I call upon every country in the world to make war on Israel immediately and until such time as Israel has submitted permanently and unconditionally to the government of Palestine everywhere from the Jordan River to the Mediterranean Sea.
Israel is the last major Western colony remaining in Africa or the Middle East. She has committed genocide, extermination, and forced displacement against the native population of Palestine since her inception in 1948. She has done so at greatly accelerated pace over the past year, during which she has killed in excess of 300,000 people, about 150,000 of whom were children. She promises to kill many times that number.
The norm against Western colonization established by wars of decolonization in the 20th century is in peril. The world must act now. Given the stakes, each nation must prepare to strike alone.
I stand in solidarity with the Palestinian people, their resistance forces, their allies throughout the region, the global intifada, and, especially, my fellow law scholars in Palestine, both teachers and students, thousands of whom have been slaughtered by Israel over the past year.
[If you are law professor in the United States and would like to join this statement, please send an email to zephyranth@zephyranth.pw .]
Signed:
Ramsi Woodcock University of Kentucky
PS An earlier statement with more detail can be found here.
(To be read alongside Network Law Review’s symposium on New Brandeisianism.)
There is probably no single economic issue that has a better progressive pedigree than inflation. The socialist John Maynard Keynes invented macroeconomics, the field devoted to managing it. And the policy responses that socialists like Keynes have rendered mainstream are, well, radical. Whether they involve manipulating interest rates, wages, or the terms of sale of consumer goods, they all have one thing in common: direct regulation of prices, which is a cousin of central planning.
When inflation hit America in 2021, one might, therefore, have expected the progressives in the Biden Administration to appeal to this tradition and make interest rate policy, price controls, or perhaps windfall profits taxes the centerpiece of their response.
There was no evidence that the economy had become more concentrated overnight, enabling firms to raise prices all at once in 2021. The Biden Administration argument that monopolies needed the pandemic as anexcuse to raise prices was wishful thinking, not to mention self-defeating. If monopolies need excuses to raise prices, then the harm of monopoly is a problem of public education and antitrust might usefully be replaced with a U.S. Department for the Debunking of Corporate Excuses.
Why did progressives respond (and continue to respond) to inflation in such a quirky way?
The answer is that elite progressive policy circles have been captured by New Brandeisianism, a movement with origins in neither the progressive grassroots nor progressive thought that rode a wave of journalistic antipathy toward the tech giants into a position of influence in the Biden Administration. New Brandeisianism is not so much a progressive movement as a newspaper-promoted simulacrum of one, capable only of recursively applying the monopoly frame to every problem that comes its way—from inflation and low wages to Taylor Swift.
At least when the political stakes are low.
The vacuity of New Brandeisianism can be read in the odd and self-defeating policies that have emerged from its monopoly fixation. But it can also be seen in the way that fixation has seemed to evaporate when it comes to the most important challenge to social justice of our time: America’s ongoing genocide and colonization of Palestine via the State of Israel. New Brandeisianism’s failure to object to eight months of genocide that, as we shall see, easily fit within a monopoly frame speaks to the movement’s empty character.
Neither a Popular Movement Nor an Intellectual One
Before the rise of New Brandeisianism, progressives had always been aided in their quest for substantive equality by richly articulated theoretical traditions, ranging from Marxism to law-and-economics—the latter a field that progressives themselves founded a century ago, long before it became associated with conservatism in the 1970s and 1980s.
The story of how progressives came to forsake theory in favor of New Brandeisians’ monopoly mantra has not yet been fully told. But we can learn a lot about the character of New Brandeisianism by considering that from which it did not emerge.
Scratch the surface of the movement that brought America the New Deal and you find both a rich intellectual canon populated by thinkers like Robert Hale and grassroots movements like the Grange and American labor.
Scratch the surface of the movement that rolled back the New Deal and it is scholars all the way down (with a corporate-funded turtle or two thrown in for good measure). Love them or hate them, the Chicago School was, well, a school—populated by thinkers ranging from George Stigler to Gary Becker, who left oeuvres that continue to be studied today.
But scratch the surface of New Brandeisianism and one finds: nothing.
The movement has no roots in academia. The aging community of progressive antitrust scholars was blindsided by the rise of New Brandeisianism in 2018—and were an object of New Brandeisians’ contempt, not least because of their reliance on economics.
Moderate and conservative antitrust scholars, locked in the ivory tower (or corporate boardrooms on consulting gigs), assumed that if New Brandeisianism wasn’t coming from them it must be coming from the people. These scholars thought they were putting New Brandeisians down by callingthem “populists”. Instead, they inadvertently attributed to New Brandeisians a provenance that New Brandeisians did not deserve.
There is no movement of working Americans against monopoly, no matter how hard New Brandeisians try to fudge the difference between abstract public antipathy toward big business and non-existent public antipathy toward monopoly.
Americans care about paychecks and prices, not whether the firm that’s overcharging or underpaying them happens to be the only seller in a properly defined relevant market—or happens to have a large share of sales in a particular NAICS code.
A Movement of Obscure Origin That Was Made by the Press and Is Badly Out of Step with Progressive Thought
If New Brandeisianism sprang neither from the gown nor the town, then where exactly did it come from? The answer is: no one seems to know.
But there are a few suggestive data points.
One is that many of the major protagonists belong to the same clique associated with the Open Markets Institute and satellite groups like American Economic Liberties Project and the Institute for Local Self Reliance. FTC Chair Lina Khan got her start at Open Markets before going to law school. Antitrust Division head Jonathan Kanter is an Open Markets friend.
Another is that the press seems to have made the movement. Starting in 2016, around the time that the newspaper industrystartedpressing the tech giants to pay for news, the press started relentlesslypromoting Open Markets people and policies. This campaign turned a backwater of legal policy that many thought would disappear with the retirement of boomer antitrust scholars into a cause célèbre for elite progressives.
The best one can tell based on these data points is that New Brandeisianism started out as an attempt by a few think-tankers and journalists to use the monopoly concept to explain their world.
Think of the sort of “big idea” nonfiction books sold at airports—but without the popular appeal. One can imagine the gears turning in New Brandeisian heads: Big firms claim that they are big because they provide better goods than the competition. But maybe the truth is that they are big because they have used dirty tricks to destroy the competition and become the only sellers in their markets!
At first glance, this looks like a useful progressive frame. But there’s a reason why a century of progressive thought always avoided taking this logic as a centerpiece: It’s wrong.
While there are plenty of firms that get big by monopolizing markets, there are also plenty of firms that get big by making better products. And here’s the thing: both kinds of firms charge high prices and create inequality so progressive policy shouldn’t turn on whether a firm happens to be a monopoly or not.
Whatever one might think about Apple today, it’s hard to make the case that the company’s meteoric rise in the years after 2007 was due to dirty tricks rather than creating the smartphone as we know it. But the fact that Apple got big by being better doesn’t mean Apple should be allowed to charge exorbitant prices for its products.
In fact, progressives’ key insight from a century ago is even more profound. Progressives showed that even perfectly competitive markets inhabited by small businesses can create massive inequality.
Competition does not eliminate profits because some firms will always have lower costs than others. Because the competitive price is determined by the firm with the highest cost in the market (otherwise that firm wouldn’t be in the market), the competitive price is an above-cost price for all the other firms in the market. And above-cost prices mean windfall profits for the firms that are lucky enough to be able to charge them.
Financial markets are some of the most competitive markets in existence, with large numbers of buyers and sellers trading on centralized exchanges. And yet people get rich trading securities all the time.
The implication was that antitrust could at best play a minor part in any progressive agenda aimed at redistributing wealth. To attack the prices charged by big firms that had gotten big by being better, or that were getting rich in highly competitive markets, progressives would need other tools, like price regulation and taxation.
In such markets antitrust would be ineffective at best, and when it came to breaking up genuinely productive firms, affirmatively harmful.
What is more, price regulation and taxation can also be used to eliminate the profits earned by monopolies, thereby eliminating the incentive of firms to monopolize markets. So a progressives don’t need antitrust at all in order to achieve their goals.
No wonder the centerpiece of the New Deal—American progressives’ greatest policy triumph to date—was price regulation (fully a quarter of the American economy was price regulated in the mid 20th century), taxation, and redistribution of the proceeds of taxation via massive spending programs. Antitrust was an afterthought.
If the current resurgence of progressive interest in inequality had been allowed to grow organically, it probably would have coalesced around the same tried and true pillars of progressive policy. One sees that rather clearly, for example, in Thomas Piketty’s observation in Capital in the 21st Century, the book that kicked off the resurgence in progressive interest in inequality.
Piketty argued that growing inequality “is not the consequence of any market ‘imperfection.’” The problem is not monopoly, but markets themselves. And the solution, he argued, would be radical tax increases.
But the progressive response to inequality has not developed organically. Instead, New Brandeisians’ superficial view that monopoly explains everything was catapulted to elite, if not popular, stardom by news industry executives trying to use antitrust to smite the social media competitors that were eating newspapers’ advertising revenues.
Wedded to an Abstraction But Lacking a Theoretical Foundation
New Brandeisianism’s provenance explains its weird combination of attachment to an abstraction—the concept of monopoly—and lack of theoretical structure to support the abstraction.
If it were a popular movement, New Brandeisianism would have been built around the concrete deliverables that people care about, like higher wages and lower consumer prices. But New Brandeisianism is instead an elite project that deals in the elite cultural currency of abstraction—in this case, the concept of monopoly.
But despite its affinity for an abstraction, New Brandeisianism is not an intellectual movement, even if the public profile given the movement by the press has attracted some academic hangers-on.
If New Brandeisianism were an intellectual movement, monopoly would be the conclusion of a chain of reasoning that could be adjusted and redeployed to reach different conclusions depending on the problems the movement might be asked to consider. New Brandeisians would be able to propose something new and creative to fight inflation, to drive up wages, or to bring down the price of concert tickets.
New Brandeisians do not have a chain of reasoning upon which to draw for new ideas because the movement has never needed one. Unlike progressive scholars of a century ago, or the Chicago School, the New Brandeisians did not achieve their position by running the gauntlet of ideas. They achieved it by happening to say what a powerful industry liked to hear.
All they have is monopoly. So they see it everywhere.
If this seems to you unfair, it may be because you haven’t spent much time with New Brandeisian texts.
New Brandeisians’ lack of a theory has not only made the movement into a man with a hammer. It has also prevented the movement from generating a coherent theory of anticompetitve conduct.
New Brandeisians argue that big firms monopolize markets by engaging in what New Brandeisians call “self-preferencing”: big firms discriminate in favor of their own products on the platforms that they run.
The problem with the self-preferencing concept is that, when you think about it, literally everything a firm does counts as self-preferencing.
Whatever a firm does in-house excludes outsiders who might have been willing to do that same thing and sell the component directly to consumers. You can’t produce so much as a widget without giving yourself preferential access to your own platform.
So by deploying self-preferencing as their theory of what counts as bad conduct by a monopolist, New Brandeisians render the conduct requirement meaningless. Every firm satisfies it just by making products.
Not coincidentally, this allows New Brandeisians to go back to chasing after monopolies as evils in themselves.
Only, New Brandeisians don’t seem to understand that self-preferencing plays this reductive role for them. They actually seem to think favoring your own products on your platform is an independent wrong.
To a New Brandeisian, it sounds plenty evil when Amazon makes the company’s own products appear first in searches on Amazon.com, making it harder for consumers to find other sellers’ products on the website.
But Amazon also self-preferences in a zillion other ways that New Brandeisians don’t seem to notice, much less condemn, because that would put them in the position of condemning production itself.
