More than 40 years ago, Congress made the Federal Reserve responsible for fighting racial discrimination in the U.S. economy. The Fed’s maximum employment mandate arose directly from the civil rights movement, and the Community Reinvestment Act was a response to discriminatory practices at banks.
So, of course, the Fed would extend a similar mandate and responsibility in hiring its staff economists, including people of color, and encouraging them to work hard on those important responsibilities, right? Wrong. Among the 408 economists at the Federal Reserve Board in Washington, only one is a black woman. (See Figure 1.)
Figure 1
Few other women of color or minority men work for the Federal Reserve Board. Moreover, only a small fraction of the staff’s research and economic analysis focus on race. People of any background could study race, yet in real life, our lived experiences often guide the questions we ask. Economists are no different.
Economists of color missing from the Fed means that race has largely been missing from its policy deliberations. Narayana Kocherlakota, the former president of the Federal Reserve Bank of Minneapolis, pointed out that Fed actions have outsized effects on racial minorities. In the Great Recession, the black unemployment rate climbed to more than 16 percent. Any conversation at the Fed about full employment should have include the hardest-hit groups. It did not.
Today, the Federal Reserve is finally talking some about race—both in its evaluation of the economy and among its ranks. The Board has started many efforts to make its staff more diverse and its work environment more inclusive. But is the answer simply to hire more economists who are people of color? Wrong, again. Black economists are not only missing from the Fed, but also from the entire U.S. economics profession.
In 2017, only seven black women received a Ph.D. in economics in the United States. One year later, it was only four. Those abysmal numbers are out of the more than 1,000 individuals who receive a doctoral degree in economics each year. The Fed only hires its economists with doctoral degrees.
To make matters worse, the low numbers of black women in economics also occur at the undergraduate level. White women comprise 35 percent of all bachelor’s degrees, but only 13 percent of bachelor’s degrees in economics. Only 2 percent of economics undergrad degrees go to black women. (See Figure 2.)
Figure 2
We need diverse viewpoints among economists, but the pipeline of talent is broken—yet not beyond repair. Since 2017, the economics profession in the United States has had a long-overdue awakening about gender and race. The leadership of the American Economics Association now recognizes the problem and is taking steps to combat discrimination and harassment. Even so, it is individuals who are up and coming in the economics profession from underrepresented groups who are demanding change and making it happen.
Last week, the Sadie Collective held its second annual conference for young black women interested in economics. Black women, from high school students to recent Ph.D.s, gathered to share their research, support each other, and learn from women who blazed a trail in the profession. They heard from Bridget Terry Long, the first black woman dean of the Harvard Graduate School of Education, Susan Collins, the acting provost at the University of Michigan, and many other black woman economists.
I was spellbound to sit in the room with more than 270 young black women interested in economics. The energy, ambition, and talent were striking and heartening. These women have a strong voice, and it is a voice that economics and the Federal Reserve need to hear.
Former Fed Chair Janet Yellen also spoke to these black women. She underscored that diversity is crucial for the quality of economics and the quality of policy advice. She promised, as the current president of the American Economics Association, to push forward to make the profession better. The leaders of the Sadie Collective standing with her was a joy to witness.
In 1921, Sadie Tanner Mosell Alexander was the first African-American to receive a Ph.D. in economics and is the namesake of the Sadie Collective. After Alexander received her Ph.D., discrimination stood in the way of her economics career. Undaunted, she received a J.D. and went on to practice law. Alexander’s legacy ties back the Federal Reserve as well. She spoke extensively about the moral and economic case for full employment. The young black women at the Sadie Collective are honoring and carrying forward her work.
Antitrust and competition issues are receiving renewed interest, and for good reason. So far, the discussion has occurred at a high level of generality. To address important specific antitrust enforcement and competition issues, the Washington Center for Equitable Growth has launched this blog, which we call “Competitive Edge.” This series features leading experts in antitrust enforcement on a broad range of topics: potential areas for antitrust enforcement, concerns about existing doctrine, practical realities enforcers face, proposals for reform, and broader policies to promote competition. Phil Weiser has authored this contribution.
The octopus image, above, updates an iconic editorial cartoon first published in 1904 in the magazine Puck to portray the Standard Oil monopoly. Please note the harpoon. Our goal for Competitive Edge is to promote the development of sharp and effective tools to increase competition in the United States economy.
Colorado and 26 other states filed comments today with the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission on their proposed Vertical Merger Guidelines. These two federal antitrust enforcement agencies are commendably working to update an outdated set of guidelines from 1984 that downplay the risks posed by vertical mergers—mergers between companies at different levels of the chain or production, distribution, or marketing of products or services. In our comments, we highlight areas of competitive harm that warrant attention, areas for improvement in these guidelines, and a suggested added focus on remedies.
In so doing, as I have written about previously, we emphasize that vertical integration is not always benign and indeed has the potential to create significant anticompetitive harms. In this post, I summarize and highlight some of the points made in our comments.
First off, it is important to understand that vertical mergers of, say, a wholesale distributor and a retail outlet, have the potential to harm competition and hurt consumers just like horizontal mergers—mergers between two rivals—do. Indeed, in some cases, a vertical merger may remove the most likely potential rival to an incumbent firm.
Consider, for example, the case of Live Nation Entertainment Inc.’s merger with Ticketmaster in 2010. In that case, Live Nation’s concert promotion and venue business prepared Live Nation to enter into the ticketing platform business, but the merger with Ticketmaster undermined that nascent competition. Indeed, Live Nation had already begun that entry before the merger. This is why a vertically related firm in one market (say, wholesale distribution) might be the natural entity to sponsor entry against a dominant firm in a related market (say, retail sales), and that potential sponsorship could be undermined on account of the merger between the dominant firm and the vertically related one. That is particularly true in evolving or fast-growing sectors such as technology markets.
Second, it is important to recognize how vertical mergers, once completed, can be used to undermine existing rivals or raise entry barriers that make future entry materially more difficult. Colorado, like other states, has addressed such dangers. In June 2019, Colorado took action to prevent anticompetitive harms from occurring as a result of the merger of DaVita Inc. and UnitedHealth Group Inc. In that case, UnitedHealth, a health insurer, was facing an upstart rival, Humana Inc., which undermined UnitedHealth’s once-dominant position in the market, leading it to drop from around 75 percent to around 50 percent of the Colorado Springs Medicare Advantage market. Humana’s growth in this market reflected, on its account, its strong relationship with DaVita’s physician clinics in the area.
