Jan 20, 2022
On January 13, The Capitol Forum hosted a conference call with Matt Stoller, Director of Research at the American Economic Liberties Project, to discuss his recent writing on Inflation and Antitrust. The full transcript, which has been modified slightly for accuracy, can be found below.
MR. TEDDY DOWNEY: Good morning, everyone. And thanks for joining The Capitol Forum’s conference call on “Inflation and Antitrust”. I’m Teddy Downey, Executive Editor here at The Capitol Forum. And I’m joined today by Matt Stoller, Director of Research at the American Economic Liberties Project.
Before we get underway, I want to note that the first 20 minutes or so of the call will be an interview, maybe a little bit longer. And then we’ll move to a Q&A format where we will entertain questions from the audience. If you have questions for us, please email them to firstname.lastname@example.org. And Matt, thanks so much for joining us today.
MR. MATT STOLLER: Thanks for having me.
MR. TEDDY DOWNEY: So you and Larry Summers are in a little bit of a debate about whether or not monopoly affects inflation, and I’d love it if you could give us his argument and then why do you think it’s not right and your argument?
MR. MATT STOLLER: Sure. So before COVID hit in February of 2020, I wrote a piece in WIRED about what I call the end to affluence politics. And it was about our globalized supply chain system, which has been thinned out after 30 or 40 years of relentless focus on efficiency instead of resiliency. And what I predicted was that because of the pandemic, we would see supply chain breakdowns and shortages and that’s what we saw. And a couple of years later or a year later, economists started to say, oh, well, we may be seeing significant amounts of inflation because of monetary and fiscal stimulus.
And I guess last year, for much of the year, Larry Summers was saying that particularly the Biden stimulus packages would inject too much money into the economy and then that would lead to inflation. And the inflation numbers didn’t look that bad. I’m not an economist, but I was looking at shortages and I was saying there are shortages here. And so in many ways, you don’t see price increases because people aren’t buying because there the stuff isn’t on the shelves.
And then inflation really started kicking up pretty badly, kind of late spring and summer and fall. And because Larry Summers had been saying inflation is going to kick up largely as a fiscal expansion, monetary expansion, phenomenon, that’s really what caused the demand side problem.
And my argument is that demand side is significant in that the COVID shock was really meaningful and fiscal stimulus and monetary stimulus are a factor. But that consolidation, which we’ve seen throughout the economy for the last 30 or 40 years, probably amplified and accelerated that inflationary shift that we’re seeing.
So I did a kind of back of the envelope calculation of what that would mean and with inflation. So I don’t totally disagree with everything Larry Summers said. But I think he’s missing the market power dynamics that are probably accelerating inflation. So I did a kind of back of the envelope calculation that we’re seeing substantial amounts of profit margin expansion. And a lot of firms are saying explicitly we have pricing power and we’re using it in this moment. So certainly we’re getting more costs, increased costs, but we’re raising prices that actually expand our margins. And wages, though they’re going up in nominal terms, are dropping in real terms. So what you’re seeing is that roughly 60 percent of the increase inflation is actually going to corporate profits.
And now there’s a debate about whether that’s just purely a demand side phenomenon and you’ll see more supply enter the market later on, or whether it’s actually accelerated by the substantial concentration that we’ve seen. A lack of entry into the market is a function of that. So I don’t know if that’s sort of an encapsulation of it.
MR. TEDDY DOWNEY: Yeah, that’s perfect. And you’ve got that business survey and that back of the envelope calculation supported in your view and the high profit margin. You also look at a couple of specific industries like ammunition and beef. Can you tell us more about that?
MR. MATT STOLLER: Yeah, sure. So when you’re particularly looking at industries where you have high capital costs, in processing type of industries you see this. You also see it in a lot of other areas. So there’s been an ammunition shortage since 2020. And they called it the great ammunition shortage of 2020. And then the great ammunition shortage of 2021. It’s really hard to find bullets. And the reason is because there’s just a huge demand for bullets. A lot of people started buying guns during the pandemic for security reasons, but also a lot of people wanted to go hunting. And you’ve always seen this ammunition is a cyclical business.
But the other thing that’s happened is that the industry has consolidated. So now you have two firms, basically two firms, this Outdoors and Olin that make almost all of our ammunition. And you’ve seen some restrictions on imports. And the Outdoors executives are saying, yeah, we’re expanding capacity a little bit, but we want to maintain discipline as an industry. So they call it a disciplined industry. So they’re not expanding capacity because they don’t fear that someone else will come in and take market share because the industry is so consolidated.
