Category Archives: Law

Charles Dickens – A Tale of Two Cities

Charles Dickens – A Tale of Two Cities

Those two cities being London and Paris. Their differences in character were put in stark contrast by the French Revolution; cool London and hot France could not be more different. Dickens’ characters find themselves in the middle of all kinds of duality. Not just Revolution and ancien regime, but rich and poor, young and old, and past and future all come into play. Dickens, while occasionally sappy, conventional, and a little too PG-rated to give a truly vivid picture of the times, still manages to convey good insight about the value of keeping a level head during turbulent times, even as his characters tend to be studies of contrast rather than nuance.

CEI Makes the Case against the Use of Antitrust Law

This is a CEI press release for Wayne Crews’ and my new paper on antitrust reform, cross-posted from CEI.org

The Competitive Enterprise Institute today released a report making the case that government use of antitrust law to break up big companies has a chilling effect on long-term investment and innovation and harms competition and consumers.

In “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era,” co-authors Ryan Young and Wayne Crews argue that the renewed call for use of antitrust law by policymakers on both sides of the aisle is dangerous for both consumers and producers. Young and Crews make the case that antitrust provisions of law should be repealed.

“While advocates of antitrust enforcement believe its use will bolster competition, the facts show the mere threat of antitrust penalties have a chilling effect on entrepreneurs and their ability to innovate,” warned Ryan Young, CEI senior fellow and report co-author. “Repealing antitrust laws in favor of a market-based approach to competition would reduce regulatory uncertainties for businesses and foster an environment where companies and entrepreneurs can innovate, which only benefits consumers.”

The antitrust issue has taken on greater urgency as politicians – both Republicans and Democrats – push for more aggressive antitrust enforcement. Policymakers in both the United States and the European Union have expressed an interest in using antitrust law to break up big technology companies like Facebook, Apple, Amazon, Netflix, and Google.

“Despite the calls for more antitrust regulation from Washington, the best outcome for consumers and a competitive marketplace would be to repeal antitrust laws and regulations entirely,” said Wayne Crews, CEI Vice President for Policy and report co-author. “Subjecting our dynamic economy to the policies of the smokestack era would be devastating for the many types of innovation we are seeing in the modern, diverse marketplace. Consumers benefit from competition and innovation, not heavy-handed government intervention and regulation.”

The report makes several key recommendations, including:

  • Repeal the Sherman Act of 1890. If a company is making extraordinary monopoly profits, the only way it can keep competitors at bay is to use government to protect its position from competitors. The solution is taking away the government’s power to protect such companies from competition.
  • Stop equating mergers with monopoly. Horizontal mergers – between companies competing in the same market – reduce the number of competitors in a given market while increasing their average size and are a red flag for antitrust regulators. But size or market concentration of an entity or industry should not be an antitrust offense, far from it. In an era in which it is readily apparent and agreed-upon that we need larger-scale infrastructure, and further expect novel ventures like commercial space travel, some firms and industries of the future need to be far larger than what we see today. Laws and regulators should not be concerned with size but whether the company attains its size through competition or from government favors.
  • Stop worrying about “predatory pricing.” Antitrust regulators can punish a company if it charges lower prices than its competitor, under the guise of predatory pricing. The idea is that a company can sell its wares at a loss in order to gain market share, perhaps even causing competitors to go bankrupt. But the only way for a “predator” undercutting its “prey” to keep a permanent monopoly is to permanently sell at a loss. That results in bankruptcy, not monopoly.
  • Repeal the Robinson-Patman Act. Price discrimination is selling goods to different people at different prices and is regulated by the Robinson-Patman Act. Common examples of price discrimination include putting products temporarily on sale, giving bulk discounts for large quantity orders, or membership programs. There is much uncertainty around what is permissible and what is illegal price discrimination, making the Robinson-Patman Act unworkable and unenforced. Repealing it would take away needless uncertainty and give consumers and businesses peace of mind.

View the report and the rest of its recommendations, The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era by Ryan Young and Wayne Crews.

Read more:

Robert H. Bork – The Antitrust Paradox: A Policy at War with Itself

Robert H. Bork – The Antitrust Paradox: A Policy at War with Itself

Probably the most influential book ever written on antitrust policy, though it has its flaws. I analyze several of its arguments in an upcoming paper; I’ll try to remember to update this post with a link when the paper is out.

