Anti-Tech Bills Will Make Inflation Worse, Not Better
Despite what you might have heard, Congress’s anti-tech bills will not reduce inflation. In fact, they will make it worse by undermining the technologies that lead to lower consumer prices. By targeting tech, in which inflation is already consistently low and some prices are even declining, the bills would jeopardize free or low-cost services, potentially raising prices and harming the services consumers value. Here’s what you need to know:
— Proposed anti-tech bills would only make inflation worse by raising the prices of low-cost and free digital services.
— Inflation has remained low in the digital sector, reflecting the scale and efficiency of online services.
— Recent high inflation caused by the pandemic and other economy-wide factors is unrelated to technology firms.
Proposed anti-tech bills would only make inflation worse by raising the prices of low-cost and free digital services.
Antitrust as an anti-inflation policy reflects “science denial” and neo-Brandesian antitrust is more likely to raise than lower prices, explains Former Treasury Secretary Larry Summers. “The emerging claim that antitrust can combat inflation reflects ‘science denial’. There are many areas like transitory inflation where serious economists differ. Antitrust as an anti-inflation strategy is not one of them.”
— Summers continues: “However, as described, hipster Brandesian antitrust, with which the Admin and its appointees flirt, is more likely to raise than lower prices.”
In reply to Summers’ tweets, former OMB and CBO Director Peter Orszag tweeted: “Count me on @LHSummers’ side here.”
Antitrust reformers in Washington are too focused on corporate size and outdated ideas that punish lower prices and embrace higher prices for their preferred cartel, explain FTC Commissioner Noah Joshua Phillips and Former Commissioner Josh D. Wright “Antitrust laws protect competition. Competition benefits society—and consumers—by spurring innovation, improving quality and lowering prices. Companies and industries rise and fall, but the competitive process ensures that American consumers benefit. That is why antitrust focuses on whether a merger or other business conduct harms consumers. Yet some argue for jettisoning ‘consumer welfare’—the lodestar of U.S. antitrust laws—to promote other interests like protecting less efficient competitors and organized labor and reducing income inequality.”
— They continue: “President Biden’s July Executive Order on Competition suggests reviving enforcement of a law that took money out of the pockets of American consumers. The Robinson-Patman Act of 1936 sought to protect small retail businesses from larger, more efficient chain stores. As the Justice Department concluded in 1977, the unfortunate result was that American consumers paid more for groceries and household goods.”
Digital inflation is low and growth in the tech sector is rapid, yet the American Innovation and Choice Online Act would hurt this vital industry, explains Progressive Policy Institute’s Michael Mandel. “It can’t be denied: The anti-tech antitrust legislation led by Senator Klobuchar will hurt American consumers and American middle-class jobs, and impede American technological leadership. The digital economy should be a source of pride for Democrats. Digital inflation is low, wage growth in the tech-ecommerce sector is extremely rapid, and digital job creation is strong – especially in pivotal swing states. Instead, if this bill is passed, it will undercut the tech and ecommerce industries – which are vital to our 21st century economy – and give China the edge in leadership and the digital economy.”
The Klobuchar-Grassley bill would abandon consumer welfare from antitrust law, leading to fewer choices and higher prices, notes the American Consumer Institute. “For consumers, this shows lawmakers have deprioritized them from antitrust law. Consumers should be most concerned that AICO[A] would prohibit many practices that have enabled them to access high-quality goods and services for little or no cost. By decentering consumer welfare, AICO[A] could leave consumers with fewer choices and higher prices.”
Regulators’ hostility toward American businesses and rejection of the consumer welfare standard could turn the current inflation into stagflation, warn experts Phil Gramm and Mike Solon in the WSJ. “The mounting regulatory burden of Mr. Biden’s executive orders, his regulators’ open hostility toward America’s economic system, and the return to Progressive-era antitrust enforcement will stifle growth. All the ingredients will be present to turn the current inflation into stagflation.”
White House officials acknowledge their antitrust moves are “unlikely to reduce costs for U.S. businesses or consumers immediately,” reports the New York Times. “White House officials concede that their antitrust moves are unlikely to reduce costs for U.S. businesses or consumers immediately.”