In the meatpacking industry, it’s somewhat similar. You have an antitrust case against the dominant four meatpackers for price fixing that’s been going on since 2015. And then consumer prices jumped up really high, but the cattle producers, who you would expect would also do well, are
actually not doing well at all. So the price to consumers has gone up a lot, but the price to the cattle rancher hasn’t done particularly well at all. You have cattle ranchers that are basically on the verge of bankruptcy.
But you see this kind of dynamic in lots of different industries and it’s really a function of consolidation. I think there’s a pretty good—the sort of strongest counter to the argument is that is why now? I mean, if you’ve seen consolidation for 30 or 40 years, why would you have inflation start picking up now? I mean, you could see that market power has firms like Amazon or Wal-Mart has been deflationary. So what gives? That’s a strong counter.
But the argument is not that the market power creates inflation. The argument is that substantial amounts of market power and concentration provide a different context for what happens to the economy when there are shocks. And companies with market power will find ways of exploiting that market power. When the context is when the economy’s operating below capacity, they will use their market power on the supplier side, on the labor side. When you have a substantial shock or a shift in demand, they will then use their market power on the demand side and the consumer side. And oftentimes crises amplify market power.
So a good example would be food delivery apps, which had some market power before the crisis. But then when COVID comes in, all of a sudden restaurants can no longer serve through their regular channels, and the food delivery channel becomes much more important. So their market power is amplified even if there isn’t any sort of formal increase in consolidation. Although, there has been. There have been a series of mergers. Just the change in context. I mean, you also see this in electricity markets during storms. There’s a change context. And so that allows for firms to take advantage of bottlenecks.
MR. TEDDY DOWNEY: So, it’s a partial counterargument to say, well, why now? They’ve had power forever. Or not forever, for a while now. Why haven’t they used that? But are there any economists addressing the sort of individual markets that you point out? Or markets like shipping where profitability has just skyrocketed beyond belief in some respects?
MR. MATT STOLLER: It’s crazy. So to give you a context, I guess it was since 2017 or 2018 when the China tariffs came in, we’ve collected about $120 billion of tariffs from goods imported from China. Last year, the shipping lines—and we don’t know all the profits because some of the firms are private. But last year alone, profits were $150 billion. And this is an industry where profits are usually $5 to $10 billion dollars in aggregate. So you’re seeing just like that’s a huge, huge change.
I think that, no, you don’t see a lot of economists putting individual markets into their macro models. You have this really strong division between micro and macro. You’re starting to see a little bit. So I saw there was one report—I think it was from the St. Louis Federal Reserve Bank—
where they tried to figure out what kind of pricing changes were happening as a result of semiconductors. Because semiconductors are a little bit like oil in that they go into a lot of stuff, right? And economists do understand that if the price of oil changes, that that does have impacts on pricing writ large because oil is an input into a lot of things.
And they ignore things like plastics. Plastics are a function of oil. But processing oil in plastics, there have been bottlenecks there that are serious. But you see shipping. You see semiconductors. There’s a number of inputs into everything or into a lot of things where we’re having shortages and they haven’t incorporated those things into their models yet.
With semiconductors, a couple of economists looked at it and said that it actually is having significant pricing impacts into the manufacturing sector because they found that 40 percent of the manufacturing sector was dependent on semiconductors. And that 40 percent of the manufacturing sector has had significantly higher price increases than the other 60 percent. It was a very simple analysis, and it probably understated the problem. Because they were only looking at direct dependance on semiconductors, not indirect dependance on semiconductors.
But that’s the debate, the problem that we have. The reason I just don’t trust the models that most of these macro economists come out with is because they just don’t look at individual markets. They don’t think about firm behavior. Like the financial crisis. Banks were not part of their models. So they just didn’t look at what could possibly happen. They didn’t see the shortages coming. Just like they didn’t see the financial crisis coming. And so I think we have a real, actual problem in that what’s happening in individual markets, the way that firms and executives talk about and think about market power, changes in antitrust law, changes in price fixing law, are just not reflected in the models that economists use when they’re thinking about inflation writ large.