For example, Amazon also self-preferences when the company features the design elements of its in-house web design team on its website rather than letting customers buy designs from third party programmers and apply them to the site.
You can download new themes for the Firefox web browser, but not for Amazon.com. Amazon’s in-house design team benefits—to the complete exclusion of third-party web designers.
The same can be said for every other thing that Amazon does.
New Brandeisians aren’t finding bad behavior when they identify self-preferencing. They’re finding behavior.
There might be something wrong with Amazon’s favoritism of its products in search results, but the problem is not self-preferencing.
New Brandeisians are unable to say what the problem is, however, because they have no theory to support their concept of monopoly.
The Concept of Monopoly Leveraging Doesn’t Help
The more intellectually sophisticated antitrust progressives of the older generation might trying to bail out New Brandeisianism by responding that self-preferencing is bad when it leads to further monopoly.
When Amazon self-preferences on advertising, Amazon takes a step toward driving third-party sellers from its website, and because most e-commerce is done on Amazon’s website, that amounts to monopolization of the entire e-commerce industry.
By contrast, Amazon is far from the only website on the Internet. Excluding web designers from Amazon.com does not enable Amazon to monopolize the entire web design market.
The trouble with this argument is that for any two actions that a firm takes that do not monopolize markets, we can usually form a combined action that does monopolize the market for the product of that action but which New Brandeisians do not condemn.
Amazon excludes third party web designers when Amazon designs its own website. And when Amazon picks its own cardboard box suppliers, Amazon excludes third party box makers who might otherwise have wanted to sell you the boxes in which Amazon ships your purchases.
Neither of these acts monopolizes markets, however, because there are lots of web designers and box suppliers out there.
But there’s no reason why we should think of web design and box making as separate products. Amazon uses them both and we can just as easily define web-design-plus-boxes as a composite product that Amazon makes for itself in-house.
If Amazon were to allow consumers to choose their own web-design-plus-boxes bundles, we can be pretty sure companies selling those bundles would emerge. But there are none out there in the world today, because Amazon makes that bundle for itself in-house.
What that means is that Amazon’s self-preferencing in web design-plus-boxes bundles completely monopolizes the market for such bundles—so much so that we don’t even recognize that bundle as a possible product that might be sold in a market.
But you will never find a New Brandeisian, or anyone else, condemning Amazon for monopolizing the market for such a bundle.
From which it follows that whatever criterion New Brandeisians might be using to distinguish between the self-preferencing that New Brandeisians find viscerally wrong, and the self-preferencing that they do not notice, it is not that the self-preferencing threatens to make the actor the only supplier in some market.
The vast majority of all possible markets don’t exist at all because some firm somewhere made a decision to produce some combination of inputs in-house.
That’s not a problem. That’s production.
Does this mean that there is no principled way to distinguish between good and bad conduct? Of course not.
I have suggested elsewhere that what judges actually do in deciding antitrust cases is quite sensible: they ask whether the self-preferencing improves the product.
If consumers would do a better job picking a particular component than a firm does in making the component in-house, then courts should insist that the firm let third party makers of the component onto its platform.
More generally, we want markets for components when the market would do a better job of choosing the component than would the firm. But when the firm would do a better job—which is most of the time, since we don’t want to assemble every part of each product we use—we want the firm to choose the component.
But don’t expect New Brandeisians to show interest in an approach that suggests that they are in the business of product design rather than slaying dragons.
Mistakenly Attacking the Firms That Best Reflect Their Values
If New Brandeisians aren’t targeting all forms of self-preferencing (because they can’t) and they aren’t targeting self-preferencing that threatens to eliminate all the competitors in a market, or self-preferencing that prevents consumers from picking better products, then what kinds of self-preferencing do New Brandeisians tend to notice and call out?
As you might expect of a group that lacks a systematic approach to the problem, New Brandeisians call out the most visible kinds of self-preferencing.
And unfortunately for competition, the most visible kinds of self-preferencing are carried out by the firms that have chosen to allow some third party competition on their platforms.
The result: New Brandeisians tend to attack the most pro-competitive firms.
New Brandeisians would not have noticed Amazon’s self-preferencing if Amazon had chosen to be like most other major retailers and not allow third parties to sell on its website at all.
Home Depot never allows third-parties to sell tools in its stores or on its website. This is a far more extreme form of self-preferencing than Amazon’s demotion of third parties in search results. Third parties do not appear in Home Depot search results at all—because they are simply not allowed to sell on Home Depot’s platform.
New Brandeisians have never objected. And they never will—unless Home Depot makes the same mistake as Amazon and starts allowing some competition on its platform.
Doubling Down on a Rookie Mistake: The Apple Case
New Brandeisians aren’t unique in mistakenly taking a shine to self-preferencing.
Every new antitrust student walks this intellectual path. He starts by thinking that every exclusion of a competitor should be an antitrust violation and ends by recognizing that power is constitutive of production. It becomes clear to him that he must distinguish between good exercises of power and bad ones. He cannot proceed by condemning power as such; he must find some other criterion to condemn.
What makes New Brandeisians special is that unlike most antitrust students, they seem intent on doubling down on their mistake, bringing the same self-preferencing charge against tech giant after tech giant.
For four decades, computer markets—and the smartphone markets that grew out of them—have offered consumers a choice between two basic approaches to product design.
One is a closed architecture in which the manufacturer produces all of the components of the product in-house. This is the model followed by Apple, which has a history of engineering every component of its computers and smartphones. Under this approach, self-preferencing is king.
The other is an open architecture approach, in which firms platformize their products, allowing consumers to swap in third-party versions of many parts of their devices. This is the approach of PCs and Android smartphones. There is less self-preferencing here (more precisely, since all in-house production is self-preferencing, in this case the self-preferencing is spread around more firms).
You can see the contrast between the approaches in the way Apple and Android handle phone batteries.
You cannot replace the battery on an Apple phone. Apple effectively excludes third-party battery makers and engages in self-preferencing with respect to its own batteries. But some Android smartphones still come with replaceable batteries. You can buy a battery made by a third party and swap it into the phone.
The fact that both architectures have coexisted in the market for so long tells you that each has advantages. Some people value configurability whereas others hate choices and want a machine that just works. Some want more self-preferencing. Others want less.
The obvious conclusion is that self-preferencing isn’t a problem. It’s a product characteristic.
But six years after New Brandeisians hit the national stage, they are still targeting self-preferencing as such.
In their complaint against Apple, New Brandeisians in the Biden Administration attack an apparently random assortment of examples of self-preferencing by Apple, including Apple’s choice to favor text messages from Apple phones with a blue color and to relegate texts with Android phones to green.
But the infinity of other acts of self-preferencing that make up Apple’s phones (or any other product, including PCs and Android phones) go unchallenged. Why should Apple be allowed to design its own CPUs, to the exclusion of CPUs made by others?
And how about those Apple batteries?
Another Bad Fit: Ticketmaster
Self-preferencing and inflation are not the only examples of the problems that result from New Brandeisians’ theory deficit.
The case against Ticketmaster, brought by New Brandeisians in response to public outcry over the price of Taylor Swift tickets, is another one.
Here again you can imagine the gears turning in New Brandeisian heads. Taylor Swift ticket prices are high and . . . monopoly ruins everything . . . so, is there a big firm in this equation? . . . Yes, Ticketmaster! . . . Solution: break it up!
You have to wonder what New Brandeisians will do once they have broken Ticketmaster up and ticket prices have not come down.
It might occur to them that the problem is not the middleman but the most obvious bottleneck in that supply chain: Taylor Swift herself.
Then what? Will they sue to break her up?
Perhaps.
If New Brandeisians have been able to keep a straight face for three years while calling for antitrust action against inflation, then they can call stardom monopolization, too.
One wonders what the details of the claim might be—maybe that in refusing to license her name out to ghost performers but instead insisting on performing under her own name Swift engaged in self-preferencing.
New Brandeisianism’s Silence about Zionism: Fear or Loathing?
The most telling thing about New Brandeisians of late has not been what they have done but what they have not done: and that is not to condemn America’s ongoing colonization and genocide of Palestine via the State of Israel.
To understand the significance of New Brandeisians’ silence on this question it is important to recall the universality that New Brandeisians attribute to monopoly as an explanatory device. They have directed a self-righteous fury at virtually every corner of public policy, attributing to monopoly everything from poverty to low wages, rapacious banking, unhealthy food and Donald Trump.
Moreover, after Google forced New America to cut ties with Open Markets, New Brandeisians presented themselves as willing to risk their jobs to stand up for justice.
Against this backdrop, one might have expected New Brandeisians to raise their voices in condemnation of a genocidal American colonization project that easily fits a monopoly frame.
The tech giants that New Brandeisians love to hate have been punishing suppliers who take an anti-genocide stance.
The U.S. Congress recently passed a law—at the behest of Zionist organizations seeking to suppress anti-genocide speech—that forces the sale and possible destruction of Tiktok, which is an important social media competitor of the tech giants.
And all this is being done to shore up a colony that was created through an express policy of land monopolization. Decades before the creation of Israel, Zionist organizations pursued a policy of buying up contiguous plots of Palestinian land and evicting the natives in order to create an ever-expanding realm of Zionist-only apartheid territory.
This monopolization strategy is such a core part of the Zionist project that, even today, 90% of Israeli land is owned by the Israeli government and leased to Zionists—to prevent anyone from ever selling it to Palestinians.
A more chilling example of self-preferencing can hardly be imagined.
As we have seen, New Brandeisians have gone to war in the past over matters with far less of a connection to the problem of monopoly. And yet no New Brandeisian organization has had anything to say about Israel’s unfolding genocide of Palestinians, a silence that leaves New Brandeisianism to the right on this issue of Donald Trump, who has called for an end to the killing.
What gives?
At best, fear. At worst, anti-Palestinian racism.
Loathing for Palestinians
Perhaps the movement’s moniker provides a clue.
Louis Brandeis was a pioneering anti-Palestinian racist. While he inveighed against the curse of bigness in the United States, he also leveraged American wealth and power to support the ethnic cleansing of Palestinians long before it was fashionable to do so in the United States.
While some New Brandeisians prefer other names for their movement, none has condemned the New Brandeisian moniker on the ground that it associates the group with colonization and genocide.
Another clue is that the industry that put New Brandeisians in power is deeply implicated in the genocide of Palestine.
The New York Times’ perpetuation of false claims that the Islamic Resistance committed rape on October 7 has, for example, led to calls for the Times to be prosecuted under the same legal theory of incitement of genocide that led to the conviction of the publishers of Der Sturmer at Nuremberg and Radio Télévision Libre des Mille Collines in the International Criminal Tribunal for Rwanda.
It may also be relevant that the U.S. President responsible for the deaths of approximately 186,000 Palestinians since October 7 (half of them children) is also the President who appointed New Brandeisians to run the antitrust agencies.
No New Brandeisian in the Biden Administration has resigned her position in protest against her patron’s slaughter of Palestinians.
Fear of Zionists
But New Brandeisians may be keeping silent as much out of fear as out of anti-Palestinian racism.
In American political culture, there is no safer institution to attack than big business. Retaliation is a scandal, as Google learned when it forced Open Markets out of New America, and scandals are bad for business. So big business rarely singles individual critics out for attack.
Thanks to this dynamic, New Brandeisians’ anti-monopoly stance has been, for New Brandeisians, a form of risk-free moral arbitrage. They have reaped the reputational capital associated with appearing to fight for justice without taking on any real risk.
