High Prices, Competition, and the Biden Administration
An article in the Washington Post on the Biden administration’s plans to “do something” about high prices seems to me to be full of myths, so I thought I’d give it an old‐fashioned “fisking.” The article begins:
Senior Biden administration officials, alarmed by the rising costs of consumer staples, are ramping up efforts to police corporate monopolies and alleged collusion by big companies, arguing a crackdown on corporate malfeasance will translate into cheaper goods.
Current price increases may be a result of Federal Reserve money creation. They may be a result of the pandemic and its attendant lockdowns and supply chain interruptions. But it’s highly unlikely that “corporate monopolies and alleged collusion” have suddenly started raising prices.
In response to requests by the White House economic team, Federal Trade Commission Chair Lina Khan announced Monday that regulators would step up enforcement on oil and gas companies that they say may be colluding to raise fuel costs.
Again, what has changed? Did oil companies suddenly come up with the idea of colluding to raise fuel costs? Every time gas prices rise, politicians call for an investigation. And the investigations repeatedly conclude that gas prices are a result of supply and demand.
President Biden has also ordered U.S. transportation agencies to root out anti‐competitive behavior in the shipping industry, optimistic that new entrants into the sector will reduce the meteoric delivery costs hurting many small businesses.
There’s an easy solution there: Repeal the Jones Act.
Senior administration officials have been worried about polling showing that voters — including many Democrats — blame Biden’s economic policies for high inflation.…[Officials want to demonstrate that the administration] is trying to head off the issue.
Aha. Now we’re getting to the crux of the issue: convince the voters that Biden is doing something about high prices. As Sir Humphrey Appleby said in “Yes, Minister”:
- We must do something
- This is something
- Therefore, we must do this.
Wikipedia calls this the “politician’s syllogism.” But note that Sir Humphrey’s mentor responded that “doing the wrong thing is worse than doing nothing.”
Aggressive antitrust enforcement represents one avenue where the administration can act without congressional approval.
Alas, it’s far from the only such avenue. From war to eviction moratoriums, Congress and the courts have allowed presidents and the executive branch to seize and exercise far too much power.
Some experts are skeptical that the antitrust efforts will bring down prices, particularly in the short term.
Prices in the United States rose by roughly 5.4 percent in July relative to last year, well above the central bank’s benchmark rate of 2 percent. Much of the increase was due to temporary factors related to the pandemic and beyond the administration’s control, such as a shortage in semiconductors and an enormous increase in the cost of used cars.…
Other experts are dubious. Some point out that the U.S. oil and gas industry is no more consolidated than international competitors, and that gas prices tend to follow an international pattern — not price‐fixing by a handful of small firms.…
“It’s PR. This is not going to reduce prices,” said Pavel Molchanov, an oil industry analyst at Raymond James.
There’s a typical pattern in stories like these: The headline (“Biden administration ramps up antitrust efforts amid worries over high prices”) and the first few paragraphs present the government’s arguments and proposals. Later, if the story is long enough, criticisms may be acknowledged. In this case the first criticism comes in paragraph 11 and then in paragraphs 21 and 22 out of 23. And it never gets to some of the fundamental criticisms of the ideas and proposals in President Biden’s executive order on competition, as in this paper from Jeffrey Miron and Pedro Braga Soares:
The administration’s diagnosis is flawed. The EO fails to ask why market power exists, which is critical to understanding whether and how government should act. Further, the EO conflates concentration with market power and takes a static view of competition, leading it to overemphasize any short‐term costs of market power relative to long‐term benefits from increased innovation incentivized by short‐run monopoly profits. And, while acknowledging some government‐created barriers to entry, the EO glosses over the fact that many others, such as tariffs, zoning laws, and regulations, are crucial impediments to competition in the U.S. economy. Thus, despite a few sensible proposals, the order would reduce economic efficiency and weaken competition in some areas.
As they note, there are definitely things that Congress, the executive, and state governments could do to reduce excessive market concentration, encourage competition, and thus lower prices. But few of them involve stepped‐up regulation, antitrust, “crackdowns,” and “policing corporate monopolies.”
Journalists should not forget to exercise the deep skepticism of presidential motives and aspirations that they developed during the former guy’s administration.