Inequality and Growth
Robber Baron Recessions
Paul Krugman, New York 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. Verizon-type stories, in which lack of competition reduces the incentive to invest, may contribute to persistent economic weakness.”
How America became uncompetitive and unequal
Lina Khan & Sandeep Vaheesan, The Washington Post
Since the early 1980s, executives and financiers have consolidated control over dozens of industries across the U.S. economy. From cable companies and hospitals to airlines, grocery stores and meatpackers, where once many small and mid-size businesses competed, today we see a few giants dominate. They use their power to raise prices, drive down wages and foreclose opportunity. Wealth is transferred from consumers, workers and entrepreneurs to affluent executives and shareholders.
Market Power and Inequality: The Antitrust Counterrevolution and its Discontents
Lina Khan & Sandeep Vaheesan, Harvard Law and Policy Review
Given the current distribution of business ownership assets in the United States, market power can be a powerful mechanism for transferring wealth from the many among the working and middle classes to the few belonging to the 1% and 0.1% at the top of the income and wealth distribution. In concrete terms, monopoly pricing on goods and services turns the disposable income of the many into capital gains, dividends, and executive compensation for the few.
Want to rescue rural America? Bust monopolies.
Lillian Salerno, The Washington Post
For decades, rural America has been punished by bad policy that places too much power in the hands of distant financiers and middlemen through the formation of monopolies, which undermines small, local businesses and drains communities of resources. I know, because I started a company in rural Texas, and the challenges I faced illustrate the problem.
Monopolies Are Killing America
Ross Baird & Ben Wrobel, Bright Magazine
According to the nonpartisan Economic Innovation Group, fewer Americans are starting successful firms than at any point in the last century. In 1980, nearly half of American firms were five years old or younger. By 2015, that number had fallen to one-third. Although a new business starts every two minutes in this country, another firm closes its doors every eighty seconds — the highest rate of firm death in the past fifty years.
Thrown Out of Court
Lina Khan, Washington Monthly
Two recent U.S. Supreme Court rulings—AT&T Mobility v. Concepcion and American Express v. Italian Colors—have deeply undercut these centuries-old public rights, by empowering businesses to avoid any threat of private lawsuits or class actions. The decisions culminate a thirty-year trend during which the judiciary, including initially some prominent liberal jurists, has moved to eliminate courts as a means for ordinary Americans to uphold their rights against companies. The result is a world where corporations can evade accountability and effectively skirt swaths of law, pushing their growing power over their consumers and employees past a tipping point.
Arbitration as Wealth Transfer
Deepak Gupta & Lina Khan, Yale Law and Policy Review
Given the pressing need for public attention, this Essay offers a fresh way to understand and talk about forced arbitration: as a wealth transfer. It argues that the rise and prevalence of forced arbitration clauses should be understood as both an outcome of and contributor to economic inequality, and that the national conversation about economic inequality should therefore include the debate over forced arbitration.
Workers, Jobs and Wages
Who Broke America’s Jobs Machine?
Barry C. Lynn & Phil Longman, Washington Monthly
f any single number captures the state of the American economy over the last decade, it is zero. That was the net gain in jobs between 1999 and 2009—nada, nil, zip. By painful contrast, from the 1940s through the 1990s, recessions came and went, but no decade ended without at least a 20 percent increase in the number of jobs.
The Slow-Motion Collapse of American Entrepreneurship
Barry C. Lynn & Lina Khan, Washington Monthly
Compared to a generation ago, the report said, it is now much harder to start a business in America and keep it running. In 1980 “young firms”—those less than five years old—accounted for almost half of all going concerns. By 2010, their share of the total had collapsed to less than 35 percent. And as the Kauffman authors made clear, this doesn’t only mean less opportunity for America’s entrepreneurs. It also means millions fewer jobs every year, and much less economic growth.
Killing the Competition
Barry C. Lynn, Washington Monthly
But as every previous generation of Americans understood, a truly open market is one of our fundamental democratic institutions. We construct such markets to achieve some of our most basic rights: to deal with whom we choose, to work with whom we choose, to govern our communities and nation as we (along with our neighbors) choose. And so, as every previous generation of Americans also understood, monopolization of our public markets is first and foremost a political crisis, amounting to nothing less than the reestablishment of private government. What is at stake is the survival of our democratic republic.
