Michael R. Strain Bloomberg opinion
Politicians from both parties seem to believe that the US is facing impending catastrophes that will require a radical rethink in economic policy. You are wrong. The nation certainly faces serious challenges, but the fundamentals of the economy are sound. Radicalism is not required.
The populist right and the progressive left seem to agree that the prevailing consensus in economic policy of the past few decades – a central role for markets, friendliness towards globalization and free trade, and caution against overregulation – has been bad for Americans. This bipartisan consensus is based on the mistaken view that the past few decades have been bad for typical workers and households.
The most recent example is President Joe Biden’s far-reaching order to increase market competition. It contains 72 initiatives, some of which conservative populists will applaud. For example, the Biden government will look more closely at proposed mergers between technology companies. It will encourage the Federal Trade Commission to put in place rules that limit tech companies’ ability to collect data on users and limit the power of large online retailers like Amazon to overwhelm smaller competitors.
It recognizes that the Department of Justice and the FTC have the legal power to “challenge previous bad mergers that previous administrations have not previously challenged”. This is quite radical, as the government seems determined to move antitrust policy away from the sustained consumer welfare standard that has long defined monopoly power, in part, as the ability to raise prices above competitive levels. This standard, not the belief that big is necessarily bad for market competition, has been supported by the mainstream of both political parties and the courts for decades.
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“We are now 40 years in the experiment to let giant corporations accumulate more and more power,” said Biden, referring to the adoption of consumer protection standards for competition policy. “And what do we get from it? Less growth, weakened investments, fewer small businesses. ”The president concludes,“ I think the experiment has failed. ”
As with antipathy towards tech companies, the president will find allies among conservative populists. Senator Josh Hawley, the rising Republican star from Missouri, has tabled bill that would ban mergers and acquisitions by companies with a market capitalization of more than $ 100 billion.
Are things really that bad? Take the tech companies that were once considered the crown jewels of the American economy. They invest money in research and development in the hopes of generating new and better services for consumers. Shopping online has vastly expanded consumer choice while significantly lowering prices.
“Big Pharma” is profitable. It has also developed several vaccines that are remarkably effective against a globally unique pandemic in less than a year. And Big Telecom enabled millions of Americans to work from home while the drug companies saved lives.
Some of the President’s 72 initiatives are commendable, such as efforts to increase competition for labor in the low-wage market. It seems reasonable to me that hearing aids can be sold without a prescription, which is included in the implementing regulation. But many of the initiatives represent significant government superiority, micromanaging the economy to their detriment.
In the three decades from 1990 to 2019, inflation-adjusted wages for unsupervised employees rose by a third. In roughly the same period, the median household income after taxes and government transfer payments grew by 44%. In the years following the 2008 global financial crisis, concerns about income inequality increased, but the levels of inequality used by the bipartisan Congressional Budget Office stagnated or declined. According to my calculations, around three quarters of 40-year-olds have a higher household income than their parents of a comparable age.
The US faces significant economic challenges. Better policies are needed to overcome them. But the American dream is not dead. Populism on the left and right could threaten its very survival by pushing for radical changes in public policy based on a distorted understanding of economic outcomes.
In his arrangement, Biden seems to be taking this misguided path.
Michael R. Strain is a columnist for Bloomberg Opinion.