Brian Albrecht on Business Dynamism, Greedflation, and Antitrust

Brian Albrecht is the chief economist for the International Center for Law & Economics and is the coauthor of the economics newsletter Economic Forces. In Brian’s first appearance on the show, he discussed the data behind business dynamism, the notion of greedflation, the recent developments in antitrust, the update Econ 101 needs to make in regard to tariffs, and much more. 

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Read the full episode transcript:

This episode was recorded on January 10th, 2025

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: Welcome to Macro Musings where, each week, we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University. I’m glad you decided to join us.

Our guest today is Brian Albrecht. Brian is the chief economist for the International Center for Law & Economics. Brian is also the coauthor of a popular economics newsletter titled Economic Forces. Brian joins us today to discuss market structure, business dynamism, greedflation, antitrust developments, and more. Brian, welcome to the show.

Brian Albrecht: Hey, thanks so much for having me. I’ve been listening since day one, so I’m excited to be here.

Brian’s Education and Career

Beckworth: Yes, this is long overdue. I’ve known Brian for a long time. We have gone to similar conferences, run in similar crowds. In fact, Brian, you have some affiliation with Mercatus in the past, correct?

Albrecht: Correct. During grad school, I was an Adam Smith fellow, which allowed me to come out to Mercatus a few times a year and discuss economic ideas with some people in the policy group, but a lot of them within the F. A. Hayek Program. That was a huge part of my grad school training. I had a great time out there.

Beckworth: You also had a great grad school experience because you went to the University of Minnesota, the famed University of Minnesota econ department. Great scholars there, great theorists. In fact, you were a theorist yourself in grad school coming out, correct?

Albrecht: Yes, correct. This is very rare, but I fell in love with the first-year course in micro and got really into micro theory, so I did my dissertation under David Rahman, who’s a microtheorist there. Theory was everywhere. Even the applied people had a theory angle to everything. That really influenced me a lot and I really enjoyed that. Turns out I’m just not that good at math. It’s really not my comparative advantage in the long run, but I learned a lot and really happy with my time there at Minnesota.

Beckworth: All right, so you got your PhD at Minnesota. Now, as I mentioned in the intro, you’re the chief economist for the International Center for Law & Economics. I know you’ve been busy because I’ve seen you on X. I’ve seen you write articles for newspapers. You’re getting a lot of media exposure, fighting the good fight. Tell us, what do you do at the International Center for Law & Economics (ICLE)?

Albrecht: Yes, so ICLE is a nonprofit, nonpartisan policy research center. Very much like Mercatus, very much in the academic spirit of Mercatus. We’re not technically connected with any university, but we have 90 academic affiliates that we work closely with. Our real goal is to bring economic reasoning into policy discussions. We call it law and economics. For econ people, it’s just economic reasoning, economics’ approaches to data, and simple models, price theory, those types of things, to apply to a lot of different policy questions.

I work mainly on antitrust, competition policy more generally for ICLE, but we have other people who work on broadband and intellectual property and things like that, First Amendment. Our real goal is to just make economics front and center. Also, a part of my job is to do general economic education, to just try to promote with policymakers, promote with other academics, especially lawyers who maybe aren’t so used to economic reasoning, trying to teach basic economics broadly outside of the classroom. I did it in the classroom for a long time, but now outside of the classroom across, again, a variety of media as you mentioned.

Beckworth: Now, the word “international” is in that title, International Center for Law & Economics, and there’s plenty of work to do just here in the United States, but it sounds like you have a lot of work overseas as well, correct?

Albrecht: Yes, correct. That’s not my specialty. I tend to focus on a lot of US issues, especially US cases, but we have other people who work on the EU a lot, New Zealand, Canada, we were just talking about. I bring the general economic framework to help people think through problems, to bring a lot of research that is out there, happens to be about the US, so I know that fairly well.

Then okay, now, how can people with a local knowledge, people with, we said, those 90 affiliates, what can they use, the broader information that I have, to apply to their particular policy area, particular country, and so on? It’s been a lot of fun. I keep learning so much every day, even about US antitrust, learning a bunch every day. Also, yes, EU law is a whole new thing that I’m still grappling with and definitely not an expert, but it’s fun.

Beckworth: Now, we’ll come back to this a little bit later in the program in more detail, but you’ve been doing a lot of work on antitrust these past four years, correct, with the administration?

Albrecht: Yes, so my timing starting to work on antitrust is roughly with the start of the Biden administration, so I’m still relatively new actually. My theory work was about competition. It was a natural transition into more applied work. Antitrust was the main area that I focused on right away, and it still is today. My whole lived experience of the current administration, the current policies and stuff is really heavily under the Biden administration, so we’re going to be in for a whirlwind now for me for changing to the next administration.

Beckworth: Right, but you’re someone who sleeps, breathes, thinks like the FTC, the Department of Justice Antitrust Division. That is your wheelhouse right there. We’ll come back to that a little bit later, talk about what’s happened there over the past four years and what you might expect will happen going forward as you mentioned with the transition.

Now, in addition to your work at your think tank, you also publish a very popular economic newsletter. Now, your coauthor is a good friend of the show, Josh Hendrickson. He’s been on the program. In fact, we’re coauthors, Josh and I, as you know. You are too. You’re coauthors with Josh as well, so shout out to Josh and all his hard work. Tell us about the newsletter. What do you guys hope to accomplish with it and what are you covering on that outlet?

