Biden anti-inflation technique might make issues worse, Larry Summers says


The Biden White House is campaigning for stricter antimonopoly laws to curb US inflation and mitigate public criticism, but a prominent Democratic economist says this is stupid.

“The emerging claim that antitrust law can fight inflation mirrors ‘science denial,'” tweeted Harvard economist Lawrence Summers, a senior Obama and Clinton official. “There are many areas, like temporary inflation, that serious economists disagree on. Antitrust law as an anti-inflation strategy is not one of them. “

See on Twitter: Summers thread on inflation

Summers noted that corporate concentration has changed little, as U.S. inflation hit its highest level since the early 1980s that year. The annual inflation rate, measured by the consumer price index, rose to 6.8% in November.

Before the pandemic, inflation had been abnormally low for years, suggesting that companies had very little power to raise prices. Prices rose by an average of less than 2% per year from 2010 to 2019. The Federal Reserve was more concerned about under-inflation than the other way around.

“There is no basis whatsoever to believe that monopoly power increased in the last year when inflation accelerated sharply,” Summers tweeted.

Summers had warned the Biden White House of sustained inflation spike in early 2021 when it drew up a $ 1.9 trillion stimulus plan, but his warnings were dismissed by senior economic advisers to the president.

Until recently, Wall Street had also viewed the DJIA + 0.65% and the Fed as a “passing” phenomenon that was about to end. The US Federal Reserve still expects price pressures to subside by the end of 2022, but it has also started hedging its bet by taking away stimuli from the economy faster than planned.

The current surge in inflation is largely due to the disruption in labor markets and supply chains caused by the pandemic. Companies cut production at the start of the crisis in anticipation of weaker sales, and suppliers struggled to keep their plants open due to worker absenteeism, government COVID rules and chronic disruptions in the flow of materials around the world.

When the U.S. fully reopened in early 2021, and Washington added further stimulus to the economy, demand soared and businesses couldn’t keep up.

A sudden shortage of labor exacerbated the problems. Millions of baby boomers retired and others stayed out of the job market, relying on stimulus money for other incomes to make ends meet.

“The increasing demand with capacity and work constraints is more than enough” to explain the higher prices in meat packaging and other industries, tweeted Summers.

What to do instead

Summers enacted a number of measures that appear to contradict the current approach of the Biden administration: reducing “Buy America” rules, tariffs, energy restrictions and regulatory delays that hamper business.

“When government goes to war with industry, it generally discourages investment and downstream capacity,” which can help lower inflation, Summers tweeted.

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