporate concentration has shifted 3 percent of national income out of the pockets of poor and middle-class families and into the wallets of the affluent.

The research also shows that corporations grow large because there are incentives to growth to which their executives respond.

Indeed, firm size determines how much executives make more than any other factor, as research has shown repeatedly over the years. Executives don’t have to “perform”— make their enterprises more efficient and effective — to make bigger bucks. They just to need to make their enterprises bigger.

Executives, in short, have a powerful incentive to grow their companies, and that powerful incentive, as the latest research from Andrew Leigh and his colleagues shows, isn’t just making these executives richer. It’s leaving our societies much more unequal.

An obvious lesson from this research is that we need much more robust anti-trust enforcement. Another remedy, just now being tried, is a requirement that corporations publish the  pay ratio between their CEOs and their workers. (Portland, Oregon imposes an “inequality tax” on companies reporting too wide a disparity.)

Evidently, size does matter–at least, in corporate America.

What We Don’t Know Is Hurting Us

There’s an old saying to the effect that it isn’t what we don’t know that hurts us, it’s what we know that isn’t so.

Misinformation, in other words, is more damaging than ignorance.

I agree–with a crucial caveat. The adage is only true when we are aware of our ignorance–when we recognize what information or skill we lack. As research continues to demonstrate, however, there’s a high correlation between ignorance of a particular subject-matter and ignorance of our own ignorance. (It’s called the Dunning-Kruger effect.)

That’s why lawmakers’ allergy to data and preference for evidence-free policy pronouncements are so maddening.

A while back, I read a column making the point that data is inevitably political. The government collects data in order to inform policy decisions, because in order to address issues, it is essential to understand the facts involved, to have a handle on what we academic types like to call “reality.”

The column that I read (and no longer remember where, or I’d link to it) considered the consequences of the Reagan Administration’s decision to stop collecting data on corporate market share. Without that information, policymakers have no idea how large the largest corporations have become. They lack evidence on the degree to which companies like Amazon, Walmart, et al can dominate a segment of the economy and effectively set the rules for that segment. It’s likely that this lack of data is a significant factor accounting for diminished anti-trust enforcement.

The problem goes well beyond economic data. For a considerable length of time, the United States has been mired in one of the nation’s periodic and damaging anti-intellectual periods, characterized by scorn for expertise and empirical evidence.  (Another troubling manifestation of that scorn is the reported evisceration of Congressional staff–the panels of employees with specialized knowledge that advise Congressional committees and individual Representatives on complicated and technical issues.)

Instead of evidence-based policy, we get faith-based lawmaking. Ideology trumps reality. (And yes, I meant that double entendre…)

Last year’s tax “reform” is a perfect example. It was patterned after Sam Brownback’s experiment in Kansas–an experiment that spectacularly crashed and burned. As NPR reported

In 2012, the Republican governor pushed reforms through the state Legislature that dramatically cut income taxes across the board. Brownback boasted the plan would deliver a “shot of adrenaline” to the Kansas economy.

But the opposite happened.

Revenues shrank, and the economy grew more slowly than in neighboring states and the country as a whole. Kansas’ bond rating plummeted, and the state cut funding to education and infrastructure.

You might think that Kansas’ experience would inform a similar effort at the federal level, that it would at least be taken into account even if it wasn’t considered dispositive, but clearly that didn’t happen.

It’s that same dismissive attitude about “facts” and “evidence” and “data”–not to mention science–that is the largest single impediment to serious efforts to slow the rate of climate change.

Some lawmakers who deny climate change ground their beliefs in religious literalism (making them ‘literally” faith-based), but most do so on the basis of the same free-market ideology that led them to dismiss results in Kansas, and oppose even the most reasonable regulations. (There’s a highly convenient aspect to that ideology, since it keeps campaign contributions flowing…but it would be a mistake to think everyone who subscribes to it does so only as a quid pro quo.)

If the country doesn’t emerge from this “Don’t bother me with the facts” era, we’re in for a world of hurt.

And speaking of literalism, the whole world will hurt.