Redundancy’s Redundancy

How could Boeing decide to build a system based on the data of a single sensor, when it was from Boeing’s kind — from engineers — that we learned the value of redundancy in legal systems?

Compare:

While most airplane systems are built with backup redundancies to prevent a single data malfunction from altering a plane’s course, MCAS is triggered by data from just one angle of attack sensor, not two.

Hadra Ahmed et al., Ethiopian Crash Investigators Call for Inquiry Into Boeing Max Controls, N.Y. Times, March 4, 2019.

With:

The [judicial system has] the structural characteristic of forum or jurisdictional redundancy. This characteristic of redundancy in the design of other sorts of systems is now well understood to be essential to secure reliability. Everyone understands that if you wish to make sure that a physical structure is strong enough at certain points you put extra material or extra strong material at the given point. Or you may duplicate the critical beam or arch, using two components where one might do. Fairly early in the development of cybernetics as a separate discipline, it was also demonstrated that redundancy could provide a solution in principle to the problem of unreliability of components in information systems. Since that time, sophisticated refinements in specification of necessary redundancy characteristics in information systems have been made. . . . [The utility of redundancy justifies] the jurisdictional redundancy which characterizes our federalism.

Robert M. Cover, The Uses of Jurisdictional Redundancy: Interest, Ideology, and Innovation, 22 Wm. & Mary L. Rev. 639, 649 (1981).

The Big and the Bad

That firm size tells us little about propensity to innovate is nicely illustrated by contrasting AT&T and Verizon with Amazon. AT&T and Verizon have rightly been criticized for what looks like intentional underinvestment in broadband, made possible by their oligopoly power. Comes now Amazon, planning to invest billions to provide global broadband access via satellite, and Google, investing billions to build new undersea internet cables.

The big can do wrong, but they can also do right.

There is a Schumpeterian lesson here too. Schumpeter argued that market power is always in jeopardy from outside the market, and that is in evidence here. Who would have thought a few years ago that an online retailer would one day plan to use the profits generated from dominance in its own market to challenge the vicious telecom oligopoly?

It should also be clear that a broken up Amazon or Google, an Amazon or Google confined to one business, one market, and one level of the supply chain, would have neither the capital, nor the ambition, nor the legal right to attack the telecoms.

It is not size that is a problem, but the misuse of size, and the remedy for misuse is to encourage the good uses and suppress the bad. Which is to say: not to break up, but to regulate.

Chicxulubian Antitrust

There is a lot for industrial policy, including antitrust, to gain from reflecting upon evolution. Consider, for example, the theory that the demise of the dinosaurs in a catastrophic meteor impact at Chicxulub cleared the way for mammals to become the world’s dominant megafauna.

If we suppose that mammals are better creatures than dinosaurs — more advanced, more sophisticated, somehow — then the theory suggests that until the meteor impact the dinosaurs had short-circuited competition from mammals, preventing them from leveraging their superiority to overpower the dinosaurs.

Perhaps the short circuit was the mere fact of dinosaurs’ incumbency. Mammals couldn’t reach livestock size, for example, and compete with larger dinosaurs, simply because dinosaurs already occupied that niche, denying mammals the resources they would need to evolve into it. Similarly, antitrust and innovation economics have long recognized that there are first-mover advantages that can block competition. Indeed, the argument current today that Google and Facebook use their size to acquire startups before they can grow into serious competitors resembles the role dinosaurs’ incumbency may have played in obstructing the development of mammals.

But perhaps instead of confirming our fears about the anticompetitive character of incumbency, the story of dinosaurs and mammals undermines it. For there is no reason to assume that mammals really are the better — more advanced, more sophisticated, somehow — of the two groups. Perhaps if the advantages of incumbency could be eliminated, and dinosaurs and mammals, in fully-developed form, could be set against each other, dinosaurs would emerge victorious.

