Economists struggling to make sense of economic polarization are, increasingly, talking not about technology but about power. This may sound like straying off the reservation—aren’t economists supposed to focus only on the invisible hand of the market?—but there is actually a long tradition of economic concern about “market power,” aka the effect of monopoly. True, such concerns were deemphasized for several generations, but they’re making a comeback—and one way to read Robert Reich’s new book is in part as a popularization of the new view, just as The Work of Nations was in part a popularization of SBTC. There’s more to Reich’s thesis, as I’ll explain shortly. But let’s start with the material that economists will find easiest to agree with.
Market power has a precise definition: it’s what happens whenever individual economic actors are able to affect the prices they receive or pay, as opposed to facing prices determined anonymously by the invisible hand. Monopolists get to set the price of their product; monopsonists—sole purchasers in a market—get to set the price of things they buy. Oligopoly, where there are a few sellers, is more complicated than monopoly, but also involves substantial market power. And here’s the thing: it’s obvious to the naked eye that our economy consists much more of monopolies and oligopolists than it does of the atomistic, price-taking competitors economists often envision.
...In any case, the causes and consequences of union decline, like the causes and consequences of rising monopoly power, are a very good illustration of the role of politics in increasing inequality.
But why has politics gone in this direction? Like a number of other commentators, Reich argues that there’s a feedback loop between political and market power. Rising wealth at the top buys growing political influence, via campaign contributions, lobbying, and the rewards of the revolving door. Political influence in turn is used to rewrite the rules of the game—antitrust laws, deregulation, changes in contract law, union-busting—in a way that reinforces income concentration. The result is a sort of spiral, a vicious circle of oligarchy...
