The Kansas City Federal Reserve, one of the dozen reserve banks in the U.S., gathered on Friday in Jackson Hole, Wyoming, to discuss a signature puzzle of our times: How can the economy hum along, with unemployment falling for years, without wage growth? How have the gains from the economy been segregated from most Americans who do the work, instead flowing into the hands of a small group at the top? And what can the Fed, or anyone, do to reverse this?
All of these events—the rise of intellectual property, dynamic pricing, and weakened labor bargaining power—have links to monopoly. These researchers are saying, collectively, that the economy has fundamentally changed as a result. The normal tools used to manage economic growth, like shifting interest rates or containing inflation, used to be enough to ensure that the market would bring higher wages and broadly shared prosperity. But those channels have been broken, and may stay broken until dominant firms are cut down in size and power.
This lack of control over the economy is incredibly dangerous. 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.