In that case the meteor impact did not operate the way some believe that using the antitrust laws to break up Big Tech would operate today. The cataclysm did not free up space for more innovative upstarts to develop and occupy the ecosystem, but rather wiped out a more advanced form, allowing less-developed upstarts to thrive, and then to turn around and use the advantages of incumbency to prevent the more advanced form from returning to its original position of dominance. The meteor laid low the dinosauric epitome of life, and mammals leapt into the space and prevented dinosaurs from coming back. It is hard, when looking at the dinosaurs’ descendants, the birds, with their obsession with beauty, long-term amorous relationships, and increasingly-well-documented intelligence, not to wonder what might have been.

In other words, there is no reason for industrial policymakers to suppose that periodically shaking up the business world using the industrial cataclysm of the deconcentration order must necessarily, through competition, lead to better firms. Some value judgment must be made by policymakers regarding whether what will come next promises to be better than what we have now. Competition is path dependent, a kind of roll of the dice, and there is no guarantee that a new roll will produce better forms than the last. The evolution of the mammals into man — an unmitigated disaster for the global ecosystem — stands as Exhibit One to that sorry fact.

Boeing Shows Us Why Prices Are Too Important for Private Enterprise to Decide Alone

The sad tale of Boeing’s pricing of essential safety features for the 737 MAX 8 as product options is an object lesson in why pricing should always be a public-private project.

Many firms engage in price discrimination: charging different prices for the same product. The ideal way to do that is to generate reliable information on the willingness of each customer to pay, and then to charge higher prices to those willing to pay more and lower prices to those willing to pay less. But often firms can’t just discriminate in prices directly, either because discriminatory pricing would be politically sensitive, or because firms just don’t know how much buyers are willing to pay. So firms discriminate indirectly, by splitting the product into a base model and then selling optional additions.

By pricing the additions far above the actual incremental cost of adding the addition onto the product, the firm can seduce buyers into bringing price discrimination upon themselves. The buyer who is relatively price insensitive — and therefore has a high willingness to pay — will load up on options, and end up paying a far higher total price for the product than will the price-sensitive buyers, who will go with the base model. If this sounds like the business model of the car industry, that’s because car makers — particularly GM — pioneered this form of covert price discrimination in the mid-20th century.

Is covert price discrimination of this kind good for the economy? If a firm’s overhead is so high that the firm would not be able to cover costs, including overhead costs, at a competitive uniform price, then the answer may be yes. But if not, then price discrimination represents a pure redistribution of wealth from consumers to firms, by allowing firms to raise prices higher than necessary, to those consumers who happen to be willing to pay more.

Boeing’s decision to charge pilots extra to be able to read data from a key sensor used by an anti-stall system in the 737 MAX 8 is a classic example of covert price discrimination. The cost of enabling pilots to read data off the sensor was apprently near zero, but Boeing charged airlines thousands of dollars for that option in order to coax airlines with a higher willingness to pay to pay more for a 737 MAX 8. Predictably, budget airlines, like Lion Air, whose 737 MAX 8 crashed on takeoff, possibly because pilots could not read data off of the sensor, and therefore did not know that the plane’s anti-stall system was malfunctioning, did not choose that option.

If America had a general price regulator — an administrative agency responsible for approving the prices charged by large American businesses, including Boeing — then that regulator would be able to tell us today whether Boeing really needed to price discriminate in order to cover overhead, and therefore whether the high price Boeing charged for that safety option really was justified by its costs. Or whether Boeing’s price discrimination amounted to the charging of above-cost prices — prices that redistribute wealth from consumers to firms, not because the extra wealth is required to make the firm ready, willing, and able to produce, not because the extra wealth is necessary to give investors a reasonable return on their investment, but simply because Boeing, as a member of a two-firm global airplane production duopoly (along with Airbus), had the market power to raise price. And because Boeing thought it had more of a right to airline profits — and ultimately to the hard-earned cash of consumers — than do the airlines that buy planes from Boeing and the consumers that fly on them. If it turns out that the safety option was priced higher to extract monopoly profits from consumers, rather than to cover overhead, then we have in Boeing an example of how market power can inflict not just harm on the pocketbook, but actually take lives.

The existence of a general price regulator would have allowed us to pass judgment on Boeing, because what price regulators do is to extract information from big businesses about their costs, including overhead, and based on that to determine whether these firms need to engage in price discrimination to survive, and if so, how much price discrimination is required to cover costs. Regulators then approve price discrimination — called “demand-based pricing” in regulator-speak — if it is needed to cover costs, and reject it where it amounts to no more than an exercise of monopoly power.

