Confidence and Competitive Markets

Episode Summary

Executive Summary: The episode opens with a mixed but cautiously upbeat read on the U.S. economy: strong retail sales, lower jobless claims, and still-high quits suggest consumer demand and labor-market momentum remain solid despite Delta, supply-chain issues, and inflation. The main segment debates antitrust and market concentration, with guest Joe Kennedy arguing that many fears about big tech and big pharma are overstated and should be judged by consumer harm, while Mark Sandy favors a broader lens that includes innovation, labor power, and data control. The show closes with a discussion of U.S.-China great-power competition and the durability of dollar dominance.

Main Topics: Recent economic data point to resilience (Priority: 5/5): The hosts review retail sales, consumer sentiment, inflation expectations, quits, copper prices, and unemployment claims, concluding the economy is improving faster than expected after Delta-driven softness. Consumer spending remains strong despite headwinds (Priority: 5/5): Retail sales surprised to the upside, with households still buying goods while services also recover; the hosts note supply-chain volatility and price pressures may distort near-term data but do not yet appear to be derailing demand. Inflation and expectations are under scrutiny (Priority: 4/5): Discussion centers on whether inflation is becoming entrenched. The panel weighs core CPI moderation, consumer inflation expectations, and the risk that energy prices and shortages keep inflation elevated in the near term. Antitrust and market concentration debate (Priority: 5/5): Guest Joe Kennedy argues concentration is often overstated, markets must be defined narrowly, and existing antitrust tools are sufficient; Mark Sandy pushes for a broader framework that considers innovation, labor outcomes, and data power. Tech, pharma, and the role of scale (Priority: 4/5): The conversation examines whether large firms in tech and pharma stifle competition or instead fund innovation, absorb risk, and enable commercialization through scale and infrastructure. Great-power competition and dollar dominance (Priority: 4/5): Kennedy describes MITRE’s work on supply chains, the digital silk road, AI/quantum leadership, and the resilience of the dollar as a reserve currency in the face of geopolitical rivalry.

Key Arguments: Retail sales strength implies consumers remain willing to spend even as Delta fades, inflation rises, and supply chains remain strained. Used vehicles and auto parts offset weakness in new vehicle supply, showing consumer demand is constrained more by availability than by lack of desire. The University of Michigan confidence weakness is linked more to the debt ceiling and Delta than to underlying labor-market weakness, suggesting a rebound ahead. Inflation expectations matter more in the medium term than in the short term; current high readings are not yet evidence of a sustained wage-price spiral. Claims of rising concentration often rely on overly broad market definitions; at more specific market levels, concentration is often lower and competition remains robust. Big tech and pharma can be pro-competitive by funding large-scale R&D and serving as commercialization platforms for startups and venture-backed firms. Antitrust should focus on consumer harm and specific anti-competitive practices, not on size alone or broader concerns like privacy and politics, which may require separate regulation. Labor-market concerns such as monopsony are better explained in part by housing constraints and specific enforcement cases than by a need to rewrite antitrust law. The U.S. dollar’s reserve status is likely durable as long as the U.S. maintains moderate economic performance and avoids runaway inflation. Geopolitical risks are centered on China, Russia, and strategic technologies such as AI, quantum computing, MRNA supply chains, and digital infrastructure. The current economic backdrop supports optimism for stronger Q4 growth and a good start to 2022, barring a new virus variant or renewed energy shocks.

Data Points: Retail sales: 0.7% - Monthly increase highlighted by Chris Dorides; stronger than Moody’s forecast of -0.3% and seen as a sign of resilient consumer demand. Moody’s retail sales forecast: -0.3% - Ryan Sweet’s forecast for the retail sales report, which proved too pessimistic. Retail sales excluding autos: 0.8% - Shown as strong even after removing auto sales, reinforcing the breadth of consumer spending. Motor vehicle and parts spending: 0.5% - Nominal spending rose despite weak unit sales, reflecting parts and used-vehicle activity. University of Michigan consumer sentiment: 67.2 - Ryan’s quoted index value; the hosts linked weakness to Delta and the debt-ceiling fight. University of Michigan consensus forecast: 71.4 - Ryan noted Moody’s forecast was well below consensus due to debt-ceiling concerns. Three-year inflation expectations: 4.2% - Joe Kennedy’s statistic from the New York Fed consumer survey. One-year inflation expectations: 5.0% - Referenced as the nearer-term New York Fed consumer expectation measure. Quits: 4.3 million - Record-high number of workers quitting jobs in August, signaling a tight labor market and strong worker bargaining power. UI initial claims: 293,000 - New unemployment insurance claims fell below the 300,000 threshold, viewed as a positive sign for labor-market recovery. Cautionary claims threshold: 250 or lower - Chris suggested this as a level more consistent with a well-functioning economy. Copper price: $4.75 per pound - Mark cited copper’s rise as a signal of global economic momentum and supply-chain tightness. Top five tech firms R&D: $127.5 billion - Joe’s second statistic, used to argue large tech firms are major investors in innovation. Top five pharma firms R&D: About half of tech’s figure - Joe said top five tech firms spend roughly twice as much on R&D as top five pharma firms. Drug development cost: Over $2 billion on average - Used to explain why pharma requires scale and why acquisitions can be rational. Housing-adjusted labor share decline: Basically goes away - Joe cited work suggesting wage-share concerns are overstated once housing costs are accounted for. Implied share of labor force quitting: Almost 3% - Mark estimated quits were near 3% of the labor force, emphasizing how unusual the figure is.

Pivotal Quotes: "I feel a lot better about the economy today and its prospects than I did just literally a week ago." — Mark Sandy: Opening assessment of the macro backdrop after recent economic releases. "I don't think the evidence bears that out, really." — Joe Kennedy: His response to the claim that markets are becoming more concentrated. "The key test is what you're studying, does that hurt the consumer?" — Joe Kennedy: His defense of the consumer welfare standard in antitrust.

Implications: Listeners should expect continued economic resilience if Delta fades and labor markets stay tight, but near-term inflation and supply-chain volatility remain risks. In policy terms, the debate over antitrust will likely stay divided between broad structural concerns and narrower consumer-harm enforcement.