It's the Monopoly, Stupid: Unchecked corporate power is fueling inflation.

• Author: Longman, Phillip

On the evening of October 24, 1978, President Jimmy Carter sat up straight behind the Resolute desk in the Oval Office, interlocked his hands, and began reading from the prepared remarks laid out in front of him. "I want to have a frank talk with you tonight about our most serious domestic problem," Carter told the camera. "That problem is inflation."

Since the summer, the cost of living had been increasing at a rate not seen since the Ford administration. Worse, the new burst of inflation was accompanied by stubbornly high unemployment, creating a return of dreaded "stagflation." According to one of his key advisers, Stuart Eizenstat, Carter worried that if they didn't come up with something new and substantive to say that night, "we'll be laughed at."

The largest single cause of accelerating inflation during Carter's term was monopolistic control over the flow of oil, but the president saw no palatable options for breaking up the OPEC cartel anytime soon. Nor, thanks to political opposition from both Big Business and Big Labor, could he put in the kind of mandatory wage and price controls Richard Nixon had once ordered up.

Also off the table was giving in to Republican demands for dramatic cuts in government spending and higher interest rates. Carter was not yet desperate enough to sign on to that agenda because it risked a wholesale revolt from Democrats to his left like U.S. Senator Ted Kennedy and would quite likely induce a recession.

So Carter played another card: Blame inflation on government bureaucrats.

Carter told the nation that his administration was "cutting away the regulatory thicket that has grown up around us and giving our competitive free enterprise system a chance to grow up in its place." As evidence, he pointed to a bill he had just signed that stripped the Civil Aeronautics Board of its power to regulate airline fares and routes. "For the first time in decades, we have actually deregulated a major industry," Carter bragged. "Of all our weapons against inflation, competition is the most powerful," he explained. "Without real competition, prices and wages go up, even when demand is going down."

Carter tapped a high-energy Cornell economist turned policy entrepreneur named Alfred Kahn to oversee the dismantling of the CAB, and was so pleased with the result that he elevated Kahn to the new position of "inflation czar." Later, Carter would double down on the idea that the most powerful tool for fighting inflation was depriving the government of its ability to regulate prices, signing bills that deregulated railroads and trucks, and passing the Depository Institutions Deregulation and Monetary Control Act, which set in motion deregulation of the financial sector. The overarching theory was that if the government would just get out of the way, market competition would lead to greater efficiency and therefore to lower prices for consumers.

Most Republicans applauded these moves, for obvious reasons, but Carter also got support from important Democrats. Ted Kennedy was a key supporter of the airline deregulation bill Carter signed that day. Influenced heavily by Kahn and by Ralph Nader's Center for Study of Responsive Law, many had come to believe that federal regulatory agencies like the Interstate Commerce Commission and the CAB had been captured by the industries they were supposed to regulate. Stephen Breyer, the future U.S. Supreme Court justice, successfully teamed up with another Kennedy staffer, Phil Bakes, in helping the senator to become a champion of the new liberal cause of getting better deals for consumers through deregulation. The "New Deal faith in the science of the regulatory art," Kennedy said at one point, was "a delusion."

Today, we are paying a big price for that false lesson. Democrats and Republicans cooperated over the next four decades in dismantling much of the regulatory apparatus and antitrust enforcement that since the New Deal (and even before) had governed America's financial, transportation, and telecommunication markets, foreign trade, and corporate mergers. As they did so, the underlying assumption was always that less government intervention in markets meant more competition, and that more competition would in turn bless the world's consumers with more and cheaper stuff. But over the long term, the primary effect of this radical change in the country's political economy was to foster an enormous growth in corporate power that set us up for today's inflation.

As merger frenzies concentrated markets in sector after sector, corporate giants used their increasing power at first mostly to suppress wages. Over time, they also maximized profits through downsizing plants and equipment, shrinking workforces and inventories, and relying on brittle, sole-source supply chains to reach outsourced production facilities in low-cost, mostly Asian countries. As a result, when shocks like the coronavirus pandemic and the war in Ukraine came along, the industrial system had no spare capacity and became riddled with choke points, setting off a prolonged frenzy of price gouging that doesn't self-correct.

Call it "choke-flation." With perverse irony, it now threatens Joe Biden with the same political fate as Jimmy Carter, only this time the stakes are much higher, given the authoritarian drift of the Republican Party since Ronald Reagan's time. To avoid that fate, we must counter the false narratives peddled not only by Fox News but also by out-of-touch establishment economists who would have Americans believe that too much liberal government is to blame for inflation, and not the predations of unregulated monopolies.

Just as Carter and Kennedy had hoped, a first-order effect of deregulating airlines was to spawn a round of price cutting. Scores of discount start-up airlines surged into the market (remember People Express, ValuJet, and Air Florida?), and incumbent carriers responded by...