Because we have no price regulation of airline production, we simply have no way of telling for sure what Boeing was doing when it decided to charge more for the safety option.

Indeed, the advantage of having a rate regulatory agency goes deeper than just ensuring that firms deploy price discrimination only when it is absolutely necessary to cover costs. Rate regulators have a long history of using their power to approve prices to insist that firms structure their covert price discrimination in a way that is maximally beneficial to consumers. That includes insisting that when firms break their products into base models and sets of options, they do so with a view to safety. Indeed, one of the great benefits of rate regulation is government say over what constitutes an acceptable product. When the airlines were regulated by the Civil Aeronautics Board, for example, the regulator insisted that the airlines maximize the number of direct flights they offer, with the result that today’s layover hell was largely unknown to mid-century fliers.

Boeing has an incentive to make safety features optional, because high willingness-to-pay airlines are more likely to cough up for safety options. But the extra profits that go to Boeing from being able to price discriminate against wealthy airlines come at the cost of delivery of unsafe planes to budget carriers. A rate regulator might well have insisted that that Boeing’s definition of a base aircraft model include far more safety features than it does today.

Of course, the Federal Aviation Administration, which has authority over flight safety, could have mandated that airlines purchase the optional safety features, but chose not to do so. But a rate regulator would have added an additional regulatory safety net, making it possible to stop dangerous pricing at the source — when the prices are chosen — rather than when airlines make decisions about which options to buy, as the FAA would have done.

Given that aircraft manufacturing prices are not regulated today, is our only option to throw up our hands in despair? No. We can still at least get to the bottom of the question whether Boeing priced that option as an exercise of monopoly power, or out of a need to cover costs, through the unlikely vehicle of the antitrust laws. I have argued that the Sherman Act should be read to provide a right of action to any buyer to sue for a judicial termination whether a firm is charging above-cost, and therefore unnecessarily high, prices.

Now would be the perfect time for the world’s airlines to bring that antitrust case.

Amazon, MFNs, and Second-Best Antitrust

Antitrust advocates are hailing Amazon’s decision to stop requiring third-party sellers to offer products on Amazon at the lowest prices they charge for their products anywhere. But the decision is decidedly second-best: consumers would be much better off were government to regulate Amazon’s fees, and allow the platform to keep those “most-favored-nation” (MFN) rules.

The elimination of MFNs, argue antitrust experts, will promote competition between Amazon and other ecommerce platforms, by allowing third-party sellers to pass on savings to consumers from doing business on lower-fee platforms. If Barnes & Noble, for example, charges a bookseller less to sell books on the Barnes & Noble website, the bookseller will now be free to charge a lower price for its books on the Barnes & Noble website than the seller charges for the same books on Amazon. That in turn will drive business to the Barnes & Noble website, giving Barnes & Noble a reward for lowering its fees and innovating in cost reduction.

That would be the right way to think about MFNs, if the choice were only between laissez faire and antitrust. But there is in fact a third option, which strictly dominates both of the others. Namely, to regulate Amazon’s fees. If Amazon were required to obtain federal government approval of the fees it charges third-party sellers for use of its platform, then regulators could insist on low fees, and even force Amazon to innovate in cost reduction by mandating fees that are below current costs (preventing Amazon from turning a profit unless it innovates). That would unleash all of the benefits that greater competition between platforms promises to provide.

But it would also preserve advantages that platform competition simply cannot offer. Consumers, after all, like knowing that the price they get on Amazon is the best price available anywhere for the product. Anyone who has wasted hours on one travel website after another trying to find the best airfare knows how much time and effort is required to get the best price when such guarantees do not exist.

Indeed, through MFNs, Amazon effectively leveraged its size to impose a law of one price for consumer products across the internet, and that had huge consumer benefits. Amazon is so big that virtually all products of any interest to consumers are sold through its website. By imposing MFNs, Amazon ensured that consumers wouldn’t need to engage in wasteful and time-consuming searches for the best internet prices when they went to buy online. By going to Amazon, consumers could be sure to find any product available on the internet at the best possible price. Amazon used its size to make life easy for consumers, by turning the internet into a one-stop shop.

