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  • Debunking All the Main Arguments for Antitrust Laws

    Posted on by Azrael Comment

    It does not take too much upstairs to see through the Biden administration’s rejection of the JetBlue-Spirit Airlines merger. The latter is on the verge of bankruptcy. It is $1.1 billion in debt. It faces the headwinds of a new labor agreement raising pilot pay by 34% and has trouble with its Pratt & Whitney engines. JetBlue offered Spirit a $3.8 billion buyout. Together the two of them would account for a 10.5% market share, fifth in this industry.

    It is exceedingly difficult to see the logic behind this antitrust refusal, unless it is to protect the market share of the “big four”: Delta (17.7%), American (17.2%), Southwest (16.9%), and United (16.1%).

    Nor was this the only recent interference with free enterprise on the part of the Biden administration. Another took place with its kibosh on biotech giant Illumina’s $7.1 billion reacquisition of Grail. These bureaucrats have also put paid to deals between air carriers Alaska and Hawaiian, between grocery chains Kroger and Albertsons, and between amusement park giants Six Flags and Cedar Fair. They have been busy little bees ruining the US economy.

    A more important consideration is to ask why we need antitrust law in the first place. After all, the entire ethos of competition is to outdo your rivals in terms of providing consumers with a better and more reliable product at a lower price. The better you perform that task, the larger your base of operations becomes… and the more likely you are to run afoul of antitrust law. Here is a public policy that explicitly, knowingly, and purposefully clamps down on entrepreneurship, profits, earnings, and customer satisfaction, the very ideals of the free-enterprise system.

    The Rotten Roots of Antitrust Law

    The justifications for this set of laws are several. From an academic point of view, it stems from a diagram in microeconomics which has been crammed down the throats of aspiring economics students for lo these many decades. On the basis of it, four indictments of so-called “monopoly” have emerged.

    First, the price charged by the monopolist will be higher than that exacted by the perfectly competitive industry. But what is wrong, necessarily, with a higher price? You pay more for a Maserati than you do for bubble gum. Should we legally penalize the purveyors of the former? Of course not. Economic efficiency—and justice too—requires free-market prices, which reflect scarcity and utility; we should not aim solely to minimize prices at any cost.

    Second, the monopolist will produce a smaller quantity than the perfectly competitive industry. But there are far fewer of these luxury automobiles than there are pieces of these chewy sticks. Should we get upset about this? Rectify this “problem”? Don’t be silly. There’s nothing wrong with producing less of something if that’s what you decide to do.

    Third, the monopolist will earn profits in equilibrium, while firms in the perfectly competitive industry will not. But profits are integral to the free-enterprise system. They make the economy go ’round. They signal entrepreneurs to invest in corners of the economy where they are most needed. Profits are the market’s call for help. Squelching them is akin to imposing decibel control on hikers lost in the wilderness. Further, if the monopoly is sold at a price that fully reflects the present discounted value of this future profit income stream, the new owners will earn zero profits.

    Fourth and last and most important in the case against monopoly is deadweight loss (DWL). It is claimed that the area under the demand curve, between the quantity supplied by the two organizational forms, is greater than that which lies below the marginal cost curve. The difference is the DWL. Consumers value the additional quantity more than it costs manufacturers to produce. This constitutes, horrors, a presumed misallocation of resources.

    But this is a totally fallacious way of looking at the matter. It commits the fallacy of making interpersonal comparisons of utility, a big no-no in any good economics. It attempts to compare the utilities of buyers and sellers, and cannot account for producers or consumers’ surplus, which are both merely psychological and thus can’t be measured.

    I have been calling the economic actor who ruins matters in this example the monopolist. More correctly, he is merely the single seller. The word “monopolist” should be reserved for firms which are able to use violence against their competitors, such as the U.S. Post Office for the delivery of first-class mail, or the Army Corps of Engineers, which does not have to bid against competitors for gigs and accesses funds through taxation, not a voluntary process. Ditto for labor unions, which can dismiss competitors (scabs) through legal violence.

    What about Predatory Pricing?

    Enough of economists misleading the public on these matters via academic legerdemain. The fear apparent to the man in the street is that if these airplane and other unifications go through, and/or companies grow into being the only suppliers in their respective industries, they will jack up prices to the roof, and renege on promoting the customer satisfaction that brought them the success that enlarged them in the first place.

    This widespread apprehension is due to a misinterpretation of the Standard Oil of New Jersey law case of 1911. John D. Rockefeller is used as a stick with which to beat up on the case for eliminating antitrust law root and branch. It is not too dissimilar to holding up a cross to ward off a vampire. John D. is reputed to have cut his prices way below costs, locally; he could afford to do so, since he could finance these losses from the profits of his nationwide holdings of refineries. The local competition was thus bankrupted; they could not compete with his artificially low prices and had no outside sources to finance themselves in this unfair price-cutting he imposed upon them. Then our man JDR would jack up prices to the stratosphere, and march on to the next victim. Eventually, he owned just about the entire oil refinery business in the country. Thank God for antitrust law; otherwise, evil monopolists would take over the entire economy. Or so, at least, goes the usual scare story.