Albrecht: Yes, so one of the things that didn’t really come up in my background was that I got into econ through the old-school blogs like global financial crisis, all the macro discussions, your blog. Josh had a blog back in the day in addition to the, no offense, the Krugmans and the Tyler Cowens and the names that maybe more people followed at the time. I was following you guys a lot and learning a lot. I’ve always had a soft spot for that form of communication. 

Then the pandemic hit. I was finishing up my PhD. I was ready to do something new again, so I convinced Josh to start a blog up again. It wasn’t called a blog this time. It was a newsletter. We were going to make it weekly to commit to each other. “Commit to each other,” it sounds like we’re in a relationship. Commit to doing stuff, commit to writing. Now, we’re four and a half years into this. It’s been a great experience. We’ve learned a lot from each other. We’ve learned a lot from the audience. It’s grown now.

Obviously, newsletters are more common than they were in 2020. Yes, it’s been a great experience, a great outlet for just teaching economics. I said that I loved it. I learned a lot from blogs back in the day. I hope that I can be that for the next generation, as well as not younger people, but policymakers and people who are a little bit more open to an 800-word blog post that’s, I believe, rigorous and hitting all the standards that I want to hit, but also is lighthearted. There’s GIFs. There’s all this stuff. It’s not an academic paper, for sure. I’m under no illusions that this is research.

Beckworth: No, but it’s been a lot of fun. I subscribe, obviously. You guys have done a lot of work on antitrust. Also, during the inflation surge, a lot of thoughtful commentary there and in the transcript we link to this. Of course, you can look it up as well, listeners. Highly recommended, Economic Forces. 

Market Structure and Business Dynamism

All right, let’s delve into market structure, business dynamism, and some of the related issues that flow out of those. I wanted to do that because market structure has been a hot topic in 2020. A very well-known, highly-cited paper by De Loecker, Eeckhout, and Unger came out. They documented this rise. It was well known, but they really, I guess, put the technical details down in documenting the rise in market power and markups. 

You have extended and built upon this. You have a paper with your coauthor, Ryan Decker. The title is “Markups and Business Dynamisms Across the Industries.” Maybe give us some motivation for this paper. What are the two big trends that really motivates this paper and a lot of this literature?

Albrecht: Yes, so the one you mentioned is the possible rise in market power, which would be measured by markups. Some measure of a price over a cost with the idea of, if you can raise price above cost, you have some sort of market power. The famous paper that you mentioned by De Loecker and Eeckhout and Unger claims that the average markup in the US rose from around 20% in 1980 to around 60% in 2016. That’s a huge rise if that’s true.

There are debates in the literature about how accurate that is, but I think most people would say that there’s been some rise. That was, I think, the idea you were getting at that there was the hint that this market power had risen for a while. There had been rising concentration, which isn’t the same thing at all. I write a lot about that, but people are worried about rising concentration. At the same time, they’re worried about rising markups and things like that. That’s one idea that came out.

There’s another paper, I believe, in the same issue of the QJE in 2020 by Autor, Dorn, [Katz, Patterson, and Van Reenen], the superstar paper. The rise of the superstar effect that, basically, more and more economic activity is going to this right tail, these really productive firms that grow really large, have huge markups, and things like that. I would say the conventional wisdom is that there’s been this rise in market power, at least up to the pandemic. We can talk about what happens in the pandemic. I think a few things could change.

Beckworth: Sure.

Albrecht: At the same time, my coauthor, Ryan Decker, has been part of a team that has documented this fall in business dynamism. Dynamism is a class of measures. It’s not one statistic, but they’re a class of measures that look at how much churn there is between businesses, new businesses starting. We can dive into what the exact metrics are, but we’ve seen since, again, about the same time, 1980, that that number has fallen, that there’s less movement between firms.

There are less workers who are at new firms or at least a smaller share. There are fewer workers who are in high-growth firms, which means they’re growing really fast. This has been the fall of dynamism that was well documented by, let’s say, 2015. 2016, there’s a big paper by Decker and coauthors that puts the first big framing on this, but we’ve known for a while.

These are two big macro trends. They’re a little bit different than our traditional macro trends. It’s not about GDP directly. It’s not about inflation directly, but it’s overall economy in that macro sense. These are two big trends. Ryan and I were talking. We knew from some of his other work that there’s big variation across industries in terms of dynamism. An industry like manufacturing, dynamism fell, but it fell by 30% between, let’s say, 1980 and 2016, 2015. 30%, it’s decent, but something like retail dropped by 60%, 65%, depending on how you measure it. Much bigger drops. There’s variation across industries in terms of the fall of dynamism. One of the things that De Loecker, Eeckhout, and Unger point out in their paper is that markups, yes, that 20% to 60% number that we mentioned earlier, that growth in markups, we knew that varied across firms. Okay, we have some variation across industries we know in dynamism, some variation across firms. We said, “Okay, are these related?” Because a lot of people thought they were related. A lot of people come forward. There’s different models out there. All of a sudden, you have a bunch of monopolies.

Going back to the Biden administration, if you think everything is monopolized and we need this big overhaul of antitrust and competition in the US is garbage, you would expect markups to rise or be high. You’d expect dynamism to fall because you have a bunch of entrenched monopolies that don’t get knocked out. There’s a very intuitive theory that connects these.

We decided to ask, okay, if you look beyond the aggregate time series trend, you drive down to different levels of industry levels, different levels of aggregation, do you see the same connection between these two broad trends? Broadly, our answer is no. Often, you actually see the opposite, that industries that had a markup rise also had the smallest decline in dynamism. Everything declined. Dynamism across the board basically declined. That didn’t go up anywhere, but you don’t have this nice relationship that some theories may suggest.