MR. TEDDY DOWNEY: One of the means—I don’t know if it’s a means, but one of the things that’s coming up out of this debate is that Elizabeth Warren has attacked supermarkets for pricing, and she’s being mocked because supermarkets typically have low margins. What’s your take on the whole how this is feeding into other political issues? And what about supermarkets and things like that where people point to low margins?
MR. MATT STOLLER: Well, okay. So supermarkets are a well-known monopoly problem. The FTC has evidence that when you see consolidation in regional supermarkets or in supermarkets, you see price increases. So this is a well-known problem. They make two arguments about it. They say profit margins are low, one percent or one and a half percent, something like that. And also, I think with Kroger she pointed out that they are buying back a lot of stock. And the people said, oh, Kroger only had less than 10 percent of the supermarket, the grocery market. So they don’t have market power.
And I guess it’s kind of like I don’t take those critiques of Warren’s position particularly seriously because supermarkets are regional. The FTC looks at the supermarket in the town, merging with another supermarket in the town, and that town shops there. It doesn’t matter what the national market is. If you live in a town in New York, you can’t go to a supermarket in California to shop. So when we look at supermarket mergers, what we find is that local consolidation has a meaningful impact on prices. Kroger has market power in a lot of places.
The other thing is that if you are looking at a national level, there is market power, but it’s on the supplier side. So if you have 10 percent of the supermarket market, Wal-Mart in a lot of places 50 percent, but if you have a substantial amount of the national market, then you have power over packaged goods producers. You have power over agriculture. You have that sort of middleman processing power. And so I think we should look at whether these firms are able to expand margins. And you do see Kroger buying back stock.
So I think there’s a lot of merit in what she’s saying. And but more broadly whether it’s happening in the supermarket industry, whether it’s happening across a number of other industries, it’s not really that important. What we have to look at is, is this a phenomenon? The profit margin increases, are those going to decline as you see more supply coming into the market or not? That’s really the key part of this. And looking at Elizabeth Warren—and a lot of people, particularly on Wall Street, like to make fun of her for a variety of reasons. But the phenomenon that she’s talking about where you see dramatically expanded profit margins but lower real wages is real. And it’s something that economists don’t want to look at, and it is something that if it is real—it is real—but if it’s driven by market power, then we have to address it. And if it is truly by demand, then we have different tools to address it. And that’s really the policy debate that we’re having right now.
MR. TEDDY DOWNEY: And I want to say one last question on this topic, which is economists have been very dismissive of your arguments here. And I want to ask you why do you think that is why? Why have you touched a nerve here with economists by persistently talking about monopoly and its interaction with inflation?
MR. MATT STOLLER: Yeah. I mean, they’ve been dismissive, but they’ve also been condescending. So we’ll let that go. There University of Chicago did a study or did the survey. And what they found is that basically almost all economists said that there’s no relationship between market power and inflation. Although, in that study they interviewed four Nobel Prize winning economists, and three of them actually disagreed with the consensus. So there’s a few of them on our side.
But it’s an interesting question. I think that there’s a couple of things going on. When I look at economists, I don’t think that it’s a science. I think it’s a club. And they have certain norms to get into the club. They have certain journals to get into the club. And they protect the club. And they speak a language of, you know, they get a lot of things wrong, but they dress up their political
beliefs with fancy math. And so then when you come in and you say, oh, here’s a thing that is happening. You talk to shipping supply chain experts or whatever, they just sort of discount it. Just like they discounted the China shock, the idea that we were exporting a lot of our manufacturing base in the mid-2000s. They didn’t notice that until 2015, until an economist said, oh, this is a thing that happened. And they said, oh, yeah, this is a thing that happened. Although hundreds of thousands of people who had to train their replacements did not matter to those economists. So there’s a kind of club aspect.
And then I think more on a kind of more practical level, they don’t have a way of bridging micro and macroeconomics. During the financial crisis and after the financial crisis, Ben Bernanke would talk about how the Fed needed to create an analysis and then what he called macro prudential tools. So if banks are big enough to affect the macro economy, they have to incorporate regulatory and credit control type of arrangements into individual markets to deal with macro potential problems, pricing changes and whatnot. And they just constantly talked about macro prudential tools because they had an intellectual gap, but they never did anything. They never really did any development of anything like that, any kind of significant analytical insights or regulatory insights. They just maintained their, okay, well, let’s have more monetary expansion or monetary contraction. That was their whole model of how to think about macroeconomics. And they never changed it. And that’s what you’re seeing now. Like, they just don’t have a way of incorporating changes in the demand for semiconductor consolidation in semiconductors into the way that they look at the economy writ large. And that is really scary when your framework just doesn’t work. So I think it’s a club aspect, and I think it’s like some serious gaps in there in their framework that they just don’t have a way of bridging right now.
