#89 Antitrust and the Fallen Nature

the christian economist dave arnott

#89 Antitrust and the Fallen Nature

Monopolists are fallen, so there must be governmental control.  Antitrust activity should be controlled by the behavior of firms, because that exercises less power than controlling the potential for monopoly.

A couple times each semester, I tell my students, “You might want to turn on your recording device because of what your very conservative professor is about to say, “The Government should do more.”  What they should do more of is: Maintain competition. 

In a fallen world, it is competition that forces suppliers to meet consumer needs before they meet their own.  You see, everyone is fallen.  And if you make that assumption, you want to design a system whereby fallen people serve one another.  How’s that accomplished?  Competition.  I provide extensive details in podcast #7 Competition and the Fallen Nature and #33 Ending Discrimination.

Oh, another reason to turn on your recording device: I’m about to agree with the Biden administration.  At least in theory, maybe not in practice.

This is where Karl Marx was headed.  He understood the fallen nature of company owners, so he demanded that workers own the means of production.  Problem is, he denied the fallen nature of the workers.  Lord Acton said it correctly, “Power corrupts, and absolute power corrupts absolutely.”  So the leaders of the workers – you’re welcome to think about Vladimir Lenin and Josef Stalin – exercised their power in a fallen manner.

Christian Economists understand that everyone is fallen, so we don’t want anyone to have too much power.

Digital Marxism

In his very good book, Free Agent Nation, Daniel Pink explains the term he coined, “Digital Marxism.”  Karl Marx said that the workers must own the means of production.  Daniel Pink explains that in the current environment, they do.  When Karl Marx wrote Das Kapital in 1867, he was mostly correct.  The owners of the means of production had power over the suppliers of labor.  But that’s because the means of production was land, a factory, or a mine.  Oh, I can’t pass the opportunity to point out that the book in which Karl Marx called for the end of private property has been copyrighted.  Ok, back to my story.  I ask students to picture either of their parents at work.  They are probably typing information into a computer, or talking on a cellphone.  The means of production in today’s information age are a computer that costs a few hundred dollars and a cellphone that costs a few hundred.  And, if you can’t afford a computer, you can use one free in the local library.  And, if you’re in poverty the government will give you an Obama phone.  And how do you learn how to operate these instruments?  You’ve taught for free in school!

Angus Deaton was correct in the first line of his book The Great Escape, life is better now than almost any time in history.  

Government Should do More

Christians care about the means.  Economists care about the ends.  We often call these inputs and outputs in the language of economics. 

An oligopoly is where just a few competitors control an industry.  Many US industries are controlled by what’s sometimes called “The rule of three.”  There are three major competitors in many US industries.  As a Christian we are concerned when an industry falls into an oligopoly, because we are concerned that the leaders of those firms will raise prices and decrease quality.

Here’s a line from this week’s Wall Street Journal, President Biden signed a broad executive order that aims to promote competitive markets across the U.S. economy and limit corporate dominance that the White House says puts consumers, workers and smaller companies at a disadvantage.

The most important economic role for government is maintaining competition.  When there is fair competition, consumers are well served.  When there is decreased, or unfair competition, the firms who supply the market benefit, while the consumers who demand the products are taken advantage of. 

The Wall Street Journal article goes on to explain that Mr. Biden’s effort isn’t a hard mandate but instead a road map that encourages U.S. agencies to adopt policies that push back against corporate consolidation and business practices that might stifle competition and lead to higher prices and fewer product choices.

Here’s how President Biden expressed it, “Capitalism without competition isn’t capitalism. It’s exploitation.” 

Actually, I’m quite pleased to hear President Biden endorse capitalism, because my podcast #56 is titled Thankful for Capitalism.  The left end of President Biden’s party contains self-avowed Socialists.  He could have said, “Capitalism without competition is socialism,” and he would have been right.  You see, people on the left end of his party want only one supplier of goods and services.  So I’m pleased to see that President Biden has spoken out for capitalism and competition. 

Hoorah for the Biden administration.  This is exactly what a Christian Economist would favor.  President Biden has correctly analyzed the disease.  But what about the cure?  President Biden’s Executive order creates a new competition council to “pressure agencies to open up closed markets while discouraging agencies from entrenching the industries that they regulate.”  So here’s the problem: The folks serving on the competition council are fallen also.  They have been ordered to use pressure.  Will they use it well?  They have no competitors to keep them in line.  

Means or Ends

Louis Brandeis was a supreme courts justice, who in 1914, wrote about the means of monopoly.  He said that firms should be broken up when they had the ability to lower consumer welfare.

Then, in 1978, Robert Bork, wrote in his book The Antitrust Paradox “The only legitimate goal of American antitrust law is the maximization of consumer welfare.” His point was that big, efficient companies benefit consumers.

OK, now we are on the horns of this dilemma about means and ends.  Should the government break up a company because they have the means – which Brandies stated – or should we be more concerned about the ends, as Bork wrote about?

If you remember the history of the Robber Barons at the early part of the 20th century, your history book or principles of management professor probably warned you that Rockefeller in Oil, Carnegie in steel, and Vanderbilt in Railroads owned monopolies that needed to be broken up.  You were probably only taught the means.  The ends are quite different.  While Rockefeller owned the monopoly on kerosene on the east coast, the price went from 23 cents a gallon to 14 cents.  Carnegie used the efficiencies he gained through economy of scale to set historic low prices for steel, setting off an industrial growth spurt in the US.

