No images? Click here Welcome to The Corner. In this issue, we look at the role monopolists are playing in stoking today’s high inflation, and we highlight our recent congressional testimony on the supply chain crisis and the risks of stablecoins. A NOTE TO READERS: This is The Corner‘s final issue of 2021. After a winter break, the newsletter will return to your inboxes the week of Jan. 10, 2022. How Monopolists Drive — and Profit From — Today’s High Inflation Garphil Julien As 2021 comes to a close, inflation has surged into the political debate. Polling consistently shows a majority of Americans concerned about rising prices, and Republicans are using this to their advantage. Sen.Rick Scott (R-Fla.) recently said inflation “is a gold mine for us.” And indeed, at 6.8%, inflation is at its highest rate in almost 40 years. But rather than simply fret about next year’s elections, Democrats have a clear way to make the inflation story work for them: Go after price gouging. Corporations have made record profits this year by jacking up prices on consumers, recording their largest profits since 1950. Many are simply using recent stories about supply chain chokepoints as a cover for what has been called a “once in a generation opportunity” to increase prices. To be sure, some of the higher prices reflect natural shortages, including those created by the COVID-19 pandemic. But a major contributor to today's inflation is the extreme chokepointing of transportation and manufacturing systems over the last generation. Decades of neoliberal policy changes have made it far easier for U.S. and foreign corporations to concentrate capacity and control and use their new power to force the American people to pay more for less. “Concentrated industries are more susceptible to coordinated pricing,” says Hal Singer, an economist and managing director of consulting firm Econ One. Container shipping is a good example. The industry is on pace to reap profits of $100 billion in 2021—15 times higher than 2019. Mergers played a role, as the market share of the top 10 companies increased from 51 percent in 2000 to 82 percent now. Basic cartelization did the rest, as these companies then formed three globe-spanning alliances known as 2M, the Alliance, and Ocean. These super cartels facilitated years of coordinated capacity cutting and rate hikes, which in turn played a large role in disrupting supply chains and creating a cascading series of other shortages. Much the same is true of railroads. As our own recent article detailed, decades of consolidation, cost-cutting, and downsizing of major railroads by executives to please Wall Street and boost short-term profits have weakened freight services and worsened congestion and bottlenecks in the shipment of goods. Then there are the manufacturing chokepoints, such as in semiconductors. As this recent Open Markets article makes clear, Wall Street has used its power to force more extreme consolidation of the U.S. semiconductor industry and to shift more production to offshore monopolists in places such as Taiwan and South Korea. The numbers are stark, as the ranks of leading semiconductor makers in the U.S. shrunk from 25 in 2002 to just three in 2016, according to Capital Group. Worse, the chokepointing of chip manufacturing has triggered a cascading series of shortages and price hikes in other industries. One result is a massive cut in the production of automobiles, with Ford’s output down 50 percent in Q2 and Toyota’s down 40% in Q3. This means higher prices for what cars do reach dealers. And it means higher prices for used cars. It also provides a huge opportunity for rental car corporations to pile up cash, a fact made easier by the consolidation of that industry under the control of Hertz, Enterprise, and Avis-Budget, which together control 95% of the market. Hertz, in bankruptcy only two years ago, saw record-setting profits in October. Then there’s the meat industry, where an oligopoly of processors has discovered it can raise prices with increasing impunity. In America today, four meat processors control 55 to 85 percent of the beef, poultry, and pork market. And these figures dramatically understate the degree of real concentration over farmers and eaters, as these corporations routinely enjoy close to complete concentration in certain regions. Since the beginning of the pandemic, Tyson, JBS, Marfrig, and Seaboard have recorded a 120% increase in gross profits and a 500% increase in net income. The good news is the White House now understands the source of the problem and has ordered investigations of both the meatpacking and oil and gas industries. Members of Congress have called on the Biden administration to also take action against nurse staffing agencies, and clothing industry groups have asked the president to investigate gouging by shipping companies. Lynn Testifies on Supply Chain Crisis Barry Lynn last week testified before the Senate Subcommittee on Fiscal Responsibility and Economic Growth at a hearing titled “PromotingCompetition, Growth, and Privacy Protection in the Technology Sector.” His testimony was mentioned in Politico, Law 360, Lawfare Blog, and Washington Business Journal. His testimony also provided the basis for a letter from Sen. Elizabeth Warren (D-Mass.) to Commerce Secretary Gina Raimondo, as covered in this CNN story. In his testimony, Lynn wrote: Over “the 22 years since the earthquake in Taiwan first revealed the extreme concentration of the capacity to produce certain types of semiconductors, the problem has become only worse. As was true in 1999, the world today remains just as vulnerable to disruption… as there has been no effort whatsoever to distribute capacity or ownership. Worse, monopolistic manufacturers like Taiwan Semiconductor Manufacturing Corporation (TSMC) have become increasingly tempted to exploit their chokepoints for profit. The result… has been a slow but steady choking off of production in an ever-widening range of industries.” You can watch Lynn’s testimony here. Goldstein Testifies on the Risks of Cryptocurrency Stablecoins This week, Open Markets Financial Policy Director Alexis Goldstein testified at the U.S. Senate Banking Committee’s hearing titled “Stablecoins: How Do They Work, How Are They Used, and What Are Their Risks?” In her testimony, Goldstein addressed the ways that stablecoins are used for speculation today, not as a payment mechanism, and also highlighted the fact that the top two stablecoins — Tether and USDC — cannot be redeemed for dollars by U.S. retail investors; they can only be traded for dollars on cryptocurrency exchanges. During the hearing, Goldstein discussed how using stablecoins as remittances are often impractical due to the high total cost, which is the result of the many steps required and multiple fees incurred. In response to a question from Sen. Mark Warner (D-Va.) about how certain stablecoin issuers can turn a profit if they only hold cash and Treasuries, Goldstein noted that Circle’s investor materials show they want to offer services connecting customers to DeFi — the piece of the cryptocurrency markets with the least regulatory compliance. “Today, the cryptocurrency market is not that entangled with the mainstream financial system, but if Wall Street and the cryptocurrency industry have their way, it will be,” Goldstein said. Goldstein’s testimony was mentioned in The New York Times’ DealBook and featured on Cheddar News and Yahoo! Finance. You can watch the complete hearing video here and read Goldstein’s written testimony here. 🔊 ANTI-MONOPOLY RISING:
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NIKKI USHER'S NEW BOOK
News for the Rich, White, and Blue: How Place and Power Distort American Journalism Nikki Usher, a senior fellow at Open Markets Institute’s Center for Journalism & Liberty, has released her third book, News for the Rich, White, and Blue: How Place and Power Distort American Journalism. In her latest work, Usher offers a frank examination of the inequalities driving not just America’s journalism crisis but also certain portions of the movement to save it. “We need to radically rethink the core functions of journalism, leverage expertise, and consider how to take the best of what the newspaper ethos of journalism can offer to places that have lost geographically specific news, “ says Usher, an associate professor at the University of Illinois-Champaign. “The news that powers democracy can be more inclusive.” Usher is also the author of Making News at The New York Times (2014) and Interactive Journalism: Hackers, Data, and Code (2016). News for the Rich, White, and Blue, published by Columbia University Press, is available as a hardback, paperback and e-book. You can order your copy here. 🔎 TIPS? COMMENTS? SUGGESTIONS? We would love to hear from you—just reply to this e-mail and drop us a line. Give us your feedback, alert us to competition policy news, or let us know your favorite story from this issue. |