It’s been fascinating to watch the repeated criticisms of the various economic disasters of late. The plunge in the stock market, the shortage of baby formula, and the ever-increasing rise of gas prices. None of these things had to happen, and in fact, most reputable economists had warned us that the foundations of these respective problems were laid long before Biden came into office.
Take the baby formula crisis. The current GOP line blames Biden for the problem -without noting three particular preconditions that set us up for this problem, based on policy prescriptions put into place while Trump was still President.
1) “Formula is being diverted to feed babies at the border.”
Yes, it is. Because the law and simple common decency require it. A court settlement mandates the use of baby formula at the border even Trump abided by, and there just aren’t enough babies at the border for their formula to make a dent in the shortfall. This article in the New York Times explains the details.
2) The role of corporate misconduct is not being reported.
All of the administration’s criticism ignores the fact that Biden did not force Abbott Laboratories to take shortcuts that led to bacteria, killing two infants. The FDA did its job and recalled several brands of formula, and parents were advised not to buy or use some formula tied to the plant.
It also does not help that there are only four producers of formula in the United States. As in other industries, mergers and consolidations have turned what once was a free market into a near-monopoly. As a result, three companies—Abbott, Mead, and Nestle—account for the vast majority of formula sold in the U.S., and Abbott alone has more than 40% of the market—and 98% of the formula sold in the U.S. is made in the U.S. In other words, there is essentially no foreign competition.
Abbott liked that arrangement just fine, and with the profits it was making faced a choice of investing in updated production facilities or buying back its own stock. You can guess which one they chose to the tune of 5.8 billion dollars.
This leads to reason number 3), America’s trade policies suck.
American trade policies and tariff decisions are the most important part of the story. FDA regulations on formula are strict; some would say too strict, but when folks say that, they ignore some pretty ugly scandals that happened in the 50s and 60s with tragic results. Furthermore, U.S. policy also restricts the importation of formula that does meet FDA requirements. At high volumes, the tax on formula imports can exceed 17 percent. And under Trump, the U.S. entered into a new North American trade agreement that actively discourages formula imports from our largest trading partner, Canada.
Want to take a guess who lobbied for many of these trade restrictions? That’s right, the formula companies themselves. Abbott spent more than $4.3 million on lobbying in 2021 and close to $1 million during the first three months of 2022, though lobbying disclosures make it difficult to determine how much of those expenditures went toward lobbying on issues affecting baby formula specifically. The previous four years prior were pretty much the same. Nestle and Mead also had some pretty robust lobbying efforts.
The net result is that very little formula gets imported from abroad, although this may be changing now. It reinforces the lesson that many Trump critics have tried to drive home since 2017: Protectionism does not make the American economy stronger or more resilient. Instead, it makes the U.S. vulnerable to disruption.
The same is true for the gas crisis, but we will save that explanation for another time.
Unregulated capitalism literally kills people- children included.
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