Hipster Antitrust Is Overdue for a Backlash

– December 3, 2019

The American Left has recently made an important shift. They’ve long justified redistributative policies by portraying wealthy individuals and big corporations as beneficiaries of an unfair system designed to reward greed and privilege. But as we stare down the barrel of a presidential election year, candidates like Senators Bernie Sanders and Elizabeth Warren now go at least one step further — billionaires and large corporations are not a symptom of an unfair system, but its cause.

The shift is important in that government policies aimed directly at weakening wealthy individuals and large corporations are an end unto themselves rather than a means to help those struggling. This approach was in full view during the recent controversy around Warren’s proposed wealth tax, which seemed to focus more on reducing the political power of billionaires than on what the government might do with its extra cash.

Sanders, never one to gussie up his proclamations, tweeted that “Billionaires should not exist.”

Less prominent in the recent debate, beyond its implications for big tech, is the parallel fight emerging with large corporations. Here, taxation takes a back seat to antitrust laws, where a new movement seeks nothing less than the full weaponization of antitrust law and enforcement to keep firms squarely in their lane.

The Utah Statement, a recent brief manifesto of the New Brandeisian or “hipster” antitrust movement, gets specific about what changes to antitrust law and enforcement the movement’s leaders would like to see. Drafted by two of those leaders, Columbia Law Professor Timothy Wu and academic fellow Lina Khan, along with Marshall Steinbaum of the University of Utah, the document should galvanize those opposing the Left’s return to the embrace of central planning.

Fighting Private Power

While not associated with any specific candidate, it’s clear from the Utah Statement’s introduction that the authors view the current U.S. commercial landscape through the same predatory lens as Sanders and Warren. They frequently change the term “antitrust” to “anti-monopoly,” likely conjuring for many the robber barons of old:

The simple premise of anti-monopoly revival is that concentrated private power has become a menace, a barrier to widespread prosperity, and an indefensible division of the spoils of progress and economic security that yields human flourishing.

How do the authors wish to confront this menace? The 10 statements on legal doctrine and 13 statements on enforcement they put forward amount to a radical overhaul of American antitrust law and enforcement. They would shift from a system of rules spelled out by legal precedent that limit the hand of enforcers to one chiefly driven by what the executive branch would like to do.

The authors’ desired changes to legal doctrine focus primarily on presumption — shifting the burden of proof from Justice Department enforcers to accused firms. Examples include:

Vertical mergers should be presumed harmful to consumers rather than beneficial due to efficiency gains (#2)
Courts could find incumbent firms guilty of predatory pricing without plaintiffs or prosecution demonstrating that the alleged scheme would have benefited its accused perpetrator (#4)
Horizontal mergers in concentrated markets should be presumed anticompetitive (#7)

These desired changes in legal doctrine open the door to a far more aggressive approach to antitrust enforcement, detailed in its own 13-point plan:

Explicitly scrapping the consumer welfare standard (#1)
Making labor-market structure (“anti-monopsony”) the explicit domain of antitrust enforcers (#5)
Ordering regulators to not prefer “false negatives” over “false positives,” in effect telling regulators not to worry about leveling false allegations if it means finding the bad guys (#8)

This laundry list of legal and regulatory changes makes antitrust enforcement discretionary rather than rules-based. Regulators can block mergers, break up firms, and police other market conduct in the way they and their elected bosses see fit, and defendants, due to the changes in legal doctrine, can’t do much about it.

When faced with any such radical proposed expansion of executive power, we must ask two questions. First, what would those seeking to expand executive power do with it? Second, how else could future elected officials put such expended power to use?

The reasoning behind the New Brandeisians’ antitrust approach seems to hinge on a cursory and selective reading of an Econ 101 textbook. The canonical “Chapter 1” model of “perfect competition” exists as a straw man throughout. Since every market departs from that model’s assumptions of atomistic buyers and sellers, homogenous products, static rather than dynamic process, perfect information, and many others, there is always scope, even imperative, for the government to intervene.

