Is America becoming a nation of price-fixing, monopolistic rent extractors?
That is the question raised recently in a working paper by a trio of researchers at Brown University. This question is also working its way into the mainstream news media.
It’s not that this isn’t a bad question. Rather, it is such a sprawling and complex issue that there are no simple or tidy answers. Like the Indian parable of the six blind men describing the elephant, your perspective on the issue shifts depending upon which part of the economy you are looking at.
Let’s try to tease apart this question, to see if we can at least come up with some answers to aspects of this complicated issue. First, let’s summarize the argument, which goes something like this:
-Despite a persistent decline in real interest rates, corporate investment has been disappointing;
- Competition in U.S. has fallen, thus reducing the needed for new capital expenditures;
- Companies free of competitive pressures can set monopoly prices;
- Monopolies underpay their workers, underinvest in their companies, and pad corporate profits that boost stock prices faster than underlying economic growth;
- The gains from the huge rise in stock prices have gone to a narrow slice of the populace, mainly top executives and big shareholders.
These statements are more or less accurate, but they are also incomplete. Consider these complications to the idea of a nation of rentiers.