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Friday, November 25, 2011

Ideological Bias and Antitrust Law

Apparently some judges refuse to enforce antritrust law because "Such judges just do not like antitrust laws for ideological reasons." That attitude -- which is not confined to judges -- explains a lot about detrimental the rise of economic and political power in recent decades. This is Shane Greenstein discussing the proposed merger between AT&T and T-Mobile:

Lawyers invariably ... launch into comments about the uncertain state of antitrust law in the United States, observing that many judges today do not think there is any valid reason to enforce any antitrust law, irrespective of the facts of the case. Such judges just do not like antitrust laws for ideological reasons. Recently such friends have gotten more specific, commenting on the odds of getting past the particular judge assigned to hear the from Department of Justice, as it tries to block the merger.
Political analysts, in contrast,... invariably launch into comments about AT&T’s enormous powerful presence in Washington, observing that AT&T has gotten whatever it has wanted from the Obama and Bush administrations. Recently such friends have gotten very specific, about which representatives and senators were most likely to act on AT&T’s behalf.

The point he is making, however, is that in this particular instance economics did seem to matter:

To make a long story short, there was not much evidence of benefits. To make efficiency gains AT&T would have to fire quite a few people, but to get the merger past its unions AT&T’s management had to promise to preserve jobs. To buy political support AT&T had to promise to build broadband in under-served areas, but independent analysis showed that far cheaper ways to build such broadband than through a thirty billion dollar merger. The economic benefits did not exist. To use an old expression, there was no there there.

And therefore:

The FCC recently announced it would move to have a hearing about the AT&T and T-Mobile merger. In response, AT&T withdrew its application from the FCC, delaying the hearing indefinitely (or until AT&T resubmits the application).

But the fact that the police catch the bad people when (and seemingly only when) the facts are really, really obvious isn't all that comforting. Big banks, for example, appear to be far larger than the size required to take advantage of economies of scale/scope, etc., and the additional size enhances their political clout and the chances of regulatory capture without any clear economic benefits. There are potential costs, large ones -- see the recession. But it's hard to find a solid analysis demonstrating that there's any reason banks need to be so large that they are able to dominate particular markets. However, prior to the crisis instead of looking at these banks with an eye toward reining in their market power, we were told how wonderful such large institutions were -- how necessary firms with so much power are in a global economy. Even now we still hear arguments about how much these firms are needed (and it's still hard to get people to care about this issue).

Anyway, I could go on with this rant -- the problem of large, powerful firms is by no means confined to the financial industry -- but I've made these points many times in the past (starting before the crisis hit) and hopefully the point is clear. To me, the rise of economic power among the few is one of the strongest and clearest indications of how thoroughly economic and political power has shifted to the rich and powerful in recent decades.

    Posted by on Friday, November 25, 2011 at 10:17 AM in Economics, Market Failure | Permalink  Comments (12)


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