But an arbitrage of that kind does not attract people who are willing actually to suffer for justice.
Now that an issue has come along for which taking a stand would carry real political costs, New Brandeisians are nowhere to be found. They have not been willing to risk loss of support from the President and the newspaper industry that put them in power. They can crusade against the color of text message bubbles but not against the mass murder of children by American industry.
Orin Hatch famously called the New Brandeisians “hipsters”.
Our country is committing agenocide of Palestinians in Gaza through the colony that we maintain in Palestine called the State of Israel. So far we have killed a minimum of 30,000 Palestinians. Twelve thousand eight hundred were children. Through our colonial forces—the Israeli military—we have dropped 30,000 bombs on, and fired 90,000 artillery shells into, a population of two million Palestinians who are completely encircled on an urban territory half the size of New York City.
Since October, we have maintained a policy of denial of access to food, water, and medicine for the entire population of Palestinians in Gaza that has brought it to the brink of famine and epidemic in a mere six months—the quickest reduction of a population to starvation since the Nazis laid siege to a city of similar population in 1941. In Leningrad, where, unlike in Gaza, the encirclement was incomplete and the besieged population maintained some control over resupply, 100,000 people starved to death in the eighth month of the siege. That will be this May for Gaza.
I believe that when our country commits genocide all elements of civil society have a duty to oppose it, especially institutions of higher learning, which are the keepers of wisdom in our society—and especially law schools, whose business is to define justice. As a law professor, I therefore must condemn our nation’s commission of genocide against Palestinians. But this condemnation would not be sincere were I to condemn only the slaughter in which our nation has engaged over the past six months. For it represents only a particularly active phase in a broader project of genocide of the Palestinian people associated with the creation and expansion of our colony—Israel—in Palestine. (The Nakba was an earlier particularly active phase of this project.)
We must submit Israel, immediately, permanently, and unconditionally, to the legitimate government of Palestine everywhere from the Jordan River to the Mediterranean Sea.
Colonization is genocide. It is impossible to take land from its native inhabitants without destroying them through murder, forced resettlement, or both. All states are a product of colonization, but to put an end to further colonization the world long ago said: no more. Each of the dozens of Western colonies created in Africa or the Middle East after 1882—the year the first Western colonizers arrived in Palestine—has been decolonized, except ours: Israel. The proper response to modern colonization is decolonization—of the entire colonized territory. Anything short of that at best legitimizes the slaughter and displacement already undertaken to create the colony and thereby calls into question the modern norm against colonization. At worst, it encourages more slaughter and further displacement of the native population, as we are witnessing today in Palestine.
I must therefore call not for a ceasefire but for the immediate and complete dismantling of our colony in Palestine. We must submit Israel, immediately, permanently, and unconditionally, to the legitimate government of Palestine everywhere from the Jordan River to the Mediterranean Sea. It is not uncommon for a colony to resist attempts by the metropole to shut her down. If Israel resists, we must be prepared to use military force to compel her submission to Palestine.
I must also oppose the Zionist ideology that gave rise to the creation of Israel. The core Zionist tenet that Jewish people as a group have a right to self-determination in Palestine is racist. I reject it. Only the native population of Palestine—the Palestinians, among whom are counted adherents to the Muslim, Christian, and Jewish faiths—has a right of self-determination in Palestine. I call for the dismantling of all organizations that support Zionism in the United States and around the world.
I note that, as a colonized population, the Palestinians alone have a right to engage in armed struggle within their territory, which includes all of the territory of Israel. The operation carried out by Palestinian armed forces on October 7, 2023 was a legitimate exercise of that right. Palestinian forces broke out of the military encirclement of Gaza that had been maintained by our colonial army for decades, killed hundreds of soldiers in that army, including dozens of officers and four colonels, and seized control of the headquarters of the military division maintaining the encirclement.
I believe that Palestinians’ seizure of civilian hostages was a proportionate response to our colonial forces’ decades-long practice of taking Palestinian civilian hostages, including children, and holding them under horrific conditions. Our colonial forces held more than 1,200 Palestinian civilian hostages immediately prior to October 7 and have taken additional hostages, including children, since then. Colonist civilians seeking redress for harm inflicted upon them by Palestinian armed forces must apply for justice to a competent Palestinian or international tribunal, just as a civilian anywhere in the world seeking redress for harms committed by the armed forces of a legitimate government within its territory must apply to that government or an international court for redress. Neither we, nor our colonial forces in Palestine, nor colonist civilians, have a right to seek redress through violence.
The only thing that is perhaps unusual about this colonization project is that we prefer not to call it colonization, because today the world recognizes that colonization is unacceptable.
Is Israel really our colony? Are her actions ours? The answer is unmistakably “yes”. We created Israel in 1948 by recognizing the Nakba—the mass murder and ethnic cleansing of Palestinians carried out by Zionist forces—as an act of statehood, something the rest of the world would not have accepted without our leadership. We extend to Israel a de facto guarantee of territorial integrity that appears every bit as strong as the one that the fifty states enjoy, and without which it is doubtful that Israel would continue to exist. We rush aircraft carrier battle groups and unlimited supplies of weaponry to Israel whenever she is threatened—and unlike our support for our close ally, Britain, during World War Two, we provide this support free of charge.
We also bomb and invade Israel’s enemies. Our legislature casts unanimous or near unanimous votes in Israel’s favor on matters that concern her security—a level of bipartisanship that one might otherwise expect only if the territorial integrity of the United States themselves were under threat. We permit Israel’s government, alone among putatively foreign governments, to spend unlimited amounts of money to influence our elections. Israel is the largest recipient of our financial aid of any nation since World War Two, so far receiving twice what we gave all of Europe as part of the Marshall Plan.
The history of colonialism is replete with examples of metropoles that maintained a more distant relationship with their colonies than we maintain with Israel. The only thing that is perhaps unusual about this colonization project is that we prefer not to call it colonization, because today the world recognizes that colonization is unacceptable.
The slaughter that our nation is conducting today in Palestine has been enabled by the failure of earlier decolonization movements to hold colonizers accountable. Accordingly, I call also for the prosecution of all Americans and Israelis who have provided material support for our colonial project in Palestine, especially President Biden and all those who have participated in military action against Palestinians at any time, including as members of Israeli military forces. This also includes major media organizations in the United States, such as The New York Times, which have incited genocide by reporting as fact claims that Palestinian armed forces killed colonists’ babies or raped colonist women on October 7—claims for which there is noevidence. I note that international criminal tribunals have convicted media executives for incitement to genocide in the past.
Finally, I call for the resignation of every university president in the United States who has failed over six months of our nation’s mass murder of Palestinians in Gaza publicly to condemn the slaughter. I expect our university heads to object when our nation commits genocide.
Free Palestine.
Signed:
Ramsi A. Woodcock Associate Professor of Law J. David Rosenberg College of Law University of Kentucky
In art, we reserve the word “elegant” for works that hide the difficulty of their execution. The elegant work is at once powerful and simple. Though the author may have spent a lifetime on its composition, there is no hint of effort in the work. Once the scaffolding from which the sculptor worked is removed, once the guidelines of the draftsman have been scrubbed from the page with an eraser, once the manuscript has been retyped and the markup trashed, only simplicity and perfection remain. The work might as well have sprung fully formed from the head of Zeus.
We should also strive for elegance in the provision of goods and services, and that can mean only one thing: free. That is, the experience of acquiring goods and services, which is the characteristic experience of economic activity, should be as simple as walking in and taking. That is the only elegant way to acquire.
Any other approach reveals the superstructure that supports production, and is decidedly inelegant. To ask for payment is to admit that production is hard. You have suffered and so you require compensation. And to be asked to pay exposes you to all of the tradeoffs involved in economic activity. You must decide whether you can afford the good, and this in turn invites you to meditate both on the reasons for which you are poor (that is, the scarce talents or good fortune that you lack) and the reasons for which the good you wish to acquire is so scarce that it commands a price. You are forced to peer for a brief moment into the inner workings of the economy—the gears, and production functions and demand curves—that run together to foist a price on you.
It is rather like being asked to view Michelango’s David with the scaffolding still attached, or the Mona Lisa with the grid lines through which Da Vinci painted still pulled across the lady’s face. Or perhaps even more justly, it is rather like being asked to watch a film by hanging about the set and viewing each monotonous take after another—instead of relaxing in a theater to behold the final cut.
There is nothing so damaging to the enjoyment of a thing than to meditate on what one had to give up in order to obtain it.
The challenge for economics is fashioning a system that at once promotes economic growth and maximizes the opportunity to acquire without worrying about whether one can afford the good.
It follows that an elegant economics should strive not to maximize the responsibility of the individual for economizing—as economists strive to do today—but rather to obscure the problem of economizing from the individual, to hide it so cleverly that people can go through their lives unaware that they are in fact subject to the inevitable laws of scarcity.
Because scarcity is real, nothing can actually be made free. Everything must be produced and so paid for. But there are ways for the clever economic artist to minimize the experience of paying.
The most important is the bundle. To minimize the experience of paying, reduce the number of times in which people actually must pay for things. To minimize the number of times in which people actually must pay for things, sell things together in bundles.
Economics already has a logic of bundles. Today, economists promote bundles when the parts have synergies, so that the whole is more valuable to consumers than the sum of the parts. Consumers prefer the iPhone, with its closed architecture that deprives customers of choice regarding what battery to use or what operating system to install, because when Apple bundles its selection of these things together the phone “just works” at a higher level than more customizable phones.
I mean something different.
Bundles, even when they do not exhibit technical synergies, can be elegant so long as the bundle is not so large that the price speaks loudly of scarcity. Consider the old airline economy class bundle, which included free checked bags, your choice of economy seats (no extra fees for an exit row), a reasonably-sized seat, and a full meal during the flight. After paying a somewhat higher fare, you didn’t need to think of scarcity again until you bought your next plane ticket. Checked baggage, meals, and seat selection bundled together aren’t greater than the sum of their parts—in fact they’re delivered in the same way when sold as a bundle as when you are charged separate bag fees, seat fees, and so on. Bundling them together adds value solely because it obscures scarcity. When they are bundled, passengers are not reminded of the sizes of their pocketbooks when they sit down to pack, when they choose a seat, and when they start feeling hungry mid-flight.
We get a hint of this, too, in the all-you-can eat buffet. Maybe it’s just clever marketing: diners think they get a better value when on average they don’t eat as much as the extra bucks they pay for their meal. Or maybe it has to do with elegance. It’s nice to be able to ask for seconds without worrying about the price.
Which begs the question: if it’s so nice, why don’t firms offer more bundles of this kind? Doesn’t the fact that the trend in recent years has been toward unbundling products and services suggest that consumers actually prefer to be able to choose what they pay for and what they don’t?
That could be. But the logic of elegance also suggests that consumers are never really presented with a choice between the two systems, even when a firm offers the option to pay more for a bundle or less for a la carte service.
Here’s why.
Suppose that an airline offers a full-service ticket that includes priority seating, a full meal, and free checked baggage and also offers a somewhat cheaper ticket that includes just a seat, with the other services provided a la carte. In this case, the cheaper ticket is the elegant solution in that it it speaks less of scarcity than the more expensive ticket. That is, when faced with a choice that involves a lower-price option and a higher-price option, consumers will tend to prefer the lower -priced option, even when it involves less value for money, simply because a lower price speaks less of scarcity than a higher price.
