The U.S. economy has been less dynamic in the 21st century, by many measures, than it was in the late 20th century.
Fewer new businesses are starting. Existing businesses have slowed the pace at which they hire new workers (as the chart here shows). Workers are less likely to switch jobs or move to a new city. Companies are investing in new buildings and equipment at a lower rate. And small businesses make up a shrinking share of the economy.
Together, these trends suggest that the economy suffers from a lack of fair competition, many economists believe. Large corporations are often able to increase profits not by providing better products than their rivals but instead by being so big that they exercise power over workers and consumers. The government also plays a role, through policies that protect existing companies at the expense of start-ups and new entrants into an industry.
The technical term for excess profits from a lack of competition is “monopoly rents.” Just think about how frustrated you may have been by the customer service from an airline, cable-television provider or health insurer. And then imagine how frustrating it may be to work there. Despite the problems at these companies, consumers and workers don’t always have good alternatives.
The lack of competitive dynamism plays a role in many of the U.S. economy’s biggest problems: the disappointing economic growth of the past two decades; the declining share of output going to workers; and rising income inequality. It also helps explain the new concern — among both Republicans (like Josh Hawley and Ken Buck) and Democrats (like Elizabeth Warren and Amy Klobuchar) — about the power of big business.
Expensive hearing aids
Today, President Biden is issuing an executive order that tries to address the economy’s competition problem. It directs regulators to take specific steps to reduce monopoly rents in multiple industries. Among other things, the order would:
“Having healthy competition is vital to an effective capitalist system,” Brian Deese, Biden’s top White House economic adviser, told me. “It is a driver of higher wages, lower prices, more innovation and more business creation.”
Can Biden change things?
Is the executive order sweeping enough to matter? Probably, although it’s not clear how much.
The problem of monopoly rents has grown so large that even a modest reduction in them could be significant. Thomas Philippon, an N.Y.U. economist, has estimated that the economy’s lack of fair competition costs the typical American household more than $5,000 a year, through both higher prices and lower wages.
The hearing-aid policy alone, for example, could save affected families a few thousand dollars a year. It could also lead to innovation in the industry and help many hearing-impaired Americans who can’t now afford help.
As word began spreading this week that Biden was planning to issue an executive order on competition, analysts across the ideological spectrum praised the idea. Gary Winslett of the conservative-leaning R Street Institute called the moves “terrific.” Zephyr Teachout, the progressive legal scholar, said they were “just huge.”
Jason Furman, a top economic adviser in the Obama administration, told my colleague Neil Irwin: “I don’t think addressing competition issues will miraculously transform inequality in this country, but it will help. The government should be on your side when it comes to wages.”
No doubt, the order will receive more specific criticism once its details are clear, especially from industries that it targets. (There is also no doubt that executives and lobbyists from those industries will claim that the order would actually hurt workers and consumers, but you don’t need to take those claims at face value.)
The more serious question may be how impactful an executive order — as opposed to new legislation — can be. Biden administration officials made sure to write this order narrowly, targeting specific industries, to reduce the chances that business-friendly judges would overturn any federal regulations that stem from the order.
Still, Biden’s advisers argue that the order is a first step toward getting the federal government to care about competition again. “A lot of this is getting back into the American antitrust tradition that was created by the Roosevelts — T.R. and F.D.R.,” Bharat Ramamurti, a Biden adviser who previously worked for Warren, told me. “Highly concentrated industries are fundamentally in tension with American capitalism.”
THE LATEST NEWS
A record year for America’s parks
Dreaming of a trip to a national park? You’d better plan ahead: Americans are flocking to the parks in record numbers, leading to long lines and congested facilities. The Times sent photographers to four parks over the Fourth of July weekend to capture the sights.
At Acadia National Park, in Maine, Cadillac Mountain is an idyllic perch from which to watch the sunrise. To reduce overcrowding and protect the area, the park set up a reservation system for all vehicles heading to the summit.
In California’s Joshua Tree National Park, visitors spilled beyond the walkway to take in the breathtaking views. At Yellowstone, people crowded boardwalks as they awaited the eruption of Old Faithful, one of the park’s biggest draws. See photos of the parks. — Sanam Yar, a Morning writer
PLAY, WATCH, EAT
What to Cook