We must think of Amazon’s MFNs as accomplishing something that we might ideally want a government regulator to accomplish: making it impossible for anyone, anywhere on the internet, to get ripped off by being charged a higher price for a product than a price available for the same product somewhere else. The MFNs, in other words, were an internet-wide guarantee against price discrimination, that nemesis of all consumer welfare.

While the MFNs did prevent third-party sellers from passing the gains from buying on cheaper platforms on to consumers, the MFNs’ elimination of price discrimination was also valuable to consumers. To give but one example, consider that price discriminating firms frequently use search costs to distinguish between high and low willingness to pay buyers: they offer lower prices only to those who signal their inability to pay more by engaging in wasteful searches for better prices. The poor must clip coupons to get lower prices — or waste time searching for better prices on seller websites or obscure platforms — whereas the rich sail through checkout lines. The MFNs spared consumers such indignities.

Their demise undermines the public benefit of one internet price that Amazon was able to provide to consumers thanks to the firm’s size. And that’s why government regulation of Amazon’s fees is better than either laissez faire or the antitrust solution of simply eliminating the MFNs.

A fee-regulated Amazon would be unable to take advantage of the MFNs to charge higher fees, or to fail to continue to invest in innovations that would reduce the cost of providing platform services, thus the concerns about MFNs that antitrust and competition policy are intended to address would also be addressed by fee regulation. But fee regulation would not require elimination of the MFNs, and would therefore preserve the huge benefits to consumers that come from the guarantee of always being able to find the lowest internet price in one place: Amazon.

Thus fee regulation would realize all of the benefits of competition, while inflicting none of the costs on consumers. As in so many areas, we must therefore understand the antitrust victory here to be only relative at best. Society might be better off as a result of the demise of Amazon’s MFNs, but only if the gains to consumers in the form of more platform competition happen to outweigh the losses to consumers from the demise of the guarantee of one internet price and the associated return of price discrimination. But even if society is rendered better off by the demise of the MFNs, it certainly is not rendered as much better off as it would be were policymakers simply to step in to regulate Amazon’s fees and allow MFNs, and the Internet of one price, to prevail.

Antitrust is a decidedly second-best policy here.

When the Great Progressive Hope Is . . . Neoliberalism

The striking thing about Elizabeth Warren’s proposal to break up big tech is that it fits the Neoliberal deregulatory playbook to a T.

From about the mid-1930s to the mid-1970s, roughly a quarter of American economic output, in industries ranging from air travel to natural gas, was subject to a form of regulation that grew directly out of the original progressive movement of a century ago. Although regulatory regimes varied by industry and sometimes by state, common themes were vertical integration and the regulation of the price and quality of goods or services provided to end users.

Electric utilities were encouraged not just to produce their own power, but to own the networks of power lines that distributed the power to consumers. The nation’s regulated monopoly telecommunications provider, AT&T, not only provided telephone service to consumers, but also owned the local and long distance network infrastructure through which the firm connected calls, and even invested heavily in upstream research and development — the famous Bell Labs — instead of relying on startups to create an innovation pipeline.

This vertical integration allowed regulated firms to streamline the entire production cycle. AT&T could guarantee call quality and connections because it controlled the entire infrastructure linking any two callers, right down to the phones the callers used, which were owned by AT&T and hardwired into the wall. The efficiencies associated with this approach are like the advantages that have made Apple products beloved of consumers. Unlike virtually all of its competitors, Apple controls the entire production cycle of its devices: it designs the chips and other components, writes the software, and runs its own sales, marketing, and customer service operations. As a result, it delivers a reliable, integrated experience that customers love.

Vertical integration not only created economies of scale, but also economies of regulation: To ensure that consumers received a fair price and high standards of quality, regulators needed only to oversee a small number of vertically integrated entities, instead of having to regulate separate markets at each level of the supply chain.

