Biden anti-inflation strategy could make things worse, Larry Summers says
The Biden White House is promoting tougher anti-monopoly laws to curb high U.S. inflation and ease public criticism, but a prominent Democratic economist says it’s fool’s errand. “The emerging claim that antitrust can combat inflation reflects ‘science denial,’ ” tweeted Harvard economist Lawrence Summers, a senior official in the Obama and Clinton administrations. “There are many areas like transitory inflation where serious economists differ. Antitrust as an anti-inflation strategy is not one of them.”
See: Summers thread on inflation Summers pointed out that there’s been little change in corporate concentration as U.S. inflation soared this year to the highest level since the early 1980s. The yearly rate of inflation as measured by the consumer price index climbed to 6.8% as of November. Before the pandemic inflation had been unusually low for years in a sign that companies had very little power to raise prices. Prices rose an average of less than 2% a year from 2010 to 2019. The Federal Reserve actually worried more about inflation falling too low instead of the other way around. “There is no basis whatsoever thinking that monopoly power has increased during the past year in which inflation has greatly accelerated,” Summers tweeted. Summers had warned the Biden White House about a sustained inflation surge early in 2021 when it prepared a $1.9 trillion stimulus plan, but his prescient warnings were brushed off by the president’s senior economic advisers. Until very recently Wall Street
and the Fed had also viewed high inflation as a “transitory” phenomenon that would soon peter out . The U.S. central bank still thinks price pressures will fade by the end of 2022, but it’s also begun hedging its bets by removing stimulus for the economy faster than it had planned. By and large, the current bout of high inflation stems from disruptions in labor markets and supply chains caused by the pandemic. Businesses slashed production early in the crisis in anticipation of weaker sales and suppliers had trouble keeping plants open amid worker absenteeism, government Covid rules and chronic interruption in the global flow of materials. When the U.S. fully reopened reopened in early in 2021 and Washington pumped the economy with more stimulus, demand soared and businesses were unable to keep up. A sudden shortage of workers added to the problems. Several million baby boomers retired and others stayed out of the jobs market, relying on stimulus money on other income to get by. “Rising demand, with capacity and labor constraints, are fully sufficient” to explain higher prices in meat-packing and other industries, Summers tweeted. What to do instead? Summers prescribed a series of measures that seem contrary to the current approach of the Biden administration: Reduce “Buy America” rules, tariffs, energy restrictions and regulatory delays that hinder business. “In general, when government goes to war with industries it discourages investment and subsequent capacity” that can help reduce inflation, Summers tweeted.