MR. TEDDY DOWNEY: We have a series called Coordination Out Loud, where we look at companies sort of signaling to each other about how to raise prices, help each other on prices or restrict supply with coded language on their earnings calls and investor meetings. You point some of this out in your ammunition with a disciplined industry, that’s one of those sort of code words. I want to float a theory that I was thinking about. And it’s just that instead of these companies having to do this little dance on restricting supply or increasing price, the pandemic just gave them an incredible opportunity to raise prices and then just leave them there. Or in other respects, sort of gouge and not retreat without doing the dance. What do you think about that as an idea for how maybe one of the factors in terms of facilitating the price increases and the profit margins?
MR. MATT STOLLER: Yeah, I mean, I think you see that pretty explicitly. I mean, I believe Daimler or some of the German luxury carmaker said that they were doing that. They just said, oh, as it turns out, we like it when there are waiting lists and we have pricing power. We’re going to under produce. They actually said, we think that’s a better experience for the customer when they have to wait for their car. It’s crazy. They’re like, oh, it’s a luxury car. So people feel like it’s better if they have to wait.
So yeah, it’s kind of explicit. And I think you have two things going on. One you have just kind of what you’re talking about, which is tacit collusion. And they can just say, okay. We’re raising prices and we’re going to leave them there. And I’m not sure there’s a policy—we certainly don’t have laws on the books against tacit collusion. The courts have ruled out the ability to bring price fixing suits, even if there is collaborative collusion, except if it’s out in the open.
But the other is I think we’re probably seeing a significant amplification of actual price fixing, just straight up collusion. It’s much harder to bring price fixing cases because of some of the decisions in circuit courts in, I guess, 2016, 2017, 2018. Hal Singer, who’s an economist, he’s an expert witness in price fixing cases. And he said that he just recently represented plaintiffs where the defendants were a series of companies that were making an electronic component. And they floated inflation intentionally to reporters. He said there is inflation as a cover for the price fixing that they were doing so.
So inflation provides this wonderful cover for both legal ways to raise prices that you ordinarily may not do it, not reduce those prices, but it also provides cover for actual illegal price fixing activity. It’s harder to get at because the laws on whether you can bring a case are much weaker than they used to be.
MR. TEDDY DOWNEY: And we actually did a call recently with Brendan Ballou—he’s floated a rule to prohibit collusion, an FTC rule. Do you think something like that could work, would be helpful? Or is this more a systemic thing that needs to be worked out?
MR. MATT STOLLER: I do think it could work. A lot of this is about whether there’s a credible threat from—because in the 1930s when firms did feel there was a credible threat from the government, a price fixing investigation—so Thurman Arnold brought—he was the Antitrust Division Chief of 1938. And he brought so many suits, more suits, I think, under the Sherman Act than Hinden brought from 1890 all the way to when he took office. So he just revolutionized antitrust law. But just the announcement of an investigation caused prices in the market to drop by between 18 and 33 percent.
So if you were to strengthen price fixing law and you were just to say, like if Congress were to do that or I think Brendan’s proposal is to have the FTC write a rule. The key is the credible threat. If you were to actually credibly say to firms you can’t do this anymore, then you would, I think, see systemic change across the economy. What you did see this last month was when the CPI came out yesterday, you did see meat prices and gasoline prices starting to come down a little bit. And those are the two areas where the administration has actually been focused on. So there’s an argument that there’s a jawboning effect, just because those industries actually sort of might fear some sort of government action. I don’t know. I haven’t looked into those pricing changes with that. That’s certainly something that’s happened in the past.
MR. TEDDY DOWNEY: Well, it makes a lot of sense because even—I’ve been doing analysis like this for, I guess, almost not quite 20 years. But I just used the telecom industry as an example. The FCC used to be really powerful, and the telecom companies were actually always kind of afraid of price caps and price controls and things like that. And now it’s like it’s a joke. They think that the FCC is a joke and they just don’t care for the most part, maybe a little bit. But it’s just such a weak agency with no real threat to the business that it’s not really treated very seriously. Do you think that’s changing with antitrust? I mean, is it a more credible threat to be saying, hey, we’re going to crack down on this now that you have Lina Khan at the FTC? Soon we’ll have a majority there. And John Kanter at DOJ.