Beckworth: The theory that people were invoking is that these two trends were related, arguably related. It was just a correlation, but they’re saying there’s some causality there. Were there other explanations for the decline in business dynamism beyond just increased market power and concentration? Were there stories related to productivity decline or the zero-lower-bound environment or just weak recovery from the great financial crisis? Any other stories people were telling?

Albrecht: I’ll get to the global financial crisis stuff in a minute, but there are a variety of theories. I would say the major ones that people latched onto, not that anyone had the one answer, one was demographics. I know you’re a big fan of the importance of that. Just with an aging population, that means fewer founders, things like that. Some regulatory stuff, different measures of regulation have increased. That seems to have caused problems. And these dynamism measures, you’ve seen even bigger falls in Europe, broadly speaking. Again, there’s lots of countries in Europe that varies. I’d say those are the two big ones. 

There’s stuff zooming in to the financial crisis and after, but one of the problems with those kinds of theories is that the real big drop was about 1985 to 2006. It dropped off again and stayed there through the weak recovery of the financial crisis through the 2010s, but the big drop was before that. It’s hard to directly tie it to that. There’s other stuff related to demographics more broadly that talks about interest rates overall. Not necessarily hitting the zero lower bound, but the secular decline in interest rates is another possibility that’s put forward.

In the back of all of these papers is a hint, even Decker in a few of his papers, “Oh, maybe it’s something about antitrust and market power or somehow connected to these.” It’s been part of the conversation. It’s only in the last few years that other papers—it’s not just correlations, people are doing much more serious work than that. The broad motivation is the correlations. Other papers have dug into the time series, connecting business dynamism and rising market power and found some support for it in the aggregate.

Beckworth: You mentioned, there’s a tone in the background, if not outright statement saying this is concentration, this is an antitrust issue. Is that tone something that has arisen because of the big tech firms, Google, Facebook? The past decade or so, there’s just been this pushback against them. You could see that spirit maybe fueling this interest in this research.

Albrecht: Yes, absolutely. There’s a connection and a broader zeitgeist around the issues of monopolization that aren’t just confined to the business dynamism literature but are broad in policy circles. I said President Biden’s executive order on competition is a quintessential embodiment of that. This was across the administration. I’m going to have an executive order that says, “The Treasury, the USDA, in addition to the FTC and DOJ, we’re all going to get all on board to do something about competition.” It’s there and definitely connected. If you start thinking about antitrust, the big companies, at least by market cap, are going to be the tech companies. They’re tightly connected today, for sure.

Beckworth: Let me just park here for a minute and say, look, even if there is something to increasing concentration, just for the sake of argument, could it be in part because firms are more productive? Economies of this scale. Just because we find measures of this, it shouldn’t necessarily be the case we point a finger and say, “Hey, business dynamism is going down.” You could tell another story, correct?

Albrecht: Absolutely, and I think that’s actually the story in the superstar paper, which is firms have gotten more productive. Certain firms have gotten way more productive. Therefore, they’ve won more of the market. Concentration has risen and markups have risen. Remember, a markup is a price over a cost, price over some marginal cost. We usually think of, “Oh, jacking up prices,” but a markup could also come by lowering marginal costs.

If it takes big investments that then get you lower marginal costs, you could have a higher markup that’s perfectly benign from an output perspective or a welfare perspective but would show up as a high markup. De Loecker et al., they don’t say that it’s necessarily benign. Eeckhout’s got a book that makes it much more, that this is a problem, that there’s something we need to do here.

I think a lot of the follow-up work by people like Chris Conlon—who’s been on the show—and Nate Miller and others and a whole slew of them, a lot of them are cited in our paper, is really digging into the details of, okay, some of this could be bad. Some of it may not be bad. Is it even true? We’ve taken it for granted in our paper. We start from the perspective that this is a true fact, but we use a bunch of other measures of markup to do robustness tests to see if we could still find anything. Okay, maybe it doesn’t show up in their measure of markups because their measure of markups is only looking at publicly traded firms, which we know are not representative of the whole economy. If we look at all firms, can we see something? Again, we don’t see anything. There’s basically no relationship. You see markups rising a bunch in one industry. That doesn’t tell you anything. If it tells you anything, it means that dynamism has declined less, actually, in that industry. The opposite of this monopolization argument.

We think that flows naturally from economic theory, actually. Markups is a way to get profit. There’s profit on the table. You should expect firms to enter. There’s not this clear one-directional thing. One of the things we wanted to sort out is we’re not exactly testing these theories. We’re trying to explain the data a little bit more, but there are competing theories. It’s not just all about monopolization.

Beckworth: Now, you touched on the measurement issue. Part of the challenge here is digging deeper into the data, getting the right measures. That’s what you and Ryan Decker did. You looked at two-digit, three-digit NAICS levels data. You also looked at the BEA/BLS integrated-level production accounts for measuring markups. Tell us about how you measure dynamism. What’s the gold standard way to do it? What’s available? How can you proceed in that area?

Albrecht: Yes, it’s a great question. Some of this data is now publicly available, not at a super, super granular industry level, but these broad aggregates that we’re looking at. If we just want to talk about manufacturing, we have facts about manufacturing. That’s coming from the census.

The data that we use is from the Business Dynamics Statistics. That has how many new firms there are, how much employment is there, how many people are moving between firms in these industries. That’s from a census. It’s from not a survey. It’s a census where you’re forced to respond to these by the government. It’s really the gold standard. If we had the private microdata, that’d be even better. This is really phenomenal data that we can tell a lot of things.

