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Illustration: Shoshana Gordon/Axios

Monopolies cause inflation — so cracking down on monopolies will cause inflation to decline. That's the claim of the Biden administration, anyway.

Why it matters: It's very hard to find good-faith arguments on any side of this debate. But one thing is clear: The U.S. government is currently being broadly blamed for rapidly rising prices. If inflation does decline, for any reason, then it will surely claim credit.

Driving the news: The White House said in December that rising meat prices were due to four monopolists in the meat-processing industry abusing their 85% share of the market.

  • “Their goal is to control the market so that they can control the price,” NYU professor Marion Nestle told the NYT last week.

The other side: The North American Meat Institute says that the White House doesn't understand agricultural economics.

  • They're backed up by a Twitter thread from Harvard economist Larry Summers, claiming that increases in demand won't create higher inflation in monopolistic industries than in competitive ones.
  • That said, Summers also believes that "competition helps constrain inflation," something that is well established in the literature.

The big picture: Corporate profits have soared during the pandemic, in part thanks to the fact that in the current inflationary environment, companies don't find themselves punished by consumers for raising prices.

  • The more competition there is in an industry, however, the harder it is to raise prices.

Be smart: Monopolies tend to find it easier to raise prices and cause inflation — think of pharmaceutical companies steadily ratcheting up the price of drugs they control. Monopsonies, on the other hand, where there's a single buyer and multiple sellers, tend to keep consumer prices low.

  • When demand rises in say the meat industry, where a small number of meatpackers sell to many buyers, supermarkets are forced to compete with each other to buy beef — which means offering to pay more.
  • One step up the supply chain, however, it's the other way around: Cattle farmers aren't seeing higher prices for their beef, because the handful of buyers are able to keep wholesale prices low.

Between the lines: The White House's Brian Deese told the NYT last month that a focus on antitrust issues “will deliver lower prices for Americans right away.” That seems unlikely. Supply-chain issues and labor shortages aren't going away any time soon, especially given anemic immigration.

  • But so long as inflation comes down before the 2022 election, the Biden administration now has a way of taking credit for that.

The bottom line: Inflation is a microeconomic phenomenon, a macroeconomic phenomenon, and a political attack vector all at once. Republicans will blame Democrats for causing it — and Democrats will blame greedy corporations. Both attacks are stronger on political expedience than they are on explanatory power.

Go deeper

Hope King, author of Closer
Jan 14, 2022 - Economy & Business

Record level consumer demand drops as high prices surge

Data: FRED; Chart: Thomas Oide/Axios

Record levels of consumer demand are petering out as high prices cut into wages and add to household worries.

Why it matters: Shoppers will hold off on buying if goods get too expensive — a trend that if big enough could slow down economic growth.

56 mins ago - World

Pentagon: 8,500 troops on high alert for possible deployment to eastern Europe

Photo: Anna Moneymaker/Getty Images

Defense Secretary Lloyd Austin has placed 8,500 U.S. troops on "heightened preparedness to deploy" to eastern Europe in case NATO activates its rapid-response force over tensions with Russia, the Pentagon announced Monday.

Why it matters: No decisions have been made to actually deploy U.S. forces, but the heightened alert level will allow the military to rapidly shore up NATO's eastern flank in the event that Russia invades Ukraine. The Pentagon warned that Russia has shown "no signs of de-escalating," and continues to amass troops on Ukraine's borders.

Updated 1 hour ago - Economy & Business

S&P 500 on track for worst-ever start to year

Data: FactSet; Chart: Axios Visuals

Stocks suffered their steepest drop of the year early Monday, putting the S&P 500 on course for its worst-ever start to a year.

Driving the news: The benchmark S&P 500 dropped for its fifth straight day, with losses nearing 3% in early trading, momentarily putting it on track to fall into a "correction." Some of the steepest losses were recovered in early afternoon trading.