‘Too Big to Compete With’

Just two days after the midterm elections, in which they fared much better than anticipated, the Democrats received another welcome surprise. The latest Consumer Price Index report showed that after more than a year and a half of record inflation, the worst since the early 1980s, prices had at last begun to fall. Investors hailed the news, but it’s still too early to know whether October’s drop—from 8.2 to 7.7 percent—marks a true turning point. Jerome Powell, chairman of the Federal Reserve, has remained circumspect, saying that the fight against inflation is far from over and signaling that the central bank is on track to raise interest rates by another 0.5 percent in December. And despite modest easing in markets for some goods, like used cars and airline tickets, consumers remain squeezed by steep hikes in necessities such as housing, fuel, and food—the cost of groceries, for example, is up 12.4 percent from last year.

All of this, Republicans have argued, is the Democrats’ fault—the foreseeable result of pumping trillions of dollars into the U.S. economy for pandemic relief, infrastructure expansion, and entitlement programs like Social Security, Medicare, and Medicaid. On this point, Republicans seem to have poor memories: pandemic relief actually began under former President Trump, and every round except the last was bipartisan. But their “plan” for combating inflation is even worse than their explanation for it: they would repeal recent tax increases on corporations, extend the 2017 Trump tax cuts for high earners, “defund” the IRS, and block Biden’s action on student-debt relief. As Democrats have pointed out and even some conservative economists concede, some of these policies would likely exacerbate inflation.

The real causes of inflation are complex. Most economists have pointed to the initial pandemic stimulus, subsequent supply-chain disruptions, labor shortages and higher wages, and the oil and grain shocks following Vladimir Putin’s invasion of Ukraine as among the chief culprits. Though it’s received less attention, there’s another major cause hiding in plain sight: corporate profits have risen rapidly since the beginning of the pandemic, with margins (the difference between revenue and expenditures) reaching their highest levels since the 1950s.

This isn’t just another familiar assertion from the progressive wing of the Democratic Party—it’s true that Bernie Sanders, Elizabeth Warren, Katie Porter, and John Fetterman were among the first to sound the alarm—but a reality backed by hard data. Corporate executives have proudly touted their ballooning profit margins in business pages and earnings calls. Their logic, as observers like Lindsay Owens, Robert Reich, and Steven Greenhouse have pointed out, is as simple as it is galling: using general inflation as cover, major corporations in essential sectors (including energy and food giants like Exxon, Chevron, Conagra, J.M. Smucker, PepsiCo, and Hormel) have artificially raised prices well above their own cost increases. The result is that consumers must either “stay resilient”—Coca-Cola Chief Executive James Quincey’s euphemism—or simply learn to do without.

What makes such profiteering possible? Conventional microeconomic theory holds that price is the most efficient way of calibrating supply and demand and matching money to goods: if a single firm charges too much for a commodity, other firms will step in with lower prices, thus rendering government action unnecessary. But that assumes perfect competition—something that has been disappearing in U.S. markets at an alarming rate. As corporations consolidate, it’s become harder for smaller competitors to reach consumers with lower prices.

The Biden administration has been quietly fighting this dynamic for more than a year. It has fostered greater competition in industries like meat and shipping, and taken major steps toward more aggressive antitrust enforcement by appointing people like Tim Wu, Lina Khan, and Jonathan Kanter to key advisory and regulatory positions at the White House, Federal Trade Commission, and Justice Department. A few important victories, like blocking the merger between publishing giants Penguin Random House and Simon & Schuster, have already materialized; others, like stopping the consolidation of the Kroger and Albertsons supermarket chains, as well as pending lawsuits against Big Tech firms Meta and Amazon, are on the horizon.

But the Biden administration needn’t and shouldn’t stop there, especially with Republicans poised to assume control over the House, and in light of lingering inflation and new fears of recession. To start, it should ask the lame-duck Congress to lock in a windfall tax on corporate profits, and consider limited price controls in sectors like food, energy, and housing. That would provide much needed immediate relief. But there is also another, larger consideration raised by the current expansion of corporate profiteering. Commenting on the results of the midterms, Elizabeth Warren has argued that “Americans understand that the economic well-being of families is inextricably linked to democracy and to individual rights, even if too many cable news gurus do not.” She’s right. But economic populism is more than just a winning campaign message for Democrats. Even if inflation abates in the coming year, corporate consolidation—and the destabilizing threat that concentrated corporate power poses to democracy—will almost certainly continue. Unless we want to make permanent the inequality and misery of our “new gilded age,” we need to take decisive action against firms that have become too big to compete with.