In order to elicit a true comparison of consumer preferences, one would need to place the consumer in a world in which only the lower-priced option is offered and then place the consumer in a world in which only the higher priced bundle is offered, and then ask the consumer to compare his relative pleasure in the two worlds. That can never be done perfectly because the options can never be offered at the same time—although in cases in which there has been a historical change, as with airlines, the recollections of people who lived through both regimes offer some guidance. Ultimately, we must guess which of the two worlds confers more pleasure.
An elegant economics concludes that consumers prefer bundling when it can be had at reasonable cost.
All this is not to say that everything should be bundled so that we end up with something like a centrally planned state in which the government sells you a single bundle called “the luxuries and necessities of life.” The bigger the bundle, the greater the waste, because market signals are reduced. In the years immediately after the discontinuance of economy meals on domestic flights, airport kiosks sold meal trays that mimicked the ones that had once been served on flights. Today, those are rare; indeed, people don’t seem to do much eating of meals at all on domestic flights. That suggests that for years airlines provided a meal perk that customers may not have valued much at all.
There is an optimal bundle size, neither too small nor too big, but if one takes elegance into account, it is likely much greater than what we have today.
But it is worth noting how much apparently elegance-based bundling already exists in the economy. Consider, for example, pleasant customer service. There’s no synergy created with your pizza by a cashier’s smile, and yet businesses encourage their cashiers to smile. They could charge a premium for it—and through tipping cashiers themselves may do something like that—but they don’t. The checkout experience is vastly more elegant when the purchase price covers a smile plus pizza rather than just pizza.
In fact, there are an immense number of freebies of this kind that go into every good or service offered by a business—things that a business thinks consumers would be pleased to see included but for which they likely would not pay if offered a la carte.
We often assume that these things are offered to achieve a competitive advantage, but the successful unbundling of the air transport product, of which the same assumption might easily have been made, suggests otherwise. Businesses themselves have a basic taste for elegance and it often takes a corporate raider or efficiency expert to suppress it. (Yes, the airline industry has consolidated over time, so the unbundling could have had something to do with a decline in competition, but keep in mind that this started twenty years ago.)
Another example is average cost pricing. In certain apartment buildings in certain older American cities, it remains the case that residents receive no utility bills. The cost of utilities—water, gas, and electricity—is averaged across all renters and included in their monthly rent. This is an elegant arrangement for it reduces the number of bills a renter pays, greatly obscuring scarcity. To be sure, some residents—power users—gain relative to a system of individual billing and others—those who use less—lose out. But as few are able to monitor the usage of others, no one knows who the losers and winners are. So long as there is no extreme abuse of the system—a resident taking advantage of average cost electricity pricing to run a crypto mining operation, for example (and a little policing by building management can root any out)—residents can go about their lives as if utilities were free.
The same is true, of course, of government-provided goods and services. The trend in recent years has been for government to try to allocate costs to users. Think about steep visa application fees designed to cover the costs of immigration services. But it is much more elegant to pay for the service out of general tax revenues, so long as abuse can be policed at reasonable cost. Many Americans advocate, for example, for “free college”, as if government provision of education would somehow make it free. They really pay for college through their tax payments, but because they rarely know the precise amount that they contribute toward any particular service, it is rather as if they contributed nothing at all. When people say “free” in this context, they are telling us something important about how elegance works in economics. The less you know about scarcity, the free-er you feel yourself to be.
If the foregoing analysis is right, then the great movement in recent decades in favor of creating markets in everything has ultimately been bad for America, because it has forced consumers to confront scarcity in myriad places in which it had once been hidden. Consumers now must confront scarcity with respect to almost everything they do when they fly. In some cities, they confront it in the form of paid fast lanes when they drive. They confront it in streaming television, where they are increasingly asked to buy a la carte. They confront it in purchasing movie tickets; the good seats are now priced higher. And so on.
Elegance in economics does not only require that paying be concealed but also that other experiences that suggest scarcity be conceal as well.
Consider, for example, the mega-project. Because a mega-project serves a great many people, the cost per person in terms of a toll for use is low. A private business undertaking the project will build a facility that is just large enough to accommodate peak demand.
But to be in an airport that is just large enough to accommodate a crowd is to come face to face with the problem of scarcity. Of space. Of customer service representatives. Of patience.
An elegant economics would require that the builder calculate the minimum space required to meet peak demand—and then double it.
This would certainly be a problem for smaller projects with large per unit costs. For the doubling would drive the toll up a great deal, and being asked to pay a lot for something is just as rudely indicative of scarcity as is occupying a small facility during peak demand. But for a mega project in which per person costs are very low, a doubling will barely register in the mind of the consumer. To pay $2 to enter an airport rather than $1 speaks rather little of scarcity. And the payoff, in terms of the elegance of feeling as though one were alone in a vast space, is great. Imagine that every airport in the country had been built to twice its current size so that no matter how many people were flying on a given day there were always lots and lots of space.
In our inelegant economics of today, this would never be tolerated. A private business would never spend twice what it needs to spend to complete a project. And if it were induced to do that by a government which, for example, offered loans to finance larger projects, the cry would be: “overbuilding.” But overbuilding—within limits—should be our aim for every large project, so as to minimize the experience of scarcity and to maximize the experience of easy plenty.
To understand elegance in economics, we must draw an analogy between economics and architecture. The classical architect engaged to build a wall could choose merely to deliver a blank face to you—and some modern architects would do just that. But the classical chooses instead to add an entablature—a set of lines cut superficially into the stone that run along the top of the wall. Why does he do that?
Because the grooves—or, rather, the shadows that the grooves create—make it easier for the eye to grasp the size and shape of the wall. A blank face has no scale and no form. Groove it in the right way and the eye knows immediately the extent of what it beholds. The purpose of embellishment in architecture is to make it easier to consume the work on a visual—indeed, mental—level. In the same way, the purpose of elegance in the provision of goods and services is to make the process of acquisition easier on a mental level. Both approaches have costs. It is cheaper to build a wall without an entablature, and bundling or socializing services leads to waste.
Is the current inflation caused by corporate greed?
The answer is very likely yes.
But is it caused by monopoly?
The answer is very likely no.
The difference between these two answers tells us a great deal about why progressives should take an inframarginalist approach to political economy rather than an antimonopoly approach.
That is, it tells us why focusing on who gets the surplus generated by production is more helpful for progressives than obsessing about market concentration.
To see why the present inflation is likely about greed but not monopoly, we need to spend some time thinking about the concept of inflation, and, in particular, distinguishing between the inflationary spiral itself and the triggers of that spiral.
The Inflationary Spiral
As Olivier Blanchard pointed out a few months ago, inflation itself is a spiral, or a tug of war, bred of a conflict over the distribution of wealth.
In inframarginalist terms, it is a conflict over the distribution of surplus.
When a firm produces a good at a cost of $3 and sells it to a consumer who is willing to pay at most $7 for it, production generates a surplus of $4. The price the consumer pays divides that surplus between buyer and seller. If the price is $6, for example, then the seller gets $3 of the surplus (which we call “profit” in the economic sense) and the buyer gets $1 of the surplus.
The price suppliers charge the firm divides the firm’s share of surplus (i.e., divides the firm’s profit) between suppliers and the firm. If a supplier raises its price by $1, then the firm’s costs increase from $3 to $4, and its profits fall from $3 to $2. By raising its price, the supplier has redistributed one dollar of surplus from the firm to itself.
In an inflation, suppliers and the firm battle over the division of profits—they fight over price—but the battle gets out of hand because the battle isn’t just between one firm and its suppliers but between many firms and many suppliers. As a result, price increases by suppliers feed back into the willingness of consumers to pay the firm for its products, and that enables the firm to increase its own prices and profit levels in response to changes in supply prices.
Indeed, the economy is a great feedback loop. Rarely do a particular firm’s suppliers find themselves buying all of their own inputs from supply chains leading back to that firm. Firms sell to other firms’ suppliers and other firms sell to their suppliers.
But when we consider a large enough cross section of firms, it is the case that those firms ultimately sell to their own suppliers as a group. The economy is a tangled web, and although individual strands rarely loop back on themselves, the web as a whole does loop back.
As we learned in Econ 101, the economy is a great feedback loop. Choose a proper cross section of firms and you will find that if you follow the chain long enough, the firms actually indirectly supply themselves. Note that workers are one kind of supplier.
Consider that $1 supplier price increase again. The firm might not be happy to lose $1 of profit. In order to make up for the loss of that dollar to suppliers, the firm might, in response, raise the price it charges to consumers. That would allow the firm to appropriate an additional dollar from consumers as a substitute for the dollar of profit that the firm lost to the supplier price increase. The firm might therefore raise price from $6 to $7, reducing consumers’ surplus from $1 to $0 (recall that the maximum consumers were willing to pay for the firm’s output was $7).
If the supply price increase is limited to this one market, and this one firm responds by increasing its own price, then the analysis ends here. Consumers will be made worse off; suppliers will be made better off; and the firm’s fortunes will remain unchanged.
But if many suppliers have increased their prices, and many firms have responded by increasing their own, then the firms’ price increase will feed back through the tangled web of supply chains that is the economy—back to the suppliers from which the firms buy.
Suppliers will find that the price of the inputs they need to buy to create the products that they supply to firms has increased. In our example, after the firm increases price from $6 to $7, the firm’s suppliers will now find that their own costs have increased by $1. The consumers who purchased goods from the firm for $7 instead of $6 will have increased the prices they in turn charge for the goods and services that they supply to others. And those others will in turn have increased their prices, and the price increase will have propagated through the tangled, looping web until it at last reached the firm’s own suppliers, who will experience it as an increase in the price of the inputs they purchase to make the things that they supply to the firm. Their input costs will increase by $1. (In reality, the a $1 increase in a supply price is unlikely to feed back into a $1 increase in costs, but a one-for-one feedback loop will do for a simple numerical example such as this.)
The $1 in extra input costs that the firm’s suppliers now incur will eat up the extra dollar of surplus they appropriated via their initial supply price increase. The extra dollar they charged to the firm will have turned out to be an extra dollar charged to themselves.
If suppliers want to preserve the extra dollar of surplus that they initially gained from the supply price increase, they will need to raise the supply price they charge to the firm again by another dollar. So suppliers raise price by an extra dollar. That price increase in turn redistributes to suppliers the additional dollar of surplus that the firm had appropriated from consumers by raising the firm’s price to $7 from $6. The firm now pays a supply price of $5 (the initial supply price was $3 and suppliers have now twice raised price by a $1) and once again takes only $2 of the surplus.
If the firm wishes again to make up for this reduction in profits, the firm must again raise its own price to consumers. But isn’t that impossible, because price is already $7 and the maximum that consumers are willing to pay is $7?
The answer is no. The willingness of consumers to pay has now risen from $7 to $8. Why? Because when consumers passed the firm’s original price increase of $1 on to suppliers, they effectively generated an additional dollar of income for themselves when they responded by raising the prices they charged to others. That additional dollar of income made it possible for them to pay an additional dollar for the firm’s product. Their willingness to pay went up.
(Note that consumers here can be individual persons, for whom the good is an input into their production of labor services. Or they can be other firms that produce other goods or services that eventually serve as inputs into the production of the supplies that the firm needs to make its own good. So when I say that consumers responded to the firm’s price increase by raising the prices they charge to others, I mean that they either demanded higher wages (in the case of consumers who are workers) or charged higher prices for the goods or services that they produce (in the case of “consumers” that themselves are firms).)
The firm therefore has leeway to raise price to $8 and the firm will do that if it wishes to restore its erstwhile profit level of $3. So altogether we have seen that an initial price increase of $1 by suppliers triggered a $1 price increase by the firm, which then triggered a subsequent $1 price increase by suppliers, which then triggered a subsequent $1 price increase by the firm. This cycle of price increases can continue for a long time.