MR. MATT STOLLER: Yes, definitely. There’s certainly a credible threat now. I mean, what you are already seeing, M&A is crazy. There’s a crazy amount of M&A. But you don’t see a lot of big transactions, higher than $10 billion type of transactions. And I guess what Peter Orszag said is that this is a result of increasing regulatory scrutiny. I’ve seen that in a couple of public reports. But certainly I think people are taking this new regulatory environment more seriously.
So if they turn their attention to price fixing more aggressively, yeah, I think it’s absolutely the case. I think you might soon see—I know that Katie Porter and Barbara Lee, among others, are saying there’s a link between profit margin expansion and inflation. So you’re going to start seeing, I think, Congressional scrutiny. So yeah, there’s definitely the possibility that you’re going to have—I mean, USDA, the Biden Administration, had Tom Vilsack put out some plans. Those are kind of more long-term oriented. So it’s a little harder to tell what the impact will be there. But it’s definitely something that firms should take in mind.
MR. TEDDY DOWNEY: And then just a quick reminder to our guests. If you have a question, please email them to email@example.com. And capitol is spelled with an “o”. I’m sure we’ll get questions about inflation, but I wanted to move onto your other recent piece “What’s Coming in 2022 on the Monopoly Front?”
MR. MATT STOLLER: Can I just make one point about that?
MR. TEDDY DOWNEY: Yeah, of course.
MR. MATT STOLLER: It’s something that Larry Summers said when he was talking about how market power and inflation are not related. He actually criticized the government for being too aggressive on antitrust and said that when the government attacks an industry that what usually happens, positing antitrust as an attack, like the meat industry, he said that actually harms the industry and will cause prices to go up. So your point about how telecom firms used to be afraid of the FTC is that would have impacts on their pricing, things like what I was talking about with the new deal and price fixing, things like that. One of the arguments that Larry Summers made is that antitrust and government action to constrain pricing doesn’t work. He kind of framed it as if it’s like
a bunch of government people going in and smashing a factory and reducing supply. So that’s another kind of area where it was like Summers just basically doesn’t like antitrust, and just says be nice to big firms and they’ll lower prices.
MR. TEDDY DOWNEY: One thing that you did in your newsletter is you sort of gave Larry Summers credit for being right about inflation going up. And I had an initial reaction. I thought it was a little unfair to credit Larry Summers for being right on something without talking about all the things he’s been wrong about. What do you think about that? I mean, he’s been pretty wrong about a lot of things. So can you maybe give us a little context about that?
MR. MATT STOLLER: Yeah, I mean, it’s funny because I haven’t looked—I didn’t look into his record because he’s just wrong about—I mean, I just assume people know that Larry Summers is basically always wrong. So I probably should have said that. But I think that sort of the big one was where he missed the financial crisis. He was responsible for the catastrophic choices that we made around financial deregulation and around kind of the changes to our trading patterns with China. I mean, I can’t even—it’s hard for me to—the whole globalization and trade framework as opposed to market power and changes immunization is something that he was wrong about.
I mean his whole career is about essentially he helped ruin Russia. I mean, he helped bring like after Russia, the Soviet Union, sort of collapsed, instead of structuring reasonable markets what Larry Summers and his crew did is they created an oligarchy and ultimately helped bring Putin to power. And then Andrei Shleifer was almost convicted of insider trading for manipulating the Russian stock market, and Larry Summers protected him. I mean, he lost huge amounts of Harvard’s endowment fund by playing with derivatives. I mean, it’s like almost nothing that he’s done that has been productive, and I have no idea why people take him seriously. But I think it’s important to acknowledge when someone gets something right. And he was last year saying there is going to be significant amounts of inflation and there were. So that’s why I wanted to say that despite my lack of respect for his judgment and career, he got that right. And he was [inaudible] about it too.
MR. TEDDY DOWNEY: Yeah. No, I think that’s fair. I think that’s a good conversation on the inflation stuff. Again, if you have questions, please email them to us. You have this other newsletter entry titled “What’s Coming in 2022 On the Monopoly Front?” I think it has some great predictions. And for everyone who’s not familiar with Matt’s newsletter, it’s big. And probably got 50,000 subscribers, which is incredible. I mean, you’ve only been doing it for a year or two, right?
