The Real Cause Of Inflation Is The Lack Of Competition

 

Much has been said in the media about inflation recently. The Republicans want you to think it's due to President Biden and the Democratic agenda. Democrats want you to believe it is just a temporary problem and will go away early next year. Both are wrong! The real cause of the current inflation is the lack of competition among the giant corporations.

Here is part of what former Labor Secretary Robert Reich has to say about it:

Yesterday, the Fed’s policy committee announced it would both end its bond-buying program and likely raise interest rates sooner than had been expected. . . .

I think that’s a big mistake. Powell’s medicine has nothing to do with the real reason for inflation: the increasing concentration of the American economy into the hands of a relative few corporate giants with the power to raise prices.

If markets were competitive, companies would keep their prices down in order to prevent competitors from grabbing away customers. But they’re raising prices even as they rake in record profits. How can this be? The answer is they have so much market power they can raise prices with impunity.

The underlying problem is not inflation. It’s lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits. . . .

Since the 1980s, two-thirds of all American industries have become more concentrated. Monsanto now sets the prices for most of the nation’s seed corn. Wall Street has consolidated into five giant banks. Airlines have merged from 12 carriers in 1980 to four today, which now control 80 percent of domestic seating capacity. The merger of Boeing and McDonnell Douglas has left the US with just one large producer of civilian aircraft — Boeing. Three giant cable companies dominate broadband: Comcast, AT&T and Verizon. A handful of drug companies control the pharmaceutical industry: Pfizer, Eli Lilly, Johnson & Johnson, Bristol-Myers Squibb and Merck.

All this concentration gives corporations the power to raise prices, because it makes it easy for them to coordinate price increases with the handful of other companies in their same industry — without risking the possibility of losing customers, who have no other choice.

In sum, inflation isn’t driving these price increases. Corporate power is driving them.

So what’s the appropriate government response? Not slowing down the economy. This will only hurt millions of workers, who are just beginning to get the raises they deserve. The problem at the heart of the economy is amenable to only one thing: the aggressive use of antitrust laws to bust up monopolies.

This will take time — perhaps years. In the meantime, Biden and the Democrats could do something with a more immediate effect: Enact a windfall profits tax applicable to any large corporation that raises its prices during the same quarter its profits have risen.