The acquisition raised the threat of customer foreclosure by limiting access to the relevant patient population. UnitedHealth already had an exclusive arrangement with Centura Health, another clinical network. This acquisition would give UnitedHealth control over DaVita. As a result of this merger, UnitedHealth would have the incentive and ability to increase costs for DaVita’s services to UnitedHealth’s rival insurers, or even to withhold such services altogether, leading Medicare Advantage rates to go up and/or quality to decrease. To prevent this harm, our state office required that the DaVita contract be extended and that UnitedHealth end its exclusive contractual arrangement with Centura Health. By doing so, the remedy protected Humana’s access to doctors who can enable access to Medicare Advantage customers.
The DaVita/UnitedHealth case is one of many examples of how vertical mergers can be consummated for the purpose and effect of excluding rivals or raising their costs. In some cases, such as this one, the impact relates to access to customers. In other cases, the merger impacts access to critical inputs (termed by economists as “input foreclosure”). Consider, for example, the merger of Comcast Corp. with NBCUniversal, in which the Department of Justice in 2011 was rightly concerned that Comcast’s control of NBCU would lead Comcast to limit the ability of rival upstart online distribution platform companies to access NBC content, a critical input into their own offerings.
Similarly, the proposed 1998 merger between Ingram, a leading book distributor, and Barnes & Noble, then the dominant book retailer, threated to entrench Barnes & Noble’s dominant position. At the time of the merger, Ingram was Amazon.com Inc.’s leading supplier, filling more than 58 percent of its orders. With respect to the merger, Amazon.com and independent booksellers raised a series of concerns as to how the merger could harm competition in retail books sales, including on issues such as “credit, speed of delivery, and access to popular titles.” In the face of opposition by the Federal Trade Commission, the merger was abandoned.
In addition to highlighting the prospect of competitive harms on account of vertical mergers and discussing the types of evidence that could be collected to challenge such mergers, the comments submitted today to the two federal antitrust enforcement agencies by the state attorneys general also discussed the use of merger remedies. Many vertical mergers offer the opportunity to impose a conduct remedy that can allow the merger to go forward while blocking anticompetitive outcomes.
In the UnitedHealth/DaVita merger, for example, Colorado’s remedy did just that, extending an existing contract and banning an exclusive contracting arrangement that bolstered UnitedHealth’s market position. In other cases, however, such remedies may well be impractical or difficult to administer in practice. Where monitoring and administration of a decree may be difficult, the better course is to simply prevent the merger from taking place—as happened in the blocked merger of Barnes & Noble/Ingram—rather than attempting to implement a conduct remedy that is prone to abuse and may well prove ineffective.
As captured in our comments, State Attorneys General play an important role in protecting their citizens from anticompetitive consolidation. By sharing our experience, we are doing our part to help ensure that the federal merger guidelines are effective in protecting competition.
—Phil Weiser is Colorado Attorney General, sworn in as the State’s 39th Attorney General on January 8, 2019.
Every February for the past 45 years the United States commemorates African American history—a month dedicated to learning about and celebrating the accomplishments and stories of black Americans throughout our nation’s history. Typically, Black History Month is observed through various activities and lessons in school. In our public school systems in particular, teachers add elements to their curriculum about famous African American authors, scientists, politicians, and innovators. In history classes, many teachers explore the clash over slavery leading up to the Civil War, the passage of the 13th and 14th Amendments to the Constitution, and the civil rights movement of the 1960s, perhaps discussing the passage of the Voting Rights Act of 1965 and almost always distributing passages written by the Rev. Martin Luther King, Jr. and perhaps Maya Angelou, too.
It’s great that all of these topics are being discussed in public schools. But there is a lot more to black history than what our schools showcase during the shortest month of the year. Many Americans don’t ever truly discover the depths of the African American experience in ways that fully convey the harm inflicted upon those enslaved before the Civil War and the generations of blacks who continued to suffer from blatant and pervasive racial discrimination over the next 150-odd years.
Public schools tend to gloss over the details of enslavement. And most teachers are not properly equipped to handle discussions of this sordid past in their classrooms or to teach their students about the violent resubjugation of blacks in the South after the Civil War via race riots, lynchings, mass incarceration, voter disenfranchisement, and segregation—actions that spread across the nation as African Americans embarked on the Great Migration out of the South beginning in the late 19th century and continuing well into the post-WWII era.
Because these particular lessons of American history go largely untaught in our public schools, the cascading ill-effects of these discriminatory, state-sanctioned actions on African Americans’ opportunities to succeed and thrive amid the growth of the wealthiest and most powerful nation on earth also goes untaught. The missing chapters in our nation’s history of racial discrimination and the ensuing economic consequences over generations mask the social costs of inequality and the ways in which it obstructs, subverts, and distorts our economy, and society’s ability to stimulate unbiased economic growth as the Washington Center for Equitable Growth’s Heather Boushey explains in her book Unbound: How Inequality Constricts Our Economy and What We Can Do About It.
Indeed, evidence-based research demonstrates that racial economic inequality, driven by opportunity-hoarding and discrimination, obstructs the supply of talent, ideas, and capital in our economy, slowing productivity growth. Our racialized criminal justice system and unresponsive political institutions subvert the ability of the vast majority of African American individuals, families, and communities to thrive. And discrimination in our credit, housing, and labor markets across generations slows wealth creation among African Americans and distorts the macroeconomy by undermining consumer spending.
What’s more, white supremacy and related violence and vitriol are rising at an alarming pace such that the U.S. Department of Homeland Security, in 2019, acknowledged its serious threat to society. Even the Black Lives Matter movement—which merely asks society to acknowledge the disparities faced by African Americans and the fact that their lives are valued less than other demographic groups (not that black lives should be valued more than others)—sparked an outcry from people who likely don’t understand the depths of injustice that black Americans have endured for centuries.
We have both advocated extensively for improving the public education system’s ability to teach our students about the baleful historical consequences for African Americans of enslavement, Jim Crow, and ongoing racial discrimination, as well as the ramifications that continue to this day. Most recently, in Equitable Growth’s newly released book, Vision 2020: Evidence for a stronger economy, we each urge in our separate essays—“Overcoming social exclusion: Addressing race and criminal justice policy in the United States” and “The logistics of a reparations program in the United States”—that the next presidential administration consider new ways to elevate this largely untaught aspect of American history and the African American experience in public schools. Our ideas include:
Allocating funding to local and state-level governments to establish programs and initiatives across subjects within the public Kindergarten through 12th-grade school system that would educate the public about the history of race in the United States and how this history affects social outcomes and our society’s beliefs about race
Beginning the necessary work to implement a reparations program that would elevate the full history of the African American experience and improve public education around these topics as a means to acknowledge this complete history and attempt to repair the damage done
Educating people about racial biases and implicit biases, as well as systemic racism, and how these structures and perceptions shape society and the African American experience within it
Perhaps if our public school systems were given the tools and the encouragement to really teach the atrocities and outcomes of slavery, Jim Crow, and ongoing racial discrimination, the African American experience would be better understood by everyone. Improving education around these topics would provide much-needed context to the lived experiences of black Americans and their ancestors, opening up the possibility for understanding around the past and how its legacy continues to affect the present. Maybe then, our society could garner the mainstream support needed to create the targeted policies needed to close the gaps in educational attainment, innovation, economic standing, and the criminal justice system between African Americans and their white counterparts. Maybe then, all Americans could observe Black History Month fully conscious of the plight of black Americans throughout our history, how much they have achieved despite being held back at every turn—and how much more they could do if they weren’t.