    Not so, says John McGee in a brilliant analysis. The real source of Standard Oil’s success had nothing to do with such unfair, made-up, local-price-cutting machinations. Rather, vast success was the result of the fact that Rockefeller could refine oil far more effectively and cheaply than his competitors. As a result, he was able to lower prices and benefit consumers.

    Wouldn’t One Big Firm Just Take Over?

    Second, the charge that without government regulation One Big Firm would run roughshod over an entire industry—maybe an entire country, not only in oil, but in fast food, groceries, autos, airplanes, etc.—is just plain silly. The charge is that such companies would smash all smaller competitors. If you didn’t work for or patronize one of these behemoths, you didn’t work at all, and you could purchase nothing.

    No. The only way companies can succeed under free-enterprise rules is by making better offers, not worse ones, to employees, customers, and suppliers. The moment they get “uppity,” if ever they do, and stop providing better goods and services at lower prices, they get smashed down by the logic of the free-enterprise system: the supposed “victims” go elsewhere; new entrepreneurs spring up.

    The One Big Firm, were it to take over the entire economy, would face the same challenges as does the socialistic economy. True, the former would have arisen to its present (hypothetical) status through a voluntary process, we are allowing, but only arguendo, while the latter took over via coercion, a great moral difference. But economically, they would be indistinguishable. Without markets—and there would be none in either case—economic calculation would be impossible.

    The leaders of neither would know, could know, whether to build train rails out of steel or platinum; the latter, let us stipulate, would be preferable, but with no market-driven prices neither would know that platinum should be reserved for more important tasks. Further, with no market interest rate they would have no way of knowing whether to build a tunnel through the mountain or set up a highway around it. The former would cost more now, but save money in the future. The latter, the very opposite.

    No, the One Big Firm would be a “pitiful, helpless giant” subjected to overwhelming competition from a bunch of Lilliputians. This process would occur long before any one company got too big for its britches, obviating this entire scenario. (For more on this point, see Murray Rothbard’s discussion “Vertical Integration and the Size of the Firm” from Man, Economy, and State.)

    It’s Time to End the Antitrust Era

    To conclude: by all means allow all of these mergers to take place. If they bring about a better, more reliable product at a lower price, all will be well and good. If not, these companies will lose profits and court bankruptcy.

    But let’s also dig deeper than these particular cases, and reform the system that allows central-planning bureaucrats to determine which mergers shall get the thumbs-up signal, and which the thumbs-down.

    Additional Reading:

    How the Free Market Handles Monopoly by Peter Jacobsen

    Good and Bad Monopoly by Leonard E. Read

    https://fee.org/articles/debunking-all-the-main-arguments-for-antitrust-laws/


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  • California’s Politicians Appear Determined to Bring ‘Atlas Shrugged’ to Life – Foundation for Economic Education

    Posted on by Azrael Comment

    The plot of Ayn Rand’s 1957 novel Atlas Shrugged can be briefly summed up as follows: the productive leaders and innovators of the country go on strike by disappearing from society to protest the cronyism, corruption, and oppressive taxes that have made living a virtuous life unbearable. The nation is then on the brink of an economic collapse as the remaining politicians, intellectuals, and mediocre businessmen are only able to take from others and have no capability to create or add value. Atlas Shrugged is very popular with those whose views lean toward libertarianism, while those who lean to the left react to it like a vampire does to a crucifix, despite never even reading a page.

    Concerningly, the state of California seems determined to bring Rand’s novel to life.

    During the 20th century, California was the jewel of America. Beautiful weather, diverse landscapes, access to the Pacific Ocean, and other features made it the leading state of the nation. There is a saying that says “As California goes, so goes the nation” because to many Americans this seemed like the best place in the entire country to live and raise a family.

    Things seem to have changed in the 21st century though. When times were good, the government of California grew and spent more money than it had. In the short term, most people ignored this problem, but as time went on the deficits grew and grew. By the year 2000, the government had run up a debt of $57 billion. Twenty-two years later that number had almost tripled to $145 billion dollars. Since California is a state and not a nation they couldn’t print money to make up for the downfall, so their only options were to either cut spending or raise taxes. They chose the latter.

    For state income taxes, California has the highest rates in the entire nation. They also have a declining population, with a loss of more than half a million people since a peak population of 39.5 million in 2019—and they did not all die of Covid. The majority are people who left to live in other states that did not have oppressive taxes and draconian Covid restrictions.