Declining Business Dynamism: It’s For Real
Ian Hathaway and Robert E. Litan, Brookings Institution
To recap, our report showed a persistent decline in the rate of new firm formations and in the job reallocation rate—a broad measure of labor market churn that results from firm formations, expansions, contractions, and failures (what we and other economists call “business dynamics”). We also showed that these declines were nearly universal across the U.S. states and metros during the 30 year period between 1978 and 2011, as well as across a broad range of industries and firm sizes. In short, the decline in dynamism and entrepreneurship doesn’t appear to be isolated to any one segment of the economy or region, but instead has been a widely shared experience.
Why Aren’t Americans Getting Raises? Blame the Monopsony
Jason Furman and Alan Kreuger, The Wall Street Journal
“Stories like this are too common, thanks to many employers’ exercising monopsony power over workers. A monopsony is the flip side of a monopoly: It occurs when a buyer, rather than a seller, has sufficient market power to set its own price. While economics textbooks often describe the labor market as perfectly competitive, in reality employers often use their power to underpay workers.”
To Understand Rising Inequality, Consider the Janitors at Two Top Companies, Then and Now
Neil Irwin, The New York Times
But major companies have also chosen to bifurcate their work force, contracting out much of the labor that goes into their products to other companies, which compete by lowering costs. It’s not just janitors and security guards. In Silicon Valley, the people who test operating for bugs, review social media posts that may violate guidelines, and screen thousands of job applications are unlikely to receive a paycheck directly from the company they are ultimately working for.
Noncompete Agreements Hobble Junior Employees
Aruna Viswanatha, Wall Street Journal
Noncompete agreements—common in computing and engineering jobs, where proprietary technology can be at stake—are spreading to other industries and stretching further down the corporate ladder. Labor-law experts say some employers appear to be using them to prevent turnover among rookie employees they have spent time and money training. Since the agreements are private contracts, they generally are enforced through lawsuits.
The Enduring Ambiguities of Antitrust Liability for Worker Collective Action
Sanjukta M. Paul, Loyola University Chicago Law Journal
This article examines the regulation, by antitrust law, of collective action by low-wage workers who are classified as independent contractors, and who therefore presumptively do not receive the benefit of the labor exemption from antitrust law. Such workers find themselves in the position of most workers prior to the New Deal: at once lacking labor protections, yet exposed to antitrust liability for organizing to improve their conditions. I argue that this default rule is the legacy of a problematic history that is taken for granted by the contemporary antitrust framework.
Bayer’s Empty Promise: Jobs in Exchange for Approval to Take Over Monsanto
Leah Douglas, Food & Power
Days before entering office, President Donald Trump held a meeting with executives from agrochemical giants Bayer and Monsanto. The companies sought Trump’s blessing for their $66 billion merger, promising to create thousands of jobs if the merger is approved. But the companies’ track records, as well as evidence from past mergers, suggest the deal would likely result in a net job loss.
Labor Unions and the Sherman Act: Rethinking Labor ‘s Nonstatutory Exemption
Joseph L. Greenslade, Loyola of Los Angeles Law Review
To what extent should labor unions be subject to proscriptions of the Sherman Act?’ This question has generated much confusion and controversy amongst the legal community. It has been the subject of heated debate since the Sherman Act was passed in 1890.2 After almost one hundred years, however, courts have done very little to clarify the confusion. The problem is two-fold. First, the antitrust laws3 and the national labor laws4 embody two important, but at times conflicting,’ congressional declarations of public policy. On the one hand, the antitrust laws strive to create and maintain a freely competitive commercial environment.6 On the other hand, the national labor laws seek to improve employment conditions by eliminating competition in the labor market over wages, hours and working conditions. This conflict creates confusion for labor unions in determining how far they can go, under the national labor laws, before they run afoul of the antitrust laws.
During the original and current Gilded Ages, the antitrust laws were and have been used to protect the power of large-scale business and also to limit the autonomy of workers to organize and seek higher wages and better working conditions. Through this anti-labor application, the federal government has employed antitrust to aid big business, rather than restrain its power. Despite this history of accommodating capital and policing labor, the antitrust laws can still be reinterpreted and redeemed. Executive and judicial action can remake these laws to control the power of large corporations through competitive market structures and also protect the freedom of all workers to organize for higher wages and better working conditions. A renewal of antitrust, in accordance with the expressed purposes of Congress, would help remedy the inequities of the New Gilded Age and create a more just society.
