Friday, August 25, 2017

Evidence Piling Up that Might Explain Sustained Low Growth In the U.S.

Let me state out front that I do not have a predisposition to believe this set of arguments. But I’m watching the evidence pile up higher.

First, growth rates in the U.S. have not been as good as we might like for about 40 years.

Second, there are theories in which growth can be stifled by monopolies accumulating profits that they use to stifle more efficient entrants.

And third, we’re starting to get some evidence pointing to this being the case. Noahopinion summarizes:

... I see the case of the Market Power Story - or any big economic story like this - as detective work. We're collecting circumstantial evidence, and while no piece of evidence is a smoking gun, each adds to the overall picture. IF the economy were being throttled by increased market power, we'd expect to see:

1. Increased market concentration (Check! See Autor et al.)

2. Increased markups (Check! See De Loecker and Eeckhout)

3. Increased profits (Check! See Barkai)

4. Decreased investment (Check! See Gutierrez and Philippon)

5. Increased prices following mergers (Probably check! See Blonigen and Pierce)

6. Weakened antitrust enforcement (Check! See Kwoka)

7. Decreased output (Not sure yet)

So, as I see it, the evidence is piling up from a number of sides here. Economists need to investigate the question of whether output has been restricted.

Now, do note that there are many other papers that could be cited under each number, and many criticisms of each one. But there’s a story building up here that’s getting hard to ignore. More importantly, the criticisms are piecemeal — there doesn’t seem to be a a small set of arguments that take down that whole list.

How does he suggest we test # 7:

I think the answer is that it's very hard to know a counterfactual. How many more airline tickets would people be buying if the industry had more competition? How much more broadband would we consume? How many more bottles of shampoo would we buy? How many more miles would we drive? It's hard to know these things.

Still, I think this question could and should be addressed with some event studies. Did big mega-mergers change output trends in their industries? That's a research project waiting to be done.

If you’re thinking about graduate school in economics, this is going to be a hot topic over the next few years. As I write this, the cite in # 2 is just out, so there’s a lot of talk amongst economists that’s reminiscent of paleontological searches for missing links.

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