    While wise leaders might look at this indicator and see it as a sign that they should change course, wisdom seems to be in short supply for the political elite in this state. Rather than move towards freedom, they are instead moving to erode and attack property rights even more through the form of a wealth tax. Of course, the people proposing this are trying to sell the idea to the public by saying only the super wealthy will be on the hook for this. The rest of us in the ninety-percent will benefit thanks to the rich paying their “fair share”.

    The 16th amendment was sold to the American people under this promise too, and had people back then known that income taxes would lead to the system we have today, where the majority of the people use the majority of their income to pay taxes (federal, state, local, property, sales, etc), then this proposal would have been dead on arrival. Today’s politicians are trying to use the same tricks to pass a wealth tax, but the difference between now and then is that now we should know better.

    What makes California’s proposed wealth tax even more disturbing is that they wish to still collect the tax for years after a person moves out of the state, like a feudal lord persecuting a serf for moving off his land. They also wish to impose the wealth tax on “part time residents” for the portion of the year that they “reside” in the state. In other words, a family vacation to Disney Land might come with a tax bill from the State of California. And when tourism declines, I wonder who the politicians will blame?

    While the wealth tax has not become law yet, it is already prompting some of the mega-rich to move away, depriving California of their portion of the income tax and increasing the deficit. And it’s not just individuals who are leaving the state. National corporations are also deciding not to do business there as well.

    As inflation rages across the nation, the costs of everything have gone up, and building materials are no exception. It costs more to replace a house now than it did five years ago. To meet this new reality, home insurance premiums everywhere have increased. California’s Department of Insurance has responded to the new reality by placing new regulations on the insurers to prevent them from raising rates on their customers. The logic here is that the state has the largest population so if insurers wish to do business in the largest market in the United States, then they must abide by our rules.

    The reaction has essentially been a boycott of the state by the companies. In addition to normal risks, California is also prone to natural disasters like wildfires, earthquakes, and even mud slides from heavy rains. With these new regulations limiting what prices could be charged, the cost of doing business in the state increasingly outweighs any potential profits. As a result, many of the largest insurance companies in the nation like Allstate and Hartford are no longer issuing new policies in the state.

    California government policy has created an insurance desert in the state and with private business unwilling to respond because the once free market is no longer free, the politicians have solved the problem with a government insurance system called FAIR so that homeowners can comply with the insurance requirements for their mortgage. Under this state-owned enterprise, California residents get to enjoy reduced coverage at a higher premium than they would have been able to get before the politicians stepped in to help. This is a clear cut, black and white example of the standard of living decreasing.

    The theme of Atlas Shrugged is that the freedom of American society is responsible for its greatest achievements. The book warned that as freedom declined, so too would the standard of living. California’s politicians seem determined to recreate the dystopian world of the book with oppressive taxes, attacks on personal property, and regulations that drive away private businesses.

    Someone really ought to tell them that the world of Ayn Rand’s novel was not meant to be aspirational.


    Daniel Kowalski

    Daniel Kowalski is an American businessman with interests in the USA and developing markets of Africa.

    This article was originally published on FEE.org. Read the original article.


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  • Javier Milei Delivers Argentina’s First Surplus in Over a Decade—and US Media Is Silent

    Posted on by Azrael Comment

    Argentines witnessed something amazing last week: the government’s first budget surplus in nearly a dozen years.

    The Economy Ministry announced the figures Friday, and the government was $589 million in the black.

    Argentina’s surplus comes on the heels of ambitious cuts in federal spending pushed by newly-elected President Javier Milei that included slashing bureaucracy, eliminating government publicity campaigns, reducing transportation subsidies, pausing all monetary transfers to local governments, and devaluing the peso.

    Milei’s policies, which he has himself described as a kind of “shock therapy,” come as Argentina faces a historic economic crisis fueled by decades of government spending, money printing, and Peronism (a blend of national socialism and fascism).

    These policies have pushed the inflation rate in Argentina, once one of the most prosperous countries in Latin America, above 200 percent. Today nearly 58 percent of the Argentine population lives in poverty, according to a recent study.

    And Milei rightfully blames Argentina’s backward economic policies for its plight—policies that, he points out, are spreading across the world.

    “The main leaders of the Western world have abandoned the model of freedom for different versions of what we call collectivism,” Milei said in a recent speech in Davos. “We’re here to tell you that collectivist experiments are never the solution to the problems that afflict the citizens of the world—rather they are the root cause.”

    The revelation that Argentina has done something the US government hasn’t done in more than two decades—run a budget surplus—seems like a newsworthy event.

    Yet to my surprise, I couldn’t find a word about it in major US media—not in the New York Times, the Associated Press, the Washington Post, or Reuters. (The New York Sun seems to be the only exception.)

    I had to find the story in Australian media! (To be fair, the Agence France Presse also reported the story.)

