DON'T REOPEN THE CONCENTRATION AND PROFITS RESEARCH TOOLKIT.

Here's where we were, six years ago.

Once upon a time, before powerful computers and all matter of advanced methods for decomposing residuals, empirical research in economics looked relatively simple. For instance, one could dip into the Census of Manufactures, come up with a return on assets, regress it against the four-firm concentration ratio, and make an inference about the exercise of monopoly power. The economic tricks have gotten better over the years, but as a research question, this one appears to have gone out of fashion about thirty years ago.

In part, that's because the original research methods weren't precise enough to satisfy the econometricians, and in part it might be because the research findings didn't support popular narratives. "William G. Shepherd, then of the University of Michigan, published a paper arguing that about three-fourths of national income originated in "effectively competitive" industries by 1980; that improvement over about half of the income over the preceding twenty years reflecting antitrust enforcement and increased international competition."

Six years ago, it was political economists in the Obama administration suggesting the concentrated industries were taking an unreasonable toll.  Now, it's political economists from the Obama administration, and they're likely to be disappointed.

If the president and a gaggle of officials with Ivy League degrees say the market is overly concentrated – that we are being squeezed by the harmful effects of monopoly – does that make it a fact?

Not according to a new study sponsored by the U.S. Chamber of Commerce and conducted by NERA, which Harvard Law Professor Emeritus Laurence Tribe has called “one of the foremost economic consultancies.” When NERA’s economists analyzed these claims, they found no general trend towards increasing industrial concentration in the U.S. economy from 2002 to 2017.

That's useful to know, as that's a trend of forty years of increased competition in the U.S. economy.

It's important to distinguish rising prices by exercise of monopoly power from rising prices by printing money.

A little history shows why: From 1979 to now, the prevailing standard for regulators and judges has been the Consumer Welfare Standard – by which mergers, acquisitions, and business practices have been judged solely by their impact on consumers. Under this standard, inflation had been at historic lows since the early 1980s. What changed in the last year? Did all the CEOs of America bump into each other on the golf course and decide to conspire against the American consumer? Or is it more likely we’re facing the consequences of historic levels of debt, “quantitative easing” and money printing, and record spending?

Higher prices that follow from an exercise of market power are reductions in economic welfare.  The economic welfare effects of monetary inflation are harder to capture, as well as to tie to specific companies.