The best place for the White House to start combating inflation is “to eliminate regulatory barriers to competition” that government officials have created, writes J.D. Tuccille for Reason. “If the White House wants to battle concentration in certain industries, the best place to start is to eliminate regulatory barriers to competition. That would be a lot more fruitful than raising bogus antitrust claims about an inflation problem that government officials themselves created.”
Inflation has remained low in the digital sector, reflecting the scale and efficiency of online services.
In the midst of increased prices across most food and energy products, inflation remains low in the digital sector, notes Michael Mandel of the Progressive Policy Institute. “Inflation remains low in the digital sector, even as it accelerates across much of the economy. Start with consumer inflation (as measured by the CPI). Over the past year, prices for digital consumer goods and services tracked by BLS (see graphic) have risen by only 1.9% overall, compared to 4.9% for CPI ex food/energy and 6.8% for total CPI.”
— Mandel continues: “However, the digital sector is not getting enough ‘credit’ in the overall numbers for holding down inflation. For example, there’s no doubt that the digital sector is much more important to Americans today than it was in pre-pandemic 2019. Yet the digital sector gets a smaller weight in the CPI today than it did in 2019, because spending on digital goods and services is a smaller share of the consumer basket. That’s good news, but it has a perverse effect on the calculation of the overall inflation rate.”
Economist Trevor Wagener of CCIA reminds that digital technology counters inflation. “Digital technology tends to counter inflation for a number of reasons: First and most straightforwardly, digital goods and services tend to be less expensive than, and increase in price more slowly than, their offline counterparts. As consumers use more digital goods and services, they pay lower prices than they did previously, and they experience smaller price increases going forward, so inflation is reduced. Second, because digital services, platforms, and marketplaces tend to facilitate price comparisons and transparency to consumers, increased use of digital tools by both consumers and producers tends to put downward pressure on prices by enhancing competition. Third, digital tools are often prerequisites for productivity enhancements, supply chain improvements, and cost reductions on the supply side that result in reduced prices for consumers.”
Amazon’s low product prices are driving down prices among other retailers, shows Profitero’s 2021 Price Wars Report. “Amazon is in a good position as the online price leader heading into the 2021 holiday shopping season — just not quite as good as a year ago. While Amazon beats other major retailers on price by 14%, on average, this is down from 16% last year, according to our latest pricing data. The only retailer currently matching Amazon on prices is Chewy, in Pet. But other competitive retailers narrowed the price gap versus Amazon in 8 of the 15 consumer product categories featured in this study, with the biggest threat coming from Walmart.”
— The study also shows: “Amazon has the best prices on the latest gadgets, toys and video games. Its Electronics prices are 13% cheaper, on average, than other retailers studied.”
Amazon competes with multichannel retailers in a manner that drives prices down, explains this Harvard Business School piece, citing research from Prof. Alberto Cavallo. “It’s no secret that fierce competition from Amazon puts downward pressure on prices charged by Walmart and other big multichannel retailers for the same items. However, the bigger ‘Amazon effect’ relates not to the prices themselves but to the pricing behaviors of these more traditional retailers.”
Online is “no place to go in search of inflation,” explains the Economist. “[T]he internet in general is no place to go in search of inflation: in America online prices have been falling fairly steadily since about 2012 and are lower than they were at the turn of the millennium.”
Recent high inflation caused by the pandemic and other economy-wide factors is unrelated to technology firms.
Businesses didn’t suddenly decide now was the time to raise prices—labor shortages and supply chain hiccups contributed to inflation, explains the Washington Post Editorial Board. “Inflation, which was relatively low for years, did not suddenly rise in recent months because businesses decided now was the ideal time to squeeze their customers. What actually happened is that demand soared for many products as the economy recovered. Often, there were not enough products to meet it, thanks to supply chain hiccups and labor shortages, so prices went up. In a surprise to many, consumers kept buying goods sMediciuch as cars and washing machines even at higher prices.”
