Real World Economics: Congress has done little to promote competition

Edward Lotterman The movie Arrangement is years old but the iconic sentiment I m mad as hell and I m not going to take it anymore is common Households and sole-proprietor businesses like farmers see price-fixing and similar collusion all around them They are mad as hell but it is up to Congress if they will have to take it Despite President Donald Trump s assertions that grocery prices are down the last consumer price index manifested that food eaten at home is up since he took office and over a year earlier Turkey is up over the last year Meat fish and poultry is up from a year ago with of that between Inauguration Day and September Ground beef a mainstay for various was up over months and since January No that s not a mistake The price fell from September to January but then bounced back up Thus a multitude of consumers are mad as hell So farmers also are angry Despite Trump saying the Chinese had promised to buy million tons of soybeans this year none have moved Yet prices of inputs for especially fertilizer are high relative to prospective crop prices Beef is one bright sector Slaughter cattle prices are near record highs Breeding herds are recovering after shrinking numbers during a decade of drought But operations fattening cattle say that the gap between what they receive from packing plants and what consumers pay is widening further Members of Congress from farm states listen to their constituents There are hearings on why fertilizer prices are so high Others question why meat packers both for beef and pork seem to have growing sphere power allowing them to grab a larger share of profits Members of key committees are speaking out and introducing act to fix problems Sen Charles Grassley R-Iowa is a key one speaking up on both issues With a farm background he has represented Iowa in Congress for a half-century following years in the Iowa Legislature Thus when he challenges monopolistic abuses that raise farm input costs and lower farm product prices he speaks from several authority But in his condemnations he misses a key variable what Congress has done in the decades Grassley himself has been in Washington That is nearly nothing Grassley s degrees a B A M A and the greater part of a Ph D all are in political science So he supposedly never learned a key circumstance in Spanish history that fits him and his congressional colleagues to a tee Islamic Moors occupied Spain for centuries but were driven out in the s In they gave up their last holdout the city of Granada and its stunningly beautiful Alhambra palace As the surrendering Moorish king rode away he looked back and shed a tear at what was lost His harsh mother was pitiless You do well to weep like a woman for what you would not defend like a man That is precisely what Congress requirements to hear now Why stage great street theater about monopolies raising meat and fertilizer prices in when successive Congresses and presidents did nothing to stop their advance since the early s In the biggest four beef packers had of the total area By it was Yet history shows it is easier to prevent monopolies from being created than to break them up after they become entrenched Moreover while both parties have blame in fresh decades the GOP has been far more cozy with monopoly power than the Democrats This is a shame given that antitrust was a central issue for the Republican Party before World War I Teddy Roosevelt was the greatest trust buster of all time After Abraham Lincoln Teddy was the greatest GOP president ever He dared to call out malefactors of great wealth something no one in either party will do in the modern day To better understand all this review several basic microeconomics Perfect competition has numerous small producers none of whom have any power to set prices Every seller is a price taker in a industry with multiple buyers Monopoly is the opposite There is only one producer who facing no competition sets prices wherever they want They choose a quantity and price giving the greatest profit That is visible to disadvantaged buyers right now whether purchasing beef roasts or ammonium nitrate fertilizer Abusively high prices are not the only matter The quantity of output produced is smaller than what is optimal for society as a whole Tools are used inefficiently Greater quantities of guidance are used up to produce one unit of product than would be in a competitive sphere Ultimately monopolies foster less innovation Without the stimulus of having to compete with other producers there is little reason to look for options to do things better Understand there are limited real-world examples of perfect competition and sparse of pure monopoly At the first end there is monopolistic competition in which selected but not all of the conditions for pure competition exist At the other there is oligopoly Just as oligarchy is rule by a scarce people instead of one person in a monarchy so oligopoly is a sphere with only a limited producers who compete little Majority of large sectors airliners steel automobiles motor fuels locomotives chemicals are oligopolies So are meats and several other food categories So are fertilizer seeds and farm chemicals When there are only a meager producers the danger for society is that these combine agreeing to conduct their business as if they jointly are a monopoly Such collusion is what angry senators are examining right now It is what Teddy Roosevelt fought years ago It was the heart of the Northern Securities Co decision from the Supreme Court that broke up a three-railroad trust put together by St Paul s own James J Hill Curbing monopoly power long was crucial to Republicans Richard Nixon saw it was time to break up the regulated monopolies in telecommunications His Democratic successor Jimmy Carter did the same for airlines railroads and trucking reforms that were finished by Republican Ronald Reagan But that changed with the new century Democrat Bill Clinton s Justice Department saw anti-competitive practices by Microsoft It filed suit to break Microsoft into two companies one for operating systems and another for applications just as Standard Oil and International Harvester had been broken up a century earlier In the leadership was clearly winning the affair in court but as soon as George W Bush was inaugurated the occurrence was dropped That was the turn of the tide of any GOP antitrust action With the Citizens United decision by the Supreme Court that legalized payoffs to politicians anti-competitive collusion and price-fixing was given a free hand Congress has stood by They can hold all the hearings they want and pass all the bills calling for further review they want But unless the president in the Oval Office and majorities in the House and Senate agree to promote competition citizens should not expect much St Paul economist and writer Edward Lotterman can be reached at stpaul edlotterman com