—Robynn Cox is an assistant professor at the University of Southern California Suzanne Dworak-Peck School of Social Work. Dania V. Francis is an assistant professor of economics at the University of Massachusetts Boston.
The need for systemic change, the power of government to improve the U.S. economy and society, and the importance of connecting research, evidence, and data to the U.S. policymaking process dominated the conversation among a panel of scholars at the February 18 introduction of the Washington Center for Equitable Growth’s new policy book, Vision 2020: Evidence for a Stronger Economy.
The book presents 21 essays by leading academic economists and other social scientists containing innovative, evidence-based, and concrete policy ideas that are aimed at shaping the 2020 policy debate. They cover a wide range of issue areas, from tax and macroeconomics to racial and environmental justice, and from labor market reform to antitrust policies.
At the February 18 event, authors of four of the essays discussed their policy proposals: Robynn Cox, assistant professor of social work at the University of Southern California; Susan Lambert, professor of social service and administration at the University of Chicago; Fiona Scott Morton, professor of economics at Yale University, and Equitable Growth president and CEO Heather Boushey, who moderated the discussion.
An audit of current federal crime-control policies and funding to determine what needs to be done to end mass incarceration and repair the criminal justice system
The collection by state and local governments of unbiased data to understand the reasons for persistent racial disparities in criminal justice
Incentives for states to repeal felon disenfranchisement laws
A process of re-educating the American public about the history of race in the United States to “break flawed perceptions in the association between race and crime”
The first step in this process, she writes, should be reconciliation and atonement, which could address reparations for past and current oppressive policies. (Dania V. Francis writes separately about reparations in Vision 2020.)
At the book launch event, Cox noted that we “live in a society that has a dual criminal justice system in which individuals from different social groups are treated differently … We choose to punish differently based on who is committing the crime.” She added, “That seems to be based on age-old perceptions … about race and crime. One can view crime as a symptom of poverty, or you can say individuals have innate criminality and they’re committing crimes because of this innate criminality.”
Cox also explained that “colorblind” policies, whether relating to criminal justice or other policy areas, are not the same as “race-neutral” policies. “We’ve created policies that have been seemingly colorblind, but they have not been implemented in a race-neutral way,” she said, “either because they disproportionately seem to impact certain groups, which then continues to drive disparities and inequality, or because their actual implementation has been biased.”
She concluded, “When we’re making policies, we really have to consider not only this colorblind notion, that this policy is going to help the poor, but is it going to help the most marginalized groups in society? How does it impact racial disparities?”
To learn moreabout Cox’s Vision 2020 essay, see this Equitable Growth video:
Lambert’s contribution, “Fair work schedules for the U.S. economy and society: What’s reasonable, feasible, and effective,” addresses the problems of work schedule instability and unpredictability. Too many workers, especially low-income workers, are subject to employers setting and changing work schedules with insufficient notice, making it difficult to arrange childcare and healthcare, hold second jobs, and predict household earnings from week to week and month to month. Oregon and several U.S. cities have passed comprehensive scheduling laws that, generally, provide workers with two weeks’ notice of their schedules and a good-faith estimate of their hours, as well as greater say over their shifts and protection from arbitrary last-minute schedule changes. Lambert urges the federal government to consider national legislation based on the evidence of how well these and future local and state rules work.
At the February 18 session, Lambert noted the disproportionate impact of scheduling problems. “The most disadvantaged workers,” she said, “experience a constellation of problematic scheduling practices. For example, lower-paid workers, and African American workers compared to white workers, are at significantly higher risk of experiencing what we call the ‘triple whammy’ of having work-hour volatility plus short advance notice plus no say in when you work.”
She also addressed new technologies that enable employers to use algorithms to set schedules for efficiency. She said the new software “is a tool and not the cause of this instability and unpredictability.” But she added that the algorithms “can be used to provide stable and predictable schedules” and that some companies are, in fact, using the software that way.
For more on Lambert’s essay, see this video:
Scott Morton’s essay, “Reforming U.S. antitrust enforcement and competition policy,” lays out the data showing increasing corporate mergers and anticompetitive activity that have led to rising concentration in the U.S. economy and points out why and how antitrust laws are being underenforced. She proposes a number of changes to begin to correct the problem:
She calls on Congress to approximately double the budgets of the Antitrust Division of the Justice Department and the Federal Trade Commission to allow for greater enforcement activities, noting that resources for enforcement have declined significantly since 2000, that the number of enforcement actions has declined, and that firms have been able to raise prices above marginal costs with greater frequency, signaling noncompetitive markets.
She urges the appointment of leaders of the two enforcement agencies who are prepared to use existing authority to toughen enforcement of the antitrust laws and bring challenging cases to the courts.
She calls on Congress to reform antitrust statutes to guide the courts more closely and thus deter and prevent anticompetitive conduct more effectively, pointing to increasingly pro-business court decisions based on loose interpretations of existing law. Such changes would:
Overturn Supreme Court precedent that has permitted anticompetitive behavior on a large scale
Prohibit courts from avoiding examination of the evidence in a case and just assuming that a market is or will become competitive
Create simple rules (presumptions) that deter practices that, based on existing evidence, are likely to be anticompetitive
Clarify that antitrust violations can result in not only higher prices but also reduced quality, harm to innovation, lower wages, and elimination of potential competition
She urges creation of a new federal agency to regulate digital businesses that could take such actions as establishing standards for a competitive digital marketplace and considering whether consumers should be able to coordinate their use of social media applications or commerce websites (known as interoperability).
At the Equitable Growth event, Scott Morton decried the inability or unwillingness of federal judges to consider empirical economic evidence in their antitrust decision-making rather than relying solely on what she considers to be outdated antitrust theory and legal interpretations.
“We know a lot more about how markets work,” she said. “That progress has not translated into the courts, so not only are we enforcing less because of the push to make the judiciary believe that antitrust enforcement is not a good idea, but also we’re not giving courts the tools to enforce well, or when we give the courts those tools, they’re rejecting them and saying they’re too hard, we can’t do economics … Then, you’re throwing darts rather than using scientific tools to figure out whether consumers will be harmed.”