What are the measures of dynamism? The three that we focus on in our paper are really the core. The first one is the employment-entry rate. That is what percentage of workers are in a new firm. One of the great things about our data set from the BDS is that they do a super good job of knowing what is actually a new firm and what’s even a new establishment, which is like a specific location for a firm. We can track that really well. How many people are working in new firms?

The other is this measure, it’s a little more complicated, called excess job reallocation. The basic idea is that if an industry is growing, we expect more workers to go there, obviously. If it’s shrinking, we expect fewer workers to be there. There’s a lot of movement even beyond those net increases. Think of the aggregate demand in the industry shifting out. Even beyond that shifting of the aggregate curve, there’s movement from one company to another. That’s what this is capturing. It’s workers moving, how easily are workers moving beyond the big push in and out of the demand curve.

Then the final, which is a little less common because it’s a li-ttle newer data set, is what I call the high-growth share. What percentage of workers are growing at high-growth firms? There’s another measure that’s maybe a little bit more intuitive, which is just the entry rate. How many new businesses are there?

There’s lots of measurement issues with that. If you’re thinking about the aggregate effects, a single-employee firm or a firm without any employees really doesn’t do that much. We talk about those. We include them as robustness, but the simple-entry rate isn’t that important. Between these four, we think we have a lot of different measures of this idea of dynamism. There’s not one thing in the same way. There’s not necessarily one interest rate. Hopefully, across all these measures, we can capture something.

Beckworth: Okay. With this, again, you look at the cross-sectional data. You drill down. You go beyond the aggregate. Your findings really are disconnected from the aggregate. Aggregate says there is this, looks like a relationship, but you show, actually, there is no relationship at the disaggregated industry level. The takeaway from your paper is that market power has a minimal role, if any, in explaining businesses’ dynamism going down. Is that fair?

Albrecht: Yes. One thing we need to be careful of is that we don’t have a great theoretical background of everything that we’re really teasing out causation and whatnot. At least as a smell test, these theories about monopolization are an industry-level theory, right? You could think of monopolization as monopolizing the whole economy, sure, and how big are the biggest firms? Usually, we think of, okay, Costco has a big share of food retail or something like that. It’s an industry-level story that is often going on here.

Just quick smell test. It wasn’t that quick to do everything. For the readers, it’s eventually a quick smell test. Does this seem to hold up? We can find just no evidence of it. Again, at the industry level, at varying levels of industry, so we can look at the broadest sector, which is called the two-digit NAICS. We can look at manufacturing as a broad sector. When we break up the economy into retail, trade, manufacturing, things like that, no correlation.

If we drill down even more into something like food manufacturing, which is a three-digit NAICS, again, no correlation in the way that the standard theory would predict. We cut it up a bunch of different ways. We look at short term, long term. We just can’t find anything pointing in that direction. I would say, overall, I’d say there’s no relationship. If there is, it’s actually the opposite, again, that industries that saw the highest rise in markups saw the lowest decline in dynamism.

Beckworth: Given the interest in this topic and the existing literature that we’ve talked about, your paper really goes against the grain. I’m curious as to what has been the response to it.

Albrecht: The first draft came out beginning of last year. There was some pushback from people, but really in the weeds on stuff. Now, the new draft is out. It should be out as a Fed working paper, I believe, by the time this comes out. If not, it’s on my website if people want to see it. We’ll see. Yes, I think it does push against a handful of papers in the literature. I hope it causes us to rethink things. That’s the whole idea of it is to try to, okay, everyone’s pointing toward this monopolization story as tying different things together. We didn’t find much evidence of that. I think we should at least be hesitant. 

Again, this is all macro topics, right? It’s a super complex story. We need to figure out countervailing forces and things. One more step down in terms of going from the macroeconomy to some of these lower industries, it doesn’t seem to hold up. What is causing dynamism? Again, I think demographics are a big one, which are tied to long-run trend in interest rates. Regulatory is somewhat of it. We really don’t know overall.-

Beckworth: Good measurement before theory. We don’t have that here. 

Albrecht: That’s one of the things we really wanted to talk more about in the paper is the different ways to measure that. Just as there’s no one way to measure dynamism, there’s not one way to measure market power. We wanted to at least, “Hey, we’re going to throw the kitchen sink at you and say, ‘Okay, we got a bunch of different options. Look at them all. Do you see anything?’”

Beckworth: Brian, we have spent some time looking at your paper, which, again, takes to task the claim, the almost zeitgeist, that there’s been this growing concentration. It’s causing a decline in business dynamism. Your paper has raised some serious questions about that. Now, your data goes up until when? What year?

Albrecht: We have dynamism data all the way up to the present. We didn’t want to talk about the pandemic at all, so we cut that off.

Beckworth: Okay, so it stops about the pandemic time.

Albrecht: Yes.

Beckworth: I asked this because since 2020, we’ve seen a reversal of fortunes with business dynamism. At least it seems that way on the surface. You’ve written about that. A number of other people have written about that. Walk us through what has happened and what is your understanding of why it’s happened.

Albrecht: Yes. Initially, in the pandemic, the first data that we see about business dynamism is business applications. Basically, if you need to start a company, one of the first things you do is to file for an employment identification number, an EIN. Oh, you think you’re going to hire in a few months, you better start that process. This is well known as a leading indicator of dynamism and tracks later things that happen.

Right away in the pandemic, we saw a spike of these applications. There are ways to parse this, which you can sort out basically, which of these are likely to have employees? If you are wanting to start up as an Uber driver and you create an LLC for that, we’re going to separate out those people. Those measures of applying for an employee identification number likely to have employees, they all spiked right away.

I should say that the real research on this is from Ryan Decker and John Haltiwanger, his coauthor. The question was, would this turn into stuff? Was this a bunch of people panicking in the pandemic? I don’t know what’s going to happen. In case I can drive Uber, in case I can design websites or something in my spare time, I should be ready for that. We had to wait a little while to get the better data, the more detailed data, which is the stuff that Ryan and I use in our paper from the BDS.

Now, we have the BDS data up through March of 2022, which is, again, the gold standard data for business dynamism. That still shows that this isn’t applications now. This is businesses, number of employees in businesses, new businesses, all those measures that we talked about. It’s back up. It’s not back up to 1980s. We haven’t reversed a trend for a long time, but it’s reversed at least, let’s say, the last 10 years of decline prepandemic, or a big chunk of that.

There’s different measures. I’ve mentioned the BDS. There’s also the BED, the Business Employment Database. That has shown a rise as well. We’re not back in the glory days or anything, but there’s definitely been a reversal of a 30-year trend downwards. Now, it’s flipped around to coming back up. It’s steadied out by some of these other measures, some of the employment application numbers.

Stuff seems to have steadied out. We’ll have to see if it continues going up, but it’s definitely not just some fluke of everyone in the pandemic panicking and applying to become a business. We have real people working at new businesses. That number is very encouraging. It ties to some of the other encouraging trends that you’ve talked about on the podcast like the productivity improvement.

These things seem to be related. At some level, we still don’t have the real great data on the firm level where we can really connect productivity with dynamism. In 10 years, when this stuff becomes more available, we’ll have a better sense of that. At least in the past, business dynamism and productivity are related. It’s encouraging and it makes sense that they move together.

Beckworth: We love good economic news here in the program. Thank you, Brian, for adding to the great story we’ve had. We talked about this with Joey Politano about rising productivity. Even in the service sector, it seems to be rising productivity, AI investments, all these things that are happening. Another story that’s been told is that the pandemic was a shock to the labor market. The search process was changed and better matching. A number of stories could be told. Hopefully, we will continue to see sustained, higher real GDP growth because there are these real gains, productivity gains to the economy.

Albrecht: A lot of this dynamism stuff is labor market. I said that the measure of employment-entry rate, that’s about workers entering new businesses, if you have things that we usually think of as labor market, the churn of employees, that’s also business dynamism. They’re two sides of the same coin. This is another lens for looking at the stuff that macroeconomists, especially labor macroeconomists, have been talking about for a few years, that there’s a lot of churn. A lot of people leaving jobs. A lot of people joining jobs, better matches, that sort of stuff. Yes, these are all parts of the same overall picture of what’s happened to the economy since, let’s say, 2021.

Beckworth: That’s great news, Brian. We hope we continue to get more of it. All right. 

Greedflation

Let’s continue to talk about market structure and competition. Let’s segue into a topic that’s been near and dear to my heart as well as yours. That’s greedflation or the role at least that concentration in the industry may have played in causing the inflation to take off, become the surge that it was, ’21, ’22. You’ve had several papers. I believe you’re in the same book with me, with Ryan Bourne that edited the book, The War on Prices.

We had Chris Conlon on the show back in 2023. He had an AEA paper called Rising Markups, Rising Prices? This has been similar to you. He looked at industry-level data and didn’t find any relationship between PPI inflation and the markups that are pretty standard in this literature now. What are your thoughts about Chris’s paper and just this whole debate in general? Was this a misguided effort to go look down the concentration rabbit hole as an answer for the inflation surge?

Albrecht: I don’t think we have enough time for all my thoughts on greedflation broadly. Chris’s paper is a very similar exercise to us. We all saw inflation rising. We all knew that markups were rising, “Oh, do these go together?” Chris did a similar exercise looking at prices instead of dynamism and whatnot. The same thing, doesn’t find this sort of relationship. I think the takeaway from that, which is a takeaway I would take from our papers that is neat, clean stories are a little bit hard to make work when you actually dig into the data.

That leaves us searching for a better theory and whatnot, but at least it’s the punchline that a lot of people want to take are not there. That ties back to an earlier point that I made. There are two ways for a markup to happen. You can either raise prices or you can lower your marginal costs. If there’s a little bit of both, some industries are seeing prices rise higher, but costs are not changing. Some are seeing costs fall, so on, and so forth. You’ll get an aggregate. You’ll see a big mess. There’ll be no connection between the markup and the overall price, the PPI, the producer price index, in that subindustry there. 

It’s very similar in spirit. It’s trying to get at something that’s thorny, that’s behind this greedflation. There must be something going on that’s not just basic supply and demand. Whether that’s originally greed, not that we should take thoughts from senators about stuff, but Senator Warren was saying that it was greed. That’s what caused inflation.

The FTC started to look into supply chain issues as the cause. The press releases made it seem like taking advantage of the pandemic and whatnot. There’s something besides regular supply and demand that can explain this. What could it be? Could it be concentration? People are trying to search between concentration in the price rise. Could it be market power, like Conlon and his coauthor’s paper?

Just a lot of them end up flat. They end up with some story about this person said that the price was rising because they had some market power. When you add up across a bunch of industries, there’s really not evidence there yet. Maybe it’ll be there eventually. Maybe when the better data comes out after a while in terms of estimating productivity and knowing more about prices, let’s say, in manufacturing, maybe we’ll be able to uncover something.

So far, it’s really grasping at straws for some theory and avoiding the simple theory, which is supply and demand. We have a clear prediction of what happens. If it’s demand, price goes up, quantity goes up. If it’s supply, price goes up, quantity goes down. If you got something more than that, okay, show it to me. But that’s the starting point for everything. So far, I have not seen anyone that’s really brought forth a theory that says more than that. 

They may have different words. They may say greed. They may say market power or something, but there’s not much there. It’s been a frustrating few years, to say the least. I didn’t think I would write about inflation. I guess none of us did because we didn’t think inflation was there. Really this angle about greed and market structure, that’s where I came from from an antitrust angle, is thinking about market structure, thinking about different ways that competition plays out. “Oh, people are saying this is what’s happening.” I’m like, “Wait, that doesn’t match with the basic theory.”

Beckworth: What always bothered me is, well, you can’t just increase your markups. There has to be consumers willing to buy at those higher prices. Not just for one period, but for a sustained time. We had an inflation surge from ’21 to ’22, and it slowly came down. Inflation was high for a long time. These firms would have had to have markup power to somehow force households to buy over an extended period.

That’s just, to me, it’s partial equilibrium thinking. Somehow the households had the capacity to buy at those higher prices. Where did that capacity come from? Macroeconomic policy, fiscal policy, monetary policy. It’s a pretty easy story to tell to me.

Albrecht: There are two parts to add to that. I completely agree. One is that if you’re going to have a theory, you need to have a causal start to the process. What changed? You can point to say, oh, people just started to collude implicitly because something. They saw something and then something happened. Okay, that’s not really a theory, but you can imagine that. I want a causal theory of say, X changed, therefore prices rose. Not like reversing it around, which is what we often see. Prices rose, then prices rose. It’s a circular causal story.

A bunch of stimulus, a shutdown of the economy, other supply chain issues. These are all things that are outside of price setting that then causally affect how firms price set, and you could trace it out. That’s what I’ve wanted to see from the broad greedflation camp. It’s an unfair term, I get that, but the people who say it’s something besides supply and demand. I’d want to see some sort of causal theory. This was a big part of my chapter in Ryan Bourne’s book. It was about what does it mean to have a theory of inflation.

The other thing I would argue is just magnitudes. We need to think about magnitudes and levels versus a one-time shock to inflation. Suppose your theory is that everyone got together, industry by industry, everyone implicitly colluded because they saw something. You need production to drop 7% in order to get prices to rise 7%. A little bit more complicated than that, but the basic idea. That’s not what we saw. There just wasn’t a big enough drop in the periods that we saw real inflation, not the one quarter of 2020. Across the actual years that we saw inflation, the story doesn’t line up in the way that you’d expect.

Your work around looking at the path of nominal GDP as a proxy of this stuff is exactly right, that, in aggregate, it’s got to show up somewhere along this curve, and it doesn’t.

Antitrust

Beckworth: Yes, fair enough. Brian, we’ve been talking about market structure, antitrust issues, and we’ve touched on this a little bit earlier. During Biden’s administration, Lina Kahn, the FTC, they really went after big tech. There’s also stories about staff morale being really low at the FTC. I believe the Department of Justice antitrust rewrote rules for banking mergers. A lot of big antitrust pushes during the past four years. What is your summary of, what is your thoughts, what did it accomplish, and what do you think is going to happen going forward with the new Trump administration?

Albrecht: Yes, it’s a great question, and I think that that’s a fair summary. There’s a lot that happened. It was an exciting time to be in US antitrust because Lina Kahn explicitly at the beginning, but then later, Jonathan Cantor at the DOJ implicitly picked this up, is it’s a time to revitalize, it’s time to change things within antitrust. Everything’s broken, going back to the markups are rising, dynamism’s falling, everything bad’s happening.

Definitely we’re trying to push new things within this administration. They had the go-ahead from the executive order from Biden. Now, my takeaway—I’ve been a noted skeptic of the administration and the new things that they were going to do. I think that that has broadly been correct. The stuff that’s new hasn’t fared that well. The stuff that’s bread-and-butter antitrust but a little bit more aggressive than I would be has actually fared well.

Let me give you some examples. The first big case that Chair Kahn brought was challenging Facebook Meta’s acquisition of a VR company called Within. They challenged it under this idea that, okay, Within and Meta are not actually competitors. Within makes the software, Meta makes the hardware. In the future, they could be. They are potential competitors. It’s an idea that has some economic idea behind it, but it’s a little bit more speculative. That got thrown out, that got rejected by the courts. Early on, big case brought, a big loss.

They’ve made a big deal about challenging labor cases. The labor case that they did win, which was from the DOJ, was against Penguin Random House and Simon & Schuster. If you were to label that anything besides labor, it was very generic. What are market concentration measures? What would happen to prices? Things like that. In Kroger–Albertsons, they successfully blocked Kroger and Albertsons from merging. They were successful on the product market. Grocery stores, supermarkets are going to have reduced competition because of that merger.

They also tied that with some challenge about labor unions and the reduced competition for labor union workers. That was not completely thrown out, but basically thrown out. You have across a wide variety, bring normal challenges, high concentration, looks like prices are going to rise, the administration did well. Bring new theories of harm, new weird market definitions, the administration didn’t do so well.

The core thing that especially Lina Kahn brought in as a neo-Brandeisian was this idea that, okay, not everything shows up as prices. Economists are focused on prices, but there’s power, there are these other things that are wrong that we need to worry about. Every case that was brought forward was about, are prices going to rise for consumers? Are wages going to fall for workers, which are price for workers? None of this about power and that sort of thing.

The one known, public example of where this changes, the ban on noncompetes, which maybe is going to go through, probably not. It got challenged in court immediately. It’s not looking good, especially with this Supreme Court that it’s going to be upheld. 

There could be good reasons for it or not, but this is a very novel way of thinking about antitrust, that there’s some power dynamics here that are not just about free trade of labor and whatnot. It’s not looking very good. This stretching of antitrust to do new things, even if they’re good things, and putting aside that debate, hasn’t been well received well in the court. I think it’s a mixed record.

Anyone who says it’s all been unsuccessful, it’s been very successful on some fronts, but I’d say they were not the things that made Lina Kahn a unique figure in that role and they’re probably the things that any democratic administration, which is a little more pro-antitrust, a little harder on mergers, let’s say, for example, they would have done the same thing.

Beckworth: What about Trump going forward? How will his administration be different?

Albrecht: There’s a lot of speculation, especially before we knew who would be in these positions. We now know the incoming chair is going to be a current commissioner, Commissioner Ferguson. Gail Slater has been appointed to the DOJ, so we know who’s going to be in those roles right away. There was talk that Lina Kahn would maybe stay on because J. D. Vance has expressed approval of her. She’s been called a “Khanservative.” Now it’s less speculative. We have an idea.

My guess is there’s going to be still a lot against big tech. The Google search case that Google lost but was now going through what is going to be the remedy, that was started at the end of the Trump administration. Trump has made it known that he’s not a fan of certain tech companies, and so I think a lot of that will still stay there. My own impression is it has a little less salience than it did around 2020. It’s not quite as big of a deal, but I don’t expect them to all of a sudden now, “Okay, every big tech case, we’re going to let it go through.” That isn’t who was appointed to the FTC and the DOJ.

I think it’s going to be a lot of time undoing things that the previous administration did. For example, the FTC updated the filing requirements where it—called the Hart–Scott–Rodino Act filing requirements—made them much more stringent. Companies had to do a lot more if they were going to merge, big companies. Small companies can still get away with it. I’m thinking that will be unwound. Merger guidelines, which are a document that explain how the administration or how the agencies are going to think about mergers, was changed under Kanter and Kahn. I think that will be undone again.

I think it’s not a good thing that it keeps going back and forth. I think it’s one of the things that government can do to help businesses, is provide at least some rules of law, structure to the game and whatnot. If there’s issues in those, and I’ve argued that there are, that they’re too stringent basically, I think they’re going to be undone. It’s going to be a fun time. There’s going to be a lot for me to get upset about. There’s going to be a lot for me to cheer about. It’s going to be a fun administration to follow while maybe pulling out hair at some point. I’m excited for this new chapter.

Beckworth: Well, we’ll leave it at that for market structure issues and move on to tariffs. This is the line of work you’ve been doing as your role as chief economist for the International Center for Law & Economics.

Trump and Tariffs

As you and our listeners know, Brian, lots of talk about tariffs. In fact, today we are recording this, we found out that Trump’s big plans for imposing tariffs on everyone, a universal tariff plan, well, maybe not so. The Washington Post said—the title of the story is “Trump’s Aides Ready ‘Universal’ Tariff Plans—with One Key Change.” The key change is it’s going to be universal on every country but only on certain industries that are tied to, say, national security or some key industries they define.

Already they’re beginning to dial back some of the rhetoric. I think it’s understandable because we saw the impact that inflation had on the last election. I can just imagine they have to have some thoughts, “Well, man, we don’t want to be too reckless with this, because if prices shoot up across the board, there’s going to be some unhappy people and unhappy voters.” There’s going to be a midterm election. Maybe not. In my mind, at least they’re thinking that at least partly.

Now, what’s fascinating is you’ve written several pieces on this. I want to begin first with a Substack that you wrote. This was interesting because you go to town against Econ 101. Now, normally the people who try to beat up on Econ 101 are the progressive folks who want to reinvent economics. This happens almost every year. There’s some new person that comes out with a big article, what’s wrong with econ? Here you go, Brian. You have a Substack titled, “Econ 101 Is Wrong About Tariffs.” Are you losing your religion, Brian?

Albrecht: We need to update stuff. We need to learn from this stuff. Econ 101 is great, but there’s some complications. Yes, that was a fun one. I’m known and I write a newsletter with Josh Hendrickson that’s very pro-Econ 101. If you know the basics, you know 90-some percent of it. I think my credentials on that are well established. You’ve got to give a little meat to the readers, try to switch things up. Seriously, I think there is new work on trade that I focused on that I think challenges the basic way that you think about tariffs in Econ 101.

It doesn’t really overturn everything. It’s all the same picture. You just need to look at it a slightly different way. The basic Econ 101 story is you put a tariff on a foreign good that raises the price of the foreign good. The local producers of that good benefit because they’re able to charge a higher price, and then you get more jobs in whatever industry that you have put the tariff on. That’s the starting point. You can show where the deadweight loss is. You can show how consumers are hurt a bunch. Producers are helped a little.

On net, Econ 101, if you’re a pure welfarist, you’d say, okay, these tariffs have a deadweight loss. Actually, some of the work, this is tied to my interest in this industry-level data and digging more into the firm-level dynamics and whatnot, there’s a lot of great work digging into how production happens these days. It turns out about half of imports are actually inputs into other goods. You import the aluminum to put into the washing machine. You import the steel that goes into the car.

If you, let’s say, put a tariff on steel, yes, you’re helping local steel producers, but at the same time, you’re hurting all local car manufacturers that would use this steel. It’s not even clear that you’re helping producers or you’re helping create jobs in manufacturing. If you’re hurting a bunch of manufacturers, yes, you’re helping some. On net, it’s not clear. Really serious empirical work looking at Trump’s tariffs from his first administration show that, on net, there’s no benefit to manufacturing workers.