The Politics of Professionalism: Reappraising Occupational Licensure and Competition Policy
Sandeep Vaheesan & Frank Pasquale, Annual Review of Law and Social Science
Elite economists and lawyers have united to criticize occupational licensing. They contend that licensure rules raise consumer prices and restrict labor market entry and job mobility. The Obama Administration’s Council of Economic Advisers and Federal Trade Commission have joined libertarians and conservatives in calling for occupational regulations to be scaled back. Billed as a bipartisan boost to market competition, this technocratic policy agenda rests on thin empirical foundation. Studies of the wage effects of licensing rarely couple this analysis of its putative “costs” with convincing analysis of the benefits of the professional or vocational education validated via licensure. While some licensing rules may be onerous and excessive, licensing rules are inadequate or underenforced in other labor markets. Furthermore, by limiting labor market entry, occupational licensing rules, like minimum wage and labor laws, can help raise and stabilize working and middle class wages — goals that many center-left critics of occupational licensing claim to support.
Beware the Fine Print- A three part series about forced arbitration clauses by the New York Times
Part 1: Arbitration Everywhere, Stacking the Deck of Justice
Jessica Silver-Greenberg & Robert Gebeloff, The New York Times
By inserting individual arbitration clauses into a soaring number of consumer and employment contracts, companies like American Express devised a way to circumvent the courts and bar people from joining together in class-action lawsuits, realistically the only tool citizens have to fight illegal or deceitful business practices.
Part 2: In Arbitration, a ‘Privatization of the Justice System’
Jessica Silver-Greenberg & Michael Corkery, The New York Times
Deborah L. Pierce, an emergency room doctor in Philadelphia, was optimistic when she brought a sex discrimination claim against the medical group that had dismissed her. Respected by colleagues, she said she had a stack of glowing evaluations and evidence that the practice had a pattern of denying women partnerships. She began to worry, though, once she was blocked from court and forced into private arbitration.
Workers Begin to Organize Against Amazon Takeover of Whole Foods
Leah Douglas, Food & Power
Amazon’s announcement in June that it plans to buy Whole Foods for $13.7 billion has led to speculation throughout the retail industry about the corporation’s intentions in the grocery sector. Supply chain and retail workers in particular fear the merger will result in layoffs and less bargaining power overall. Some are ratcheting up unionization efforts in response.
Barry C. Lynn, Washington Monthly
The great middle class of twentieth-century America stood atop two foundations. One was freedom to organize the industrial workplace, to erect a countervailing power within a necessarily hierarchical governance structure. The other was freedom from organization, the freedom to be ones own boss, the freedom to build up a business thatthanks to anti-monopoly lawwas largely safe from predation. Every American could choose the path that fit best. A citizen who wanted to be her own boss, or run his own family business, could count on robust anti-monopoly law to protect farm, factory, or store from predators wielding massed capital. Citizens who wanted the security of a weekly wage could hire themselves out to an industrial giant or government monopoly, confident that they were protected against economic exploitation and arbitrary rule by open market systems and robust labor law.
With ‘Gigs’ Instead of Jobs, Workers Bear New Burdens
Neil Irwin, The New York Times
The proportion of American workers who don’t have traditional jobs — who instead work as independent contractors, through temporary services or on-call — has soared in the last decade. They account for vastly more American workers than the likes of Uber alone. Most remarkably, the number of Americans using these alternate work arrangements rose 9.4 million from 2005 to 2015. That was greater than the rise in overall employment, meaning there was a small net decline in the number of workers with conventional jobs.
Innovation, Investment and Silicon Valley
The evidence is piling up — Silicon Valley is being destroyed
Matt Stoller, Business Insider
“This moment of stagnating innovation and productivity is happening because Silicon Valley has turned its back on its most important political friend: antitrust. Instead, it’s embraced what it should understand as the enemy of innovation: monopoly.”