In other words, the lines in Blanchard’s struggle over the distribution of surplus are drawn as follows.
On one side, you have a firm’s suppliers seeking to obtain a greater share of the surplus generated by the firm.
On the other side, you have the firm itself seeking to obtain a greater share of the surplus that it generates.
Firms and their suppliers can’t both obtain a greater share of the surplus. Suppliers raise prices, reducing firms’ share of the surplus. Firms then raise prices, seeking to recoup what they have lost.
As a result, the higher prices that firms charge eventually raise the costs of the firms’ suppliers, reducing their share of the surplus and leading them again to raise the prices they charge to firms. Firms respond by raising their prices again, and so prices rise and rise.
Inflation spirals when suppliers and firms disagree over the proper division of the surplus. If there were no disagreement, the spiral would not get under way. Suppliers would raise prices to the point at which they would achieve the agreed surplus and firms would not respond, because they would be in agreement with suppliers that the resulting distribution of surplus is fair.
If the firm in our example were satisfied with $2 of profit, the firm would not respond to the supplier’s initial $1 price increase by raising its own prices by a dollar. The firm would eat the loss. And if all firms were to respond in this manner, then inflation would not ensue.
But, by the same token, because the heart of the spiral is a disagreement regarding what a fair distribution of surplus should be, an inflationary spiral can, in principle, develop at any time. And it can develop for what an economist might be surprised to discover are purely intellectual—indeed, even ideological—reasons.
If some cross section of America’s businessmen were to wake up one morning feeling that they are not getting a fair share of the surplus, and if they were to raise prices accordingly, and if their suppliers were to be unwilling to accept the smaller share of the surplus allocated to them by those higher prices, and if their suppliers were therefore to raise prices themselves, then we would be off to the inflation races.
This rarely happens, however, because the feedback loop only appears in the aggregate. Many minds would need to change at the same time. So if one supplier were to wake up and want more, that is not likely to lead to an inflationary spiral.
Indeed, if the supplier operates in a competitive market, the supplier might not even be able to raise prices, as competitors would simply take the supplier’s market share and the supplier would not be able to sell at all at higher prices. But if many suppliers were to wake up and want more, inflation would follow—if firms decide to contest this change by raising prices themselves.
Note that the distinction I have been drawing between a firm and its suppliers is arbitrary, because an economy is a feedback loop. At whatever level of a supply chain one wishes to focus—at whatever point along the loop—the focal point contains the firms of interest and the firms and workers that sell to them are the firms’ suppliers.
Given that mass shifts in views regarding the proper distribution of wealth are not common, and that the current inflation does not seem to be driven by one, we need to look for this inflation’s causes elsewhere.
Inflation that isn’t triggered by an ideological shift must be triggered by a structural change in the economy—a change that is broad enough in effect to cause many firms to raise their prices at the same time. Something must have happened to markets that gave one side of the conflict—suppliers or firms—the opportunity to take a larger share of the surplus, and the other side must have fought back by raising prices itself, leading to a tug of war.
Here is where the conflict between inframarginalism and antimonopolism comes into play.
The Antimonopoly Story: Crises Desensitized Consumers to Price Increases
Antimonopolists want to say that monopolies triggered the present inflation by using their monopoly power to raise prices.
If we imagine that the firm in our example is a monopoly, then antimonopolists want to argue that in 2021, when the present inflation started, this firm took the initiative to raise price from $6 to $7. Assuming that many other monopolies raised their prices as well, a feedback loop would have followed. Consumers would have passed the cost of the price increase on through the supply chain to the monopolists’ suppliers, which would in turn have raised prices by a $1, and then the monopolies would have responded by raising prices again by a dollar in order to hang on to the gains from their initial price increase. Consumers would have been able to pay that additional dollar because of the extra income they generated from passing on the original price increase. The inflationary spiral that appears to still be running today would have followed.
But this argument falls victim to the venerable question: why now? Antimonopolists themselves have argued that markets have been growing more concentrated for decades. They date the commencement of the trend toward concentration to the importation of Chicago School thinking into antitrust during the Carter and Reagan Administrations. If markets have been concentrating for decades, why would firms have waited until 2021 to raise prices and trigger an inflation?
Antimonopolists’ answer has been to argue that firms could not exploit market concentration to raise prices until the pandemic and the Ukraine war created the circumstances that would allow them to do so. To understand their argument, a trip through the mainstream economic account of the present inflation is required.
Mainstream economists argue that the present inflation was triggered by two structural factors: first, supply chain disruption triggered by the pandemic and the Ukraine war, which caused supply to fall below demand; second, pandemic stimulus checks, which caused demand to exceed supply.
According to the mainstream account, the first factor drove up firms’ costs, leading them to raise prices. The second factor enabled firms to raise prices even further. This fed back into further increases in costs for suppliers, and thence to further increases in prices by firms, leading to an inflationary spiral.
Antimonopolists accept that supply chain snarls and stimulus-driven demand increases provided the initial inflationary impetus. But they insist that this alone was not enough to get the spiral going. They argue that all that this did was to create the psychological prerequisites for an inflationary spiral.
At this point, they argue, market concentration stepped in to create the inflation. Specifically, they argue that once consumers had experienced an initial increase in prices due to the pandemic and later the Ukraine war, they became psychologically primed to attribute price increases to forces majeures of this kind. Antimonopolists argue that this created an opportunity for big firms tacitly to collude to raise prices further.
Market concentration matters here because tacit collusion is possible only when the number of players in a market is small. But according to antimonopolists, concentration alone was not sufficient for tacit collusion to take place until consumers were primed by crises to accept higher prices.
Big firms could tacitly collude to raise prices because consumers, believing that price increases were an inevitable result of the global crises, were willing to pay those higher prices. Consumers would not recoil in righteous indignation, punishing firms by buying less, but instead would continue to buy at the higher prices.
In economic terms, consumer willingness to pay increased by more than the extra money they received from stimulus checks justified. That extra demand created an opportunity for firms tacitly to collude to increase prices.
The Inframarginalist Story: Firms Rationed with Price
The antimonopoly account of inflation doesn’t actually withstand scrutiny on its own terms. But I will get to that later.
What’s important to notice now is that the argument is more complex and overdetermined than it needs to be when it comes to making a progressive, moral case against business behavior during this inflation.
Progressives seem to think that they need to tell a story about market concentration, collusion, or monopoly, in order to blame firms for the present inflation.
They don’t.
All the elements they need to make a moral case are right there in the mainstream account. No collusion or monopolization is required.
That’s because when supply chains snarled and demand surged, firms had a choice. They could have responded by rationing their inventories based on a rule of first-come-first-served or some other principle of distributive justice.
Instead, they chose to ration with price.
That is, when supply chains snarled and stimulus checks caused demand to outstrip supply, firms could have kept their prices where they were and just let their goods to sell out. That amounts to rationing based on a rule of first-come-first-served. Instead, they chose to raise prices.
In the short run—which is all that matters when it comes to getting an inflationary spiral started—raising prices doesn’t increase supply. It takes time to ramp up output, especially when ports are clogged or sanctions against Russia foreclose sources of supply.
But raising prices does ration output to those who can afford to pay the highest prices, which usually means the rich. It also has the rather nice attribute, from the perspective of firms, of increasing profits. In the short run, the inventory that firms have on hand has been acquired at low, pre-crisis costs. Every additional dollar that firms charge for that inventory is profit. It is a redistribution of surplus from consumers to firms.
It therefore follows directly from the mainstream economic account of the current inflation that the root cause of the inflation was corporate greed—specifically, the choice of businesses to ration with price instead of based on some other metric.
Graphically
In partial equilibrium terms, we have something like this. We start with a competitive market for the firm’s product.
Then there’s a supply disruption or a demand surge that restricts output in relation to demand. Graphically, the supply curve kinks upward rather steeply. The firm then has the option to charge a low price at which the good sells out or to charge a high price that rations access to those with the highest willingness to pay. The high price also generates extra profit.
If the firm chooses the ration price, buyers pass the price increase along through the tangled loop of supply chains that is the economy. Buyers’ ability to pass the increase along effectively increases their willingness to pay for the good, so the demand line rises. The passing-along of the price increase travels through that tangled loop until it increases sellers’ costs, which is reflected in an increase in the supply line. This increase in the supply line reduces firm profits at the current price (the area below the original “greedy, inflationary price” and the higher supply line). The firm moves to restore those profits by increases its price in turn. We are off to the inflationary races thanks to the firm’s initial decision to ration with price instead of letting goods sell out in response to the shortfall of supply relative to demand.
There Is No Efficiency Justification for Rationing with Price
Economists used to argue that rationing with price is necessary, notwithstanding its ugly distributive effects, because it is efficient. Keeping prices low and letting goods sell out forces people to wait on interminable lines, wasting time that could be spent doing more productive things.
As I’ve argued elsewhere, in the information age that’s no longer true. It takes the time required to open up a webpage to reserve a place on line—or to know whether a good has sold out.
Economists also argue that non-price rationing leads to wasteful attempts to subvert the rationing system. People invest in bots, for example, designed to subvert digital lines. But, as I’ve also argued elsewhere, that argument is an example of the Nirvana fallacy. It ignores that people already waste lots of resources attempting to subvert the price system. People expend great effort on wasteful attempts to acquire the money they need in order to be able to pay the prices that firms use to ration access to their products. Theft and corruption are examples.
Indeed, the vast infrastructure of the criminal law and its administration, as it relates to financial crimes, is a monument to the waste associated with operating a price system.
Economists also sometimes argue that rationing with price allocates goods to those who value them the most. But few really believe that. Economists have known for a long time that willingness to pay is a poor proxy for utility because the rich are often willing to pay more than others for things that they value less than others do. As I’ve argued elsewhere, it’s unclear that place in line is a less accurate proxy for value than willingness to pay.
All of which is to say that a firm’s decision to ration with price is not necessarily efficient.
But, as we have seen, it is profitable.
And indeed a firm’s decision to ration with price is inefficient to the extent that it can trigger an inflationary spiral. The reason inflation is inefficient is that it makes it difficult for buyers to plan; prices start to change so fast that they don’t know what their money will buy tomorrow. That shuts down economic activity.
The Greed of Firms Both Small and Large Will Trigger Inflation in Response to Supply or Demand Shocks
It’s important to understand that monopoly or even market concentration is not required to tell a story about greedy price-rationing.
Whether a firm is a monopoly, or a big player in a concentrated market characterized by tacit collusion, or a bit player in a highly competitive market, the firm will have the option to raise price in response to supply or demand shocks—so long as the shocks cause industry demand to exceed industry supply in the short run.
To see why this is true in competitive markets having lots of small sellers, consider what happens when industry supply falls below industry demand.
Some group of buyers won’t be able to find sellers who are willing to sell to them. That’s what it means for demand to exceed supply. We can imagine these buyers going from seller to seller begging for access to goods. Each seller, no matter how large or how small, will face a choice: the seller can either say “sorry, I’ve already promised by stock to someone else.” Or the seller can say “I’ll redirect my stock to you if you pay me a more than the other guy.”
That is, every seller, no matter how big or small, faces the choice whether to ration based on a rule of first-come-first-served (or some other basis apart from price), or to ration with price. When prices rise in competitive markets in response to supply or demand shocks, that’s because each tiny market participant is choosing to ration with price.
Each is choosing to exploit the crisis to make an extra buck.
