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Ignite DC #6

Teddy Downey

The Political Economics of Monopolies

The US economy is in shambles. Unemployment is stuck at 10%. US wage growth has been stagnant for roughly 30 years. From an entrepreneurial standpoint, the US is second to last among wealthy nations in the percentage of citizens who run their own businesses. And yet, corporate profits are at an all-time high and the country’s most profitable companies are sitting on trillions of dollars in cash rather than hiring.

Many economists argue that what is needed is more trust of business in the form of lax regulation and lower tax rates as a way to spur the economy toward job growth.

It is, in fact, policy that has placed too much faith in big business which has created an economy dominated by monopolists at the expense of small businesses, entrepreneurs, and consumers.

In 1981, the Reagan administration shifted antitrust regulation from a focus on citizen welfare, to a focus on consumer welfare. Rather than prohibiting mergers based upon the negative outcomes of the consolidation of power in the hands of one or a few corporations, merger reviews shifted to a focus on whether or not the merger would create efficiencies and lower costs (temporarily) to the consumer. Under this new test, almost all mergers are approved because companies can always show that they can become more efficient as they grow in size.

Monopolists don’t create jobs, they extract rent. When times are tough, monopolists don’t expand, they squeeze consumers and other companies in their supply chain with less leverage. Our economy is unlikely to fully recover until this understanding of the US political economy is more widely understood.

About Teddy Downey:

Teddy Downey is a senior vice president and policy analyst at MF Global's Washington Research Group. He has provided Washington legislative and regulatory policy research for Wall Street for over six years. Mr. Downey, through his close ties to the Democratic Party, provides investors with a context for the political strategy behind President Obama’s legislative and regulatory agenda.

Prior to joining Washington Research Group, Mr. Downey developed the Potomac Research team’s Washington policy product from the ground up, developing coverage areas in healthcare, financial services, and energy. Earlier, he was a research analyst in FBR Capital Markets’ Washington Policy Group. He also worked on the 2004 Kerry-Edwards presidential campaign. Mr. Downey holds a B.A. from Columbia University.

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