Heather Somerville, Reuters
The bloom is off seed funding, the business of providing money to brand-new startups, as investors take a more measured approach to financing emerging U.S. technology companies. … Dominant players such as Facebook Inc have amassed so much wealth they can quickly challenge a hot startup, diminishing its value. “Incumbents just get so much more power, so there are fewer super early-stage opportunities that are very valuable,” Tan said. “I can imagine a 20 to 25 percent reduction in valuable investment opportunities.”
VCs raise less cash to fund Silicon Valley’s next big thing
Marisa Kendall, The Mercury News
The venture capitalists who fuel Silicon Valley’s tech ecosystem raised less cash last quarter, slowing the frenzied flow of dollars gushing into the industry. … Those numbers show that deals keep getting bigger, but fewer companies are getting a piece of the pie. That’s because investors are chasing big names like Uber and Airbnb, hoping for a massive payout, said Paul Hsiao, co-founder and General Partner of Canvas Ventures. New York-based WeWork, for example, closed a massive $3 billion round in August, and that alone accounted for 17 percent of the quarter’s overall investment into U.S. VC-backed companies, according to the Venture Monitor report.
How Valuable Is a Unicorn? Maybe Not as Much as It Claims to Be
Andrew Ross Sorkin, The New York Times
Ilya A. Strebulaev and another professor working with him, Will Gornall of the University of British Columbia, have come to a startling conclusion: The average unicorn is worth half the headline price tag that is put out after each new valuation. … One of the many ways that some companies inflate their valuations, for instance, is by offering certain investors guaranteed valuations in an initial public offering. In other words, if a company doesn’t reach a certain valuation at the time of an I.P.O., it will issue the investor more shares to make up the difference between the guaranteed price and the one that was attained. Effectively, all the other common shareholders end up paying the difference — and often don’t know it.
Two Views of Innovation
Timothy B. Lee, Forbes
The Schumpeterian view of innovation focuses on the importance of incentives. On this view, the larger the rewards to innovation, the greater incentives firms have to innovate, the more money they’ll spend on innovation, and the more innovation we’ll get. … The Hayekian view of innovation focuses on the limited knowledge and capabilities of economic actors. They view innovation as a matter of trial and error and seek to maximize the number of firms that have the opportunity to try to solve any given problem.
Mariah Blake, Washington Monthly
This is hardly the first time Shaw has found his path to market blocked. In fact, he has spent the last fifteen years watching his potentially game-changing inventions collect dust on warehouse shelves. And the same is true of countless other small medical suppliers. Their plight is just the most visible outgrowth of the tangled system hospitals use to purchase their supplies—a system built on a seemingly minor provision in Medicare law that few people even know about. It’s a system that has stifled innovation and kept lifesaving medical devices off the market. And while it’s supposed to curb prices, it may actually be driving up the cost of medical supplies, the second largest expenditure for our nation’s hospitals and clinics and a major contributor to the ballooning cost of health care, which consumes nearly a fifth of our gross domestic product.
ABI’s Venture Capital Fund Quietly Expanding the Mega-Brewer’s Reach
Leah Douglas, Food & Power
Anheuser-Busch InBev was consistently in the news last year as it closed its blockbuster $100 billion acquisition of SABMiller. But beyond headline-generating deals, the brewer is finding new ways to expand its reach, particularly in the craft sector. The company’s wholly-owned venture capital firm has been quietly investing in beer ratings websites, delivery services, and international craft brewers—an indication that, despite cuts to its domestic craft acquisition program, the mega-brewer is finding yet more ways to put pressure on the independent and craft beer sector.
Farmers Warily Eye DuPont Purchase of Farm Software Leader
Leah Douglas, Food & Power
Amidst farmer concerns about data collection by agricultural technology companies, agrochemical and seed giant DuPont on August 9th agreed to buy software company Granular Inc. for $300 million. With the deal, DuPont greatly increases its ability to collect detailed data on the operations of individual farms. Granular and other farm data companies collect information on farming activities, which they then aggregate and analyze. Farmers, in theory, could benefit from such aggregation by receiving reports that help them increase their yields and to decide when is the best time to harvest. But Terry Griffin, an assistant professor at Kansas State University whose research focuses on agricultural technology and big data, says that data companies stand to benefit far more than the farmers themselves, and sometimes at the expense of the farmers.
