The Covid-19 crisis has exposed the vast inequalities that exist within the US economy. Monopoly power should be at the top of policymakers’ list when they consider reforms to benefit our most vulnerable citizens.
It’s only been a few months since the United States was hit by the Covid-19 pandemic, a significant health crisis that has laid bare other crises that face our nation—especially the economic vulnerabilities of the country’s poor and marginalized.
With Covid-19, we learned the ironic lesson that this country’s essential workers were often just one paycheck from going hungry or facing eviction. We’ve seen from up close large swaths of our nation that live in poverty. The pandemic has also highlighted inequality: Groups face vastly different abilities to protect themselves from infection, and, if infected, to survive.
As the US is marshaling its resources to limit the harm of the pandemic, the path forward is clear: Finding better ways to treat those with the disease, to limit deaths, and to find a vaccine to prevent further infections. As many Americans also call for reforms to alleviate poverty and inequality, we would do well to consider the proposals offered during the Great Depression—a period when the US faced similar challenges to today’s economic crises—by some of the greatest scholars and policymakers of the time, including Henry Simons, a leader in economics at the University of Chicago, and Thurman Arnold, the Assistant Attorney General for Antitrust for President Roosevelt (from 1938-43).
Simons presented his proposals for solving the economic crises of the 1930s in his A Positive Program for Laissez Faire. Among his proposals, Simons called for progressive taxation to limit inequality. Yet for Simons, the most important policy change to limit poverty and inequality was “the elimination of monopoly in all its forms.’’
Arnold shared this view. He described the lessons of the Great Depression as showing “The fundamental axiom [is] that in a monopoly economy luxuries expand while the necessities of life contract,’’ and “The exploitation of monopolies is always the most dangerous in the things people cannot do without.’’
What these scholars and policymakers also knew was that monopolies were widespread and took many forms, and were therefore often difficult to detect. Frank Knight, an early mentor of Simons and his colleague at the University of Chicago, observed: “The imperfections of the market, including monopoly of all kinds and bases, create power relations of infinite complexity as to kind and degree. They are by no means limited to ‘big business’ or to ‘trusts’…”
Simons and Arnold knew monopolies employed deceit and misinformation as they inflicted harm on the poor. Monopoly injury, then, could go undetected for years. Wendell Berge, who followed Arnold as Assistant Attorney General in charge of the Department of Justice’s antitrust division, wrote: “Monopoly conditions have often grown up almost unnoticed by the public until one day it is suddenly realized that an industry is no longer competitive but is governed by an economic oligarchy.’’
What was true of the 1930s is also true today. First, monopolies are a major source of poverty and inequality. Second, monopolies often hide and disguise actions that lead to great harm among low-income communities. To borrow from the pandemic’s lexicon, monopolies are silent spreaders of poverty and economic inequality.
As emphasized by Simons and Arnold, monopolies are concentrations of power formed by groups to enrich members, typically through illegal means. One method used by monopolists is to sabotage substitutes for the monopoly’s goods, typically low-cost substitutes that the poor would purchase. This leads to increased poverty. But since the sabotage disproportionately harms the poor, it also increases inequality. And today’s sabotage often goes unnoticed.
As for the harm inflicted by today’s monopolies, let’s begin with the most important good purchased by Americans: Housing. Today, the vast majority of US housing is produced using methods that have been around for centuries. It’s often called stick-built construction, a highly labor-intensive method of making houses. There is, of course, a much more efficient way to produce housing, a low-cost substitute: factory production of homes. The costs per square foot can be as much as one-third lower with factory methods.
There was a brief period, in fact, when US factory production flourished. Factory production of homes soared during the 1960s, reaching 60 percent of single-family production by early 1970, threatening the very existence of traditional builders, especially those constructing smaller houses purchased by lower-income Americans.
In response, monopolies of stick-builders, including the National Association of Home Builders (NAHB) and the Department of Housing and Urban Development (HUD), developed extensive weapons to sabotage and harm factory producers of houses. NAHB and HUD strangled the production of factory homes. Production collapsed in the 1970s.
Read the rest of James Schmitz Jr. and David Fettig’s article here at ProMarket