    One could argue that these outlets just aren’t very interested in Argentina’s politics and economics, but that’s not exactly true.

    The Associated Press has covered Argentinian politics and Milei extensively, including a recent piece that reported how the new president’s policies were inducing “anxiety and resignation” in the populace. The same goes for Reuters and the other newspapers.

    A cynic might suspect these media outlets simply don’t wish to report good news out of Argentina, now that Milei is president.

    Indeed, in the wake of the news that Milei’s reforms had already resulted in a budget surplus, both Reuters and the AP ran articles highlighting a new study under the headline “Poverty in Argentina Hits 20-year High.”

    Why US media would choose to ignore Milei’s budgetary accomplishments and highlight Argentina’s soaring poverty, which is decades in the making, is a difficult question to answer.

    The decision could stem from the fact that these outlets have described Milei as a “far-right libertarian,” and a “Trump-like” figure (even though Trump, unlike Milei, is not a libertarian or classical liberal).

    Another possibility is that these media institutions are suffering from something known as “media capture.”

    Media capture can come in various forms and has numerous definitions, but the Center for International Media Assistance (CIMA) defines it as “a form of governance failure that occurs when the news media advance the commercial or political concerns of state and/or non-state special interest groups controlling the media industry instead of holding those groups accountable and reporting in the public interest.”

    The most obvious examples of media capture would be outlets refusing to cover stories due to explicit threats of retaliation from powerful actors.

    Maybe a sponsor says they’ll pull advertising if you run a story about the side effects of their product, or maybe a powerful Hollywood director threatens reprisals if you report his sexual abuses. Perhaps a certain Royal Family threatens to cut off interview access to your network if you run an interview with a sex trafficking victim who says she was victimized by a member of that Royal Family.

    These are all very real scenarios of captured media, and such situations can have a profound impact on independent journalism.

    “Captured media can go from vigilant watchdog to toothless public relations machine, ignoring the news of the day,” CIMA notes.

    This is why the government takes such an interest in media. The economist Murray Rothbard famously wrote that because “its rule is exploitative and parasitic,” the state has a great incentive to shape opinion and ideology, which are the source of power.

    Few tools are more effective at shaping thought than media, which is no doubt why the greatest tyrants of the 20th century went to great lengths to control it.

    Constitutional systems of course require more subtlety. Which is why, as Rothbard wrote, the state purchases “the alliance of a group of ‘Court Intellectuals,’ whose task is to bamboozle the public into accepting and celebrating the rule of its particular State…”

    The state has various methods to “purchase” the allegiance of media and others who can shape opinion, and some of these are downright shocking.

    Writing for Rolling Stone in 1977, legendary reporter Carl Bernstein exposed records showing that hundreds of US journalists had been paid by the CIA over years to do work on the Agency’s behalf.

    “Some of these journalists’ relationships with the Agency were tacit; some were explicit. There was cooperation, accommodation, and overlap. Journalists provided a full range of clandestine services,” wrote Bernstein, who along with Bob Woodward broke the Watergate scandal.

    He continued:

    Some of the journalists were Pulitzer Prize winners, distinguished reporters who considered themselves ambassadors without-portfolio for their country. Most were less exalted: foreign correspondents who found that their association with the Agency helped their work; stringers and freelancers who were as interested in the derring-do of the spy business as in filing articles; and, the smallest category, full-time CIA employees masquerading as journalists abroad. In many instances, CIA documents show, journalists were engaged to perform tasks for the CIA with the consent of the managements of America’s leading news organizations.

    To be clear, I’m not suggesting the CIA is paying the above-mentioned media organizations not to write flattering stories about Milei.

    Media capture, as mentioned, comes in various forms. And my hunch is that it typically involves applying pressure and offering incentives in more subtle ways than overt quid pro quos.

    What I am saying is that no institution is more effective at media capture than the government, which has even more resources and power than Hollywood directors and royal families. And chief among the state’s many agendas is its own self-preservation. This puts the state at odds with free-market libertarians like Javier Milei who wish to create a more prosperous society by reducing (or eliminating) government’s influence over our lives. And this is the reason a resounding free-market success story in Argentina is likely unwelcome news to both the state and the Court Intellectuals who serve it.

    The problem is, free-market economics is the only force that can save Argentina from proceeding further into an economic death spiral.

    From countries like Hong Kong and Ireland to former Soviet Bloc countries such as Estonia and beyond, free markets have transformed struggling and impoverished economies with what Adam Smith long ago recognized as the surprisingly simple recipe for prosperity: “peace, easy taxes, and a tolerable administration of justice.”

    It will do the same in Argentina, given the opportunity—whether media choose to cover it or not.


    Jon Miltimore

    Jonathan Miltimore is the Editor at Large of FEE.org at FEE.

    This article was originally published on FEE.org. Read the original article.


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