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Working Paper
Monopolies: Silent Spreaders of Poverty and Economic Inequality
The Covid-19 crisis has exposed the vast inequalities that exist within the US economy. As the virus has spread silently, it has laid bare other crises that face our nation---especially the economic vulnerabilities of the country's poor and marginalized. Many of these vulnerabilities can, in fact, be traced back to a single cause that itself has spread silently, but over the last several decades, not months: Monopolies. That monopolies are "silent spreaders of poverty and economic inequality" was well known to economic and legal scholars of the 1930s and 1940s. Wendell Berge, who was ...
Report
Cartels Destroy Productivity: Evidence from the New Deal Sugar Manufacturing Cartel, 1934-74
The idea that cartels might reduce industry productivity by misallocating production from high to low productivity producers is as old as Adam. However, the study of the economic consequences of cartels has almost exclusively focused on the losses from higher prices (i.e., Harberger triangles). Yet, as the old idea suggests, we show that the rules for quotas and side payments in the New Deal sugar cartel led to significant misallocation of production. The resulting productivity declines essentially destroyed the entire cartel profit. The magnitude of the deadweight losses (relative to value ...
Working Paper
Assessing the Impact of Central Bank Digital Currency on Private Banks
I investigate how a central bank digital currency (CBDC) can be expected to impact a monopolistic banking sector. My framework of analysis combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of a monopoly bank. I find that the introduction of a CBDC has no detrimental effect on bank lending activity and may, in some circumstances, even serve to promote it. Competitive pressure leads to a higher monopoly deposit rate which reduces profit but expands deposit funding through greater financial inclusion and desired saving. An appeal to available ...
Working Paper
Solving the Housing Crisis will Require Fighting Monopolies in Construction
U.S. government concerns about great disparities in housing conditions are at least 100 years old. For the first 50 years of this period, U.S. housing crises were widely considered to stem from the failure of the construction industry to adopt new technology -- in particular, factory production methods. The introduction of these methods in many industries had already greatly narrowed the quality of goods consumed by low- and high-income Americans. It was widely known why the industry failed to adopt these methods: Monopolies in traditional construction blocked and sabotaged them. Very little ...
Working Paper
Assessing the Impact of Central Bank Digital Currency on Private Banks
I investigate the theoretical impact of central bank digital currency (CBDC) on a monopolistic banking sector. The framework combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of banking. There are two main results. First, the introduction of interest-bearing CBDC increases financial inclusion, diminishing the demand for physical cash. Second, while interest-bearing CBDC reduces monopoly profit, it need not disintermediate banks in any way. CBDC may, in fact, lead to an expansion of bank deposits if CBDC competition compels banks to raise their ...
Working Paper
Because of Monopolies, Income Inequality Significantly Understates Economic Inequality
In social science research, household income is widely used as a stand-in for, or approximation to, the economic well-being of households. In a parallel way, income-inequality has been employed as a stand-in for inequality of economic well-being, or for brevity, "economic-inequality." But there is a force in market economies, ones with extensive amounts of monopoly, like the United States, which leads income-inequality to understate economic-inequality. This force has not been recognized before and derives from how monopolies behave. Monopolies, of course, raise prices. This reduces the ...
Report
Monopolies Inflict Great Harm on Low- and Middle-Income Americans
Today, monopolies inflict great harm on low- and middle-income Americans. One particularly pernicious way they harm them is by sabotaging low-cost products that are substitutes for the monopoly products. I'll argue that the U.S. housing crisis, legal crisis, and oral health crisis facing the low- and middle-income Americans are, in large part, the result of monopolies destroying low-cost alternatives in these industries that the poor would purchase. These results would not surprise those studying monopolies in the first half of the 20th century. During this period extensive evidence was ...