MR. MATT STOLLER: Yeah.
MR. TEDDY DOWNEY: I mean, it’s unbelievable. And I’d love to go through your bold predictions here. And it’s not all rosy for the antimonopoly movement. So I’ll just let you kind of take it away.
MR. MATT STOLLER: So I’m part of this anti-monopoly movement and we’ve been arguing that we need to rethink our approach to antitrust and anti-monopoly rules in general for about five to ten years. And we’ve had kind of astonishing success. I mean, political movements take a while. But we were able to get to where we’re sort of aligned on the Democratic side of the aisle, but we work across party lines and we got the Trump administration to file a suit against Google and file a suit against Facebook.
And yesterday, the Freedom Caucus, which is the most conservative faction in Congress, endorsed a stronger antitrust law. But we got Lina Khan, who’s one of our leaders at FTC and Jonathan Kanter with the Antitrust Division and Tim Wu in the White House. So that’s astonishing success. And we have now there are five antitrust suits against Google. Two years ago, there were zero. There’s cases against Facebook. There’s cases against Amazon. And I’m not talking about private cases. I’m talking about government cases. There’s probably going to be something against Apple soon. And then you have this this global dynamic.
So it’s kind of astonishing. But because we’ve succeeded so quickly, we haven’t built up as much political strength as we need. And so what my guess is that we’re going to face some setbacks, which is pretty inevitable. I think we’re doing just incredibly well, but we’ve gone really far, really fast. So I think we’re going to take some losses in the courts. There will probably be some rules that will be struck down, maybe some cases. And the Republicans are changing, but they’re generally more hostile to stronger antitrust. So they could try to roll back what the FTC or DOJ are doing.
Also, while the administration has put some Brandeisians in key positions, the administration is kind of incoherent in many ways. They have Gina Raimondo at the Commerce Department and Pete Buttigieg at DOT and Vilsack at USDA. And those are pretty indifferent or hostile to market power. DOD is the same thing, indifferent or hostile to taking on market power. So, yeah. So there’s a lot of possible areas where I think our attempts to rein in market power could take a step back.
So I’ll just go through my predictions. So the first is that the law that’s going to be the most meaningful anti-monopoly rule is actually going to come in this session. It’ll be the Ocean Shipping Reform Act, which I believe it passed the House and it’s going to be in the Senate now. That would regulate the ocean carrier sector. And it will be the first major regulatory bill to regulate a sector since the Cable Act of 92. And I think that will be meaningful because it will take on a very concentrated sector.
You’re going to see an antitrust trial which is probably good to start by the end of the year. And antitrust enforcers are going to take a firmer line on mergers, monopolization, consumer protection, privacy. And I think that you’re also going to have—well, you’re already seeing this with the CFPB, Rohit Chopra is going to get much more
in the financial space in general. But most of the government you’ll continue to see a kind of passivity towards corporate power that we’ve seen for the last 40 years. So that’ll be everywhere from DOT to the FTC, I don’t think you’re going to see that much.
I think we’ll also see a civil war in the Republican Party. So there’s been low level factional disputes, maybe not low level. I mean, Trump, that was a pretty big fight within the Republican Party. But yeah, the Republican Party has been dominated by libertarians and kind of a corporatist wing for a long time, the U.S. Chamber of Commerce. And Trump introduced a kind of populism. Since Trump came into the scene, you’ve seen intellectual developments on the right, the attempt to kind of backfill his political movement. And there’s a lot of interest in antitrust and market power questions. I think you’re going to see a lot of Republicans that are elected actually take a different line than the libertarians. And so you’re going to have actual conflicts within the Republican caucus. It will center probably around Big Tech antitrust because there are different ways of addressing Big Tech problems. But it certainly won’t stop there. And you’re going to see some things around trade and other places. Because just like the Biden Administration is fragmented, the Republican Party is also fragmented. Both parties are in transition to some end point. We don’t know what yet.