From its Progressive Era beginnings, antitrust law was dominated by lawyers who disdained economics, and it showed in the quality of their policies and court decisions. During the Depression and the New Deal, President Roosevelt mostly abandoned antitrust law in favor of government-approved, or even government-managed cartels, in a similar disregard of economics. This model was mostly abandoned after World War II, when regulators resumed antitrust enforcement. Prosecutions reached record levels by the late 1950s and early 1960s.

Around that time, a new law and economics movement was underway, especially at the University of Chicago. Bork was one of many scholars who were part of it, along with Aaron Director, George Stigler, Ronald Coase, Richard Posner, and many others. They proposed, instead of attacking the Brandeisian “Curse of Bigness,” moving to a consumer welfare standard. Under this thinking, big isn’t automatically bad. Antitrust measures should only be taken if it can be proven that a company is causing consumer harm. Bork wasn’t the first to make this argument, but he was the most influential, and The Antitrust Paradox remains the most widely cited book on the subject, by friend and foe alike (this writer is somewhere in between).

Bork and other consumer welfare standard advocates, while an improvement over Brandeisian populism, don’t get everything right, at least in my view. Better to get rid of bad policies altogether than simply use them less frequently, as Bork favors. But his compendium of case law, economic reasoning, and legal history is immensely useful regardless of one’s priors. While not the breeziest of reads, Bork does occasionally show some flashes of wit, such as when he compares the Robinson-Patman Act’s attempt to control prices to a baseball player who might be a lousy hitter, but balances it out by also being a poor defender.

Dominick T. Armentano – Antitrust and Monopoly: Anatomy of a Policy Failure

Dominick T. Armentano – Antitrust and Monopoly: Anatomy of a Policy Failure

There are two main schools of thought on antitrust regulation. The traditional populist school prefers an active antitrust policy. Justice Brandeis famously advocated a “big is bad” rule, where big companies should be broken up due to their size, regardless of how consumers are affected. Other populists reach similar policy conclusions for different reasons, such as a larger vision of the good society.

This is usually contrasted with the Chicago approach, most famously exemplified by Richard Posner and Robert Bork. They advocate the consumer welfare standard, where big is ok unless it harms consumers. This is the general rule of thumb today, when antitrust enforcement is more restrained than in its smokestack-era heyday.

Armentano favors just getting rid of the whole antitrust mess altogether. He bases his approach mostly in economic reasoning, but also uses some logical and legal arguments and empirical evidence. He comes across as shrill and ideological at times, but his arguments are mostly sound.

The first two chapters give an overview of the economic and logical objections to antitrust regulation, and most of the rest of the book applies that theory to nearly a century of case law in various areas, from price fixing and price discrimination to tying and mergers.

Armentano’s book is surprisingly current for a book published in 1982. The post-Chicago antitrust slowdown means that only two major cases are missing—the 1980s AT&T breakup and the 1990s Microsoft case. With a populist president and progressive activists pushing for an antitrust revival against a mostly passionless opposition, this issue could get hot. What was old is new again, and could cause enormous consumer harm.

This book has its shortcomings. It relies too much on blackboard thinking for my taste, and Armentano understates the importance of regulatory capture and rent-seeking throughout, which both would have strengthened his position.

But his general approach needs to be a part of the debate. One side wants a lot of a bad thing. The other side also wants the bad thing, just less of it. Armentano argues that both sides have it wrong. Don’t have less of it, get rid of it.

Selection Bias in Historical Sources?

A public choice-inspired point about the nature of historical sources from footnote 58 on p. 585 of Harold J. Berman, Law and Revolution: The Formation of the Western Legal Tradition:

Nevertheless, no statement of any Roman jurist claiming that the emperor was bound by the laws has survived (or as Peter Banos has said, perhaps no jurist ever made such a statement and survived).

Gresham’s Law, But for Laws

From Kindle location 5233 of David Friedman’s mind-expanding and surprisingly fun new book Legal Systems Very Different from Ours:

Distinguishing good law from bad is not easy. Individual voters, knowing that their vote has little effect on political outcomes, devote little effort to gathering the information needed to vote wisely. Politicians rarely help out by labeling themselves as bad guys or their bills as bad law. The result, as I have argued elsewhere, is a system that frequently produces bad law, a theoretical conclusion for which I find a great deal of empirical support.

 

Richard Posner – Antitrust Law, Second Edition

Richard Posner – Antitrust Law, Second Edition

A foundational text in modern antitrust regulation. From the 1890 Sherman Act up until about the late 1960s, antitrust policy was strictly for lawyers and politicians. Posner, though a lawyer, incorporated economic analysis into antitrust questions. This was a controversial departure at the time, and came to be called the Chicago School approach.