The administration is trying to shift blame onto private companies, yet “labor shortages, supply-chain issues, and a dramatic increase in regulatory burdens have been key” to driving inflation. Other factors are the cause of rampant inflation, says Alden Abbott of Mercatus Center. “[L]abor shortages, supply-chain issues, and a dramatic increase in regulatory burdens have been key to the dramatic run-up of prices during the Biden administration’s first year. Reducing the weight of government on the private sector and thereby enhancing incentives for increased investment, labor participation, and supply are the appropriate weapons to slow price rises and incentivize economic growth.”
Left-of-center experts say “you’re not going to get many economists to back up the argument” that corporations are to blame for inflation, highlights reporting from the Washington Post. “‘I don’t think corporate consolidation explains the jump in prices,’ said Dean Baker, a liberal economist who endorsed Warren’s presidential candidacy in 2020. Baker said he had relayed this skepticism to the White House. ‘I don’t see a good story here in blaming inflation on concentration.’ Claudia Sahm, a liberal economist who worked at the Federal Reserve, added, ‘I don’t understand the strategy. It must have something to do with politics, but you’re not going to get many economists to back up the argument that it’s going to address inflation right now.’ The criticisms are even more pointed from less liberal economists. Larry Summers and Jason Furman, who both served in the Obama administration, have been dismissive of the notion that corporate consolidation explains the price hikes. But they said it makes sense for the administration to use price pressures to push their antitrust agenda.’If they’re using inflation to get a mechanism to go after genuine monopoly problems, as I said, a crisis is a terrible thing to waste, and it’s all sort of fine. If they think this is a strategy for actually reducing inflation, they’re badly wrong,’ said Summers, a former treasury secretary and top economic official in prior Democratic administrations. ‘I hope it’s the first.'”
Appealing to antitrust efforts to control inflation is not a real solution but an attempt to shift the blame from fiscal policies to big companies, explains Douglas Holtz-Eakin, economist and president of the American Action Forum. “[T]he administration and its progressive supporters should drop the ridiculous notion that antitrust policy is the solution to the inflation problem it has created. A leading example of this assertion is by former Labor Secretary Robert Reich, who contends that ‘there’s a deeper structural reason for inflation, one that appears to be growing worse: the economic concentration of the American economy in the hands of a relative few corporate giants with the power to raise prices.'”
— Holtz-Eakin continues: “[I]nflation is a sustained rise in the general price level. So, for market power to explain our current inflation (and for antitrust to be the solution) it would have to be the case that every firm simultaneously got additional market power relative to every other firm every week in 2021. That is well beyond implausible.”
Government spending in response to COVID-19 is a clear demonstration of fiscal inflation, says Cato Institute’s John Cochrane. “Starting in March 2020, in response to the disruptions of Covid-19, the U.S. government created about $3 trillion of new bank reserves, equivalent to cash, and sent checks to people and businesses. The Treasury then borrowed another $2 trillion or so, and sent more checks. Overall federal debt rose nearly 30 percent. It is hard to ask for a clearer demonstration of fiscal inflation.”
The “real case of inflation” is recovery from a pandemic and potentially the “reckless spending by presidents and Congresses of both parties,” says Antitrust Education Project (AEP) President Robert Bork Jr. “The real cause of inflation, of course, is recovery from a pandemic and the temporary economic depression it caused. It also might be driven by the reckless spending by presidents and Congresses of both parties. Our national debt is now 125 percent of our gross domestic product”
Permanent and high inflation rates are a result of recent government policies and not the fault of big corporations, explains Professor Denver Nicolas Cachansoky. “A second reason is political. It is more convenient for the government to argue that inflation is due to supply-chain shocks or scapegoats (such as evil corporations) than admitting it is of their own doing. Can you imagine the Biden Administration admitting that the American Rescue Plan and all those checks sent to families across the country are an important part of the reasons why we have higher inflation today? Of course, supply shocks can have some impact on the price level. However, this supply-side explanation of inflation does not fit well with permanent or high inflation rates, especially when we see both permanent and high inflation rates together.”
Prices fell before the pandemic, and markets didn’t “suddenly become less competitive,” explains The WSJ Editorial Board. “Meat prices fell in the five years before the pandemic, and markets didn’t suddenly become less competitive. Like so much else in the Biden era, meat prices have soared amid surging demand, rising production costs and constrained supply.”