The means or the ends.  Here’s a personal story.  I worked for the Association of Tennis Professionals from 1976 to 1981 and was the scheduling manager for the men pros during most of that time.  The sport grew very quickly during the 1970’s and the infrastructure hadn’t kept up.  That meant that a Washington DC based legal firm called Dell, Craighill, Fentress & Benton had their fingers in just about every slice of the pie.  They were agents for players, and owned some of the tournaments those players played in.  They obtained sponsors and negotiated TV deals for tournaments.  Donald Dell even did TV broadcast announcing for some of them.  And, they garnered sponsorships for the Association of Tennis Professionals, the organization I worked for.  During a meeting of players at the Sheraton hotel in Palm Springs, in February of 1980, I sat in the back row of a player’s meeting next to a player I knew pretty well, because he had served two terms as president of our association.  Players took turns at the microphone, denouncing the monopoly that Dell, Craighill, Fentress & Benton owned in pro tennis and demanded that the ATP break their relationship with the firm.  They had obtained the sponsorships that paid my salary and made the ATP viable.  I sat in horror, as I watched what seemed to be the demise of the ATP.  I whispered to the player next to me, “How can they be so ill-informed?!”  He didn’t answer for a long time.  He was surveying the situation, trying to decide if he would use his immense influence with his fellow players.  I could see that he had decided to stay out of this fight.  He turned to me and whispered, “You can change what people think.  You can’t change what they believe.”  The player’s name was Arthur Ashe. 

I left the ATP later that year on very good terms, partly because of that event, and there were other reasons that I might explain in a subsequent podcast.  In the office I occupied at my next job I hung a sign that read, “You can change what people think, you can’t change what they believe.”

Let me take a side-trip from our topic today to unpack that for just a minute.  Arthur was correct, not only about the situation at hand, but about our Christian worldview.  We don’t change what people believe.  The Holy Spirit does.  He puts us in situations where we can influence others, but we are not responsible for the salvation of others.  God is.  We are responsible to do what we’re led to do.  We are God’s viceroys in this sense.  

Back to our subject of antitrust.  Dell, Craighill, Fentress & Benton were guilty of the means of monopoly, there was no proof they ever exercised their monopoly power to achieve an end that they desired.  This is exactly where the Biden administration is today, and it takes us back to the horns of the dilemma from Brandeis in 1914 and Bork in 1978.  Should antitrust be executed based on the means or the ends?

Big can be Efficient

I’ve already commented extensively on the near monopoly in social media in podcast #84 Big Tech as big Brother.  The Biden administration points out that there are only seven Class I freight railroads compared to 33 four decades ago. Yet freight prices have dropped 44% since 1981.  The distribution of broadband internet is highly consolidated, yet last year internet services cost 20.2% less and were 15.7% faster than in 2015.  Prescription drug prices have fallen 2% since 2018 as the Food and Drug Administration has approved more generics and second-line therapies. Competition does sometimes work to increase consumer surplus.  But there is fear that the Biden administration will install heavy-handed price controls, which only limit supply and hurt the poor.  I don’t have time to develop that concept today, but you’re welcome to look at the current-day example of Venezuela, where price controls depleted the supply of food and medicine, and caused over 20% of the population to flee the country. 

While the T-Mobile-Sprint merger in 2018 has clearly increased consolidation in the industry, there is some evidence that it has increased consumer welfare. Economies of scale can reduce prices. Size also gives businesses more leverage to negotiate lower prices with suppliers.  But it also gives them the power to lobby their congressional representatives, and to have a hand in writing the very laws that govern their industry. There’s a reason that the four riches counties in the United States are suburbs of Washington, DC.  It’s because lobbying is a good investment.  The purpose of those lobbyists is almost exclusively to increase producer surplus, not consumer surplus. 

Love your neighbor

In podcast #18, titled Love Your Neighbor, I describe in more detail one of my favorite exercises in the classroom at Dallas Baptist University is when I teach consumer and producer surplus.  Everyone understands producer surplus.  WalMart purchases items at low prices and sells them at higher prices.  That’s producer surplus and you don’t need to be in my economics class to understand that.   But consumer surplus is interesting.  I ask a student to pull out a one dollar bill and approach the student with a box of tissues.  Acting as Walmart, I ask the student: “Do you want the dollar or the tissues?”  The student says “the tissues,” so I make the exchange, then turn to her fellow students and ask, “Who got richer?”  Some students say WalMart got richer because they gained the dollar.  But economics is about the production and distribution of goods in a scarce environment.  The consumer willingly exchanged one good – the dollar – for another – the tissues.  In a competitive environment, both parties get richer.  That’s what economists say.  Folks who confuse economics with finance say WalMart got richer while the consumer got poorer, because WalMart gained the dollar.  But the consumer gained the tissues.

Here’s one of my favorite diagrams.  It shows that if you love your neighbor, you will produce consumer surplus.  If you love yourself, there will be producer surplus.  Matthew 22: 39 ‘You shall love your neighbor as yourself.’ 

And, it’s one of the ten Biblical Commandments of Economics in a book I wrote recently with Sergiy Saydometov.

The question that’s being analyzed by the Biden administration is whether to use the means measure, or the ends measure.  Using the means, assumes that leaders of a firm would never overcome their fallen nature and serve others.  Using the ends measure assumes that sometimes firms would use their economy of scale and efficiency of operations to serve others. 

Christian Economists tend to favor the ends measure, because we assume that not only are the leaders of the firms fallen, but the regulators who demand the break-up of companies are also fallen.  Using an ends measure gives less power to the fallen regulators, and makes less use of the power they have. 


Books Referred Within This Episode:

Free Agent Nation https://amzn.to/3lArFsL

The Great Escape: Health, Wealth, and the Origins of Inequality https://amzn.to/3q0mmmE

The Antitrust Paradox https://amzn.to/3il1Db4


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