It’s official: Pharma mergers hurt innovation, and not only for the dealmakers
Tracy Staton, FiercePharma
“Our results very clearly show that R&D and patenting within the merged entity decline substantially after a merger, compared to the same activity in both companies beforehand,” the authors, Justus Haucap and Joel Stiebale, wrote in the HBR. … That’s to be expected, the authors posit, because merger-minded companies often target rivals with similar pipeline assets, to gain strength in particular drug markets. But here’s what else the authors found: “On average, patenting and R&D expenditures of non-merging competitors also fell–by more than 20%–within four years after a merger. Therefore, pharmaceutical mergers seem to substantially reduce innovation activities in the relevant market as a whole.”
Merging Seed Giants Tout “Innovation”, but Already Slashing R&D
Leah Douglas, Food & Power
In a September 20 hearing on Capitol Hill, executives from Monsanto, Bayer, Syngenta, Dow and DuPont defended their plans to merge into three giant agrochemical companies. Under questioning by Senators on the Judiciary Committee, they emphasized that the deals would increase their companies’ ability to “innovate” and to develop better seeds and agricultural chemicals.
Buyback outlook darkens for US stocks
Robin Wigglesworth and Adam Sanson, Financial Times
One of the biggest props of the US stock market is quietly eroding, with corporate share buybacks falling 17.5 per cent year-on-year to $133.1bn in the first quarter of 2017, even as the S&P 500 has marched to new record highs. Citi analysts estimate that US companies bought back nearly $3tn of their own shares between 2010 and 2016, and coupled with almost $2tn of dividend payments that has been a major pillar of support for the US stock market’s dramatic post-crisis recovery. The almost $5tn of buybacks and dividends compares to the US S&P 500’s total market capitalisation of $21.7tn, and Goldman Sachs has calculated that US companies have been the single biggest buyers of shares in recent years, dwarfing even passive investment inflows and counteracting net sales by domestic pension funds and foreign investors.
U.S. investors target ‘buyback stocks’ in bet on Trump tax plan
David Randall, Reuters
Rather than waiting to see how the Republican tax bill will fare in Congress, some investors are already picking out gingerly technology, healthcare and consumer companies they expect to use potential tax savings to buy back more of their own stock.
Why Is Productivity So Weak? Three Theories
Neil Irwin, The New York Times
More than 151 million Americans count themselves employed, a number that has risen sharply in the last few years. The question is this: What are they doing all day?
Because whatever it is, it barely seems to be registering in economic output. The number of hours Americans worked rose 1.9 percent in the year ended in March. New data released Thursday showed that gross domestic product in the first quarter was up 1.9 percent over the previous year. Despite constant advances in software, equipment and management practices to try to make corporate America more efficient, actual economic output is merely moving in lock step with the number of hours people put in, rather than rising as it has throughout modern history.
Can Declining Productivity Growth Be Reversed?
Bouree Lam, The Atlantic
One of the greatest mysteries about the American economy right now is why workers don’t seem to be getting all that much better at their jobs over time. From 2007 to 2016, productivity in the U.S. grew at about 1 percent—a historically low rate. In other recent periods, it’s been much higher: 2.6 percent from 2000 to 2007 and 2.2 percent in the 1990s. … A new report by the left-leaning Economic Policy Institute (EPI) puts forward another theory. Josh Bivens, the director of research at the EPI and the author of the paper, argues that the shortfall in spending (or demand) by households, governments, and businesses has held back the kinds of big-idea investments by American companies that drive increased productivity. These investments can include a company improving its workforce, such as by implementing training programs that help employees become more productive or hiring more experienced workers; investing in equipment so workers can do their jobs better; or researching technological advancements.
Technology is changing how we live, but it needs to change how we work
Ezra Klein, Vox
The closest the economics profession has to a measure of technological progress is an indicator called total factor productivity, or TFP. It’s a bit of an odd concept: It measures the productivity gains left over after accounting for the growth of the workforce and capital investments. When TFP is rising, it means the same number of people, working with the same amount of land and machinery, are able to make more than they were before. It’s our best attempt to measure the hard-to-define bundle of innovations and improvements that keep living standards rising. It means we’re figuring out how to, in Steve Jobs’s famous formulation, work smarter. If TFP goes flat, then so do living standards.