I’m guessing that the Congress is going to pass some antitrust legislation. There will be Ken Buck’s venue change bill. There will probably be some more funding for the agencies. And then there is the nondiscrimination legislation, which is one of the pieces of legislation that came out of the House subcommittee. That one is authored by Amy Klobuchar and Chuck Grassley. It’s going to be marked up at the end of this month in the Senate. And if they can get 60 votes, which I’m guessing they can if they can get Schumer onboard, and it’ll pass the Senate and then it’ll pass the House. It’s not a super strong piece of legislation, and it’s going to lead to a lot of litigation in the courts, but it will have a modestly beneficial effect for enforcers. There’s no private right of action in that bill. So that’s a serious weakness, but it is a signal to the courts that they have to take antitrust more seriously.
I think there’s going to be meaningful government actions against pharmacy benefit managers and meatpackers. I made this prediction on January 5. There has been an action against PBMs since I made this prediction, which is getting rid of something called DIR fees which they use, which are fees that they levied against independent pharmacists. And then we’re going to—I think I said this before, but the anti-monopoly movement is going to suffer significant losses in the courts. I don’t know what those will be. It might be some rules that are promulgated out of the FTC and the court strikes them down. But a few judges will begin breaking from the pro-monopoly consensus.
I think that the UK is going to lead the world in addressing Big Tech dominance. And they’ve already said that they need to break up—they want Facebook and GIPHY to be broken up. That would be the first breakup. So I think the CMA in the United Kingdom is the strongest anti-monopoly enforcer out there right now. So you’re going to see an interminable movement is starting to develop in Canada. And people tend to think of the EU as aggressive on antitrust. That’s actually
kind of a fake thing. They like to get headlines. But Vestager is kind of weak and foolish, and I think that’ll be revealed as other agencies start to pick up the slack.
And then the two other things that I think are going to happen—and this is basically talking to people in the AG supply chain—there’s a lot of embedded inflation that hasn’t shown up yet. So food inflation is going to be a key story in 2022, more actually abroad than here. It’ll be difficult. There will be pricing increases here. But there could be like a lack of food in some parts of the world, which would be destabilizing.
And then you’re going to have unless—you’re going to see—workers are angry. Because even though their nominal pay is going up, their real wages are going down. There is more demand for labor than there are workers right now. And they’ve been treated poorly for a really long time. So you’re going to start, you’re seeing workers are starting to organize on TikTok and Facebook. And they’re starting to develop software to actually empower and give themselves remedy some of the information asymmetries that firms have against workers. And I think you’re going to see some actual institutional development this year and next year around the labor shortage unless we go into a serious recession. But these sort of militant angry labor activities are going to start—they’re already starting. But you’re going to see much more of that across the economy. So those are my predictions.
MR. TEDDY DOWNEY: I like it. Bold, bold and across the board. We got a couple of questions here before we let you go. I wanted to get to the audience questions. The first is, are there any pending mergers concerning to you?
MR. MATT STOLLER: I mean, the NVIDIA/Arm merger just got challenged by the FTC. I think that one is really—everyone is concerned about that one. So I feel like that’s not going to go through. Are there any ones that are concerning?
MR. TEDDY DOWNEY: I don’t know how closely you’re following it, but that Lockheed/Aerojet—
MR. MATT STOLLER: Aerojet, right. Yeah, I mean, that one’s dangerous. We’re in a massive merger boom. And I’m someone who doesn’t really believe that there should be many mergers at all. There’s a tremendous amount of concern about most of these mergers because mergers almost never work out. Oftentimes, they don’t end up in monopolies. But still, anybody who’s gone through a merger knows that mergers suck. And the firms are often less productive afterwards. And it’s just a fee extraction model for Wall Street and CEOs.
So I think it’s really dangerous what we’re seeing in the economy writ large, the way that the Fed has pumped up the M&A wave. But yeah, the Lockheed/Aerojet one and NVIDIA/Arm is, I think, really dangerous. And then I’m sure when you look at add-ons across the board in the private equity
space, it’s probably not doing good things in our economy. I mean, the whole ski lift industry is ruined now. Just like the board games are getting ruined. It’s like you can just see things in our society getting crappier. And like, you can just trace it. Oh, that industry was rolled up, and now things are crappier. That industry was rolled up and now things are crappier. And that’s just what’s happening. People are going to put two and two together at some point.
MR. TEDDY DOWNEY: And last question here. You sort of already addressed this when you talked about there being a big drop in mega mergers. But this listener is asking, is sort of proposing that, Lina Khan has not done anything new to actually stop or litigate deals during her time as Chair that wouldn’t otherwise have been challenged by sort of mainstream Democrats or Republicans. There are a lot of health care deals not getting second requests. And the two deals that were litigated, they mentioned NVIDIA/Arm and Sportsman’s Warehouse would have been litigated by a normal Democrat. What’s your take on the Khan FTC not being as aggressive on mergers as people expected out of the gate?
