From the anti-trust mavens of Promarket at the Stigler Center, Booth School of Business, University of Chicago, June 26:
Some progressive politicians and advocates have argued that lax antitrust policies enabled the inflation surge that began in 2021 and that aggressive antitrust enforcement is crucial to combatting inflation. These assertions are misguided and misleading. Similar greedflation theories emerged during previous inflation spikes, but their promotion this time has proven counterproductive. The allure of trustbusting ideas, it seems, is starting to wane.
The inflation spike of the 1970s inspired portmanteaus blending trending factors with “inflation,” such as stagflation, kidflation, gradeflation, and taxflation. The inflation surge that followed the Covid-19 pandemic popularized a new one: greedflation.In 2021-2022, the Biden administration and progressive allies postulated that permissive antitrust enforcement policies drove, contributed to, or enabled the inflation surge that followed the COVID-19 pandemic. Promoters of these “greedflation” theories contended that sharp rises in living costs were occurring simultaneous to large increases in profit margins throughout the economy because powerful companies were illegally abusing their market power to price gouge consumers. Alternatively, they argued, systemic exploitation of monopoly power had compromised the resilience of supply chains in the economy. While similar populist theories had occasionally gained traction in the 20th century, this time the idea met with criticism and derision. This setback, coupled with other defeats, may signal the beginning of the decline of the Neo-Brandeisian movement.
Present Greedflation
The pandemic triggered a brief dip in prices, with prices hitting lows in May 2020. Prices then began a steep ascent, peaking in June 2022. Corporate profits rose along with inflation, popularizing greedflation theories. Corporate executives were “seizing a once in a generation opportunity to raise prices to match and in some cases outpace their own higher expenses, after decades of grinding down costs and prices,” The Wall Street Journal reported.
The rising number of reports on greedflation provided fuel to critics of big business. President Joe Biden, Senator Bernie Sanders, and Federal Trade Commissioner Chair Lina Khan all accused companies of using their market positions to price gouge consumers. Senator Elizabeth Warren, for instance, argued that “[t]he nation is dealing with inflation at its highest level in decades, much of it driven by corporate greed and anticompetitive behavior,” and that “[a]ntitrust policy plays a vital role in protecting consumers from anticompetitive practices that lead to higher prices.”
The White House took advantage of inflation to pursue its Neo-Brandeisian antitrust agenda but quickly found that its arguments for stricter antitrust as an antidote to inflation were irreconcilable with economic realities. The White House Council of Economic Advisers reportedly objected to theories tying inflation to corporate power and then Director of the National Economic Council Brian Reese likewise tried to soften the White House’s position that antitrust could reduce inflation.
The 2023 President’s annual economic report similarly distanced the White House from assertions that unchecked economic power was the culprit for soaring inflation. The report recognized that some argued that “increased market concentration in U.S. industries” had contributed to the spike in inflation, and that “[t]here is some evidence that these firms [raised] prices in response to cost increases more than firms without market power would have done in the past.” However, the report also stated that “the link between market power and pricing when subject to shocks like the pandemic is not clear. . . . Measuring market power is a difficult task, and measuring the prices firms charge above the cost of their inputs, their ‘markup,’ isolated from the effects of the increased demand and constrained supply of 2022, is even more fraught.”
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