She said one possible reason for judges finding it too difficult to use economic analysis is that most do not get a lot of antitrust cases because of the randomness of how judges are selected for cases. She suggested the creation of a specialized trial court, made up of judges with some economic expertise, to hear cases brought under the federal antitrust laws.
To learn more about Scott Morton’s research, see the following video:
Heather Boushey noted on several occasions the reliance of policy proposals on newly available data, as well as the need for more going forward. In her Vision 2020 essay, “New measurement for a new economy,” she argues for the importance of new metrics in an age of inequality to show whether the U.S. economy is delivering benefits for all Americans. She points to GDP 2.0, an Equitable Growth initiative that urges policymakers to use data to show how the benefits of economic growth are distributed up and down the income ladder.
At the book release event, she also made a connection between data and the other issues discussed by panelists. “You can only analyze things for which you have data and that you know,” she said, “so if you have a set of policies, you know whether or not they were effective. But you don’t know anything about the policies that don’t exist or trends that you aren’t tracking. And so these questions about what kinds of data government should be creating, what kinds of data we could be using from the private sector, are imperative not just for evaluating failures of current policies but for knowing more, which is something that we really want to focus on a lot at Equitable Growth.”
Equitable Growth plans to distribute Vision 2020 to policymakers and others in the hope that its 21 essays can both contribute to the current policy debate and spur action on these critical issues in the coming months and years.
If you are in Washington, D.C. this event is definitely a thing to go to: “EconCon 2020,” an Equitable Growth co-sponsored “convening that brings together organizers, campaign professionals, researchers, experts, communicators, and advocates from across the country … Attendees will build connections, discuss pressing issues of the day, plan for the future, and learn how to fit a wide range of policy debates into a coherent progressive economic worldview. Together, and by using every channel available, we will be able to advance an economic vision that delivers shared, sustainable growth and true prosperity for all.”
An excellent column from Claudia Sahm, “When will everyone who wants to work have a job in the United States?,” in which she writes: “Ayanna Pressley (D-MA) prefaced her questions directed to Federal Reserve Chair Jerome Powell at last week’s semiannual Humphrey-Hawkins congressional hearings with a history of the full employment mandate … President Franklin Delano Roosevelt called for a Second Bill of Rights, including a right to a “useful and financially rewarding job.” Supreme Court Justice Thurgood Marshall argued that the “right to a job” was secured by the 14th Amendment. Martin Luther King Jr. called for a job to all “who want to work and are able to work. After Dr. King’s assassination, Coretta Scott King carried on fight for the full employment mandate. She attended the signing of the Humphrey-Hawkins Act in 1978, and the reason why Powell was there to testify. Rep. Pressley then asked Powell, ‘Yes or no, given persistent concerns about inflation, do you believe the Federal Reserve can achieve full employment?’ Powell began by thanking her for the history, which he said he “did not know.’”
Worthy reads not from Equitable Growth:
The manufacturing-sector recession during Trump’s term in office has been seriously underreported. It is a natural consequence of his macroeconomic policies: tax cuts—even (or is it especially?) those sold as boosting incentives to invest—wind up raising the value of the dollar and putting U.S. manufacturing under additional heavy import pressure. So it has been under Trump. Read Joe Ragazzo, “There’s No Resurgence In American Manufacturing. It’s A Myth.,” in which he writes: “By October of last year, U.S. manufacturing had seen two consecutive quarters of contraction. The sector shed 5,000 jobs in December and 12,000 jobs in January. In December, the Institute of Supply Management’s manufacturing index displayed the fastest rate of contraction since June 2009. And although the ISM suggests an uptick may be on the horizon, the sector still lags behind most others … Unlike most sectors, manufacturing is one in which Trump has taken direct action in the form of tariffs and despite his righteous, self-congratulatory bluster, they have likely amounted to a net decrease in employment … One could argue—and pundits do—that manufacturing is the symbolic foundation of the blue-collar support Trump supposedly has. Trump loves the working people, they say … It’s all nonsense. This administration’s policies have hurt manufacturing and continue to do so.”
This is a very smart loopback on Trump trade policy. Read Brad W. Setser, “Lessons From Phase One of the Trade War With China,” in which he writes: “It is now possible look back at how China decided to respond to Trump’s tariff pressure. China never was prepared—it seems from the outside—to negotiate on China 2025 or the subsidies and procurement preferences at the center of its industrial policies … China views these programs as central to its efforts to upgrade its own technological capabilities and assure its future growth. At the same time, China’s determination to preserve an import-substituting industrial strategy almost guarantees future trade conflict. The means China uses to support its technological development are at odds with those employed by its large-economy peers and assure that any Chinese achievements can credibly be attributed to unfair (though not necessarily WTO illegal) practices. And, well, China’s vision of technological independence likely implies that over time its imports of advanced manufactures from the rest of the world will fall. And in a world where China doesn’t import (much), some of its trade partners may start to wonder why they keep their markets open to China and Chinese-made goods. But these trends won’t play out over the next year—Boeing has bigger problems right now than the C919, China doesn’t yet have indigenous manufacturer of jet engines, China’s efforts to build an indigenous semiconductor industry aren’t going to have a huge impact on its 2020 imports, and Germany’s machine tools haven’t yet been reversed engineered out of the Chinese market. China was able to use its currency to buffer the impact of the trade war without ever losing control—and without burning through a lot of reserves … China did not try to use its Treasuries as a weapon … China didn’t target U.S. manufactured exports in a big way … China did target American agricultural and energy exports, with mixed success.”
Williams Janeway alerts us to industrial policy and venture capital in seriously historical perspective in “The Making of the Digital Revolution,” in which he writes: “The American VC industry has been the subject of academic analysis for 30 years now. But particularly over the past decade, this scholarship has become more objective and authoritative. Unlike in many other areas of finance or wealth management, U.S. venture capitalists’ investment performance can be examined through data provided by their own investors; it is not self-reported by the VC funds themselves. Such an examination reveals three basic facts about the industry. First, VC returns are highly skewed, with a small number of funds generating most of the excess returns relative to publicly available liquid investments. Second, there is persistence in VC returns, as opposed to the randomness one sees among investors in publicly traded financial assets. The performance of a VC fund’s first investment “predicts” the performance of its next, such that a small number of firms are responsible for all of the outperformance. Lastly, VC funds have concentrated their investing activities and overwhelmingly earned their returns in just two sectors of the economy: information technology and biomedical technology. That last fact, of course, corresponds with the leading role played by the state. In no other sectors of science and technology have political leaders crafted a legitimizing mission for such high-risk investments with such enormous potential returns.”
