During this holiday season I choose to comment on our country’s two overriding economic priorities – the restoration of our failing infrastructure (including a massive conversion to renewable energy wherever practicable) and a revival of classical antitrust law to stop and reverse the excessive concentration of economic power that is now held by monopolies and oligopolies in nearly all of our key markets.
The Need for Infrastructure Spending. For infrastructure spending, I will limit my comments to the following: Public austerity during a time of stagnation or slow economic activity is a recipe not for a cure, but for a general economic depression. The 1930s proved the point. The Europeans, having learned nothing from that chapter of history, have recently proved the point to us again. Public investment is in fact the only known antidote to a dearth of private investment, and it inevitably leads to private investment.
When households lack funds and owe too much debt, they do not purchase goods and services. Businesses, smarting from the loss of orders, start laying off employees, who therefore spend ever less on goods and services — which in turn leads to more businesses that must cut employees. And so on and so forth. To reverse the cycle, it is necessary to have massive public investment even if it entails deficit spending for a time. The spending, if wisely done, pays for public works that greatly improve our society over the long run. In the meantime these programs create good jobs for architects, engineers, planners, construction workers, and many others. These employees in turn spend their pay on goods and services, which businesses eagerly supply and can eventually provide only by hiring more employees, who, after being hired, increase their own spending. A self-reinforcing, virtuous cycle replaces the self-defeating downward spiral. After a sustained recovery is truly in place is the time for the government to cure its own finances. But then the government must rein in its spending and try to accumulate a surpluse during the boom times.
While our economy has improved significantly since the Great Recession of 2008, the pace of recovery has been very modest and underwhelming for most. We abandoned the modest stimulus measures of 2009 far too early. We can easily slip back into a morose time before the effects of a durable recovery have reached most households.
The best kind of public spending — and the kind that we urgently require — is spending to improve our core infrastructure, which is our basic platform for economic activity and for our national and regional communities. With interest rates still near historic lows, we should have enormous public/private ventures that fund the restoration and renovation of our dilapidated, impoverished infrastructure. We need to refurbish our bridges, roads, ports, airports, rails, water systems, electricity grids, and telecommunications systems. We need to build brand new ones based on smart technology. Because global warming is real, we should convert our electricity grid so that it is powered so far as possible by cleaner energy — solar, wind, nuclear, and natural gas.
The Need to Revive Antitrust Enforcement. My second policy prescription is equally important. We need a full-scale revival of our antitrust laws, which have been emasculated by a generation of misapplied economic analysis. These laws are needed more than ever to ensure that most of our markets remain open and competitive. The general trend has been the very reverse: Most of the key markets in our modern economy are dominated by cartels and monopolies. A market dominated by a cartel is one in which a small number of firms collectively make most sales, and there are strong barriers to entry as well as irresistible commercial incentives that prod the dominant incumbents to collude rather than compete on price, offerings, and service. A market dominated by a monopoly is one in which a single firm makes most sales because it enjoys insuperable advantages, and its position is protected by both barriers to new entry and barriers to expansion by existing competitors. Dominance by cartels and monopolies is usually if not inevitably pernicious: In each affected market, the general tendency is that the dominant firm or firms will abuse market power in order to underpay suppliers, overcharge customers, render inferior service to customers, retard or stultify progress and innovation, and exacerbate indefensible inequalities of opportunity and fortune. What’s not to like?
Broadly speaking, the antitrust laws were enacted to (1) prevent cartels from imposing restraints of trade on captive customers and (2) prevent monopolists from using anticompetitive practices in order to establish, preserve and enlarge monopoly positions. The principal evil to be avoided was the excessive concentration of power in our key markets because this circumstance invariably leads to captive customers, captive suppliers, and excluded competitors that otherwise would bid to purchase from the suppliers and bid to sell to the customers.
Over the years, unscrupulous plaintiffs sometimes brought undeserving cases under these laws. Far less frequently, government authorities acted overzealously and prevailed under standards that overly favored their claims. To protect against these abuses, the federal courts have gone much too far the other way: They have arguably departed from the original purpose and spirit of the antitrust laws and decided that no firm violates them so long as it does not exact supracompetitive prices or other obviously unfair terms from its customers, no matter how captive they might have become because of its practices. But the Sherman Act is not intended merely to ensure that firms charge only the price at which their marginal revenues meet their rising marginal costs. It is not a marginal-cost statute. It is a statute conceived to curb the abuses, corruption and harm to society that occur when monopolies and oligopolies dominate most of our key markets, as has happened again. Monopolies and oligolopolies can stultify entire segments of the national economy. Too often they have the wrong incentives and are rewarded for practices that are harmful to our broader prosperity. If you doubt the assertion, travel to a country whose economy is dominated by a handful of well-connected firms. Everything is eventually rigged in their favor. It all begins with their unchecked dominance of key markets.
The antitrust laws were therefore written to protect our economy and society from abusive practices imposed by monopolies and cartels. The modern emphasis on “anticompetitive harm” — developed by the courts to prevent windfall plaintiffs from bringing poor claims — is often misplaced and inapposite in many antitrust challenges. It is premised on highly abstract economic concepts that mostly make sense only when analyzing markets in which there exists “perfect competition” — which occurs rarely and only in markets for basic commodities, such as corn and wheat. The unfortunate result is that too many anticompetitive practices and proposed mergers have been given a free pass, when in fact they should have been easily condemned under the Sherman Act either as per se wrongs or after a so-called “quick look.” The cure of miserly, begrudging antitrust enforcement has been worse than the ailment of abusive antitrust litigation.
If we wish to have a market economy, we must have much more robust enforcement of our antitrust laws. Even the occasional excessive application of these laws is to be preferred to the current status quo – which allows a handful of companies or often only one company to dominate entire markets and subject captive customers to higher prices, inferior products, lesser service, and, worst of all, the purposeful stultification of innovation. If we are a society that champions and rewards merit, then we must protect competition.