Government Action, Monopolies, and Prices

Matt Stoller is convinced that the key to controlling inflation is government regulation—a lot of government regulation. In his crosshairs are shipping, oil and gas, railroads, trucking, and airlines.

For decades, there hasn’t been a big shift in markups between industries. But that changed during the pandemic, because the pandemic and the policy response itself shaped who could profit. Big pharma wasn’t in a position to profit, but oil refineries were. While not every firm with market power raised prices, market power could still elevate profits in other industries.

Ironically, while this analysis might lead some to think that the Fed shouldn’t be raising rates and drawing down its balance sheet, I draw the opposite conclusion. If you look at the most potent industry markup, you’ll see it is not what you’d expect from a pandemic, like transportation or health care. It’s finance/insurance. Number two is oil and gas, a heavily junk bond fueled industry that shut refineries and has less capacity than it did in 2019. Number three is real estate and rentals. In other words, the most financialized sectors of the economy are the ones most adept at exploiting pricing power during the pandemic. That is likely a result of cheap money from the Fed sloshing around Wall Street, or what I wrote up as the Cantillon effect. That needs to stop.

Regardless, supply side measures focused on individual markets, like antitrust, regulatory policy, industrial subsidies to re-shore supply chains, and ending cheap capital for Wall Street are the key ways to address inflation. But reducing government spending or further lowering wages for workers, while they could work, aren’t hitting the drivers of the problem.

I think he’s jumbling up and confusing a lot of things. Prices, inflation, government power, monopoly power, and so on.

First, almost all monopolies are created by government action. Patents, licenses including occupational licensing, exclusive contracts, and so on. Take waste management, for example. Maybe there are some but I don’t know of any jurisdictions in which there are multiple waste management companies competing to take away you garbage. It’s a very highly regulated sector. Nearly every waste management company has a local monopoly.

Insurance and finance are among the most heavily regulated sectors and, sure enough, they are dominated by a handful of very large companies. The financial crisis of 2008 exacerbated that. Small banks that were in trouble were liquidated (bought by bigger banks). Big banks on the other hand received bailouts and got bigger.

But, according to the charts Mr. Stoller produces, waste management had very small increases in profits during the pandemic but insurance and finance had very large increases. Both of those groups are very consolidated and highly regulated. How is that possible? Mr. Stollers is that they’re not regulated enough. Mine is that they have been misregulated. Addditional misregulation won’t help.

I’m also curious about how he plans to control foreign shipping companies. I don’t believe that the shipping companies are as much at fault as over-reliance on overseas producers, much of which in turn has been created by industry consolidation (in other industries) and bad regulations.

Consequently, although I agree with Mr. Stoller that monopoly power is a problem, my preferred solution is different. I think that governments should be creating fewer monopolies in the first place.

9 comments… add one
  • steve Link

    We dont have a monopoly in waste management. Just changed companies about a year ago. That seems to be the norm for rural areas here. That aside, I am not sure why financialization is the same as monopoly ie some characteristic other than monopoly may be leading to large profits for that sector.

    More broadly, dont think regulation is likely to do much for current problems. We want the oil companies to pump more but if Ukraine-Russia settle an agreement next month and everything goes back to normal, sort of , what are the chances Germany goes back to using Russian gas and oil? At least 50% I think. Makes it hard to justify drilling new wells.


  • Drew Link

    “I think he’s jumbling up and confusing a lot of things.”

    That’s pretty much his MO. Withe more snark: baffle them with bullshit.

    With all the inflation talk these days I decided to watch a series of Milton Friedman lectures from the 70’s Its good to be reminded how we forget things. Just about every excuse and rationale being bandied about now appeared in the 70’s. Inflation caused by foreigners, greedy corporations, greedy unions, spendthrift consumers, shortages………..and so on.

    As Friedman wryly notes, inflation is always made in Washington, by politicians demanding that their of course noble spending of all sorts be monetized by the Fed, rather than the pain of explicit taxation. Its as true today as it was in the 70’s.

    Monopoly should be addressed no matter the current environment. But think about the big media and tech monopolies right now. No such efforts, because they are FOD – friends of Democrats.

  • steve Link

    I know jan doesnt know how to use Google but I thought Drew would. Anyway, the Dems have also been going after big tech. Just google it. Also, the bill proposed to cut tech monopolies had a Dem co-sponsor.

    Milton was very smart, but the world didnt end when he died. The idea of settled economics is even funnier, actually a hell of a lot funnier, than settled science.


  • PD Shaw Link

    We have the choice of three or four waste haulers here. I don’t think residential waste hauling is that regulated. From local government’s standpoint, the main thing is for everyone to have a waste hauler to discourage fly dumping. My city negotiated rate ceilings for one or two containers. The main problem is there are constantly waste hauling vehicles driving on city streets.

    I think the lucrative part of waste hauling is with rolloff containers. Margins on residential waste hauling are skinny, but presumably they help promote the company’s other businesses and help pay some of the shared fixed expenses. During the pandemic, the decline in commercial businesses, particularly construction, probably hurt rolloff demand.

    OTOH, landfills and waste transfer stations need certificates of need. Probably nothing government can do more to protect a business from competition than such a requirement.

  • Jan Link

    I pragmatically prefer the privacy that DuckDuckGo offers over Google.

  • steve Link

    Google is a term like Kleenex that is really just referring to any generic service (Like Kleenex to any tissue). Nonetheless, if you actually used DuckDuckGo you wouldn’t make a lot of the claims you do.

    OT- Now we have too many truckers.


  • Drew Link

    Its a recent phenomenon, steve. And well after they did their dirty work in the 2020 election.

    As for inflation, it simply is an empirical observation that Friedman has been consistently correct. He documented it in his book A Monetary History of the United States, with Anna Schwartz. He has passed, but here we go again…………… Just as we can count on politicians to be politicians.

    I know this pains you. But let’s look at the most recent charlatans: the MMT’rs. Wrong as wrong gets. I doubt you practice blood letting. But MMT is just as bad. You will do fine in this environment. I will do fine. But millions will not. I wouldn’t cavalierly cast them aside in your search for a partisan point.

  • steve Link

    Surely you realize i ma not an MMTer. It has some interesting ideas that at least make you think and may be right about a few things but ultimately doesnt work.

    Friedman was bright. I heard him speak once and have friends who took his econ courses. (He taught at Rutgers for a while.) His explanations for inflation certainly made some sense for the situations he studied. However that doesnt mean it is right about everything and will apply forever. The world has changed. I am seeing other explanations for what is going on that also make some sense. So maybe, kind of like Newton’s laws we decide his ideas are good enough most of the time but there are times it just wont work. Even in physics there is a school of thought that what are considered the true laws of physics may be changing over time.


  • Grey Shambler Link

    Truth is, 10% will benefit from today’s economy, 40% will tread water until they pass, and the rest of us will need to be subsidized or eliminated.
    Restrictions on abortion will make the situation worse as millions more African Americans will be born to be subsidized.

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