This is a post we publish each Friday with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is relevant and interesting articles we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.
Equitable Growth round-up
Equitable Growth this week released a book of 21 essays with innovative, evidence-based, and concrete ideas to shape the policy debate throughout this election cycle and for the next administration. The book, titled Vision 2020: Evidence for a Stronger Economy, covers a wide range of economic issues—including taxes, macroeconomics, racial and environmental justice, labor market reform, and antitrust policies—and is written by leading voices from academia, building on our conference last year of the same name. These ideas are needed now, more than ever before, due to the widespread and deep-rooted inequality that is present across our economy and society. Repairing the damage inflicted by this inequality will require a complete rethinking about how markets and government function, as well as bold ideas for ways to reimagine an economy that works for everyone, not just the wealthy few. This is likely to be the defining challenge of our time, and we hope that policymakers and leaders in the United States will be inspired to act by the suggestions presented in Vision 2020.
When will everyone who wants to work have a job in the United States, asks Claudia Sahm in her most recent column covering the Federal Reserve. Sahm examines the Fed’s mandate of full employment, which was under scrutiny this week during the semiannual Humphrey-Hawkins congressional hearings, where Fed Chair Jerome Powell testified. Despite the low rates of unemployment, questions remain about the Fed’s role in ensuring that all Americans who want to work can find a job that provides sufficient work hours, as evidence suggests that many people in the United States are not currently fully employed. Sahm reviews the history of the Fed’s “full employment” mandate, racial disparities in employment statistics, the role of inequality, and the Fed’s track record in this area over the past few years.
Links from around the web
Transparency about salaries helps to create more equitable workplace environments, especially for women and minorities, writesSusan Dominus for The New York Times. So, why is there so much secrecy around what we earn? Historically, employers have made concerted efforts to limit the discussion about pay within the office because it can be used against them in myriad ways, from discrimination lawsuits to union negotiations. But legally, thanks to the National Labor Relations Act of 1935, all workers are allowed to share salary information without fear of reprisal or being fired. And recently, almost 20 states (including the District of Columbia) have passed laws prohibiting punishment of employees for discussing their pay—yet, Dominus reports, recent studies show that two-thirds of private-sector employees are prohibited (either formally or informally) from doing so. The taboo surrounding salary sharing—and studies that show that pay transparency can increase worker unhappiness depending on where they are in the pay scale—may be to blame.
Kickstarter employees became the first group of big-tech workers to unionize, voting to form a union with the Office of Professional Employees International Union, reportsLauren Kaori Gurley for Vice. The decision to unionize comes during a period of growing labor organizing in the tech industry around issues from sexual harassment to carbon emissions. In fact, from 2017 to 2019, “the number of protest actions led by tech workers nearly tripled,” writes Gurley. While Kickstarter since its founding in 2009 has tried to distinguish itself from other big tech companies, the unionization sends a strong message to other tech workers across the industry.
The United States has been measuring the percentage of its population living in poverty the same way since 1963, writes Jeff Spross for The Week—and, he continues, that way in which we define poverty “is a conceptual trainwreck.” Not only has the measurement tool not been updated in nearly six decades, it is also based on a logic that barely makes sense. Spross goes through the history of the Official Poverty Measure, the more-recent release of the Supplemental Poverty Measure to attempt (quite badly) to address some of the shortcomings of the OPM, and the differences between how each looks at poverty. Ultimately, he argues, there is no silver bullet when it comes to measure poverty because how we define poverty “is an inescapably political question, and an inescapably moral one.”
Rep. Ayanna Pressley (D-MA) prefaced her questions directed to Federal Reserve Chair Jerome Powell at last week’s semiannual Humphrey-Hawkins congressional hearings with a history of the full employment mandate. In her remarks, she noted that:
In 1944, President Franklin Delano Roosevelt called for a Second Bill of Rights, including a right to a “useful and financially rewarding job.”
Supreme Court Justice Thurgood Marshall argued that the “right to a job” was secured by the 14th Amendment.
Martin Luther King Jr. called for a job to all “who want to work and are able to work.” She underscored that the March on Washington for Jobs and Freedom was a march for “economic justice.”
After Dr. King’s assassination, Coretta Scott King carried on fight for the full employment mandate. She attended the signing of the Humphrey-Hawkins Act in 1978, and the reason why Powell was there to testify.
Rep. Pressley then asked Powell, “Yes or no, given persistent concerns about inflation, do you believe the Federal Reserve can achieve full employment?”
Powell began by thanking her for the history, which he said he “did not know.” To her question, he said, “[Full employment] that’s our goal. We will never accomplish our goal. We certainly have made some progress.” His reply is notable for its honesty and troubling for its pessimism. Congress gave the Federal Reserve its dual mandate of maximum employment and stable prices. Fed officials remain confident they will achieve their desired inflation target of 2 percent, so why give up on full employment?
Today, with the national unemployment rate at a half-century low of 3.6 percent, policymakers and the American public should reflect on the history of full employment and what it means to the well-being of families. The Federal Reserve has been repeatedly surprised over the course of the current economic expansion by how much more the U.S. labor market could strengthen. The national unemployment rate is now 0.5 percentage point below the Fed’s longer-run estimate that they made in December 2015. One-half of a percentage point may sound like a small difference, but it translates into 2 million more people with jobs today.
In addition, the official unemployment rate likely overstates how close we are to full employment. In a recent survey, 1 in 10 adults said they were not working and wanted to work. That rate is more than twice the official unemployment rate. The discrepancy is explained by adults who have not applied for a job in the past year. The official unemployment rate is only out of the people who are at work or searching for work. It does not include people who have been on the sidelines for so long that they have given up on finding a job. What’s more, another 2 in 10 adults were working but said they wanted to work more hours.
Taken together, these findings suggest that many people are not fully employed. During his testimony, the Fed Chair was correct when he pointed to recent progress in the labor market, which is definitely encouraging, yet the dismissals by Powell and his colleagues at the Federal Reserve at what more they could achieve on the employment front is not.
The fight for full employment rose out of the civil rights movement. Many decades later, black people remain considerably further from full employment than white people. At every level of education, African Americans are much more likely to say that they want to work more. This combines those who want a job and those who want more hours. Notably, black people with a bachelor’s degree or more are as likely as white people with a high school degree or less to want more work. It is impossible to say the U.S. economy has attained full employment or economic justice. (See Figure 1.)
Figure 1
The Federal Reserve recognizes these racial disparities, as well as other dimensions of economic inequality. In 2019, Powell spoke at a town hall meeting with teachers. He told them, “We want prosperity to be widely shared. We need policies to make that happen.”