According to the authors, much of the stagnation they observe in America’s poor and middle class is traceable to big companies and their political allies who for decades eased off the antitrust gas pedal and laid out the red carpet for “concentrated private power”:

We have been left with an economy dominated by well-protected oligopolies who maintain high profits, low levels of investment, and stagnant wages. Employers have gained disproportionate power over their workers, thanks to a weakening of labor law, declining unionization, and business models that coerce and restrict workers. The policies have also contributed to the widening gap between rich and poor, and the widespread economic dissatisfaction and anger that is a hallmark of our times.

Basic economic theory says that all else equal such market power would yield higher prices and lower wages. But nowhere in their analysis do the authors raise the possibility that some or many of their concerns are mitigated by new developments in technology, including the increased importance of network effects, or globalization that redefines markets and supply chains.

This is where the authors’ Econ 101 myopia truly has teeth — it yields a vision of a static rather than dynamic economy. The best argument for giving firms more discretion over growing, shrinking, merging, and entering and exiting markets is that solutions to new and unforeseen facts on the ground emerge through evolution rather than being proclaimed by intelligent design.

Idealizing Public Power

The authors of the Utah Statement also offer a stark “good vs. evil” take on political economy. “Concentrated private power” is fundamentally extractive and exploitative, while concentrated public power is sanctified by democracy. Were the nature of power really so simple, the executive branch’s discretion would obviously be the most direct means to achieve public well-being.

There’s a certain hubris in touting democracy in order to expand government power in ways one wants while ignoring that like past elections, future ones will likely bring winners who will use that power in misguided or abusive ways. The Utah Statement’s authors write as though they believe that their candidate of choice will win the 2020 election and usher in an era of such monumental progress for working families that the other party will become a permanent political minority. To expect or even entertain such an outcome neglects both logic and history.

Electoral politics in the 21st century has yielded unpredictable and diverse results. The kind of expansion of power proposed in the Utah Statement could be wielded in a variety of ways by future administrations. The proposed executive powers could be put to work just as easily in the service of protectionism or cronyism as they could to advance the authors’ concept of consumer and worker rights.

In a 2018 paper, Elyse Dorsey of the FTC, Jan Rybnicek of Freshfields Bruckhaus Deringer LLP, and Joshua Wright of the George Mason University law school detail the many opportunities that expanded executive-branch power will afford incumbent firms to craft policy and enforcement in ways that confer a competitive advantage:

A primary theme of Hipster Antitrust is concern with regulatory capture and oversized corporate influence on regulation and market outcomes. We share those concerns. Yet, ironically, by expanding antitrust enforcers’ discretion dramatically and removing institutional safeguards ensuring accountability, Hipster Antitrust would usher in a new era of rent-seeking by corporations hoping to misuse the antitrust laws to gain advantages over competitors.

The irony is even deeper when supporters of Sanders and Warren tout their policies as virtuous simply because they harm corporations and decrease their political power. Khan, Wu, and Steinbaum are clearly well aware of the potential for the rich and powerful to co-opt the tools of government. Their fatal flaw is to believe we can solve the problem by electing better people or making better rules.

Racing to the Bottom

The hipster antitrust movement may consider themselves intellectual heirs of Supreme Court Justice Louis Brandeis, but their marketing strategy takes inspiration from more recent, less lofty sources. Writing about Warren’s tax plan, I said that “Our president has Mexican immigrants and Chinese trade officials. Warren and Sanders have billionaires.” The neo-Brandeisians will ensure that the left scapegoats corporations the same as people.

The American left and right are becoming two sides of the same populist coin. Both peddle simplistic narratives that pin peoples’ real struggles on some “other” group gaining in size, influence, or power. And both promise that new, executive-based government power will fix what’s broken.

President Trump’s brand of xenophobic right-populism has brought our politics to new lows and been terrible for the economy. When democrats mock “billionaire tears” they join the president in a populist race to the bottom. Persecution of CEOs is not high on my list of concerns, but we’re all victims of this two-sided populism that seeks quick political victory by making one group of people hate another while solving nothing.

Democracy, upon which both sides somehow hang their hats, still has time to save the day. Every hipster trend worth remembering has an equally severe backlash. Democrats can reject neo-Brandeisian antitrust along with the other pillars of left-populism, or seek a victory that in many ways will prolong rather than end the Trump era.

Max Gulker is an economist and writer who joined AIER in 2015. His research focuses on two main areas: policy and technology. On the policy side, Gulker looks at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker is interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy. Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxgAIER.