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Economic Analysis and Competition Policy Research

Skiers are an admittedly unsympathetic crowd. At least the jetsetters who fly around the country chasing the toniest resorts like Park City. Local skiers, on the other, might not earn the same incomes as the jetsetters, but nevertheless must pay the same, lofty lift prices. Setting aside the welfare of locals, one can partly understand why antitrust enforcers have largely looked away as Vail Resorts gobbled up nearly 40 North American resorts in the last two decades.

Breckenridge Ski Resort, Colorado: 1997
Keystone Resort, Colorado: 1997
Heavenly Mountain Resort, California: 2002
Northstar California Resort, California: 2010
Kirkwood Mountain Resort, California: 2012
Afton Alps, Minnesota: 2012
Mt. Brighton, Michigan : 2012
Canyons Resort, Utah: 2013
Park City Mountain Resort, Utah: 2014
Wilmot Mountain Ski Resort, Wisconsin: 2016
Whistler Blackcomb, British Columbia, Canada: 2016
Stowe Mountain Resort, Vermont: 2017
Crested Butte Mountain Resort, Colorado: 2018
Mount Sunapee Resort, New Hampshire: 2018
Okemo Mountain Resort, Vermont: 2018
Stevens Pass, Washington: 2018
Paoli Peaks, Indiana: 2019
Hidden Valley Ski Resort, Missouri: 2019
Snow Creek Ski Area, Missouri: 2019
Attitash Mountain Ski Area, New Hampshire: 2019
Crotched Mountain Resort, New Hampshire: 2019
Wildcat Mountain Ski Area, New Hampshire: 2019
Hunter Mountain, New York: 2019
Boston Mills Ski Resort, Ohio: 2019
Brandywine Ski Resort, Ohio: 2019
Mad River Mountain, Ohio: 2019
Alpine Valley Resort, Ohio: 2019
Jack Frost Ski Resort, Pennsylvania: 2019
Big Boulder Ski Resort, Pennsylvania: 2019
Roundtop Mountain Resort, Pennsylvania: 2019
Whitetail Resort, Pennsylvania: 2019
Liberty Mountain Resort, Pennsylvania: 2019
Mount Snow Resort, Vermont: 2019
Seven Springs Mountain Resort, Pennsylvania: 2021
Hidden Valley Resort, Pennsylvania: 2021
Laurel Mountain Ski Area, Pennsylvania: 2021

Vail’s acquisition of Breckenridge, Keystone, and Arapahoe Basin in 1997 raised the ire of the DOJ, which compelled Vail to sell off Arapahoe Basin. (Arapahoe Basin was operated independently until it was acquired by Alterra, another firm engaged in a roll-up strategy, in 2024.) Park City and its neighbor resort, The Canyons, were rolled up by Vail in 2013 and 2014, respectively. If you can get over the ickiness of assisting wealthy skiers and see them instead as consumers, then there is a good policy basis for intervening in these markets.

Your intrepid reporter took his son to Park City in the first week of the New Year, only to be hit with the vacation crowds and a ski patrol strike. Thursday was bearable, at least until the early afternoon. By Friday, the resort imploded, with massive lines, protesting crowds, skiers hiking up the mountains, all leading to a social media avalanche. I was fortunate to have been interviewed by New York magazine on the indignities of Big Ski. The New York Times covered the strike ably, reporting on such nuggets as the 70 percent vacancy rate in Park City.

There are at least two problems with permitting ski monopolies. The first is that lift ticket prices will soar to astronomical levels, in this case over $300 for a weekend pass at Park City. The resort recognizes that jetsetters, after having purchased their flights, equipment, and hotel rooms, are not going to turn around and fly home because the ticket is $50 or $100 more than they expected. (The technical term is low elasticity of demand with respect to price.) Resorts have also figured out that higher lift prices drive the demand for season passes (a form of a bundle), which now fetch nearly $1000 per year. For a class paper, two of my students plotted the price of a Vail lift ticket against its acquisitions, and it’s pretty clear inflation took off around the time Vail acquired Park City and the neighboring Canyons circa 2013.

The second problem with a monopoly ski resort is that there is no constraint on the number of skiers and snowboarders in a given day. If several neighboring resorts competed against each other, then perhaps competition could break out on this non-price dimension (the time waiting in lift lines). The lack of any market discipline, however, leads to overcrowding at Park City, which can create safety hazards, as ski-patrol (when they are being paid competitive rates) can’t patrol every inch of the resort, and skiers (and snowboarders in particular) need space to avoid collisions. Unlike a sports venue, where the seats are limited by the capacity of the stadium, there is no constraint for a ski resort. And because skiers (consumers) bear the external costs of congestion, the resort cannot be counted on to regulate admissions.

Sam Weintraub details Utah’s visitation spikes and the associated infrastructure strain. He attributes part of the congestion problem to the fact that “resorts have not been able to properly handle” the demand from the unlimited passes. Regarding safety risks, some skiers at Park City “have claimed that they’ve had to step in to help injured skiers due to unacceptable response times, and that even in certain cases when patrol has arrived, they’ve come solo and without adequate transportation equipment down the mountain.”

Now an astute neoliberal might point out that the two problems identified here are in conflict, in the sense that higher (monopoly) lift prices are a way to combat the congestion problem. But the massive crowds (and crowding) at Park City during the holidays proves that the price, however inflated, is not pricing the externality correctly. And even if the higher price does address congestion in part, there is no reason why we must live this way. It would limit skiing to the super wealthy. And it would be tantamount to saying that environment regulation can be disregarded so long as we allow massive consolidation (and the attendant monopoly pricing) in the energy industry. (Per DealBook, “More M.&A. in the energy sector seems probable, given Trump’s support for the industry.”)

The solution to this clear market failure is two-fold. An antitrust authority, whether federal or state, or a group of private enforcers, should bring a case against Vail, seeking divestiture of those properties that contribute to Vail’s monopoly power over skiers and its monopsony power over workers or both. Economist Florian Ederer noted that for the first time in a while, output as measured by skier visits, has declined at Vail Resorts, which is consistent with the exercise of monopoly power. It bears noting that the FTC recently brought a case against a private equity firm in Texas that rolled up nearly every large anesthesiology practice under a similar scheme. (Two of my now settled cases, Varsity and UFC, entailed a roll-up of rival platforms as part of the challenged conduct.) An obvious bone of contention will be whether the relevant geographic market is local (under the theory that local skiers only visit neighboring resorts) or national (under the theory that jet-setters are willing to fly across the country). But given the massive roll-ups by both Vail and Alterra (owners of Deer Valley, Steamboat, Winter Park, among others), the ski markets are concentrated even at the national level.

The second solution is that some outside authority, whether the state, municipality, or the Forest Service—fun fact, Jimmy Carter ordered the Forest Service to stop regulating lift-ticket prices—should regulate the number of visitors (lift tickets plus pass holders) in a given day. Before you scream “communism,” note that restaurants and other local establishments must abide by capacity constraints, to prevent against overcrowding and the attendant safety risks. Hat tip to Jordan Zakarin for the analogy! A cap on the number of attendees would support a lower price for lift tickets, and thereby allow for a more diverse skiing clientele.

The alternative to my suggested interventions is to do nothing, and allow the market to dictate outcomes. It’s true that a strike broke the will of a stubborn monopsonist, causing it to cave on the ski patrols’ wage demands. But should we really depend on strikes to compel employers to pay a fair wage? Or bad press caused by overcrowding to discipline the actions of a monopoly ski resort? Why should we resort (pun intended) to such last-gasp methods—which cannot be invoked until we’ve reached a boiling point—when we have better tools in the anti-monopolist toolkit?

The status quo, with labor strikes, spiking lift prices, and congestion, is clearly not socially optimal. Skiing is becoming unaffordable for many. In avoiding an intervention that might be perceived as assisting the wealthy, antitrust authorities might be inadvertently limiting skiing to a niche sport for the wealthy.

The election results present a puzzle of sorts. On the one hand, voters expressed deep resentment towards inflation, under the belief that Biden contributed to rising prices, failed to address them, or both. On the other hand, Trump’s signature economic policy is tariffs—on imports from Mexico to Canada and now Israel—which most economists believe will raise prices. Why are voters, who are ostensibly so sensitive to high prices, willing to give Trump a pass on an obviously inflationary policy?

When I have posed this puzzle on Twitter, the standard neoliberal voices—from Jordan Weissmann to Eric Levitz to Matt Yglesias (aka “The Vox Boys”)—suggested that my brain is small. (Yes, the same Levitz who leaned entirely on an economist to interpret a contract for the counterintuitive proposition that insureds were immunized from Anthem’s proposed and now-retracted policy to restrict anesthesia coverage.) The Vox Boys reckon that voters put everyday low prices above all else. To believe this, however, you must also believe that voters don’t understand the implications of tariffs or don’t believe Trump will follow through with his threats. This neoliberal explainer is fairly unsatisfying, however, as it requires one to believe that voters are stupid.

An alternative explanation, which infuriates the Vox Boys, is that while voters care about low prices, they also care about other things like preserving blue-collar manufacturing jobs or supporting local businesses. To wit, voters tend to punish Democrats for removing trade barriers: A 2020 American Economic Review paper showed “trade-impacted commuting zones or districts saw an increasing market share for the Fox News channel (a rightward shift) … and a relative rise in the likelihood of electing a Republican to Congress (a rightward shift).” This desire to protect local businesses animates much of the New Brandeisian movement, which rejects the consumer welfare standard in antitrust, by among other things, recognizing harms to workers or small businesses.

Following the advice of her corporatist advisors like Tony West, Harris elected to attack Trump’s tariffs from the right, highlighting how the tariffs could raise prices. Indeed, the Harris campaign tweeted a video of Washington Post columnist Catherine Rampell bashing Trump’s tariffs, a few weeks after Rampell called Harris’s price gouging proposal “communism.” These attacks moved exactly no one in Harris’s direction. And no wonder: The Democrats are supposed to stand up for labor, who are the biggest beneficiaries of tariffs, especially those who work in the tariff-protected industries. Progressive advocates like Zephyr Teachout were calling for a recalibration on the anti-tariff message, but were ignored. Another victory for the Vox Boys and Girls!

When I pointed out that Trump managed to purge the neoliberal free-trading ideology from his party’s platform, appealing smartly to voters who care about jobs as well as low prices, Levitz quote-tweeted a screen shot of his summary of a 2019 study (and a link to his Vox article), purporting to show that that American exporters that were most exposed to Trump’s tariffs on their inputs—think steel, aluminum, solar panels, and various Chinese goods—experienced lower export growth in 2018 and 2019 than exporters who were unaffected by the duties. Per the Vox Boys, tariffs create harms beyond higher prices.

Before getting into the details of the study, let me note two obvious things. First, from a political perspective, the welfare of large traders engaged in importing and exporting (aka “trading firms”) doesn’t get much play in election conversations; so this anti-tariff argument will again fall on deaf ears. Second, one can’t evaluate a tariff from a cost-benefit perspective without also studying the beneficiaries of the tariffs. By focusing on the welfare of trading firms, however, this study implicitly downplays the welfare of workers whose jobs were protected by the tariffs.

Regarding the merits of the underlying study (available here), the focus on the impact of Trump’s tariffs on exporter growth is curious. If larger or faster growing exporters were more exposed to the “treatment,” then their growth would be expected to slow relative to the “control” group (smaller exporters not exposed to Trump’s tariffs); it’s easier to “grow” from a smaller base. Indeed, the authors acknowledge the difference in the size of the two study groups at page 2:

We find that U.S. importers facing import tariﬀ increases employed twice as many workers compared to the average importing ﬁrm and about nine times as many workers as the average ﬁrm. Similarly, we ﬁnd that U.S. exporting ﬁrms facing retaliatory tariﬀs were more than three times larger than the average exporting ﬁrm. Thus, the tariﬀ increases hit the very largest trading ﬁrms in the U.S. economy.” (emphasis added).

Figure 3 of the study shows that cumulative growth rate in exports for the treatment group exceeded the control group in the two years leading up to the tariffs, with the gap between the two shrinking in each month. It stands to reason that, even absent the tariffs, the growth rates of the two groups would have naturally converged. In fact, the two trendlines differed by approximately 10 log points in early 2016, with most exposed export sectors exceeding all other export sectors by a comparison of 3 log points to -14 log points, respectively. This difference shrank to nearly zero by the beginning of 2018. The reversal that occurred after January 2018 reflects a continuation of the opposing pre-tariff growth directions. Yet the use difference-in-differences (DID) estimation to recover a causal effect, as the authors of this study intended, critically rests upon the “parallel trend” assumption—namely, that had the treatment never occurred (i.e., tariffs had never been imposed), the relationship between the treated and control groups would have remained constant over time. But the authors casually mention parallel trends just once in a footnote, claiming “Figure 3 suggests parallel trends in the months prior to the trade war.” While that statement might be true for the few months right before the Trump tariffs, it ignores the plainly obvious longer trend of convergence. Violation of the parallel trends assumption can bias the estimated effect, undermining the researcher’s ability to ascribe a causal interpretation to the treatment.

Finally, the magnitude of the effect, assuming it’s properly measured, doesn’t sound debilitating for large exports. The authors find a decrease in “log points” of around one (slightly smaller in 2018, slightly larger in 2019), which can be interpreted as a percent change for small differences. By comparison, exports were growing by between four and six percent in the year leading up to Trump’s tariffs, per Figure 1. A decline of one percent in the growth rate of exports for the largest trading firms that import tariff-affected inputs might be a small price to pay for protecting jobs and domestic industries.

Focus on the jobs

Levitz also points readers to a 2019 staff working paper at the Federal Reserve as evidence that Trump’s tariffs harmed workers. Setting aside any infirmities in the estimation or interpretation of results, at least this study focuses on a meaningful outcome variable. The staff working paper purports to show that U.S. manufacturing industries more “exposed” to tariffs lose more jobs from rising input costs (channel one) and retaliatory tariffs (channel two) than jobs gained or preserved from import protection (channel three). Exposure to import protection for a given industry is measured as the share of domestic absorption of that industry affected by newly imposed tariffs; exposure to the other two channels is measured similarly. It follows that for any given industry, exposure along these three channels could vary dramatically.

This study also uses a DID method to uncover the effects of the tariffs. The authors note the “issue of differing trends across industries prior to the implementation of new tariffs”—an admission that parallel trends may not be satisfied—and seek to address it by (1) removing industry-specific trends in 2017, or (2) differencing out the pre-trend path for each coefficient. After these various contortions, they find that “shifting an industry from the 25th percentile to the 75th percentile in terms of exposure to each of these channels of tariffs is associated with a reduction in manufacturing employment of 1.4 percent, with the positive contribution from the import protection effects of tariffs (0.3 percent) more than offset by the negative effects associated with rising input costs (-1.1 percent) and retaliatory tariffs (-0.7 percent).” (emphasis added). But this begs the question: What single industry would make such an equivalent move on each of these channels? If China is expected of dumping (say) solar panels, and Trump slaps a tariff on solar panels from China, why would the solar panel industry (now exposed to the import protection channel) be equally exposed to (say) rising input costs?

It would have been helpful for the authors to identify the aggregate employment effect across the three channels for any given industry. Were there industries with net job gains resulting from Trump’s tariffs? To wit, if an industry was only exposed to the import protection channel—that is, no input costs were increased by other tariffs and there was no retaliation for the industry in question—the best estimate of the jobs effect would be positive! By showing the size of the coefficients of the three channels for equal shifts in channel exposure, however, the authors have made it difficult to assess the economy-wide effects as well. We only know (assuming the specification is proper) of the relative magnitudes of the employment effects given a one percentage point exposure to each of the three channels. Tariff bashers will interpret the coefficients as if they can be summed up, but that is only for a hypothetical industry that experienced the same increase in exposure across all three channels.

This is not meant to impugn the integrity of either study. All empirical studies can be criticized. Rather, it is meant to suggest that the Vox Boys have found two studies that tell their story of tariff-induced harms and have decided to pump them up. But neither study materially advances the economic argument against tariffs.

In summary, the neoliberal critique of Trump’s tariffs finds little support in economics or among voters. The Vox Boys and Girls, who myopically focus on low prices over all other considerations, should be ignored. And Democratic Party should recalibrate their approach to tariffs, recognizing that, to be considered the party of labor once again, promoting labor interests should be their loadstar.

Haters sometimes accuse the Federal Reserve of being a shadowy cabal of private bankers that slipped loose from democratic oversight. But we at The Sling trust our patriotic central bankers, who have never had anything to hide. To help the Fed tell its side of the story, we submitted a Freedom of Information Act (FOIA) request to retrieve recent meeting minutes.

Readers may be surprised to learn that although the Fed has acquired a great deal of independent authority, in some circumstances it must consult with other financial regulators, including the Federal Deposit Insurance Corporation (FDIC). The FDIC’s five-member board includes the FDIC Chair, the Comptroller of the Currency, two members of the minority party, and, much to the Fed’s chagrin, the Director of the Consumer Financial Protection Bureau (CFPB)—an agency created in the wake of the Great Financial Crisis to protect consumers from financial scams and frauds. The CFPB is housed within and funded by the Fed, yet sometimes in its short history it has been led by a director who violates Fed norms by having different values and expressing different opinions than the Fed Chair.

The below meeting minute excerpts shine light on the internal operations of the Fed and its valiant efforts to rein in consensus-destroyer Rohit Chopra, the outgoing director of the CFPB.

Minutes of the Board of Governors of the Federal Reserve System

At its meeting yesterday, the Board discussed how the market-implied path for the federal funds rate forecasted certain headwinds to central bank hegemony (aka “bankocracy”). In particular, over the intermeeting period, options on interest rate futures indicated that market participants were increasingly exasperated with Rohit Chopra.

Such developments reflected elevated concerns among investors that Chopra would not only continue to penalize a broad range of business innovation by returning billions of dollars to swindled consumers, but would also decline to rubber-stamp the Fed’s Basel III endgame proposal to allow banks to hold only a single-digit percentage of capital as a cushion against potential losses. Congress had directed the Fed to impose these reserve requirements shortly after the Great Financial Crisis. That the process is still in the proposal stage over a decade later confirms what the Fed tells every interviewer: its biggest fault is being a perfectionist. The Fed is strongly committed to crafting every clause just right, and sometimes unweaves an entire tapestry at night to punish itself for typos and ward off inappropriate suitors. In any event, the Fed recently retained a new associate therapist; a development that warrants greater investor confidence in a declining VIX and short-term higher yields on its regulatory efforts. Members also concurred that although the Fed sets the price of money, it cannot reasonably be characterized as a “price control agency” because reasons.

Market-based measures of exasperation were further articulated by one Board member who explained that Chopra’s un-collegial actions never would have been tolerated by past chairs: “Paul [Volcker] would have been shocked.” The Board then reviewed other deviations from consensus, such as Chopra’s decision to jeopardize national security by stopping financial institutions from stockpiling strategic junk fee reserves—a policy in marked tension with his professed goal of increasing capital reserves.

A second Board member remarked upon Chopra’s stellar credentials and their alignment with the Fed milieu: Harvard undergrad, Wharton MBA, and close relationships with “financiers, convicted felons, and everything in between.” The member likewise approvingly noted that so far, Chopra has not publicly questioned Supreme Court dicta retconning the existence of the Fed as Constitutionally sound based on the rigorous principle of being a “special arrangement sanctioned by history.” The member further recognized and commended Chopra’s benefits orientation sessions, which helped Board colleagues and staff sign up for the best available health and life insurance options, making Open Enrollment much less stressful. Perhaps as a gesture of good faith, Chopra could also set up a dollar movie night for the incoming staff?

Polite nodding ensued.

A third Board member recalled Chopra’s efforts to oppose political debanking, which encompassed legal action to advance free speech and due process in the banking sector.

Polite nodding ensued again.

Staff then interceded with an update: venture capitalists with a deep portfolio of stage-agnostic bank run expertise have just redefined “debanking” to encompass anti-money laundering requirements that target drug trafficking, terrorism, and fraud. Industry sentiment, as reflected by the whims of the world’s richest man, thus favored action to “Delete CFPB.”

Furrowed brows and smirks ensued.

Consistent with the shift in investors’ perceptions of the balance of risks, nominal Treasury yields across the maturity spectrum increased significantly. Credit quality remained solid in the cases of large and midsize firms, but deteriorated in other sectors. Delinquency rates for credit cards inched upwards. Market data, in other words, suggested aggregate dissatisfaction with Chopra.

A fourth Board member noted Chopra’s decisions to enact a rule that helps consumers easily switch banks, initiate a review of the FDIC’s merger policies under the guise of “financial stability,” and otherwise leverage the so-called “Chopra Doctrine,” a radical enforcement ideology that consists of actually reading a statute and then using it. Moreover, it was Chopra who first recruited Lina Khan to work at the Federal Trade Commission.

Anger and literal shaking ensued, as these actions transgress the most fundamental Fed consensus norm: the banker welfare standard.

Ultimately, Board consensus deemed Chopra “not a great culture fit” due to his “unreserved and sometimes devastating facial expressions.”

Board members’ ensuing discussion included consideration of options for enhancing Chopra’s understanding of institutional norms, including through collegial exchanges of kitchen utensils and educational water sports.

Given the unusual and exigent circumstances, staff were tasked with implementing the discussed actions on an expedited basis by January 20, 2025, as well as with memorializing the actions through videographic means to inform future CFPB directors about Fed norms. As Chopra himself has observed, institutions “must forcefully address” repeat offenders.

The Chair then adjourned the meeting with the standard ritual sacrifice of depositors at a tiny midwestern bank.

ATTENDANCE:

Jerome H. Powell, Chair

Four other Board members

Various associate directors and senior advisers

Several secretaries and lawyers

Emergency backup economists

Laurel Kilgour is a law and policy wrangler. The views expressed herein do not represent the views or sense of humor of the author’s employers or clients, past or present. This is not legal advice about any particular legal situation. Void where prohibited.

Many Americans are still in shock because our worst fears just came true: European regulators fined an American Big Tech firm a whopping one half of one percent of its annual revenue for violating some kind of “law.” To add insult to injury, radical American enforcers slipped loose from the adult supervision of the defense bar and have filed a volley of their own vindictive lawsuits over the last several years.

Sadly, the onslaught is taking a toll: to staff all of the new investigations, some dominant firms are now likely making do with outside counsel who bill under $2,600 an hour. This translates into skimpy and unimaginative legal defenses.

But protecting our national champions requires more than just copy-pasting now standard unconstitutionality defenses—which often foreshadow separate lawsuits alleging that the FTC’s commissioners and its administrative law judges are unconstitutionally protected from removal by the president—to see what sticks. That’s why we’ve painstakingly curated the following antitrust affirmative defense starter pack for cost-conscious in-house counsel. In giddy anticipation of a coming merger wave unleashed by lax federal antitrust enforcement, there’s no better time to throw merit to the wind and dissolve an enforcement agency or two altogether.

DEFENDANT’S AFFIRMATIVE DEFENSES

FIRST AFFIRMATIVE DEFENSE

(Statute of Limitations / Laches)

The FTC’s claims are barred, in whole or in part, by the fact that we hid evidence from them during the initial merger review process.

SECOND AFFIRMATIVE DEFENSE

(Separation of Norms)

This is not how enforcers did things in the four decades from the day Robert Bork founded the field of antitrust law up until those mean hipsters took over.

THIRD AFFIRMATIVE DEFENSE

(Non-Delegation Doctrine)

The FTC jeopardizes American liberty by delegating this case to lawyers. Only economists steeped in the hard science of cost-benefit analysis can be entrusted with first-chairing trials in this area of the law.

FOURTH AFFIRMATIVE DEFENSE

(Exceeding Hidden Statutory Vibes)

Although to the casual eye, the statute does not literally recite the words “consumer welfare standard,” we reserve the right to submit a supplemental expert microscopy report showing fine graphitic indentations consistent with that phrase on an original paper copy preserved by Robert Bork, Junior. In any event, the claims alleged in the Complaint impermissibly exceed the statute’s inherent vibes.

FIFTH AFFIRMATIVE DEFENSE

(Extratemporal Application of Old Law)

Only precedent dating after the New Deal era is valid, binding law. Accordingly, Brown Shoe (1962) has expired. But old cases that we like still remain valid. So Marbury v. Madison (1803) and that case declaring the exploitation of bakers to be the foundation of American free enterprise (1905) are still good law.

SIXTH AFFIRMATIVE DEFENSE

(Procompetitive Kickbacks)

Bribing our competitors not to compete could, hypothetically, set in motion a chain of events that precipitates world peace. Such procompetitive justifications benefit competition, consumers, sellers, and Mars colonizers alike.

SEVENTH AFFIRMATIVE DEFENSE

(Linguistic Existentialism)

Purported legal standards comprised of meaning-contestable units of language—also known as “words” and “phrases”—violate the Constitution. (Actually, the more Defendant thinks about it, the more Defendant suspects that Defendant’s own “separation of powers” and “non-delegation” doctrines might be void for vagueness and lack intelligible limiting principles. But no matter! That’s why Defendant splurged on the premium “kitchen sink level” affirmative defense package. Ultimately, Defendant is just happy to force federal enforcers to divert scarce resources to defending their very existence).

EIGHTH AFFIRMATIVE DEFENSE

(Hypothetical Monomaniacal Enforcer Test)

The FTC Chair flunks the recusal test we invented for the purpose of flunking enforcers. (We commend certain other Commissioners for preemptively recusing themselves despite the lack of any discernable conflict, and for delegating their authority to economist Mark Israel instead). In any event, our lobbyists are confident that the new Congress will ensure that the act of writing law review articles not commissioned by us will be punishable by deportation and disbarment.

NINTH AFFIRMATIVE DEFENSE

(Branch Errata)

Congress itself was probably just a typo, and must be dissolved to liberate the juristocracy.

TENTH AFFIRMATIVE DEFENSE

(Walker Doctrine)

We only destroyed millions of incriminating communications because California State Bar Member No. 122945 told us to. The “Communicate with Care” policy exemplifies the creative brilliance that Kent Walker brings to his job when advising lawmakers how to write their AI laws. Thus, barring Walker from the remedies phase of this case and from our public affairs efforts would harm innovation.

ELEVENTH AFFIRMATIVE DEFENSE

(No Authority to Proceed in Court)

The FTC lacks authority to pursue the claims alleged and relief sought in district court, because an agency intern once browsed the Terms of Service of Defendant’s parent company’s accountant’s app, which mandates arbitration of all claims. Failing to uphold this freedom of contract would violate the Fourteenth Amendment.

TWELFTH AFFIRMATIVE DEFENSE

(Big Escrow Check)

We reserve our right to reneg on the jury trial we demanded by writing an escrow check that is larger than the entire combined budget of all federal antitrust enforcers and waving it in their faces during voir dire.

THIRTEENTH AFFIRMATIVE DEFENSE

(Defamation)

Filing lawsuits against lawbreakers is mean and irreparably hurts our corporate feelings.

FOURTEENTH AFFIRMATIVE DEFENSE

(Rule 11/Twiqbal Immunity)

Rules about heightened pleading standards and minimum factual and legal bases for taking positions in court apply only to Plaintiffs, not Defendants, silly. (Unless we’re the Plaintiff).

FIFTEENTH AFFIRMATIVE DEFENSE

(Swimming Test, Pricking Test, Spectral Evidence)

Lina Khan is probably a witch (but we can’t know for sure until we subject her to the standard tests).

SIXTEENTH AFFIRMATIVE DEFENSE

(The Reverse Hostage Doctrine)

We’re not trapped in this lawsuit with Lina Khan; Lina Khan is trapped in this lawsuit with us. In fact, we’ll amend our counterclaims to name Lina in her personal capacity when she is replaced as Chair. This is a fight to the death.

SEVENTEENTH AFFIRMATIVE DEFENSE

(Wrong Enforcer Doctrine)

What, Jonathan Kanter filed this lawsuit?

Not Lina Khan?

Fine, then: Defendant admits that AAG Kanter knows the secret biglaw partner handshake, so we hereby stipulate to dismissal of the previous defenses, without prejudice. (We reserve all rights if later discovery reveals that an immigrant woman of color stole Kanter’s CM/ECF electronic filing credentials).

EIGHTEENTH AFFIRMATIVE DEFENSE

(South Pacific Doctrine)

Gonna wash that Part III adjudication right out of our hair.

NINETHEENTH AFFIRMATIVE DEFENSE

(Post-Election Enforcement)

Insofar as the current administration made antitrust “political” for the first time ever, thereby violating our due process rights, Defendant respectfully requests an immediate return to objective economic standards. Our experts have calculated that January 20, 2025 is the most economically auspicious day to drop all pending cases, and we reserve the right to file a motion in limine to enjoin any references to “Inauguration Day” as politicized and unprofessional.

TWENTIETH AFFIRMATIVE DEFENSE

(The Consumer Welfare Standard is Back, Baby)

Not that it ever went anywhere. The radical enforcers both cruelly took it away and never deviated from it. And we all agree on exactly what this objective and easily administrable test means, which is: we know it when we see it. Kind of like that other famous legal test…

TWENTY-FIRST AFFIRMATIVE DEFENSE

(Everyone Hates Matt Gaetz)

We applaud the incoming administration for rethinking its decision to nominate an Attorney General whose private indiscretions do not meet the bar for our moral standards. Our jubilation has nothing to do his obvious bias in favor of enforcing antitrust laws or the fact that his successor’s law firm lobbied for us.

TWENTY-SECOND AFFIRMATIVE DEFENSE

(State Ambush)

Allowing Plaintiff States to continue vigorous enforcement even after federal enforcers diverge in their efforts would be a shocking due process violation.

How could Defendant have known or prepared for this possibility, without any notice other than the listing of 38 distinct signature blocks on every filing as well as active State participation in every meet and confer session, deposition, and hearing for three years? Champagne-swilling Federalist Society boomers assure us that this kind of wanton federalism violates the unitary executive doctrine.

TWENTY-THIRD AFFIRMATIVE DEFENSE

(Denial)

This can’t be happening. Is Thomas on vacation? Did we dial the wrong yacht?

TWENTY-FOURTH AFFIRMATIVE DEFENSE

(Bargaining)

What if we agreed to probation overseen by the esteemed Commissioner Melissa Holyoak instead? Under the vigilant watch of such a fearsome enforcer, we might even be willing to pay a fine of three quarters of one percent of our annual revenue.

TWENTY-FIFTH AFFIRMATIVE DEFENSE

(Acceptance)

Okay fine, we admit that the few hot docs we forgot to destroy mean what they say. But we are still going to take this all the way to the Supreme Court—and then file a motion for relief from the judgment at the district court even after our petition for cert is denied. (Turns out we’re not very good at acceptance, and we had pocket change to spare on rolling the dice).

TWENTY-SIXTH AFFIRMATIVE DEFENSE

(Infinite Placeholder)

Whatever we come up with later, we were retroactively asserting all along, because we have always been at war against Oceania.

TWENTY-SEVENTH AFFIRMATIVE DEFENSE

(Almost Forgot: Failure to State a Claim)

The FTC’s causes of action fail to state a claim upon which relief can be granted.

“When the best reading of a statute is that it delegatesdiscretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits.”

–SCOTUS, in Loper Bright Enterprises v. Raimondo.

The quote above raises a tension between consideration of what Congress willed and judicial notions of uncertainty. Statutes are always filled with ambiguity, and the will of Congress can be misinterpreted intentionally to create barriers to agency action. Those barriers conveniently can benefit the neoliberal agenda and big business.

That is my concern for the FTC. The FTC never basked in the sun of Chevron deference from SCOTUS, but that does notforeclose the possibility that Loper Bright will bring pain to agency endeavors, in favor of businesses.

For those not in the know, the Supreme Court’s Loper Bright decision overturned “Chevron deference.” Under that doctrine, if Congress was clear as to the precise issue in question, then that was the interpretation of the statute from which the agency and the Court could not deviate. If the statute was ambiguous or if Congress left a gap for the agency to fill, however, a court was obliged to accept the agency’s interpretation if it was a reasonable one.

Loper Bright rejected this notion of deference. The Court asserted itself to be the expert on statutory interpretation, and therefore it was not necessary to give any weight to the Agency’s interpretation, even where there is subject matter expertise—yes, the agencies hire economists to do cost-benefit analysis—and even where Congress expected the agency to interpret the statute. Loper Bright quite clearly suggests that the agency’s interpretation does not count.

And what of delegations of interpretation? The Court states in Loper Bright that if there is an ambiguity in a statute, then the agency is not entitled to deference:

That is not to say that Congress cannot or does not confer discretionary authority on agencies. Congress may do so, subject to constitutional limits, and it often has. But to stay out of discretionary policymaking left to the political branches, judges need only fulfill their obligations under the APA to independently identify and respect such delegations of authority, police the outer statutory boundaries of those delegations, and ensure that agencies exercise their discretion consistent with the APA. By forcing courts to instead pretend that ambiguities are necessarily delegations, Chevron does not prevent judges from making policy. It prevents them from judging.

The hair-splitting between what is discretionary policymaking properly delegated to the agency and what is an ambiguity has, even prior to Chevron’s demise, fallen to the side of judicial intervention. Thus, this placeholder for proper discretionary authority is suspect. Just take two examples. In FDA v. Brown and Williamson, Justice O’Connor effectively barred the FDA from going after Big Tobacco, even after a recent game-changing discovery of how the execs had manipulated tobacco’s addiction. After the breakup of AT&T, Justice Scalia barred the FCC from eliminating tariff filings from AT&T’s competitors (doing so to halt AT&T’s barrage of strategies to delay entry of competitors). In each of those instances, the Court bent over backwards to protect business. Congressional purpose wasn’t important.

So, after Loper Bright, it’s even easier to misinterpret Congressional intent, despite the quotations from the decisionabove.

And that’s the game. Congress loses. SCOTUS and big business wins.

The FTC Act: Congress Mistrusts the Courts on Antitrust

Justice Kavanaugh cautions us to not read too much into Loper Bright. According to Bloomberg, he made the following remarks while speaking at Catholic University of America Columbus School of Law in September:

To be clear, don’t over read Loper Bright. Oftentimes Congress will grant a broad authorization to an executive agency so it’s really important, as a neutral umpire, to respect the line that Congress has drawn when it’s granted broad authorization not to unduly hinder the executive branch when performing its congressional authorized functions, but at the same time not allowing the executive branch, as it could with Chevron in its toolkit, to go beyond the congressional authorization.

If one believed this, one would think the FTC is therefore safe from SCOTUS overreach. Congress sought to remove the courts from the equation of antitrust, because they lacked expertise. Congress viewed the FTC as the overseer of how competition policy played out in the United States, removing that key function from the courts and DOJ enforcement actions.

In considering passage of the FTC Act, Congress viewed the role of the courts in establishing competition policy with skepticism:

It is plain that the first question to be answered in considering what additional legislation upon the subject is necessary or desirable is a vital one, it is this: Should Congress attempt to maintain competitive conditions in the general interstate commerce of the country, where they still exist, and to restore such conditions where they have been destroyed, or should it accept the complete or partial overthrow of competition and resort to some other method of protecting the people against the power of combination and monopoly?

Congress questioned the wisdom of its initial foray into the world of competition policy, via the Sherman Act. While the goal of the FTC Act was to “maintain competition as an effective regulating force,” there were effective limitations on implementing such a policy. Looking for instances where they could find expertise in competition policy, Congress turned its eyes toward the English courts. As the Senate Committee on Interstate Commerce Report from 1913 states,

The Congress of 1890 very wisely borrowed the language of the common law and with it came the learning of the judges, who had from time to time declared and expounded it … the common law was that unreasonable, unfair, undue restraint upon or interference with competition or competitive conditions constituted a restraint of trade.

While the Senate looked approvingly on the English judges, it examined the U.S. courts with a bit more skepticism. In the eyes of the Senate, it was the separation of the stated policy of antitrust—maintaining competition as a regulating force—from its application in the U.S. courts that brought about their dismay, as will be discussed later. The Senate Report also described frustration with the notion that consolidation and combinations were inevitable. Instead, the Senate Report described the purpose of “maintaining competitive conditions,” and argued “when competitive conditions exist, there will be actual competition ….”

Thus, the purpose of the FTC Act was to place the scope of antitrust law interpretation squarely into the hands of the FTC and away from the courts. That scheme has been thwarted for ages, but Loper Bright brings additional complications directly in tension with the will of Congress. And, one might be mindful that there is still the clambering to upend administrative agencies altogether, as Justice Thomas hinted at in his concurrence in Whitman v. American Trucking.

Loper Bright: The Court Mistrusts Agencies (and Honestly, Congress)

Loper Bright flips the notion of expertise on its head, suggesting that the Court, not the agency, possesses the expertise to determine what the words of any administrative statute means.In that case, the statute was written to empower the National Marine Fisheries Service, a subsidiary agency of the United States Department of Commerce, to regulate fishing companies. But Loper Bright can be applied to any administrative agency, including the FTC. And the agency is powerless to overcome that interpretation, because Skidmore means whatever the Court feels it means.

To preempt arguments that the Court was usurping power delegated to the agencies, the decision noted that Congress can always amend the statute to correct the Court’s interpretation:

The better presumption is therefore that Congress expects courts to do their ordinary job of interpreting statutes, with due respect for the views of the Executive Branch. And to the extent that Congress and the Executive Branch may disagree with how the courts have performed that job in a particular case, they are of course always free to act by revising the statute.

No, it can’t. Not the present day Congress. And the Court knows Congress is paralyzed. Hence the reason why Justice Kagan in her dissent suggests a power grab:

In one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law…. Its justification comes down, in the end, to this: Courts must have more say over regulation—over the provision of health care, the protection of the environment, the safety of consumer products, the efficacy of transportation systems, and so on. A longstanding precedent at the crux of administrative governance thus falls victim to a bald assertion of judicial authority. The majority disdains restraint, and grasps for power.

Even if Congress amended the statute, it can find itself ignored. One need only look to the amendment to the Tunney Act to see how quickly courts can completely ignore the will of Congress, for whatever made up reason. In the case of the Tunney Act, the DC Circuit believed that it would raise separation of powers concerns to not compel judges to enter consent decrees. Never mind that a decree is a judicial function. Never mind that courts reject plea bargains all the time. This is somehow different, and Congress can be ignored to avoid the Constitutional issue the court just manufactured. The point is: Courts are comfortable ignoring Congress. And when they do so, Congress seldom has the stomach to engage in multiple rounds of amendments. One quickly knows how this game ends.

If you don’t buy that one, consider the notion of an efficiencies rebuttal, which one finds nowhere in the Clayton Act. Lower courts developed that doctrine out of thin air, with the help of the administrative agencies that developed the notion. But wait, isn’t that the kind of rogue agency action Loper Bright is supposed to defend against? Apparently not. Because it favors business.

Of course, one could argue the saving grace is “Skidmore deference.” Skidmore basically says that a court may give whatever weight to an agency pronouncement that it deserves—a position that the Court adopts in Loper Bright:

We consider that the rulings, interpretations, and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.

Skidmore also doesn’t save the Agency’s interpretation, and it doesn’t save Congressional purpose or intent. As Justice Scalia points out:

Justice Jackson’s eloquence notwithstanding, the rule of Skidmore deference is an empty truism and a trifling statement of the obvious: A judge should take into account the well-considered views of expert observers. . . . It was possible to live with the indeterminacy of Skidmore deference in earlier times. But in an era when federal statutory law administered by federal agencies is pervasive, and when the ambiguities (intended or unintended) that those statutes contain are innumerable, totality-of-the circumstances Skidmore deference is a recipe for uncertainty, unpredictability, and endless litigation. To condemn a vast body of agency action to that regime (all except rulemaking, formal (and informal?) adjudication, and whatever else might now and then be included within to day’s intentionally vague formulation of affirmative congressional intent to “delegate”) is irresponsible.

The bottom line of the Court’s perversion of the statutory scheme is that it does not matter what Congress expresses in the statute. Nor does Congressional intent matter. Language is always ambiguous, and the Court here asserts it is the sole arbiter of what that language means. I have written before of the way in which judicial power has contorted progressive law to support powerful business interests. The Court stands ready to do so again.

After years of inflation-driven concerns over the state of the economy, it seems that the mythical soft landing has been achieved; things aren’t perfect but inflation is down without the United States hitting a recession. The labor market has weakened some in recent months, but is still largely okay and the Federal Reserve has started cutting rates in a move to ease downward pressure on employment. In 2022, Bloomberg Economics put the odds of a recession within the next year at 100 percent. Two years later and not only has there not been a recession, but inflation is down, interest rates are going down, and recent GDP growth has been higher than it was for the previous decade.

Over the last several months, while this situation was crystalizing, many have credited Federal Reserve Chair Jerome Powell with achieving the once-mythical soft landing. That’s a mistake. There are multiple reasons why the Fed has been ineffective at best at wielding monetary policy in its recent inflation fighting. Such an explanation doesn’t fit the available empirics—or its advocates’ own model of how interest rates work.

The issue is especially salient because many of Powell’s defenders, including neoliberal economists and pundits, cling to the view that inflation was driven by demand-side factors. This spending-is-to-blame philosophy conveniently exonerates businesses for having any role in driving inflation. If demand-side explanations can be excluded, then attention would shift back to supply-based theories of inflation, including price gouging and coordinated price increases. And that would lead to very different policy implications.

A Brief History Lesson

Let’s rewind to when the fight over monetary policy was heating up in 2022. A variety of different economic shocks have hit the United States: the worst pandemic in a century, major emergency stimulus, brittle supply chains, and a land war in Europe (between Russia—one of the world’s major oil producers—and Ukraine—one of its major grain producers) have all rocked markets in just two years. Then, corporations in concentrated markets seize on the pricing mayhem to pad profits, extending inflationary pressures. At this point, such rent-seeking is well documented. That includes work from researchers from at least three regional Federal Reserve Banks (Boston, San Francisco, and Kansas City), the Bank of Canada, the International Monetary Fund, and the European Central Bank.

Because of this suite of shocks, inflation spiked more aggressively than it had for decades. That spike prompted the Fed to begin a major series of interest rate hikes to attempt to rein in price increases. This whole time there’s a back and forth among economists and pundits on what caused inflation, how long it would last, and what to do about it.

On one side you had Team Transitory, who said that the cause was a bunch of exogenous shocks, inflation wouldn’t last all that long, and we should wait things out because inflation will naturally subside and using monetary policy risked hurting workers.

On the other was what I called Team Crash The Economy, who said that the cause of inflation was fiscal stimulus leading to excess spending, price growth wouldn’t return to normal on its own, and the Fed should aggressively hike interest rates to cool the economy—including destroying millions of jobs. Larry Summers infamously called for ten percent unemployment while lounging on a beach.

In retrospect, Team Transitory was largely correct about the causes; fiscal stimulus played a role, but wasn’t responsible for most of inflation. Technically, Team Crash The Economy was right on the timeframe question, but the reasoning behind why inflation lasted a long time was demonstrably incorrect. Conversely, Team Transitory was technically wrong about the timeframe, but the reasoning was at least partially true.

But then there’s the big question of what the solution was. Both teams have taken victory laps: Team Transitory back in 2023 when inflation eased, except for a few lagging variables (housing, wages) and commodities (oil) that kept overall measures high; and Team Crash The Economy over the summer, when they pointed at decreased inflation and credited Jerome Powell and the Fed for the result.

The Econ 101 Model

The intro macro model for the relationship between inflation and interest rates is largely just an inverse relationship. As interest rates are eased, businesses face cheaper borrowing costs, inducing them to scale up operations, creating new jobs. Then when the labor market tightens, it creates a “wage-price spiral.” As people get paid more, they spend more, leading suppliers to scale up again, further tightening the labor market, leading to higher wages, and on and on. In this econ 101 telling, the key link between inflation and interest rates is those pesky workers demanding higher wages, which create a cycle of increasing demand. That’s why the solution is a form of “demand destruction,” forcing consumers to consume less (by making credit more expensive) in order to reduce demand-side pressure on prices.