Unlike more populist analysts, Posner placed results above aesthetics. Do large market share, mergers, tying, charging high or low prices, and more cause consumer harm? If so, then antitrust enforcement is appropriate. If not, then not. It is an empirical question, not an emotional one.

The consumer welfare standard displaced the previous Brandeisian “big is bad” standard. Posner’s work is vulnerable to criticism on public choice grounds, and his command of economic analysis not perfect. But his influence has been largely positive, and greatly improved policy outcomes in an area badly in need of reform.

The story is not over, though. The Trump administration and progressive activists would both like to revive big is bad; the coming years will see who prevails in this next chapter.

On a personal note, back in college I once had lunch at the same table as Posner. This would have been around the time this book’s second edition came out, though I don’t recall it being discussed. The conversation mostly revolved around prescription drug reimportation regulations, a hot issue at the time. Had I been more knowledgeable about Posner’s place in the law-and-economics movement, I would have loved to pick his brain about improving antitrust policy and other legal areas.

Charles de Secondat Baron de Montesquieu – The Spirit of Laws

Charles de Secondat Baron de Montesquieu – The Spirit of Laws

One of the most important texts of the French Enlightenment. Interested in human progress, Montesquieu sought out larger laws of history that might explain why some countries are rich and others poor, why some have despotic governments while others use a lighter touch, and why social customs differ—and how this might affect future progress.

Montesquieu also offers a defense of free trade, which he called doux commerce, or sweet or gentle commerce. The theory is that trade and economic interdependence foster peace and prevent war, a sentiment U.S. Secretary of State Cordell Hull very much had in mind in attempting to rebuild post-Depression trade infrastructure and prevent World War III.

Montesquieu also offers an early version of the quantity theory of money. Finally, he in ludes lengthy narrative histories of Roman and French law.

If all that sounds a little scattershot, that’s because it is. The book almost has a stream of consciousness quality, as though Montesquieu, like Montaigne before him, simply wrote down whatever arguments and facts he had in his head as he sat at his desk.

Philip Hamburger – Is Administrative Law Unlawful?

Philip Hamburger – Is Administrative Law Unlawful?

Administrative law is essentially a fancy name for regulation. This is arguably the most important regulatory studies book of the last decade. Hamburger argues that in many cases, yes, administrative law is unlawful. Regulatory agencies, not legislatures, do most of today’s legislating. Many agencies even have their own courts and judges outside of the traditional judicial system, which are immune from its checks and balances from the other branches.

A partial list of the administrative state’s systemic rights violations include “separation of powers, the grants of legislative and judicial powers, the internal divisions of these powers, the unrepresentative character of administrative lawmaking, the nonjudicial character of administrative adjudication, the obstacles to subdelegation, the problems of federalism, the due process of law, and almost all the other rights limiting the judicial power.” (pp. 499-500)

Hamburger traces the intellectual roots of modern American administrative power abuses back to absolutist royal prerogative under King James I of England and his Star Chamber in the early 1600s, and the German Historical School of the late 19th century.

While the reaction against James I eventually begat the Glorious and American Revolutions, German historicism had the opposite effect. It was a major ideological influence for early progressivism and President Woodrow Wilson, who did as much as any politician to enable the modern administrative state to grow. Then again, German historicism’s dominance also inspired a rebellious F.A. Hayek to emphasize instead a bottom-up philosophy of emergent order, which continues to be an animating principle of today’s larger market liberal movement.

This is a landmark book for regulatory scholars, though drily written. The innumerable distinctions, divisions, subdivisions, and legal parsing inherent to the subject reminded me of my distaste for legal studies.

Many people treat legal structures as unquestionably sacred and eternal. But in the end, people just made them up over time. Disturbingly few people ever ask “why,” not just “what.”

Hamburger is better than most legal scholars about this, and spends plenty of time digging into why principles such as separation of powers and due process are good ideas, or why we have separate codes and court systems for criminal law and administrative law. But the accumulated legalistic minutiae are so overwhelming that even Hamburger gets lost in all the what.

An Antitrust Analogy

From p. 382 of Robert Bork’s 1978 book The Antitrust Paradox: A Policy at War with Itself:

One often hears of the baseball player who, although a weak hitter, was also a poor fielder. Robinson-Patman is a little like that. Although it does not prevent much price discrimination, at least it has stifled a great deal of competition.