My colleague Iain Murray has some excellent new content out today in the form of a Web Memo titled “How Antitrust Regulation Hinders Innovation and Competition: Framing a Broken Debate.” Iain briskly defines the three major perspectives on antitrust theory (interventionist, consumer welfare, and free market) and steers readers toward an appreciation that antitrust enforcement itself—along with similar economic regulations—are often the cause of, rather than solution to, consumer harm.
Iain also emphasizes the vital point that competition itself, when it is allowed to operate, is the most rigorous form of regulation around. A free economy is constantly putting subpar enterprises out of business and allowing new ones to take their place:
This process of creative destruction, succinctly described by the economist Joseph Schumpeter, is a major driver of the kind of innovation that helps raise living standards. It will surely continue unless, ironically, antitrust regulators gain too much power. Were that to happen, large firms will be tempted to reach accommodations with a government that restricts their activities in exchange for not being broken up. Those accommodations will usually include protections and guarantees that act as entry barriers against potential innovative challengers. The result will be less competition, fewer innovations, and lower consumer welfare.
The idea that “we”—the few, the elect, the highly-educated—can plan the development of an economy from the confines of a government (or think tank) conference room should have been dead and buried once the Warsaw Pact nations abandoned communism. But it reappears again and again, often under the guise of “fairness” rather than efficiency. This is, in part, due to cultural narratives about capitalism that have deep roots. As my venerable colleague Fred L. Smith, Jr. wrote in “Countering the Assault on Capitalism” (2012):
Capitalism, the intellectuals argued, may address man’s material needs, but fails to advance higher order needs – community, environmental protection, equality and justice. Economics Nobel Laureate Friedrich A. Hayek aptly described the fatal conceit as intellectuals’ belief that they can direct social change for the benefit of mankind (Hayek, 1988). […]
Intellectuals craft the narratives, stories and metaphors framing and shaping what become the popular views of societal change. As the anti-capitalist narratives gain in popularity, the view of capitalism as an immoral means of creating wealth and knowledge becomes ever more entrenched. As those ideas influence public policy, freedom declines and statism rises.
Anyone can see the massive increases in wealth and human welfare that come along with a free economy and the devastating consequences of collectivist planning. But the smart kids in that government conference room just can’t resist the urge to pick and choose, to poke and prod. They’re convinced that if they just pull a few more strings, the economy will grow even better than before—and a significant portion of the American public becomes upset if they aren’t constantly threatening the nation’s business owners with a laundry list of hare-brained policies to adopt.
You can see this mentality not just in antitrust, but in the Obama-era Consumer Financial Protection Bureau, which decided that low-income households would somehow be better off if they had fewer legal options for consumer credit. Charging individuals high interest rates on small, short-term loans seemed unfair, so they tried to solve the problem by making short-term loans illegal. If the policy had come out of Congress, they could have called it the Loan Shark Empowerment Act.
But the “we can plan better than you can save and invest” mentality is also on display this week in the announcement that the taxpayers of New York City and northern Virginia would be giving hundreds of millions of dollars in benefits to Amazon to co-locate its new “HQ2” office complexes. Taxpayer giveaways to companies and simply the equally unattractive mirror image of unfairly dictating business practices to companies. It’s all part of the same mentality that says government decision-makers should be deciding where the money goes first, last, and always.
Andrea O’Sullivan and Christian McGuire of the Mercatus Center wrote about the implications of the HQ2 deals yesterday in The Bridge:
An Amazon headquarters must bring unmitigated benefits that justify taxpayer-funded gifts to what is already one of the world’s richest companies, one would assume. One would assume.
The reality, which Veronique de Rugy points out in a column at Reason, is that not everyone should be thrilled by a tax-incentivized economic union. Housing HQ2 will be hard on many residents, who could watch as their own taxes fuel a rise in their cost of living.
It will also drain resources from Amazon’s competitors, such as local retail stores, to help fund the tech giant’s move. Local policymakers are therefore in danger of becoming reverse Robin Hoods—taking from small businesses and renters to give to an overwhelmingly successful corporation.
But more fundamentally, targeted incentives like those offered to Amazon rarely create more economic growth. Mercatus scholar Matt Mitchell, for example, ran a regression analysis to examine the relationship between corporate subsidies and economic growth. He found that there is no “statistically significant relationship between per capita subsidies and compound economic growth from 2009 to 2014.” The benefits and the costs, it seems, are roughly balanced.
So we now have the obscene spectacle of government officials on the local level giving massive cronyist giveaways to one of the world’s most successful companies, while government officials at the federal level are threatening to legally dismember the company on antitrust grounds because it’s too powerful. Would it be too much to ask that they compare notes before making any more brilliant industrial-policy decisions on behalf of the American people?