That’s why the Federal Reserve and other parts of the government have their work cut out for them. Wealth and income inequality is high, and is rising. Households with incomes in the top 1 percent own almost $30 trillion dollars in wealth. Their wealth is nearly as much as the wealth owned by the bottom 80 percent of households by income. Eighty times as many households, including the middle class, have wealth on par with the top 1 percent of income earners. These massive differences in wealth have risen since the Great Recession and show no signs of abating. (See Figure 2.)
Figure 2
Clearly, the Federal Reserve alone cannot deliver shared prosperity. Fiscal policy is equally important. Even so, monetary policy can support the ongoing economic expansion and the gains in the labor income. Full employment will not deliver wealth equality without other government policies. But the Federal Reserve has a mandate from Congress to do its part and must remain dedicated to making sure anyone who wants to work and is able to do so has work.
Unfortunately, the track record of the Federal Reserve during the current expansion does not inspire confidence. At the Humphrey-Hawkins hearings 4 years ago, the national unemployment rate was 4.9 percent. That rate equaled the median of estimates at that time by the members of the Federal Open Market Committee of the unemployment rate’s longer-run normal level. That alignment implied that the unemployment rate was at or near the level below which the Federal Reserve believed inflation would begin to rise. They were wrong: inflation did not increase, even as the unemployment rate declined more.
Moreover, the FOMC members’ perception of a strong labor market then justified their decision to increase the federal funds rate in December 2015. It was the first time the Fed had raised rates since the financial crisis in 2008. We know today that the unemployment rate could go much lower without inflation reaching the 2 percent target set by the Federal Reserve.
Rep. Pressley in last week’s congressional hearings pressed Powell on that decision to raise rates in 2015 and the Fed’s underestimation of the strength of the U.S. labor market. Powell made clear that he was among the officials who had voted to raise rates. He was open about the mistakes of the past, adding that “hindsight is 20/20.” As he said, policymakers must make decisions with the information that they have at the time.
Even so, the Federal Reserve has not delivered on either side of its dual mandate—inflation or employment—for more than a decade. Given the data available today on its policy decisions, it seems like Powell is right, and we never will reach full employment.
The Washington Center for Equitable Growth today is publishing a collection of 21 essays, with innovative, evidence-based, and concrete policy ideas to shape the 2020 policy debate. The essays, which will be introduced at an event in Washington, DC, cover a wide range of economic issues, including taxes, macroeconomics, racial and environmental justice, labor market reform, and antitrust policies.
The new book, Vision 2020: Evidence for a Stronger Economy, builds on last fall’s Equitable Growth conference of the same name and features leading voices from academia tackling the most pressing economic issues facing Americans today.
Recent transformative shifts in economic thinking illustrate how inequality obstructs, subverts, and distorts broadly shared economic growth. Undoing the economic damage caused by inequality and building the structures and institutions necessary to chart a new path will require systemic reforms in how markets and government work. Vision 2020: Evidence for a Stronger Economy offers some of the most promising, evidence-backed ideas for how to do just that.
At the release event, three book contributors—Robynn Cox of the University of Southern California, Susan Lambert of the University of Chicago, and Fiona Scott Morton of Yale University—will speak with Equitable Growth President and CEO Heather Boushey about their proposals.
Cox’s essay, “Overcoming social exclusion: Addressing race and criminal justice policy in the United States,” questions the idea of dealing with economic inequality through criminal justice reform, arguing instead for a widespread audit of current federal crime-control policies and funding to determine what needs to be done to end mass incarceration and repair the justice system.
Boushey’s essay, “New measurement for a new economy,” examines why it’s important in an age of inequality for policymakers to craft and make use of new metrics that show them and the public how the U.S. economy delivers for all Americans. What’s needed, she says, is GDP2.0 as an absolutely essential component of a policy agenda.
Reimagining an economy that works for all—providing good jobs and opportunities and rebuilding economic and political power for people and communities across the nation—is the defining challenge of our time. Equitable Growth has published Vision 2020 in the hope that the bold ideas advanced by its authors can inspire the country’s leaders to rise to that challenge.
This essay is part ofVision 2020: Evidence for a stronger economy, a compilation of 21 essays presenting innovative, evidence-based, and concrete ideas to shape the 2020 policy debate. The authors in the new book include preeminent economists, political scientists, and sociologists who use cutting-edge research methods to answer some of the thorniest economic questions facing policymakers today.
To read more about the Vision 2020 book and download the full collection of essays, click here.
Overview
Competitive markets deliver to consumers a variety of benefits: higher productivity, lower prices, better quality products, and more innovation. Yet firms have a financial incentive to restrain competition in order to obtain monopoly profits. There are three main harmful methods of limiting competition: colluding with rivals in a market, merging with rivals or potential rivals, and using anticompetitive techniques to exclude existing or potential entrants.
U.S. antitrust laws are designed to prevent these behaviors by making price-fixing, bid-rigging, and similar behavior illegal, requiring government review of mergers to prevent those that lessen competition, and prohibiting anticompetitive conduct by an incumbent with market power that tends to exclude entrants and rivals. Unfortunately, over the past few decades, these laws have not been operating in a way that generates and preserves vigorous competition in U.S. markets.
It is well understood that market power decreases innovation, productivity, and the efficient use of resources. Market power, however, also contributes to growing inequality. Shareholders and senior executives who benefit from increased market power through higher salaries and increased stock prices are disproportionately wealthier than consumers, on average. Furthermore, consumers, suppliers, and workers may beharmed by paying higher prices for monopoly products or services and receiving lower compensation for the products and services (inputs or wages) they supply to monopsonists (buyers with market power).1
Consumption, by contrast, is not nearly so concentrated. Joshua Gans at the University of Toronto’s Rotman School of Management and his co-authors report that the consumption of the top 20 percent of the wealth distribution in the United States is approximately equal to that of the bottom 60 percent, but their equity holdings are 13 times larger. Thus, if a dollar of monopoly profit is transferred to lower prices, most of that dollar moves from benefitting the top 10 percent through the value of their stock or dividends to instead benefitting the bottom 90 percent through lower costs of purchases.
Therefore, antitrust enforcement redistributes wealth without incurring the traditional shadow costs arising from taxation and, indeed, is an actively beneficial form of redistribution for the economy.2 Because antitrust enforcement both redistributes income and wealth to the bottom 90 percent of the population, as well as increases efficiency, it should be the first choice of policymakers concerned with equity. The standard for anticompetitive harm that courts use today is the protection of consumer welfare—meaning price, quality, and innovation, now and in the future. Antitrust enforcement using the best available economic tools—developed, in some cases, decades ago—generates the evidence needed to show where such anticompetitive conduct is present.
The underenforcement described below is the fault neither of this standard nor of the economic tools themselves—though they could, of course, be better. The antitrust underenforcement we see today is primarily the result of decisions made over the past 40 years in the courts.
