Page 18 - July-August 2018 GSE Report Flip Book

MONETARY POLICY
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boost the economy during downturns by lowering interest rates and Congress’ passage tax credits to stimulate the economy. These interventions have limited impact if apps and patents are more critical to our modern economy than efforts by the Fed and Congress.
In the white paper, More Amazon Effects: Online Competition and Pricing Behaviors, Associate Professor Alberto Cavallo at Harvard Business School analyzes the use of algorithms in online retail, causing prices to constantly fluctuate. He found that Amazon has created its own ecosystem, containing algorithms that can react faster to “shocks,” such as spiking oil prices, natural disasters, changes in currency values or tariffs. “The implication is that retail prices are becoming less insulated from these common nationwide shocks,” wrote Cavallo. “...A few large retailers using algorithms could change the pricing behavior of the industry as a whole.”
In his Jackson Hole speech, Princeton University’s Alan Krueger discussed economic research on “monopsony”—in which there are too few buyers in a market—and in this context, too
few employers. Krueger argued this may be driving the lack of wage growth, despite low unemployment. “If employers collude to hold wages to a fixed, below-market rate, or if monopsony power increases over time, then wages could remain stubbornly resistant to upward pressure from increased labor demand in a booming economy,” said Krueger.
Collectively, the rise of intellectual property, dynamic pricing and weak labor bargaining power have links to monopoly and reflect a fundamental change in our economy. In the past, monetary policy tools, such as shifting interest rates or containing inflation, could be used to ensure higher wages and more broadly shared prosperity. Today, these channels are broken.
“This lack of control over the economy is incredibly dangerous,” New Republic’s David Dayen. “The Fed has tools to regulate and even break up the banking sector, though they are not using them. But the agencies that oversee business competition—the Justice Department’s antitrust division and the Federal Trade Commission—have the primary authority to guard against harmful market concentration. If the conclusions from Jackson Hole are correct, economic policymakers desperately need their help.” (New Republic, David Dayen, 08/28/18; Understanding Weak Capital Investment: the Role of Market Concentration and Intangibles, Nicolas Crouzet and Janice Eberly, 08/10/18)
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