Economists Gear Up to Challenge the Monopolies

Posted by Bloomberg Opinion

Economists Gear Up to Challenge the Monopolies

By Noah Smith

The antitrust movement is making a comeback. Zephyr Teachout, candidate for New York state attorney general, is promising to fight monopolies. Activists such as Matt Stoller of the Open Market Institute are beginning to draw attention to the problem of concentrated market power. Think tanks like the Washington Center for Equitable Growth are starting to zero in on the issue as well. The revival of this movement is still in its infancy, and certainly hasn’t reached anything approaching the fervor of the Progressive Era a century ago. But the new antitrust crusaders are experiencing a tailwind from an unlikely ally — the economics profession.

In the past, economists have not exactly crowned themselves with glory in the fight to keep big business from getting too big. Some have made a bomb of money offering their services as consultants to companies looking to execute megamergers. The so-called Chicago School of antitrust analysis, popularized during the mid-20th century, dismissed the dangers of market concentration except in the case of explicit price-fixing or outright domination of a market by a single company. This school of thought heavily influenced the burgeoning movement to integrate law and economics, leading to looser antitrust enforcement in the 1980s and afterward.

But in the past few years, economists have become increasingly concerned with the problem of stagnating wages. Profits have grown strongly since the turn of the century, but real wages — even including health and retirement benefits — have risen only slightly:

There are many theories to explain the divergence: global (especially Chinese) competition, the impact of technology, and rising land values. But another theory — rising market power — is gaining increasing currency in the profession.

In the past few years, a series of papers by a mix of younger and well-established economists has argued that industry is becoming more concentrated, partly as a result of mergers; that this concentration has led to higher consumer prices and lower wages; and that companies are managing to squeeze more profit out of the economy even as they invest less for the future.

Now the concern about monopoly power is spilling out beyond the halls of academia, and reaching the ears of the country’s top policy makers. At the recent Jackson Hole, Wyoming, policy conference, central bankers from the Federal Reserve heard a number of senior figures sound the alarm. Those included Esther George, the president of the Federal Reserve Bank of Kansas City, Massachusetts Institute of Technology economist John Van Reenen, and Jason Furman and Alan Krueger, two Ivy League professors and former economic advisers to the Barack Obama administration.

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