May 24, 2022 - Politics & Policy

Larry Summers' new inflation target

Image of Larry Summers with wrinkled brow at a microphone
Photo: Andreas Solaro /AFP via Getty Images

Former U.S. Treasury Secretary Larry Summers has found a new target for his war on inflation: President Biden's "hipster" antitrust policies.

Why it matters: National gas prices reached another record high Monday and inflation hit 8.3% last month. Top administration officials are super-sensitive to criticism from Summers, a former Harvard president who served in senior economic roles in the last two Democratic administrations.

Driving the news: “Policies that attack bigness can easily be inflationary if they prevent the exploitation of economies of scale or limit superstar firms,” he tweeted late Sunday night.

  • That Twitter thread, which followed a blistering Bloomberg TV interview Friday, ricocheted around Democratic economic circles, daring officials to reconsider their positions.
  • Summers told Axios in an interview on Monday that “while the primary responsibility with inflation rests with the Fed, there are micro-policies that also matter," referring to regulatory decisions that can affect prices.
  • His "hipster" critique was in response to a Wednesday speech by Jonathan Kanter, head of the Justice Department's antitrust division, who said “corporate power has grown to levels that leave our fellow citizens concerned and confused." Summers expressed concern that such judgments could lead to a dangerous populism.

Behind the scenes: Summers remains in touch with senior Biden aides, who quietly solicit his views — and his pronouncements carry weight across the party, even as Republicans have seized upon them to score political points.

  • By attacking Biden's antitrust agenda, and singling out the Federal Trade Commission and the Department of Justice's antitrust division, Summers is opening up an entirely new front on inflation.

The big picture: Biden has made antitrust rhetoric a mainstay of his approach to addressing inflation, but officials acknowledge that they have limited tools to immediately bring down prices.

  • In Japan on Monday, Biden told reporters he’s also considering lifting some of Trump’s China tariffs and that he'll discuss the matter with Treasury Secretary Janet Yellen.
  • In private administration debates, economists at Treasury, including Yellen, are arguing to lift them, Axios reported in April.

Flashback: Summer’s February 2021 Washington Post warning on inflation, exploded in Democratic economic circles, a lonely note of caution about $1.9 trillion in COVID relief spending Biden was proposing for the economy.

  • Since then Summers has not been shy about repeating his warnings and criticizing both the White House and the Fed for being too slow to act.
  • But he was always clear that Biden's signature domestic agenda, Build Back Better would help reduce costs. And he recently came to Biden's defense in his spat with over corporate taxes with Jeff Bezos, calling the Amazon founder "mostly wrong."

Go deeper: Last summer, President Biden decided to become the trustbuster-in-chief, signing an executive order that promised to promote competitiveness and subject corporate merger to the highest scrutiny.

  • "Forty years ago, we chose the wrong path,” Biden said, criticizing the antitrust policies of the past two Democratic presidents, including the one where he was vice president.
  • Critics including the conservative legal scholar Robert Bork, were quick to claim that Biden’s “neo-Brandeisian” view of antitrust was out of vogue for a reason.
  • But Biden's antitrust enforcers, including FTC chair Lina Kahn, a prominent Amazon critic, now has a Democratic majority on the commission to pursue her progressive agenda on Big Tech.
  • The DOJ's Kanter took aim at private equity last week, telling the Financial Times that they do deals “designed to hollow out or roll up an industry and essentially cash out.”

The other side: The administration insists that suing to block some deals, as with Lockheed Martin's proposed acquisition of Aerojet Rocketdyne Holdings Inc., will save taxpayer's money by limiting sole-source contracts.

  • "The President has for years held the view that we need much stronger antitrust scrutiny than in the past few decades, where lax oversight has led to significant consolidation in many sectors of the economy, and higher prices for American consumers," a White House official told Axios.
  • "That is why he directed and signed an historic Competition EO (executive order) which, far from a narrow-minded “big is bad” approach, lays out a comprehensive, government-wide effort to increase competition in ways that improve consumer welfare and economic competitiveness," the official said.
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