Paul Krugman: Robber Baron Recessions

Taking on a bit of a Krugmanesque tone, I’ve been making the point about monopoly power since I started this blog a bit over 11 years ago, and several years ago I began talking about how it interacts with the distribution of income. Good to see others catching up (Ha — just noticed I said pretty much the same thing at the end of 2012 in response to “Robots and Robber Barons” — an article where Paul Krugman makes similar points …):

Robber Baron Recessions, by Paul Krugman, NY Times: …In recent years many economists, including people like Larry Summers and yours truly, have  come to the conclusion that growing monopoly power is a big problem for the U.S. economy — and not just because it raises profits at the expense of wages. …

The argument begins with a seeming paradox about overall corporate behavior. You see, profits are at near-record highs, thanks to a substantial decline in the percentage of G.D.P. going to workers. You might think that these high profits imply high rates of return to investment. But corporations themselves clearly don’t see it that way: their investment in plant, equipment, and technology … hasn’t taken off…

How can this paradox be resolved? Well, suppose that those high corporate profits don’t represent returns on investment, but instead mainly reflect growing monopoly power. In that case many corporations would be in the position I just described…

There are, then, good reasons to believe that reduced competition and increased monopoly power are very bad for the economy. But do we have direct evidence that such a decline in competition has actually happened? Yes, say a number of recent studies…

The obvious next question is why competition has declined. The answer can be summed up in two words: Ronald Reagan.

For Reagan didn’t just cut taxes and deregulate banks; his administration also turned sharply away from the longstanding U.S. tradition of reining in companies that become too dominant in their industries. A new doctrine, emphasizing the supposed efficiency gains from corporate consolidation, led to what those who have studied the issue often describe as the virtual end of antitrust enforcement.

True, there was a limited revival of anti-monopoly efforts during the Clinton years, but these went away again under George W. Bush. The result was an economy with far too much concentration of economic power. And the Obama administration … has only recently been in a position to grapple with competition policy.

Still, better late than never. On Friday the White House issued an executive order directing federal agencies to use whatever authority they have to “promote competition.” What this means in practice isn’t clear… But it may mark a turning point in governing philosophy, which could have large consequences if Democrats hold the presidency.

For we aren’t just living in a second Gilded Age, we’re also living in a second robber baron era. And only one party seems bothered by either of those observations.