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Democrats Take A Wrong Turn

By / 7.24.2017

Which one is not like the others?

Since 2000, American households have been hit by price increases which far exceed their ability to pay. Necessities like housing and food have skyrocketed in prices. Child care is 81% more expensive, passenger fares for foreign travel are up 63%, financial fees are higher by 41%. Even beer, perhaps a necessity for some, is up 40%.

In an era of low inflation, these price increases are worrisome, and have gone a long way to drag down real incomes. From this perspective, the proposal from Congressional Democrats to stiffen antitrust enforcement–part of the “Better Deal” plan they unveiled today–is a good idea. They identify sectors such as airlines, food, beer, and financial services as ripe for closer antitrust scrutiny. We agree.

But Democrats are unfortunately honing in on one target that makes no sense: The data-driven telecom and tech sector. Let’s start with telecom first, which is specifically mentioned in the Better Deal proposal. According to data from the Bureau of Economic Analysis, the price of personal telecom services—cable, landline and mobile phone, and Internet—has risen only 6% over the past 16 years. That’s far below the 33% average for all consumer goods and services.

Moreover, the share of personal spending going to personal telecom services is only 2.7%, no higher than it was in 2000. Despite the enormous surge in smartphones and Internet usage, the spending burden of personal telecom services has not risen, according to data from the BEA.

More broadly, the entire tech/telecom/content sector has produced much lower price increases and higher consumer welfare gains than the rest of the economy. In 2016, tech/telecom/content consumer goods and services absorbed 6% of consumer spending, no higher than it was in 2000.*

Moreover, tech and telecom companies have turned into big job producers across the whole country. By our analysis, the tech/telecom sector has produced over 800,000 net new jobs since 2007, including decent-paying ecommerce jobs for high school graduates in states such as Kentucky, Indiana, and Tennessee.

If Democrats are concerned by price increases that hurt consumers and workers, there are plenty of other places to look. For example, the price of parking fees and tolls has gone up 96% since 2000, according to the BEA. The price of spectator sports has gone up 83%, and funeral and burial services are 70% more expensive, driven in part by a surprising 104% increase in the wholesale price of burial caskets.

On a more prosaic level, the price of construction has doubled since 2000, propelled in part by large increases in prices of construction materials like asphalt. Are there local monopolies in these industries that drive up prices? It’s worth looking into.

If we want to use competition policy as a tool for growth, we should primarily focus on low-innovation sectors that have big price increases. These are the sectors that are draining consumer purchasing power and undercutting real income growth. Outside of healthcare, these are also the industries producing fewer jobs.

Conversely, we should place a lower competition policy priority on high innovation sectors and companies. That’s the only way to help all Americans.

*Calculations available on request.