Tags: fed | monopoly | power | worst | trends

Fed Study: Monopoly Power Lies Behind Worst Trends in US

Fed Study: Monopoly Power Lies Behind Worst Trends in US
(Mcpics/Dreamstime)

Tuesday, 18 August 2020 01:33 PM

The concentration of market power in a handful of companies lies behind several disturbing trends in the U.S. economy, like the deepening of inequality and financial instability, two Federal Reserve Board economists say in a new paper.

Isabel Cairo and Jae Sim identify a decline in competition, with large firms controlling more of their markets, as a common cause in a series of important shifts over the last four decades.

Those include a fall in labor share, or the chunk of output that goes to workers, even as corporate profits increased; and a surge in wealth and income inequality, as the net worth of the top 5% of households almost tripled between 1983 and 2016. This fueled financial risks and higher leverage, the economists say, as poorer households borrowed to make ends meet while richer ones shoveled their wealth into bonds -- feeding the demand for debt instruments.

“The rise of market power of the firms may have been the driving force” in all of these trends, Cairo and Sim write in the paper. Published this month by the non-partisan Fed Board staff, which doesn’t reflect the views of governors, it’s the latest in a series examining the risks that weaker competition poses to a market economy.

That issue is increasingly prominent on the agenda of both America’s main political parties. Democrats said in a recent summary of policy priorities that they’re “concerned about the increase in mega-mergers and corporate concentration across a wide range of industries.” The Department of Justice under President Donald Trump is probing large technology platforms.

Matt Stoller, the author of “Goliath: The 100-Year War Between Monopoly Power and Democracy,” said both parties are culpable for the concentration of market power. Change is afoot because lawmakers realize they’ve ceded too much authority to large companies, he said.

“What you are seeing in the last five years is a shift where lawmakers think democratic institutions should be making more of the decisions,” Stoller said.

The authors of the Fed paper say policies that redistribute wealth to poorer Americans can be “strong macroprudential tools in preventing financial crises.”

Over the past three decades, for example, gradually raising the tax on dividend income from zero to 30% “might have been effective in preventing almost 50% of buildup in income inequality, credit growth and the increase in the endogenous probability of financial crisis.”

© Copyright 2020 Bloomberg News. All rights reserved.


   
1Like our page
2Share
StreetTalk
The concentration of market power in a handful of companies lies behind several disturbing trends in the U.S. economy, like the deepening of inequality and financial instability, two Federal Reserve Board economists say in a new paper.
fed, monopoly, power, worst, trends
393
2020-33-18
Tuesday, 18 August 2020 01:33 PM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved