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To Regulate, or Not to Regulate?

One vocal U.S. political tribe argues vociferously that capitalism is the source of all economic problems. Another tends to ignore that the current economy is not working for all Americans. French economist Thomas Philippon’s work should interest those who aren’t satisfied with either the complaints of the left or the indifference of the right.

Philippon argues that diminished competition has depressed American growth and wages. First exposed to the U.S. economy in the late 1990s while studying for a doctorate at the Massachusetts Institute of Technology, Philippon argues many U.S. sectors have been marked by a competitive decline over the last two decades because large companies have used lobbying and political contributions to increase the regulatory barriers potential new entrants face.

As U.S. markets have become more dominated by oligopolies, consumers face higher prices. This has also depressed labor prices through the effect of monopsony —the condition of there being only one or few employers in an industry—allowing employers to keep wages lower than they would if there were more competition. In the final analysis, it does not matter whether firms raise prices or employers push down wages, either way consumer purchasing power declines. He writes:

[S]ince 2000, US industries have become more concentrated. Leaders’ market shares have become more persistent and...

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