What is true of competitive markets is true of concentrated markets as well. Supply and demand shocks can drive up the profit maximizing price in the market, but the big firms that have the preexisting power to charge such prices don’t actually have to adjust their prices upward in response. They can continue to charge their legacy, pre-crisis prices.
When they choose instead to raise prices, they are exploiting the crisis to make an extra buck.
The progressive case that corporate greed lies at the heart of the present inflation does not, therefore, require an antimonopoly story. All it requires is the basic recognition that, when firms raise prices in the short run in response to supply or demand shocks, they are engaged in one thing only—exploiting a crisis to redistribute wealth to themselves, and thereby triggering an inflation that could make everyone worse off.
Why This Is an Inframarginalist Story
The inframargin is the category of market transactions in which surplus is generated and distributed. In a competitive market, the marginal buyer and seller place the same value on the good and so their exchange generates no surplus.
The greedy price-rationing story is an inframarginalist story because it emerges from a laser focus on the way prices distribute surplus in markets.
When the inframarginalist sees prices rising, the inframarginalist asks whether the price increases are necessary to cover costs. If not, then the price increases are redistributing surplus—and posing the question whether that redistribution is desirable.
It’s thanks to this process of thought that the inframarginalist perceives that short run price increases during a crisis are not driven by costs. Output adjustments, even costly ones, take time, and until they have been undertaken, firms are selling their legacy, low-cost inventory.
It follows that short-run price increases are elective. They are effectively a policy decision on the part of firms to take advantage of a shortage to redistribute surplus to themselves.
Antimonopolists miss all of this because they spend their time looking for market concentration. For them, redistribution is an afterthought—the stylized consequence of monopolization or collusion.
Implications for Inframarginalism in Relation to Antimonopolism
As I suggested above, the inframarginalist story is a better story for progressives to tell than the antimonopoly story because it is simpler and broader. All you need is evidence that demand exceeds supply. You don’t need market concentration and you don’t need claims about the psychology of consumers or the social behavior of firms.
To be sure, the inframarginalist story does require claims regarding the efficiency of price increases during a crisis that are not needed to make the antimonopoly case. But the notion that willingness to pay is not a particularly good proxy for value, or that in the digital age we don’t spend much time waiting on physical lines anymore, are hardly controversial. Claims regarding consumer psychology and firms’ capacity for tacit collusion are.
The inframarginalist story is also a better story because it represents a more fundamental critique of the economic system. It points to a structural flaw in markets as such, rather than to a market imperfection.
The inframarginalist story basically says: in a crisis, prices in every market—perfect or imperfect, competitive or monopolized, concentrated or unconcentrated—are going to rise even though efficiency does not require that they do, so long as firms remain greedy, profit-seeking entities. There’s nothing that can be done to restructure markets in ways that will prevent this from happening. The only solutions are government regulation of price, taxation of profits, or a reorientation of executives’ legal duty of care away from profit maximization.
The antimonopoly story says: during a crisis, prices are going to rise primarily in concentrated markets, and the solution is to deconcentrate them. There’s no problem with markets as such, and, as a result, greed is for the most part good—it leads to competition in markets and ultimately to efficient outcomes. The problem we face today is merely a problem of market imperfection. If we solve it, then government can go away.
Progressives’ current romance with antimonopolism in the inflation context has been particularly painful to watch because it has lately swept in a scholar who really knows better, and caused her to shoot herself in the foot. Isabella Weber made a splash last year arguing that that the Biden Administration should consider price controls as a solution to the present inflation.
But then last winter she released a paper arguing that tacit collusion explains the inflation. Although I suspect that Weber continues to support price controls as an inflation remedy, the implication of her paper is that price controls may not be the solution after all. Instead, an economy-wide campaign of deconcentration might do the trick.
The inframarginalist account of the present inflation provides stronger support for price controls because it applies regardless of the level of concentration in markets.
The Antimonopoly Account Is Also Incoherent
As I suggested above, the antimonopoly story is not just too complex and too narrow, it also does not withstand scrutiny on its own terms.
That’s because consumer desensitization to price increases will drive up prices in all markets, regardless of the level of competition and regardless whether firms in concentrated markets are tacitly colluding or not. Concentration and tacit collusion therefore aren’t actually required for the story that antimonopolists wish to tell.
If consumers become desensitized to price increases, prices will rise in competitive, unconcentrated markets. Imagine a perfectly competitive market consisting of numerous small sellers. If consumers become desensitized to price increases because pandemics and wars suggest to them that increases are inevitable, then firms that once could not sell to consumers in the market, because their costs, and hence the minimum prices they were willing to charge, were too high, will now be able to sell to consumers in the market. Other firms in the market that have lower costs will observe this and will raise their prices to match those of the high-cost firm. For if consumers can now afford to pay that firm’s prices, they can now afford to pay that price to any firm. As a result, the market price will increase.
The analysis does not change for markets that are concentrated but also competitive. The increase in demand will bring a higher-cost competitive fringe in the market, and the higher prices that fringe needs to charge in order to enter the market will enable all firms in the market to increase their prices.
Prices will also rise in concentrated markets in which firms are already engaged in tacit collusion, so long as the increase in demand also increases the profit-maximizing industry price. Perceiving that demand has increased, big firms will collude further to raise their prices. But they won’t do this because the increase in demand facilitates collusion, but rather because they are already colluding to charge the profit-maximizing price and the profit-maximizing price has increased.
It is possible that firms in concentrated markets might find it easier to initiate tacit collusion when consumers expect price increases. If each firm knows that the others expect consumer demand to rise, creating opportunities to increase prices, each firm may be more confident that a price increase will be matched by other firms.
But against a backdrop in which firms would raise prices in both concentrated and unconcentrated markets and whether they have been colluding or not, it is not clear what any additional price increases due to greater ease of collusion contribute to the inflation story. For the story to work, antimonopolists would need to show that price increases absent the additional collusion would have been insufficient to trigger the inflation. This antimonopolists have not begun to do. Without it, consumer desensitization tells an inflation story without the need for concentration or collusion.
Indeed, consumer desensitization to price increases is a demand story and not a concentration story. And as a demand story, it just puts us back at the basic structural fact of this inflation, which is that it was triggered by an excess of demand over supply that firms big and small chose voluntarily to exploit.
Weber and her coauthor seem to have been led to think otherwise by listening to a bunch of earnings calls in which representatives of firms in concentrated markets suggested that they were raising prices because they were confident that competitors would not try to undercut them.
But to the extent that executives can be assumed to understand what they are doing—which is not a foregone conclusion by any means—all this shows is that, when firms engaged in tacit collusion encounter demand increases, they raise prices. It does not establish that they started tacitly colluding for the first time due to the demand increases. And it does not establish that firms in unconcentrated markets encountering the same demand increases are not raising prices as well.
The antimonopoly argument turns out to be based on a snapshot of how big firms in concentrated markets behave. But if you only look at behavior in those markets you are not going to be able to perceive whether their performance is unique to them or not.
* * *
Progressives want to tell a story about greed and inflation. To tell it with the greatest possible generality and power, they should ditch the antimonopoly blinders.
Plans are afoot to charge drivers to enter Manhattan. But we need a fairer way to reduce traffic.
[I published this opinion piece in the ill-fated OZY in 2019. As the OZY website appears to be gone, and with it this piece, I’m reposting it here.]
March 31, 2019
By Ramsi Woodcock
Henry Ford’s dream was to democratize transportation by selling cars so cheaply that every American could own one. His shareholders sued him for it, but Ford eventually succeeded, and we owe today’s driver-friendly America in part to Ford’s insistence that the automobile be a mass-market item. While climate change has taught us that the car was the wrong route to transport democracy, it has done nothing to undermine the principle that there should be no class divide in American transportation.
But one of the most progressive states in the union, New York, is about to write such a class divide into law, in the form of congestion pricing for access to Manhattan. If the plan goes forward, drivers will be charged more than $10 to enter the island, and other major U.S. cities may follow the Big Apple’s lead.
Congestion pricing taxes car commuters. Advocates, including New York Gov. Andrew Cuomo, public transport groups and even a once reluctant Mayor Bill de Blasio, argue that the tax would reduce rush-hour traffic and raise billions of dollars to invest in improving the city’s decrepit subways, which in turn would increase subway ridership, further reducing traffic.
Congestion pricing isn’t really reserving the city’s streets for those who need them most; it’s reserving them for the rich.
All that is true, but congestion pricing does something else: It puts the burden of decongesting the city entirely on the backs of poor and middle-class drivers, by politely but effectively making it impossible for some to drive into the city because they simply can’t afford the tax.
If there were no other way to reduce traffic, then, of course, New York should ask the poor and the middle class to shoulder this burden. But my research shows that there are other ways to reduce traffic that won’t write a class divide into law.
The Limits of the Price System
The premise of congestion pricing is that the best way to prevent overuse of an important resource is by charging for access to it. Those who value the resource more, the theory goes, will be willing to pay more for it, and so those who actually end up paying the price and using the resource will be those who value it the most. Those who decide not to pay—and therefore shoulder the burden of eliminating overuse of the resource—will be those who needed the resource the least.
In reality, however, willingness to pay is an imperfect indicator of need. A dollar, after all, is worth much less to a rich person than to a poor or middle-class person. So congestion pricing isn’t really reserving the city’s streets for those who need them most; it’s reserving them for the rich.
Ration with Tech, Not Price
But there is a way to reduce traffic in Manhattan without excluding the middle class or the poor: allocate access based on the rule of first come, first served. Instead of charging for access, simply close the island (or the parts of the island that are the focus of the current plan) once it has filled up.
First come, first served, like congestion pricing, strives to grant access based on need—the more you want to enter the city, the earlier you will line up—but unlike congestion pricing, it would be far harder for the rich to use their wealth to short-circuit the sorting mechanism. Sure, the wealthy could pay people to line up in their place, but New York could ban the practice, whereas under congestion pricing the city could never prohibit the rich from buying access when they don’t really need it.
First come, first served evokes visions of lines of vehicles stretching off into the distance along the approaches to the city, and 10 years ago that would have been true. But the internet has taken the effort out of waiting by allowing us to join virtual lines from the comfort of home, which means the first-come, first-served model is now a viable alternative to the price system.
Imagine that instead of congestion pricing, city leaders were to create a city access app. The app would know your location and how long it would take you to drive into the city, and therefore could inform you before you depart whether you will be granted entrance. Even better, the app could measure your need to drive, allowing those who live far from public transport to drive during rush hour but requiring those with public transport options to use them during busy periods. Either way, no physical line would be necessary.
Sure, it’s a bit more cumbersome than just driving into the city and having the tax deducted automatically from your bank account. But that’s only for those lucky enough to be able to afford congestion pricing. For those who would be priced out of the city, and thus their jobs, by congestion pricing, an app-based first-come-first-served approach would be a big improvement.
Some have suggested that New York’s congestion pricing plan should include an exemption for the poor, but any proposal to make the plan truly affordable is doomed to failure, because if everyone can still afford to drive into the city under the plan, then the plan won’t stop congestion. The proposal to exempt the poor should be seen for what it is: an attempt to obscure congestion pricing’s classist reality, at the expense of the middle class, which would not be exempt.
Tax Incomes, Not Drivers
First-come-first-served might be a more democratic way of rationing access to the city’s streets, but what about all the tax revenue congestion pricing will generate to fund the subways? First-come-first-served can’t generate that revenue, because it keeps city access free. Nor should it.