The four policies I recommend to reverse this harmful trend are:
Dramatically increase the budgets of two federal antitrust agencies, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, which would be less expensive than it might appear because the two agencies collect disgorgement and restitution awards that flow back to consumers.
Appoint leaders of these two agencies who are committed to using the best tools available to reverse the decline in competition. Aggressive but appropriate enforcement will either lead to good results or will identify failures in the law or by the judiciary to protect competition and consumers.
Support and pass new legislation so that Congress can make it clear to the courts how it would like federal antitrust laws to be enforced and require courts to adopt up-to-date economic learning.
Create a new “Digital Authority” to enforce privacy laws, protect digital identities and consumer data from being monopolized by private firms with market power, and create baseline conditions conducive to competition in digital marketplaces.
This essay will first address the “hot” topics in antitrust today, such as technology markets and digital platforms, as well as important everyday markets such as agriculture, transport, and pharmaceutical products, and then turn to my recommended reforms.
Market power has increased
The evidence for the failure of current U.S. antitrust policy is detailed in my report from May 2019 titled “Modern U.S. antitrust theory and evidence amid rising concerns of market power and its effects,” and its accompanying database.3 Economic evidence of rising market power comes from large samples of firms and industries. One widely discussed study of all publicly traded firms finds that markups (the difference between the price charged to a consumer and the cost to make an additional unit) have risen sharply since 1990 among firms in the top half of the markup distribution.4 Macroeconomists have further documented a declining share of national incoming going to workers and a rising share going to profit.5 New theories whose empirical implications are only now being explored also are possible contributors to rising market power. For instance, the huge growth in overlapping equity ownership of rival firms by diversified financial investors over the past four decades has plausibly led to less aggressive competition in many industries.6
Still more evidence of market power comes from labor markets—in this case monopsony power, which is exercised by a buyer with market power (such as an employer) to pay less for its inputs (such as workers). Because workers have specialized skills and are often geographically constrained, monopsony power is common. Recent studies find that employers have monopsony power over college professors and nurses.7 Wages for nurses may stagnate after hospital mergers for this reason. The extensive use of noncompete agreements in employment contracts involving low-wage fast-food workers and the no-poach agreements between a number of high-tech firms over software engineers and between rail equipment suppliers over their workers, provide additional examples of anticompetitive conduct that harms workers.8
Evidence that antitrust laws are falling short is plentiful. Many cartels go undiscovered, and tacit collusion is probably even more prevalent because it is harder for antitrust enforcers to prosecute and deter.9 Anticompetitive horizontal mergers (between rivals) appear to beunderdeterred.10 A variety of clever strategies used by incumbents to exclude entrants, either by purchasing them when they are nascent or using tactics to confine them to a less threatening niche or forcing them to exit have been successfully deployed in recent years, often when antitrust enforcement is late or absent.11
Each of these sources of concern can be critiqued, but together they make a compelling case. Some of the evidence may have benign explanations in part, such as the growing importance of fixed costs, for example, when creating software or pharmaceuticals that leads naturally to higher markups, or the increasing benefit of being on the same platform with other users (known as “network effects” in the case of a social media site). Firms in industries with high fixed costs or large network externalities may exhibit high profits and productivity and low labor shares, and may earn high profits because they had a good idea early and executed well, thereby getting adoption from many consumers.12 Nonetheless, the overall picture is clear that market power has been growing in the United States for decades. Moreover, even where the explanation for growing market power is benign, we must ensure that companies do not use anticompetitive tactics to protect their position.
Firms with market power need not compete aggressively to sell their products, so they tend to raise prices, reduce quality, and/or innovate less. Market power can also contribute to slowed economic growth by, for example, suppressingproductivity increases.13 Theoretical and empirical economic studies convincingly show that innovation is harmed by anticompetitive conduct.14
This is why antitrust enforcement is such a terrific policy tool to strengthen competition—it does not come with an efficiency downside, as do most policies that redistribute income. Policies that enhance competition are unambiguously beneficial for efficiency, as well as inclusive prosperity, with minor qualifications.15 Other policies for addressing inequality, in particular, such as labor market and tax policies, may create disincentives or allocative efficiency losses that must be weighed against their distributional benefits. Policies to enhance competition, by contrast, offer what is close to a free lunch.16
An agenda to confront market power
An antitrust enforcement policy agenda to confront rising market power has four parts: increase enforcement resources; appoint agency leaders committed to using the best tools to combat the decline in competition; reform statutes to deter and prevent anticompetitive conduct more effectively; and use regulatory tools to foster competition. Let’s look at each of these policy components in turn.
Increase resources for enforcement
The resources expended on enforcing the antitrust laws in the United States are lower as a proportion of Gross Domestic Product than they were for most of the mid-1900s and have experienced a notable decline since 2000. Interestingly, this decline coincides with a rise in markups by firms, an increase in U.S. Supreme Court opinions protecting monopolists, and increasing policies that benefit incumbents. These patterns are consistent with the interests that favor corporate profits over consumers and those firms gaining more control of the political process to achieve all of these goals.
Approximately doubling the budget of both federal antitrust agencies would restore resources to a level where the agencies would be able to combat much more of the anticompetitive conduct present in the economy. In increasing resources, Congress should also consider whether it should provide funds to bolster the enforcement efforts of state attorneys general.
Appoint leaders committed to using the best tools available to enforce competition rules
Effective antitrust enforcement requires the appointment of enforcers who will vigorously protect consumers using modern economic tools. This will inevitably require litigation in the face of hostile legal rules, and possibly losses. Yet aggressive but appropriate enforcement will either lead to good results or identify failures by the judiciary to protect competition and consumers.
Leadership at the two agencies that is committed to reversing the decline in competition could take full advantage of existing antitrust laws. The game theory revolution (creation of tools to understand strategic interactions) in microeconomics beginning in the 1980s and the development of empirical techniques from the 1990s onward provide underutilized tools to identify and quantify harmful practices that can be attacked under the current antitrust rules.17
The enforcement agencies already use econometric methods, sophisticated simulations, bargaining theory, and other tools to identify harmful conduct and choose which cases to bring to court, yet in some instances, courts have trouble understanding these tools and resist accepting them as state of the art. Too often, court decisions, such as in the merger of AT&T Inc. and Time Warner Inc., reject modern economic ideas.18 Rather than change strategies, enforcers must continue to rely on the best arguments and evidence even if there is a chance that in the short run a court will not understand. Sound economics is critical to this approach: It shows where there is harm to consumers and explains how that conduct is harming consumers. Over time, the economic arguments can educate all of society, both the public and the courts. This is not an easy task but generates broad-based benefits.
