Competition will stop inflation | The hill
Something essential to the debate on inflation risks today is missing and this is particularly mind-boggling because what is missing is the central idea of the economy since. Adam smithDavid (Adam) Adam SmithThe Hill’s Morning Report – Bidens to travel to Surfside, Fla., Site of collapse plans for mid-July review of military justice review Night defense: Joint Chiefs chairman collides to the GOP on Critical Race Theory | House bill introduced to overhaul military justice system as sexual assault reform gathers momentum – the role of competition. The last time inflation was a problem in the United States was in the 1960s, 1970s and early 1980s, when large sectors of the economy were dominated by oligopolies and monopolies and the competition was much lower. Today, the quasi-monopolies of that period are gone, and the ability to raise prices in most sectors can only last until the temporary bottlenecks are removed.
To be precise, in the 1960s and 1970s, American steel companies increased their prices together almost every year. When Presidents Kennedy and Johnson spoke out against what they thought were inflationary increases, US Steel (USS) and the powerful American Iron and Steel Institute (AISI) told the two presidents to mind their own business and price increases have generally stalled.
The same was true of the auto industry, which dominated the post-war manufacturing sector. In the 1960s and early 1970s, the “big three,” GM, Ford and Chrysler held about 90 percent of the US auto market. Their haughty CEOs and Republican allies in Congress ridiculed lawmakers who had the temerity to criticize their pricing and design decisions. The Big Three vied for fins and taillights on the oversized land boats they produced, but competition on price, quality, economy and durability was out of reach.
Big Three CEOs said building small cars in America couldn’t be profitable and joined forces to strangle American Motors whose CEO George Romney wanted to build small cars here. They also attacked Walter Reuther, the progressive leader of the auto union, who wanted American companies to make small cars, predicting that its members would lose jobs to imports otherwise. CEOs told Reuther in no uncertain terms that these decisions were theirs alone and that his suggestions crossed the line. Suffice it to say that in 2021 there are maybe twenty car-making companies in the United States and the inflexible and short-sighted oligopoly of the Big Three no longer exists.
In the 1970s, the original AT&T, nicknamed “My Bell”, held 85% of the telephony market. His army of lawyers dominated the Federal Communications Commission (FCC) and state regulators. The monopoly struggled to prevent new competitors from offering competing services and felt so powerful that it could even crush large customers. His grip was broken, but to his surprise, companies like Westinghouse turned him on at the FCC and backed a newcomer, MCI. MCI was a small Illinois company that sold CB radios to truckers, but decided to fight AT&T for a license to operate across state lines. In a decade-long legal battle, little David broke the Goliath monopoly with the help of FCC staff and opened the doors to the many competitors who now occupy the former Ma Bell space.
The Civil Aviation Council (CAB) from 1938 to the 1960s did not authorize any new interstate airlines to enter the US market. The Commission set fares and limited routes, and old airlines dominated CAB hearings, preventing newcomers from entering. In this closed system, the chief airline machinists in the 1960s, Roy Siemiller, was urged by President Johnson to limit pay increases to 5%. Siemiller blew up Johnson and demanded a 25 percent jump that opened a huge hole in the wage-price guidelines the president was trying to put in place to contain inflation. The eventual arrival for the big airlines was the end of comfortable regulation and the disappearance of the CAB which protected them from new competitors.
Pricing by railways and trucking companies was the rule until the 1970s. Every president since Franklin Roosevelt in the late 1930s had wanted to open up this inflation-prone system to competition, but they were afraid of the Truckers, Teamsters and Railroad Brotherhoods who did extremely well when the competition was low. Most interstate modes of transportation were regulated by the Interstate Commerce Commission (ICC), a post-Civil War agency originally intended to reduce the pricing power of the railways, but which had been taken over by the interests it was supposed to control. The people appointed by President Carter to the ICC, however, did not play along and spoke out against price fixing by railways and trucking companies in 1980, and Congress ratified the changes. . Transportation costs have dropped far and quickly.
In the 1970s, when inflation was a problem, the retail industry was only beginning to be changed by fierce competition from Walmart. In the 1980s, as inflation in this industry receded, one commentator said Walmart was doing more to fight inflation than the Federal Reserve, and he was probably right. Today, however, even Walmart faces competition from Amazon and others.
The above means that due to more intense competition, there is downward pressure on prices in manufacturing, communications, transportation, retail and other sectors that did not exist. not in the inflationary 60s and 70s. Inflation hawks like the extremely confident former Treasury Secretary Larry Summers, a Democrat, and the extremely annoying monetarists, mostly Republicans, never mention the price changes in the intensity of competition cited above. . These kinds of changes in the way people behave in markets, however, were the focus of attention from Adam Smith, whose overall economic view was that government-backed monopolies made things like grain for bread. As everyone should know, he also wanted competitive markets to replace state-backed monopolies in shipping and dozens of products like tea (remember the Boston Tea Party) that were pushing up prices. He urged “lawmakers” to break these monopolies, repeatedly pointing out that monopolists and their workers would put up “furious” resistance to allowing new competitors. The United States today faces furious resistance to domestic and foreign competition, not inflation.
The oligopolies and monopolies from the 1960s to the 1980s are gone and competition in these and other major sectors is still strong. This means that in a short time the bottlenecks raising the prices of things like gasoline, timber, semiconductors, meat and certain types of labor will be open as businesses and people alike. compete and inflation will not be a problem.
Paul A. London, Ph.D., was Senior Policy Advisor and Assistant Under Secretary of Commerce for Economics and Statistics in the 1990s, Deputy Assistant Administrator in the Federal Energy Administration and the Department of energy, and visiting scholar at the American Enterprise Institute. . Legislative Assistant to Senator Walter Mondale (D-Minn.) In the 1970s, he was a Foreign Service Officer in Paris and Vietnam and is the author of two books, including “The Competition Solution: The Bipartisan Secret Behind American Prosperity “(2005).