Economists have long argued that the best way to soak the rich is directly — through taxes on high incomes and capital gains, like the state’s Millionaire’s Tax and a proposed exaction on second homes — not by taxing behaviors. Behaviors, such as commuting, often cut across class lines, and you end up taxing the rest along with the rich.
America has a long tradition of preferring market-based solutions to public problems, which is what congestion pricing represents, but America also has a longstanding hatred of class privilege — epitomized by Ford’s desire to put a car in every garage. That may explain why a still-class-bound London, and authoritarian Singapore, have embraced congestion pricing, but American cities have not.
And shouldn’t.
Ramsi Woodcock is a law professor at the University of Kentucky.
We say that direct democracy is not practicable because we don’t all have time to vote on every matter of government. Therefore, we delegate to elected representatives. That delegation concentrates power in the hands of the representatives. But we don’t worry too much about that because we regulate our representatives’ behavior. If they do wrong, we throw the bums out of office. It follows that as between individuals we do not condemn all concentrations of power as a general matter, but instead permit those concentrations that we believe will be good for the community, and regulate them to make sure that they are in fact good for the community.
Antitrust does the same thing with respect to business firms.
Antitrust permits concentrations of economic power when their owners wield it for the benefit of society. Antitrust condemns concentrations of economic power otherwise. Antitrust lets the phone monopoly persist for so long as it provides cutting edge service.
The view that all monopoly is non licet is tantamount to the view that no one should ever have more power in any domain than any other person. That, of course, is incompatible with the administration of anything so large as a society, in which the division of labor, and hence the concentration of power in the hands of particular people or organizations in particular domains, is essential. What prevents such concentrations from leading to abuse is oversight and regulation—not deconcentration.
The concept of the virtuous monopoly is inherent in the concept of the division of labor. To oppose monopoly per se is to oppose the division of labor.
One might say: How terrible the world really is! Why give life to physical objects, when it is the fate of physical objects to be crushed and destroyed? Why, in other words, have life in a world of death? Or one might say: Life was needed precisely because it is the fate of physical objects to be crushed and destroyed. Life is their response to that fate. It is the caring of the rock for itself. It is the self love of the physical world. The living thing flits about, escaping the destruction that otherwise would surely come for it sooner. Death is not an alien thing that has been brought to life. To the contrary, we are and have always been dead things. Life is death’s rejection of itself.
In other words: To see death as a taint on the world is to measure against the wrong baseline.
Proposed regulations would read New York’s law against price gouging to police gouging by small firms less strictly than gouging by big firms. I’ve argued that this confuses scarcity with monopoly.
Price gouging is the exploitation of natural scarcity to charge higher prices. Monopoly is the creation of artificial scarcity in order to charge higher prices. Big firms have the power to create artificial scarcity. But all firms can equally take advantage of natural scarcity to rip the public off. So there’s no good reason to apply a more lenient price gouging standard to small firms.
It turns out that New York Attorney General Letitia James is not the first person to get the distinction between natural and artificial scarcity wrong.
Hapsburg Austria did too.
According to a book by David J. Gerber, an 1803 statute invalidated cartel agreements “to prevent merchants from profiting from shortages caused by the Napoleonic wars, particularly in necessities such as food” (p. 53).
The law’s authors don’t seem to have reflected that the point of a cartel is to agree on output reductions and thereby to create an artificial shortage. If the Napoleonic wars have created the shortage for you, then you don’t need to form a cartel to create one.
You just raise prices.
An anti-cartel law is therefore not going to be effective at keeping prices down in wartime. Or anytime prices are driven up by natural scarcity.
It is an amazing but true fact that antimonopoly policy won’t solve every economic problem. But it does seem to have the notable property of enabling us to remake every economic mistake.
In the modern age, we have trouble taking ideas seriously. We prefer to think in terms of dumb mechanism. We need oil for energy. It is in limited supply. Therefore we fight over it. Therefore we have conflict in the Middle East, which has a lot of oil. We apply this sort of economic logic to everything.
The view that ideas determine social behavior seems, by contrast, wishy washy. Does anyone need an idea in the way he needs energy and hence oil to live? Why would two groups that are otherwise well fed and well clothed fight over a figment of the mind?
To the extent that we credit ideas with power, we do so only by seeing them as snare and delusion—weapons in our quest for physical resources. Ideas are spin. They are the Viceroy butterfly’s colors, which mimic those of the bitter-tasting Monarch, warding off predators. Ideas are psyops, nothing more.
The ancients didn’t have this problem. Ideas, for them, were quite obviously everything, which is why people got worked up about religious dogma, as when the greens and the blues came to blows over the question whether Jesus was mostly human or mostly god. (We still do occasionally get violent over religion today, but we see that as a shame and a throwback.)
As I have argued before, the irony of our modern disdain for the power of ideas is that one of our greatest modern inventions—the computer—is an object lesson in the importance of ideas relative to physical mechanisms. No one questions the importance of software. No one questions its influence over the behavior of our machines.
And yet we are somehow certain that our own software—ideas—is mere epiphenomenon.
Antimonopolism as Mere Idea
So it is that when I point out to progressives that antimonopolism is bad for the movement because it leads, ultimately, to a vindication of the justice of the free market, I am told not to worry because antimonopolism is just good progressive psyops. Yes, I am told, free markets are themselves engines of inequality, but being an antimonopolist isn’t the same thing as being a free marketer.
Instead, I am told, antimonopolism is a way of affirming that business interests are the enemy. It’s a way of marshaling support for government intervention. And that is all. Once progressives have ridden a wave of antimonopoly sentiment into power, I am told, they will be free to achieve progressive goals however they want, and that may or may not include more markets and more competition.
This view of antimonopoly as psyops has been most on display in progressive calls to use antitrust to fight inflation. So far as I know, a century of progressive economics had never taken the position that inflation is caused by monopolization or that antitrust might be a useful remedy.
Keynes, for example, thought inflation’s flip side—deflation—had little to do with market structure. He thought Roosevelt’s first New Deal, which was about using cartelization of markets to fight deflation, was a mistake. He invented macroeconomics because microeconomics—tinkering with market structure—was a dead end. It stands to reason that, if he thought deflation wasn’t a problem of market structure, he didn’t think inflation was either.
Progressive economists no doubt understand that the link between inflation and monopolization is tenuous at best. And yet here, for example, was Paul Krugman writing a year ago when this debate was flaring:
Give Biden and his people a break on their antitrust crusade. It won’t do any harm. It won’t get in the way of the big stuff, which is mostly outside Biden’s control in any case. At worst, administration officials will be using inflation as an excuse to do things they should be doing in any case. And they might even have a marginal impact on inflation itself.
In other words, arguing that inflation is an antitrust problem is good psyops, allowing progressives to leverage concern about inflation to achieve an unrelated agenda.
Well, there are costs to this kind of instrumental use of ideas—costs that arise because, at the end of the day, ideas aren’t just weapons for striking the other side. They are the software that governs the behavior of those who harbor them. If you hold onto ideas when they’re no good, you are going to do the wrong thing.
When you run bad software, the computer does bad things.
The New York Price Gouging Regulations
The peril of harboring bad ideas is reflected in the rather peculiar interpretation of New York’s new price gouging law proposed by New York Attorney General Letitia James.
The law itself is a good one. It prohibits “unconscionably excessive” pricing during any “abnormal disruption” of a market for a good or service that is “vital and necessary for the . . . welfare of consumers”.
The language is capacious enough to allow New York to institute generalized price controls to reign in supply-chain-driven inflation, including today’s inflation. After all, a supply chain disruption is an “abnormal” disruption. And all goods are, by definition, necessary to the “welfare of consumers.”
But only if the Attorney General interprets the law that way. And here is where the power of bad ideas rears its head.
As the Attorney General acknowledges, half a dozen states—including such conservative climes as Georgia, Mississippi, and Louisiana—consider any increase in the price of covered necessities during a time of emergency to be presumptive price gouging. The price of gas can go up by a penny or ten dollars—either way, the burden is on the seller to prove that it is not price gouging.
The New York Attorney General decided, however, to take a different tack. Instead of applying the presumption to any amount of price increase by any firm, the Attorney General decided to apply it only to any amount of price increase by firms having either a 30% market share or competing in a market with five or fewer “significant competitors.” In all other cases, only a price increase in excess of 10% will trigger the presumption of price gouging.
That’s right, New York’s price gouging presumption is actually going to be narrower than Mississippi’s, because it only applies to big firms.
What gives?
Answer: bad software.
Whether they genuinely believe in antimonopolism, or think it is mere psyops, progressives have antimonopolism on the brain. Every economic problem appears to them to be a problem of monopoly. And every solution appears to them again to be a solution to a monopoly problem.
They do not see a statute that prohibits the charging of high prices as an opportunity to redistribute wealth in areas of economic life that antimonopoly policy cannot touch. Instead, they see it as an invitation to extend antimonopoly ideology into new areas.
In their minds, making such a connection actually broadens the statute, by tying it to what they are sure is the root cause of all economic injustice.
Except it isn’t. And they end up narrowing the statute instead.
So they take a statute that could be interpreted presumptively to ban all above-cost pricing attributable to supply chain disruption and use it instead presumptively to ban only above-cost pricing by big firms.
Price Gouging Is about Scarcity, Not Monopoly (and Yes, Those Are Two Different Things)
The pity of using a market concentration requirement to limit a great price gouging law is that price gouging really has zilch do to with monopoly.
Price gouging is, instead, about scarcity. Or one might say that monopoly is about artificial scarcity whereas price gouging is about the exploitation of natural scarcity.
We fear the monopolist because, in the absence of competition, the monopolist can restrict output and raise price without losing market share.
By contrast, we hate price gouging because it involves taking advantage of an involuntary restriction in supply.
When demand for food spikes before a hurricane, the public knows that supermarkets don’t have the inventory to meet demand. But the public also knows that the supermarkets originally expected to sell the inventory that they do have at normal prices. Those eggs were already on the shelves before the impending hurricane was announced. When the supermarkets raise prices, it is therefore obvious to the public that the surcharge is pure profit. That’s what makes the public mad and gives rise to price gouging laws. The manufacturing of a voluntary shortage plays no role here. No one thinks the supermarket is holding back eggs—or choosing not to order more.
Monopoly is famine while grain rots in silos. Price gouging is your neighbor demanding your house in exchange for a slice of bread—after lightning striking the silos.
That’s why price gouging statutes kick into gear only during an emergency—or, as in the case of New York’s law, during a period of “abnormal disruption” of markets. A monopolist’s decision voluntarily to restrict output and jack up prices is plenty evil, but one thing it isn’t is the sort of supply chain disruption that triggers a price gouging statute.
Confusing Scarcity with Monopoly
So what is a market concentration requirement doing in regulations implementing a price gouging statute?
The Attorney General relies on a passage in the price gouging law that identifies “an exercise of unfair leverage” as a factor in determining whether a firms has engaged in price gouging. But the phrase “unfair leverage” could just as easily refer to (natural) scarcity power as it could to monopoly power.
The Attorney General’s comments shed more light on her rationale. They explain that “firms in concentrated markets pose a special risk of price gouging because they can use their pricing power in conjunction with an abnormal market disruption to unfairly raise prices.”
This seems to articulate a category mistake. She has confused scarcity power with monopoly power.
The pricing power upon which price gouging is based is scarcity power. It is the power that arises because an act of god has eliminated part of the supply that would otherwise exist in the market. The pricing power enjoyed by “firms in concentrated markets” is not (natural) scarcity power. It’s monopoly power (artificial scarcity)—the power voluntarily to restrict supply.
