No, Markets Aren't Self-Correcting — Corporate Consolidation Part III
From time-to-time, the newsletter does an unintentional or unplanned series. We are in one such triplet (see: here and here) about corporate consolidation, worsening consumer experiences, and economic sentiment.
I dig reading about this topic and reading the thoughts and angles you all send along. One reason I enjoy the newsletter is that I believe learning is best when it’s collaborative. Maybe it’s the Montessori kid in me. Maybe it’s the time I spent circled up in seminar discussions at Evergreen. But I genuinely appreciate a cogenerative dialogue and the learning it produces. You, as readers, have acres of interesting life experiences and stories. In your replies to the last two newsletters, you have provided me with a lot of fodder that enhanced and pushed my thinking.
Here’s some highlights:
We live in an era where the economic gains are being hoovered up by the wealthiest Americans but we never seem to talk about it. People sense it and it plays out in their perceptions of the economy. One reader, C.O., sent this graphic along. It illustrates the point Lutz made about the gap between leading economic indicators and the consumer views of the economy. The economy seems to be humming but people think things are terrible.
I have some quibbles with the graph and the accompanying article. My primary being the “economy” may be strong but that doesn’t mean gains and benefits are well distributed.
This is a lesson as old as the French Revolution.
In the article, the author oddly dismisses consumer concerns, saying “although Americans report being worried about their finances, they are behaving as flush as ever—and in economic forecasting, actions speak louder than words.” There isn’t some great mystery here—we’re exiting the worst inflationary cycle in forty years. Yes, consumer spending is high, because prices for goods are up.
Another reader, P.A., suggested I check out the Department of Commerce’s website where they have their Antitrust101 page. The agency provides introductory vocabulary around the concept of antitrust. It's odd to read an agency say "these things are illegal" but watch them (along with the FTC and DOJ) do nothing about them. I can’t repeat this enough—laws sufficient to block monopoly, duopoly, and a whole slew of anti-competitive practices are already on the books and have been for a literal century. Our current pro-consolidation moment is an intentional policy choice.
Regarding mergers, from the Commerce Department's website:
Horizontal mergers: “A horizontal merger involves the combination of businesses that are either actual or potential competitors.” The DOJ should have blocked Facebook’s 2014 acquisition of WhatsApp, a competitor with Messenger, and their 2012 acquisition of Instagram, which at the time was eating Facebook’s lunch at signing up new users. If you can’t beat them, buy them is predatory capitalism. The solution to a predator like Facebook is dissolution, a forced breakup.
Vertical mergers: “Vertical mergers involve the integration of complements (like nuts and bolts or peanut butter and jelly), which does not reduce competition on its face.” The Feds haven’t blocked a vertical merger since 1979. Luxottica dominating the eyeglass industry from snout to tail fits that rubric. Although Luxottica is based in Italy, federal regulators maintain jurisdiction over the corporations that operate in the country and could restrict the activities of the company's tentacles (ask Huawei).
Another reader, C.G., sent along this 2017 article from the Harvard Business Review. It pinpoints the moment the US decided to abandon antitrust. Influenced by the “markets are self-correcting” ethos of the Chicago School of Economics, anti-trust was redefined away from concerns about market dominance or corporate consolidation and toward a much weaker standard of “consumer welfare”:
Antitrust’s noneconomic goals were jettisoned for an amorphous “consumer welfare” standard. Also discarded was the historic concern about halting the momentum toward concentration in an industry, in order to arrest the economic, political, and social harms from concentrated economic power in their incipiency.
That nonsense—that right there—is how we got here.
This was the death of trust busting. By this reasoning, instead of blocking mergers contributing to consolidation, the Feds permit them, if the corporations can make the case that prices won’t rise for consumers. So, consumers aren’t harmed by Walmart or Amazon gobbling up competitors because they create economies of scale or some economic fairy dust like that.
It’s perhaps the ultimate example of the “government shouldn’t actually govern” consensus of the post-Reagan GOP: let the markets self-correct.
Thus, there was no need for robust antitrust enforcement to create or maintain the conditions necessary to make competition effective. Market forces could naturally correct the episodic instances of market power, and could do so far better than the messes caused by government intervention.
The article goes on to talk about how successive Democratic administrations have gone along with the Reagan era reinterpretation of antitrust. But closes with a bit of hope:
Liberals and conservatives are increasingly warning that consumers are not benefitting from the meager competition in many markets. Their concern is that the current state of competition law (and crony capitalism) benefits the select few at the expense of nearly everyone else. The laissez-faire “Chicago School” ideology has lost some of its appeal.
This series started with the idea that many people perceive the economy to be in worse shape than it is. But the truth is that perception is reality. If policy-makers want to change that reality, they need to legislate and regulate. We can’t trust it to the eventual Mc-Wal-Azon & Gamble.
Quick Bits for the Week
The November 19 edition of the newsletter will be the one year anniversary of the Take & Typo-sphere. I’d like to mark that anniversary with a reader mailbag. If there’s any questions you’d like to see tackled or prior topics from the newsletter you’d like to see revisited. Give me a shout.
Lastly, I want to close this week with a moment of hilarity from my class. In Comparative Government we were discussing the 2018 election of President Andres Manuel Lopez Obrador of Mexico. The reading described AMLO’s politics as left-wing populist. We spent some time discussing various left-populists that have come to power in Latin America: Morales, Correa, etc.
I then said, "For example, the President of Colombia is a former guerrilla fighter."
90% of the room nods in understanding.
That one kid: "Wait… what?! [Brief pause] Whadoymean he fought gorillas?!"
Y'all that ish folded me in half.
As always, if you have any thoughts or feedback about the newsletter, I welcome it, and I really appreciate it when folks share Takes & Typos with their friends.
As always, if you have any thoughts or feedback about the newsletter, I welcome it, and I really appreciate it when folks share the newsletter with their friends.