And integration was also good for labor. Instead of having to unionize atomistic firms operating at numerous levels of the supply chain, unions only needed to organize a small number of vertically-integrated firms, each of which had a large workforce, making the gains from any one successful organizing campaign quite large. Shortly before deregulation, for example, AT&T was the largest employer in America, with more that 100,000 souls on payroll. Like workers at many other regulated firms, AT&T’s workers belonged to strong unions that made AT&T a paragon of progressive labor practices.

The Neoliberal attack on this approach to regulation started swiftly and brutally in the late 1970s, when over the space of three years Congress tore down most of the regulatory edifice. But as law scholars Joseph D. Kearney and Thomas W. Merrill observe, Congress did not replace regulation with laissez faire, but rather with a “new paradigm” — one that looks suspiciously like the one proposed by Warren for the regulation of big tech. Kearney and Merrill write:

Instead of striving for equality of treatment among end-users and reliability of service, the new paradigm seeks to encourage providers to offer different packages of services at different prices to end-users, on the theory that competition among these providers will enhance consumer welfare. Thus, in one regulated industry after another, we see a movement to eliminate tariffed [i.e., price-regulated] services in favor of contractual choice, to unbundle standardized packages of services in order to allow end-users to select among different service elements, and to eliminate restrictions on entry in order to encourage competition among multiple providers. The role of the agency has been transformed from one of protecting end-users to one of arbitrating disputes among rival providers and, in particular, overseeing access to and pricing of “bottleneck” facilities that could be exploited by incumbent firms to stifle competition.

Joseph D. Kearney and Thomas W. Merrill, The Great Transformation of Regulated Industries Law, 98 Colum. L. Rev. 1323, 1325-1326 (1998).

The idea was to promote competition at every possible level of the supply chain by atomizing vertically integrated firms, and to engage in actual regulatory supervision only when there is a “bottleneck,” a level of the supply chain at which technological considerations make it impossible for competition between numerous sellers to prevail. Even then, the new paradigm would strive only to regulate for equal access, rather than to impose the old limits on price and quality. The hope — and this is what made deregulation a Neoliberal project — was that further regulation would be unnecessary because competition would guarantee the socially desirable outcomes that regulation had once been tasked with achieving: high wages and good working conditions, low prices and high quality products for consumers, and plenty of innovation.

That was the deregulatory promise. What America actually got was different. Competitive markets proved highly unreliable creators of value, subject to boom and bust cycles, short-termism, oppression of labor, and manipulation executed far quicker than any antitrust enforcer could respond. Deregulation of banking led to creation of a vast “shadow banking” sector that drove bubble lending and helped trigger the 2007 financial crisis. Investment decisions regarding research and development moved from the boardrooms of regulated firms trying to please regulators demanding returns on thirty-, fifty-, or hundred-year time horizons to an atomized market of venture capitalists looking to make a quick buck. The result was the marketing- and advertising-driven innovation of the internet startup, that of “we wanted flying cars, instead we got 140 characters” infamy. The days of the huge private capital commitments in basic research that led to Bell Labs’ invention of the transistor, the key to microcomputing and the entire information age that has followed, were gone.

Labor, too, went into a tailspin, as firms responded to the unbundling gospel by unbundling their workforces into atomized pools of “independent contractors,” who could be unionized only by painstaking piecemeal organizing efforts, if they could be unionized at all. Wages never recovered.

And consumers, too, suffered. Consumers benefit from competition only to the extent that consumers have the time and sophistication to choose wisely between competing alternatives. Firms responded to their new freedom to set prices and quality standards by swamping consumers with dizzying arrays of product options that consumers could navigate only at high cost. The airlines, for example, instituted dynamic pricing that forced consumers to time their ticket purchases to minimize the fares they paid, and unbundled the flight experience to absurd extremes, making it impossible to compare ticket prices because one price might include, for example, the right to a carryon bag but no seat assignment, whereas the other might include the reverse. Where once they paid a fixed regulated price for a standardized package of services, consumers now had to waste countless hours navigating competing reservations websites into order to avoid getting fleeced.

Perhaps more importantly, deregulated firms responded to the inefficiency of market atomization by trying to stitch themselves back together, only this time without the regulatory supervision required to prevent bad behavior. The history of American telecommunications after AT&T’s 1984 breakup has been that of the progressive recreation of the old monopoly out of its pieces, so much so that today a majority of telecommunications are provided by only two companies, both of which were spun off of AT&T back in 1984. Only now, the firms are unregulated in price and service quality, with the result that Americans pay more than any other developed country for service that lags them all.

The tragedy of Warren’s plan is that it seeks to lock in the conditions that have given rise to this world, to write the Neoliberal obsession with unbundling, deintegration, and competition into federal law for the tech giants.

Warren’s proposal calls for forcing Google and Amazon to unbundle their platforms from their other offerings: Google should spin off its advertising exchange from its search platform, and Amazon should spin off its manufacturing businesses (e.g., Amazon Basics) from its online shopping business. That is the regime of vertical disintegration and competition that characterizes Neoliberal deregulation. Apart from the unbundling, the only regulation actually to be found in Warren’s plan is the regulation of access to the unbundling platforms on “fair and nondiscriminatory” terms, which is intended to ensure that every business can list on Google search, or create a page on Facebook, on equal terms. Nondiscrimination is a staple of Neoliberal deregulation: deal with “bottlenecks” by insisting on equal access, but leave everything else to the market.

Warren’s call to “break up Amazon, Google, and Facebook” sounds progressive, given that today the tech giants are more or less unregulated. But the form of regulation that Warren proposes is not the regulation that the original progressive movement of a century ago called for and in fact created: the price and quality regulation of vertically integrated businesses.

The original progressives shared with Warren a profound dislike of laissez faire. But unlike Warren, they hated the (then-old-, now-Neo-) liberal faith in competition as panacea. The original progressives understood that far from being a threat, industrial size, and particularly vertical integration, is a progressive opportunity. It not only allows firms to get the most out of technology, but brings huge sections of the economy under unitary administrative structures that are compliant toward regulators and unions precisely because their size makes them politically visible and therefore vulnerable (just as the size of Google, Facebook, and Amazon have turned them all into political targets today). There is a reason why Amazon eventually caved to labor activists and adopted a $15 minimum wage, and in that moment labor achieved more than it could have for decades if Amazon’s workforce served an atomized set of employers instead. Rather than break large firms up, creating the anonymity and disorganization in which misbehavior thrives and regulation dies, progressives today must seek to do with large firms what the original progressives did a century ago: turn them into the equivalent of public-private partnerships.

Warren should know better than to propose the Neoliberal paradigm as blueprint for regulating the tech giants. Indeed, she made her name promoting creation of an agency — the Consumer Financial Protection Bureau — dedicated to regulating the quality of products offered on highly competitive consumer financial product markets. But she seems to have fallen victim to an intellectual virus — the notion that big must be bad — that may be the greatest threat today to the prospects of a renewed progressive movement.

It is painfully fitting that this manifestly Neoliberal agenda is coming from a candidate for the Democratic presidential nomination. After all, it was under the Carter Administration, at the instigation of one Senator Kennedy and a staffer, Stephen Breyer, who went on to become a Clinton-appointed Supreme Court Justice, that the old progressive regulatory system was dismantled.

The Original Progressive View of Antitrust

Much of the popular discussion of the trust question has proceeded upon the assumption that trusts are the result of some sort of immoral conduct which should be made illegal. But the same facts which led to the grant of exclusive franchises (legal monopolies) in the case of local public utilities, have led also to a belief that many of the monopolies which have grown without formal legal grant may likewise be beneficial if subjected to proper public control. The courts in this country, as well as many economists who specialize on “trusts,” have long since come to the conclusion that the anti-trust laws, even if desirable, do not in all cases furnish a sufficient solution of the monopoly problem, and that accordingly governmental price-fixing may be a desirable supplement. But neither the courts nor the teachers of “trusts” seem fully to realize that the determination of a “fair price” is not a search for some objective fact, but that it involves the adoption of a policy; and that the policy cannot be adopted intelligently without a drastic revision of accepted economic theory as well as the accepted theory of private ownership; and that the officials charged with the formation of the policy must perforce resort to some theory as to the proper distribution of income and as to the channels into which industry should flow.

