Thread by @matthewstoller

Here’s a useful @JosephPolitano piece attacking my argument on inflation and concentration. (Ht @GeorgeSelgin) apricitas.substack.com/p/are-rising-c…

I think my response to @JosephPolitano is that his analysis is divorced from the underlying reality of commerce. Like most macro-economists, he assumes that individual markets are generally competitive, and that concentration is not the norm.

Take this argument on how meatpacking monopolists don't really matter because meat is a small portion of the CPI. This only makes sense if you assume that meatpacking is an outlier. But is it? No.

75% of U.S. industries have gotten more concentrated over the last 25 years, with higher profit margins, larger firm size, and fewer new entrants. This is probably a *secular* shift in our markets. It's not just meat. econpapers.repec.org/article/ouprev…

This lack of curiosity about the economy shows in his solutions. He argues, for instance, that the Department of Commerce should not increase tariffs on Canadian lumber. They aren't tariffs, they are duties, and they are set by anti-dumping law. They aren't discretionary.

He also does a rhetorical dance, where he implies solutions that attack individual markets by taking on corporate power won't work to reduce inflation, but then suggests a number of his own solutions that facilitate corporate power in individual markets will work.

He argues for repealing the Jones Act, which would let foreign ships traffic from U.S. port to U.S. port. This might help Hawaii, Puerto Rico, and Alaska a bit, but almost no one else. The jam-up at the Port of LA/Long Beach has zero to do with domestic maritime trade.

A far better solution on the table is the Ocean Shipping Reform Act to re-regulate shipping. But of course that, plus other eminently reasonable choices like re-regulating railroads, is not noticed by macro-economists.

He also argues that Biden keeping the Port of LA/Long Beach open 24/7 should be seen as a success for Biden. Once again, that's just not reality. As @mercoglianos has pointed out, the ports aren't really open 24/7.

The point here isn't that @JosephPolitano is wrong about the cause of inflation. It's just that there's a massive gap between the macro guys' analytical framework and the reality of the economy they discuss with such confidence.

I am not an economist. And because of that, in February of 2020, I predicted shortages in the economy as a result of the coming pandemic, because I knew that the just-in-time system economists adored was dangerously thin. wired.com/story/covid-19…

Macro-economists have work to do in terms of building out models that make sense. They missed the Covid shortage problem, the financial crisis, and the China shock. The models they use to measure the macro-economy - because they avoid talking power - just don't reflect reality.