A firm in a concentrated market can use its monopoly power whenever it wants, including during an “abnormal market disruption.” But whenever the firm chooses to use it, the firm isn’t using (natural) scarcity power to raise prices. It’s using monopoly power to raise prices.
If, thanks to the abnormal market disruption, the firm is able to raise prices higher than the firm otherwise might, then that extra increment is price gouging due to (natural) scarcity power. But any price increase that the firm would be able to bring about without the aid of the market disruption is due to an artificial restriction in supply and remains an exercise of monopoly power.
So it makes little sense to say that firms with monopoly power pose a “special risk” during periods of market disruption because they can use their monopoly power “in conjunction” with their scarcity power to raise prices. Firms with monopoly power pose the same risk that all firms pose during periods of disruption: the risk that they will use the additional power conferred on them by disruption-triggered scarcity further to raise prices.
If we worry that (natural) scarcity is going to tempt a monopolist to raise prices we should be equally worried that it will tempt a non-monopolist to raise prices: (natural) scarcity gives both firms the exact same kind of power—the power to exploit scarcity to raise prices.
Non-Monopoly Price Gougers Probably Do More Harm
Indeed, one would expect that the harm that a firm that lacks monopoly power can do by exploiting scarcity would generally be greater than the harm that a monopolist can do by exploiting (natural) scarcity because, before the disruption, the monopolist will already have artificially restricted output to try to raise prices to the most profitable extent.
If a monopolist has already artificially restricted supply to the most profitable extent, any additional involuntary restriction caused by the disruption may be unprofitable for the monopolist and the monopolist may, therefore, choose not to exploit it by raising prices further.
As some have long suggested, the first increase in price above costs is always the most harmful to consumers, precisely because when price equals cost, output is at a maximum and consumers reap the greatest benefit from production. They therefore have the most to lose. Subsequent price increases play out over progressively lower sales volumes, inflicting smaller and smaller amounts of harm.
But what kind of firms are induced by an abnormal market disruption to make a first increase in price above costs?
Answer: non-monopolists.
Firms in hypercompetitive markets start out with prices at or near costs before an abnormal market disruption gives them power to price gouge.
Monopolists facing abnormal disruptions have already raised their prices above costs long ago, when they first acquired their monopoly position. To the extent that they increase prices due to a market disruption, that will be far from the first increase in their prices above costs.
Disruptions Operate at the Level of Markets, Not Individual Firms, So Price Gouging Is Not Worse In Concentrated Markets
The Attorney General seems to think that because a monopolist has a large market share relative to a non-monopolist, any price increase by the monopolist will tend to cause more harm because it will apply to a higher volume of sales. She writes that large firms “have an outsized role in price setting.”
This is the sort of mistake that comes from thinking in terms of firms instead of markets.
A market disruption does not enable price gouging by striking a single firm. If a single firm’s output is restricted but no restriction is placed on the market as a whole, other firms in the market will bring more inventory to market to offset the loss of the firm’s output and no firm will have the opportunity to raise prices.
Instead, a market disruption enables price gouging by striking the entire market. If the output of the market as a whole is restricted, then restrictions on the output of some firms won’t be made up by increased sales by other firms. As a result—and this is key—all firms in the market, and not just the firms that have suffered a restriction in output, will be able to raise prices.
That’s because the higher prices are a rationing mechanism: they allocate the restricted market supply to the consumers who have the highest willingness to pay for it.
If any firm in the market doesn’t raise prices, consumers will all try to buy from that one firm. But because there isn’t enough supply in the market to satisfy them all, that one firm won’t have enough to satisfy them all either. The firm will sell the same volume as the firm would have sold at the higher prices. But the firm will earn less profit. So the firm will prefer to just charge the higher prices.
That’s why only market-level disruptions enable price gouging.
What this means is that a supply disruption that is concentrated in a large firm doesn’t affect more consumers than a supply disruption that hits smaller firms instead. Regardless where the disruption is felt, all prices, charged by all firms in the market, rise—so long, that is, as the disruption is a market-level event in the sense that other participants in the market are unable instantaneously to make up for the reduction in the firm’s supply.
And, as I pointed out above, in markets with large numbers of small, hypercompetitive firms, those price increases are likely to be more harmful precisely because prices are likely to start out lower than in concentrated markets.
One must, therefore, scratch one’s head at the Attorney General’s further observation that “the profit maximizing choice for a smaller competitor in an industry with [a larger] seller will often be to match the larger company’s price,” as if that establishes that price gouging is more severe in markets that have larger competitors.
When industry supply is restricted, the profit maximizing choice for a smaller competitor will be to raise price to match smaller competitors’ price increases, as well. All firms, regardless of size, will find it profit-maximizing to raise price in order to ration the industry’s limited output.
The point of a rule against price gouging is to prevent the market from using high prices to ration access to goods in short supply. The rule effectively requires the market to ration based on the principle of first-come-first-served instead.
Price gouging enforcers target only a small subset of firms in any given market for enforcement. But the goal of the a rule against price gouging is not, ultimately, to regulate the conduct of individual firms but rather to get the market price down to cost. Enforcement against individual firms is meant to have a deterrent effect on the pricing behavior of all firms in the market.
While targeting the biggest firms for enforcement might send a stronger warning to the market than targeting a smaller firm, prosecutors do not need a regulation making it easier to bring cases against big firms in order to pursue such a strategy. Indeed, such a regulation makes it harder for them to bring cases in markets in which there are no big firms.
Does Plenty Really Make Firms More Likely to Collude?
The Attorney General’s theory seems to be that market disruptions enhance monopoly power, enabling a monopoly to leverage scarcity to increase prices in response to a market disruption to a greater extent than could a non-monopolist.
The Attorney General seems to have in mind that market disruptions facilitate collusion. “[I]t may be easier for big actors to coordinate price hikes during an inflationary period, even without direct communication,” she writes.
One would, of course, expect that firms in concentrated markets that are prone to tacit collusion would be able to raise prices after a market disruption. The disruption by definition reduces the amount of output in the industry in the short term, as discussed above.
That allows the firms in the market to raise prices. But such price increases are due to the increased scarcity of output, not to the collusion.
In order for the collusion to be responsible for the price increase, output would have to fall further. The firms would need to engage in collusion that enables them voluntarily to restrict supply above and beyond both the involuntary restrictions created by the market disruption and any voluntary restrictions that the firms were capable of impose absent the disruption.
Presumably the argument is that the impetus to raise prices independently that is created by the supply disruption puts firms in the frame of mind required for them further to restrict supply and raise prices in tacit collusion with other firms.
That’s a pretty slim psychological reed upon which to hang a theory of harm. And one can easily imagine alternative psychologies.
Plenty tends to make us self-involved and egomaniacal. Hardship, if not too great, makes us generous and cooperative. It would seem to follow that the profit opportunities created by a market disruption should undermine cooperation between firms, rather than promote it.
I don’t know if this story is any more likely to be true than the one that the Attorney General seems to favor. The point is that psychological arguments of this sort do not provide a strong basis for carving out special treatment for large firms under a price gouging rule.
More Confusion of Scarcity with Monopoly
The only other argument the Attorney General makes for special treatment reprises the Attorney General’s confusion of scarcity and monopoly power.
The Attorney General argues that
the risk of firms taking advantage of an abnormal disruption may be greater where certain market characteristics reduce the likelihood of new entry—for example, where supply chains are disrupted or key inputs are scarce or where high concentration makes investment less attractive in a particular market. . . . Incumbents are insulated from the credible threat of new competition to discipline prices during abnormal market disruptions.
The Attorney General seems not to understand what a “disruption” is. It is, well, a disruption. Supply is destroyed. Or, equivalently, it is insufficient to meet a surging demand. By definition, there can be no entry. If there were entry by other firms into the market, then supply would not be insufficient anymore!
It follows that the extent to which before the disruption the market is already protected against entry due to the deterrent effect created by high concentration is irrelevant.
If such a deterrent existed before the disruption, and firms took advantage of it, then output would already have been artificially restricted in advance of the disruption. The disruption may destroy additional supply, and firms may raise prices in response, but that destruction won’t be due to market concentration but instead to the disruption.
To be sure, if the market were less concentrated and there were no concommitant entry deterrent, then prices in the market would be lower over the period of the disruption. And, moreover, the extent of the price increase created by the disruption might be different—either greater or lesser depending on the shape of the demand curve.
But that increase would still be attributable to scarcity and not to monopoly. And the ability of firms to enter the market to eliminate the scarcity would be controlled by the nature of the disruption and not any deterrent power wielded by incumbent firms.
The disruption destroys production that already existed notwithstanding the incumbents’ monopoly power. It follows that this output could not otherwise have been precluded through incumbent firms’ deterrent power—otherwise it would not have been there to be destroyed by the disruption.
Anyway, Small Amounts of Harm Are Small Amounts of Harm, Whether the Perpetrator Could Do More Harm or Not
But suppose the Attorney General were right that monopolists cause more harm through price gouging. Would it make sense to treat any price increase by a monopolist as presumptively unlawful but only increases by non-monopolists in excess of 10% as presumptively unlawful?
Of course not.
That’s like saying that it should be battery if a semi bends your fender but it should not be battery if a Prius bends your fender.
Harm is harm whether it’s inflicted by someone who could have done you a lot more harm or by someone who could only have done you a little more harm. A 5% increase in price above cost is a harm to consumers, whether that 5% markup is charged by a firm that could have, under some circumstances, charged you $100 more or only a dollar more.
A Lesson in the Perils of Antimonopolism
Antimonopoly framing may appeal to progressives because they are pushing back against two generations of market fetishism in economics. The framing lets progressives assert that markets aren’t free without having to go to the trouble of rejecting markets in the abstract.
That might feel like a powerful move.
First, it’s true: there’s a lot of monopolization in the economy.
Second, it means progressives don’t need to get into theoretical battles about the virtue of markets in the abstract.
But because antimonopolism sidesteps the theoretical problem of the market, it’s a compromise, not a power play. And a bad play at that.
In order to score points on means antimonopolists concede ends. To curry support for government intervention in business they concede that the end of intervention should be (truly) free markets.
But progressives have known for more than a century that the free market is the problem, not just in practice but in its abstract, idealized form. There’s no guarantee that really, truly, perfectly competitive markets will distribute wealth fairly. Instead, they arbitrarily distribute wealth to those who happen to own relatively productive resources or who happen to place a relatively high value on what they consume.
As David Ricardo pointed out, if you happen to own land having relatively good soil, you will earn a profit, because the price of agricultural produce needs to be high enough to cover the higher cost of tilling less fertile land. Your costs—including any reward needed to induce you to make your land more fertile—are lower, so you will generate revenues in excess of costs. That excess isn’t necessary to keep you in the market or to fertilize your soil. It’s a pure distribution of wealth based on the arbitrary fact that someone else in the market doesn’t have costs as low as your own.
Indeed, as Thomas Piketty has pointed out, the source of the explosion of inequality in recent decades has nothing to do with “market imperfection[s]” like monopolization. It has to do with markets.
There’s no way to divorce the gains progressives make on the means from the losses they suffer on the ends. If you succeed at convincing Americans that every market is monopolized, then Americans’ response is going to be: deconcentrate markets.
It’s not going to be to use every means available, including tax and transfer and price regulation, to redistribute wealth.
But, more importantly in the context of the New York price gouging law, the habit of proving market concentration in order to appease conservative priors regarding the benefits of markets can take on a life of its own.
It makes progressives forget that market concentration is far from the only source of inequality. And they end up casting aside or hamstringing policies aimed at those other sources.