Robert Lee Hale, Economic Theory and the Statesman, in The Trend of Economics 189, 193 (Rexford Guy Tugwell, ed., 1924).

Commentators regard the [Alcoa] case as one of the most powerful statements in antitrust jurisprudence for the robust efforts to constrain dominant firms. Discussions of the case often place [eminent progressive jurist] Learned Hand at the center of attention and ascribe to Hand the views espoused in the court’s decision. Hand believed otherwise. He disliked the antitrust laws from his earliest days in public life. In a representative statement of his views, Hand wrote to a friend in 1914:

“I do not agree by any means that the Sherman Act is of value or that the progressive party should take its position against monopoly. . . . I have always suspected that there are monopolies possible which depend for their maintenance wholly upon economic efficiency and which it would be an economic blunder to destroy.”

. . .

In a separate memorandum [in the Alcoa case], Learned Hand noted: “There are two possible ways of dealing with [monopolies]: to regulate, or to forbid, them. Since we have no way of regulating them [because regulatory legislation has not been put into place], we forbid them. I don’t think much of that way, but I didn’t set it up; and now the ordinary run of our fellow-citizens — some, even of the ‘rugged individualists’ — regard the Sherman Act as the palladium of their liberties.”

Andrew I. Gavil et al., Antitrust Law in Perspective 475, 477 (3d ed. 2017).

When Kentucky Outlawed Profit, Holmes Overruled Kentucky

Section 198 of the Kentucky Constitution of 1891:

It shall be the duty of the General Assembly from time to time, as necessity may require, to enact such laws as may be necessary to prevent all trusts, pools, combinations or other organizations, from combining to depreciate below its real value any article, or to enhance the cost of any article above its real value.

The Constitution of the Commonwealth of Kentucky. Adopted September 28, 1891. Frankfort, Ky.: E. Polk Johnson, Public Printer and Binder. 1892.

Justice Oliver Wendell Holmes:

In our opinion it cannot stand.

International Harvester Co. of America v. Kentucky, 234 U.S. 216, 223 (1914).

Back to Atomic Laissez Faire

Lest we forget that deregulation was a project of the left, not just the right, here is Marxist legal historian Morton Horwitz in 1984:

Almost nothing in the antitrust debates supports what would soon become Theodore Roosevelt’s new conservative distinction between “good trusts” and “bad.” Roosevelt was operating under a newly emerging view that corporate concentration could be justified by economic efficiency-increasing returns to scale. Only corporations that achieved dominance through illicit means-financial manipulation or unfair competition-were “bad” trusts. By contrast, the old conservatives who passed the Sherman Act did not believe that the neoclassical economic law of diminishing returns had been repealed. [B]igness was per se bad. From their perspective, large-scale economic concentration was inherently illicit because, according to economic laws, there was no way corporations could legitimately achieve overwhelming economic dominance. Almost nothing in the Sherman Act debates suggests that economic concentration could be justified on efficiency grounds. That was for a later day.

. . .

The regulatory state, originally conceived as a means of checking corporate power, has gradually become discredited. In most cases deregulation now means that corporate power will simply be left unchecked. The original Progressive conception of the state as the means to our salvation must be fundamentally reconsidered. Without the sort of decentralized institutions that the old conservatives (and Progressives like Brandeis) supported, we seem destined to fluctuate between deregulation and its somewhat less overtly rapacious and more noble sounding sibling, regulation. Deregulation generally means unrestrained corporate control. Regulation frequently means more subtle, more disguised, and often more effective forms of corporate control.

Morton J. Horwitz, Progressive Legal Historiography, 63 Or. L. Rev. 679, 686 (1984).

Curiously, Horwitz’s position is today fast becoming the mainstream, bipartisan position on markets. Thus, to borrow Horwitz’s schema, we have come full circle, from the old conservative vision of antitrust-defended, laissez-faire markets of atomized sellers, to the new conservative/Progressive consensus on the importance of size, to the triumph of the Progressive accommodation with size in the form of New Deal rate regulation, to the triumph of the new conservative accommodation with size in the form of deregulation and Chicago School antitrust, to today’s gathering return to the old conservative rejection of size and embrace of an antitrust-defended atomized laissez faire. Ah me.