The history of pharmaceutical pay-for-delay litigation amounts to a long string of losses in court for the Federal Trade Commission against drugmakers, eventually followed by success.19 This history shows that the agencies are capable of convincing courts to change their views when they rely on sound economics and persevere. Moreover, publicly demonstrating the harm through an ultimately unsuccessful court challenge can clarify to the public and to Congress when a court is ideologically opposed to protecting consumers from that harm.
One of today’s significant challenges is convincing courts to do more to protect potential competition from anticompetitive conduct.20 When markets become more concentrated because of network effects or economies of scale, the primary locus of competition shifts from competition in the market to competition for the market. In that setting, consumers rely on competitors who are about to enter, could potentially enter, or who are nascent competitors in the market to put pressure on oligopolists or dominant firms, making potential competition a critical source of consumer welfare.
While antitrust enforcers have had some success in attacking conduct by a monopolist that excluded nascent competition, as in high-profile litigation involving Microsoft Corp. two decades ago, doing so is particularly challenging when the excluded product poses a future competitive threat but has not yet had substantial marketplace success.21 The next leaders at the antitrust agencies must understand the need to bring cutting-edge cases to protect potential competition even in the face of legal hurdles.
Reform antitrust statutes to deter and prevent anticompetitive conduct more effectively
Increasing resources and more aggressive enforcement alone will not solve the problem. Judicial decisions interpreting the antitrust laws have significantly crippled antitrust enforcement. These decisions reflect, at best, an archaic economic understanding of competition or, at worst, simply bad economic reasoning.
Under a series of U.S. Supreme Court decisions over the past decade, for example, it is doubtful that the government could have successfully broken up AT&T’s phone monopoly in the 1980s. That break up, arguably the government’s most successful monopolization prosecution, focused on AT&T’s refusal to allow MCI, a long-distance competitor, to connect its long-distance service to local phone monopolies. In Verizon Communications v. Trinko, the Supreme Court dramatically expanded a monopolists’ ability to avoid antitrust liability when it refuses to deal with competitor or potential competitor, and also implied that antitrust concerns are subordinate in an industry subjected to the regulation.22 More recently, the Supreme Court misapplied basic economic reasoning in a case that, under some interpretations, has the potential to almost exempt technology platforms from antitrust enforcement: Ohio v. American Express.23 Since technology platforms comprise an ever-increasing share of economic activity, this situation is of grave concern.24
Even where the antitrust plaintiffs have been successful, the difficulty and cost of those successes suggest systematic underweighting of the benefits of competition and deference to the desire of the corporation for increased market power. The government’s long battles over stopping pay-for-delay deals and anticompetitive hospital mergers are notable examples of this misalignment, as is the approval by the government of the Sprint-T-mobile merger. In all of these cases, the corporations did not seek that market power on the merits, but through regulation (Trinko or state-supervised hospital mergers), exclusion (pay for delay and American Express), or merger (AT&T-TimeWarner or Sprint-T-mobile).
Despite the government’s success in some merger litigation, this success only occurs in transactions that most clearly violate the law.25 The fact that the two antitrust agencies must litigate cases that are clearly anticompetitive—rather than the parties not even considering the deal in the first place or abandoning it after the government makes its concerns known—speaks to the limitations of current antitrust legal doctrine.
It would likely take decades to reverse this body of accumulated legal doctrine, even if every future case that was litigated were decided with perfect accuracy. Fortunately, Congress is the final arbiter on competition law and can change it to reflect the desire of society for competitive markets. Congress has not substantively amended those laws in more than 60 years. A broad foundation of economic research supports retooling our antitrust laws for the 21st century and restoring the vigor that was originally intended. Although legislation can take many forms, successful antitrust reform legislation should accomplish four goals:
Overturn Supreme Court precedent that has inoculated exclusionary conduct from antitrust scrutiny even when it harms competition by eliminating or harming competitors
Prohibit courts from assuming that some aspect of a market is competitive or will become competitive rather than assessing the evidence in the case
Create simple rules (known as presumptions) that will lower the resource cost of enforcement for conduct and acquisitions that economic research shows are likely to raise competitive problems
Clarify that the antitrust laws are designed to protect competition that may manifest itself across a broad range of outcomes such as higher prices, reduced quality, harm to innovation, lower input prices, and elimination of potential competition
Lastly, Congress could consider two ways to raise the expertise level of judges. One is to require the court to hire its own economic expert in an antitrust case, paid by the parties. The neutral expert’s task would be to help the court understand the economics presented by each side. A second option is to create a specialized trial court to hear cases brought under the federal antitrust laws.26 Doing so would allow antitrust cases to be heard by judges with experience in evaluating complex economic evidence. A sophisticated judge would encourage litigants to rely on the best economic arguments and modern economic tools applied to the facts in the case, improving the accuracy of judicial decisions and discouraging judicial acceptance of the erroneous general economic assumptions that have supported relaxed antitrust enforcement.27 A term on such a specialized court should be of relatively short duration to limit the possibility of capture or entrenchment.
Complementary regulation that promotes competition: Create a federal digital authority
There is a real need for federal agency to regulate digital businesses. This new agency could create a baseline level of competition in an area that lacks it. Regulations under its purview could enhance competition by, for example, facilitating digital-data portability that would allow a consumer to take her own data in a usable format from one provider to a competitor (such as moving purchase history from Amazon.com to Jet.com).
A new agency also could define and regulate “interoperability” in the digital arena; for example, a Verizon phone can call an AT&T phone because they are interoperable. A digital authority could ensure social media sites were also interoperable so that a person who uses Snap, for example, could follow her friends who post content on Instagram or another site. And it could consider the creation of open standards that promote competition, such as a standard for micropayments. These payments in fractions of a cent cannot practically be made today because the transaction cost is higher than the amount being paid. But micropayments may be critical in compensating consumers for their attention, may be an important dimension of competition between platforms, and may aggregate to significant benefit to consumers. By creating one system, a regulator could enable price competition in attention markets.
In addition, this new regulator could be tasked with enforcing somewhat stricter antitrust laws for those digital platforms or sectors that Congress felt required additional scrutiny and speed, or where competition was particularly valuable for society. This would allow a faster, more specialized agency to protect small entrants into digital marketplaces from exclusion or discrimination by the incumbent platform. It would also allow for review of even the smallest acquisitions when those small firms are being acquired by the largest incumbents. In general, the agency could have a mandate to protect and facilitate entry to address competition problems in the digital sector.
—Fiona M. Scott Morton is the Theodore Nierenberg Professor of Economics at the Yale University School of Management. (This essay draws on ideas developed in prior work jointly with Jonathan Baker, a research professor of law at American University Washington College of Law.)