If anything, it actually harmed manufacturing in the sectors that are affected overall. It’s not this usual push between, oh, it’s about protecting jobs and consumers need to pay for it and sort of thing like that. It’s like some workers versus others. In the report today, who knows what actually is going to come out. That’s one of the fun things about dealing with tariffs. It’s all a Whose Line Is It Anyway? The rules are made up and the points don’t matter type of thing. Who knows?

Let’s suppose the reporting is accurate and the first thing that happens is a bunch of tariffs on, let’s say, copper. That’s going to affect any manufacturing company that uses copper. It will depend on the exact details, the magnitude. Yes, they say there’s no exemptions, but there’s always exemptions. There’s always rent-seeking. There’s another loss of it. Certain companies are excluded. Certain products are excluded. When it’s all said and done, maybe there’s a bunch of workarounds and it doesn’t matter, but I didn’t wake up super happy reading The Washington Post article, let’s say that.

Beckworth: What you’re saying is all these tariffs don’t actually drain the swamp. They fill it back up with more rent-seeking, more regulators to enforce it.

Albrecht: Yes. There’s something like 400,000 exclusions applied to tariffs across the world, so there’s always these exclusions. We know from empirical work that lobbying increases around tariff time, and those companies that lobby are more likely to get the exclusion that they ask for. The early article, the original article that defined rent-seeking, it didn’t use tariffs, but Anne Krueger’s article used these import quotas, and the idea is that everyone is fighting for their firm to get the benefit, and it’s all a bunch of rent-seeking.

None of that is in Econ 101. We can amend Econ 101. We don’t need to throw it all out. We need to think about, okay, who are the demanders? Who are the suppliers? Where exactly is this going to be applied to? It’s more complications, and the usual takeaway, I think, from the popular media that you mentioned at the beginning is like, okay, if we have complications, that means we’re going to overturn everything. Tariffs are going to go from good to bad, and actually, I think tariffs go from bad to worse.

Beckworth: Yes, so we don’t drain the swamp. We add to the swamp with these tariffs, and I think the bigger point you’re making is that people like Vice President J. D. Vance, they’re thinking implicitly in terms of a simple Econ 101 model, best-case scenario, right?

They’re thinking, “Okay, maybe we lose a little bit consumer surplus, but man, all those producers are better off. We have jobs in the Midwest again. Things are wonderful.” But there are all these other spillover effects that were not taken into consideration, as well as the reality of the structure of a global supply chain world.

Albrecht: I think that’s absolutely right. I think the best case, there’s a case to be made that it’s worth protecting certain jobs at the expense of consumers. You make that case, stand by that. We do that in all sorts of things, for national security grounds, or certain agriculture policymakers think there’s some value in that beyond pure welfare, pure maximizing output sort of goals. That’s fine. That’s one defense of these.

Another is like, I want to give handouts to my buddy. Another defense is that these things aren’t necessary for national security. All these run into complications, but I think one way to go about it, or one way to defend them, is it’s worth it to have good jobs, this is a way to get good jobs. I think the literature right now establishes it’s not a good way to get jobs.

Beckworth: Now, to be fair, you have also written that if Trump wants to do tariffs, there’s an optimal way to do them. You had an article in the FT. You do consider how should we do tariffs if we are going to do them. Your article was titled, “How Trump Should Impose Tariffs.” We’ve spoken on some of the issues you’ve raised in this, but walk us through that piece.

Albrecht: Yes. A lot of what I’ve said today blends together my thoughts of what policy should be and the pure economic analysis. One of my first articles was about how do we separate out our normative conclusions from our positive analysis. One way to do that that economists have found is just take the person’s goals as given. J. D. Vance, President Trump, they want to increase manufacturing jobs. I’m going to take that as given. You don’t care about maximizing output. You don’t care about welfare as measured by economists. Okay, I’m going to take that as given.

Will your means, your policies achieve those ends? I gave myself the exercises: Suppose you wanted to increase manufacturing jobs, what would be the best way to do that? The big takeaway, which we’ve already talked about, is try to tax final goods, not intermediate goods, right? Try to tax dryers, not aluminum, not steel, that sort of thing. Tax cars is the example I give versus taxing steel. Again, we’ll wait and see.

It seems like the policy is going to go the opposite direction, but at least there you can say, okay, we’re going to keep manufacturing of cars in the US. Since it’s not a tax on steel, it’s not going to hurt the US car manufacturers, and that’s a net good. We want cars. Clearly, policymakers have decided that car manufacturing is something that we want locally. There’s different reasons for that, but that’s there. 

Another idea is, okay, where could we get spillovers between firms? We could really benefit if we could set up a bunch of this tech manufacturing in South Carolina. Therefore, each firm is going to benefit each other, and we should try to protect that.

It’s not quite an infant industry argument, but it’s got a flavor to that of like, we really need to nudge things along and we can get something there. Versus very low-value-added items where you could easily swap it around countries, really doesn’t matter. I think it’d be better to target industries that we think you’re going to have a bunch of spillovers, positive spillovers, versus just low-value-added goods.

Beckworth: Well, we will follow the news and see if President Trump follows your advice on tariffs.

Albrecht: I’m not very optimistic there. We’ll see what happens. Hey, you got to go keep the good fight.

Beckworth: Okay. With that, our time is up. Our guest today has been Brian Albrecht. Brian, thank you for coming on the program.

Albrecht: Thank you so much. Been a pleasure.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetary policy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth, and follow the show @Macro_Musings.