MR. MATT STOLLER: Yeah, that’s a good question. I mean, I think it’s an open question whether anybody would have litigated NVIDIA/Arm as quickly as they did. They might have gone for some sort of settlement. I mean, it’s a vertical merger, right? So litigating vertical mergers is not a common thing. So even if there had been—I think it’s easy to say, oh, well, of course, they would have litigated that one, but we don’t really know.
I also think it’s pretty unlikely—without the increased spotlight on market power questions that we’ve seen over the last five years, I think it’s a pretty good chance that they would have said, oh, yeah, sure. Let this one go through. So I don’t know that it would have been litigated. I think there’s a lot of people saying, oh, yeah. Of course, we would have litigated this. But if you go back to the Obama administration, there is a lot of, I think, a lot of mergers that they let through that today we would say, of course, anybody would litigate that one.
But the broader point is valid. And I think that the agencies are facing a challenge, which is that you have this insane merger wave. And they just don’t have the resources to litigate everything that they would probably want to litigate. I think that’s creating a significant institutional challenge. And I’m curious to see how the agencies respond. Lina Khan’s been in there for six months, which is enough time to kind of start to see what’s happening. But it’s not enough time to really understand exactly what they’re going to do. Jonathan Kanter just got in there.
And I know a big point of dispute has been the vertical merger guidelines. And the FTC withdrew the vertical merger guidelines, but DOJ didn’t. That creates some problems if you’re bringing merger challenges. I think that’s going to be—I think now that Kanter is in there, I think he’s probably going to do something on a vertical merger guidelines. So I think that what you’re seeing is the sort of bureaucratic gearing up or more systemic merger challenges. But yeah, I mean, you’re fighting the Fed. And I don’t know if you can win when you’re fighting the Fed.
MR. TEDDY DOWNEY: Well, I think it’s also mergers—I think there’s also a couple of additional things that I would throw out as reasons why you haven’t seen as much yet. In addition to the merger wave and the personnel constraints, it’s they’re looking at all of the rules of how they evaluate mergers. And so I think there’s is going to be a little bit of lag before that gets institutionalized, like they’ve already repealed the vertical merger guidelines. They restated their policy on trying to get prior approval when they negotiate a settlement that the FTC is going to approve mergers on an ongoing basis. That was a really controversial policy.
So I do think there are a lot of big policy changes that they’re making or trying to make. And even little things around the edges like they’re looking at the forums, the HSR forms, that are being filed and little things like that actually people don’t really quite realize how important they are to reviewing a deal and doing it comprehensively. They’re fighting with companies a little bit more on whether or not deeming a second request being completed—I mean, the certified compliance with the second request to get more rigorous, robust information.
And then also I think they’re just more willing to litigate after you close. I mean, they’re like we don’t have the resources now, but we may later and we might see you later. And I think that’s not how people really think about merger enforcement. They just want to know did you stop it from happening? And that’s kind of where all the attention is. But if you go back and they pick a couple of deals like, I don’t know, maybe that hospital bed deal or maybe something even further back, all the way back to Google DoubleClick. Just go back and sue someone that’s probably too far back. But make an example that, hey, we will sue you after the fact.
And then I think there’s the rulemaking as a priority as well. So you have all these priorities that didn’t exist before. And I think it’s going to be a while before people evaluate the antitrust agencies, not just on did you block every merger that came through or more mergers or things like that? I think that will happen over time, but there’s a lot of other stuff going on that I think kind of falls by the wayside. Any reaction, thoughts, to that as a theory?
MR. MATT STOLLER: No, I mean, I agree with all of what you said. I mean, I think you’re right. I think there’s a lag. They’re looking at an institution that is basically set up to facilitate mergers, set up to do that for 30, 40 years. And they’re trying to figure out how to turn it around.
MR. TEDDY DOWNEY: Well, this is a really, really interesting call. We covered a lot, a tremendous amount of ground. I can’t thank you enough for doing this. It’s a pleasure, as always, to get in the weeds with you on all these topics. And thank you so much for doing it.
MR. MATT STOLLER: Hey, thanks so much.