So if a central bank finds itself making monetary policy using this framework in an inflationary environment, what does it do? It hikes rates, making borrowing costs prohibitively high, which leads firms to stop expanding and, if the costs increase enough, to actually shrink their business via measures like layoffs, putting an end to wage increases, or even shuttering entirely. And then as wages stagnate (or, in extreme cases, decrease), there’s less demand, so prices don’t continue their rapid increase (or, in extreme cases, fall).

Within the econ 101 frame, this makes sense and is the obvious choice. But in the real world, it didn’t fight inflation. Nearly every step of that theoretical model can be observed and empirics clearly do not show the proscribed pattern. On top of that, there are blatant theoretical holes in that narrative.

Let’s start with unemployment as the key channel to impact inflation. If the textbook econ 101 model is correct, we should be able to see it in a few different datasets. The unemployment rate (Figure 1) should go up as the Fed began raising rates in March 2022, and should correspond to a rise in initial filings for unemployment insurance (Figure 2) and a fall in job vacancies (Figure 3) and new job creation (Figure 3(a)).

Figure 1: Unemployment rate (blue, left) and effective federal funds rate (red, left) vs. date.

Figure 2: Initial unemployment insurance claims (blue, left) and effective fed funds rate (red, right) vs. date

Only one of those trends is borne out by the data. Job openings have declined, and the monthly change (Figure 3(a)) has been lower recently. It’s worth noting, however, that the number of job openings is still historically high, above anything pre-pandemic. Plus demand destruction requires a decrease in real spending power, which a change in job openings alone won’t do.

Figure 3: Total job openings (blue, left) and effective federal funds rate (red, right) vs. date.

Figure 3(a): Monthly change in job openings (blue, left) and effective fed funds rate (red, right) vs. date.

No dice. But maybe what happened is that work prospects got bad and that led a lot of people to exit the labor force entirely. Except that didn’t happen either. The labor force participation rate (Figure 4) has remained below 2019 levels, but reached its post-pandemic relative maximum of 62.8 percent in August 2023, the month at the end of the Fed’s rate hikes, and remained steady since.

Figure 4: Labor force participation rate (blue, left) and effective fed funds rate (red, right) vs. date.

Now let’s expand the intro model a little bit to see if there are factors that could be a viable channel to get from rate hikes to a fall in inflation. When the Fed increases rates, there are a bunch of things that should be expected to happen as a result of higher borrowing costs:

Private investment (Figure 5) should fall, reflecting firms being unable to afford expanding with less access to credit.
Consumer expenditures (Figure 6) should fall, reflecting their lines of credit (including personal loans, mortgages, car loans, and credit cards) costing more to use and wage growth slowing.
Personal savings (Figure 7) should decrease as people eat into savings as a substitute for consumer credit. The savings rate (Figure 8) should fall, as more personal income is diverted directly to consumption to cover for using less credit.

Any of these could potentially be a mechanism for monetary policy to lower aggregate demand.

Figure 5: Real gross private investment (blue, left) and effective fed funds (red, right) vs. date.

Figure 6: Real consumption expenditures (blue, left) and effective fed funds rate (red, right) vs. date.

Figure 7: Personal Savings in nominal billions of dollars (blue, left) and effective fed funds rate (red, right) vs. date

Figure 8: Personal savings rate (blue, left) and effective fed funds rate (red, right) vs. date.

Yet exactly none of those causes are reflected in the data. (Total personal savings looks at first glance like it dipped, but it actually increased and stabilized during the course of the rate hikes.) If demand destruction does occur, it would presumably be through some combination of those factors. If there’s no loss of jobs, no drop in investment or consumption, and no change in personal savings rates, how exactly does increasing interest rates lead to lower inflation?

The short answer, at least in this case, is that it probably didn’t. This entire model of monetary policy presupposes demand-side causes of price increases, which were only a minority of the post-Covid inflation.

Inflation Doesn’t Capture the Full Cost of Living

That isn’t to say that the Fed’s rate hikes did nothing to impact workers and consumers. They actually made things worse. One long standing debate from the past couple of years is why public sentiment has remained negative on the economy even as most indicators have been broadly positive. A big part of that sentiment gap can be explained by differences in how lay people and economists use the same word. In an everyday sense, “inflation” means a rise in cost of living. But in economics, “inflation” is a change in the price level of a fixed basket of goods compared across time. That creates tension in how we discuss inflation; it’s atechnical measure that is often used in a general sense.

That meaning gap wouldn’t be a huge issue if the technical measure was a consistently good proxy for how people experience changes in the cost of living. There are prices that are important to the cost of living, however, that are excluded from the basket used to measure inflation. Chief among them is the cost of borrowing.

From a mechanical point of view, excluding interest rates on consumer credit is very reasonable; if they were to be left in, then it would muddle the relationship between interest rates and inflation since inflation would be defined as a function of interest rates. While it makes sense for technical economic analysis, this exclusion makes measures of inflation a poor approximation of the actual situation people experience.

Consumers experience higher interest rates on their access to credit as a sort of inflation. After all, it makes their lives more expensive. As a result, people’s lives can get more costly even in the face of easing inflation. (Not to mention that lower inflation still doesn’t represent a drop in prices.)

Put everything together and you get a story that goes something like this: multiple shocks, mostly, though not entirely, stemming from disruptions to supply usher in a major episode of inflation. As supply constraints eased, inflation fell. Although not before many unscrupulous firms took advantage of the situation by raising prices by more than their costs increased.

Meanwhile, neoliberal economists like Jason Furman and Larry Summers publicly pressured the Fed into hiking rates in an attempt to elevate unemployment and usher in demand destruction. Jerome Powell and the Fed ultimately did so, which made consumer credit more expensive, in turn that kept consumer confidence low because even though inflation was easing, it didn’t feel like it. Through those higher borrowing costs, the Fed has been responsible for eroding consumer confidence, threatening democracy, and slowing the green energy transition.

Yet what the data indicate is that these trends happened in parallel; over similar timeframes but not with a causal relationship between them. The expected changes to unemployment, investment, consumption, and personal saving are all missing. Absent those channels, there isn’t a link that gets from higher interest rates to lower inflation. It’s entirely possible that there is a causal channel somewhere, but until it’s identified and explicated, there is no reason to defer to the econ 101 model.

Particularly given the stink that neoclassical economists made about evidence for sellers’ inflation, they should be held to a similar standard for their crediting of the Fed for lower inflation and implicitly putting the blame on consumers and workers. The data just don’t fit their model.

It’s always better to be a monopolist. “Ruinous competition” is a drag on a company’s profits, particularly when slothful incumbents are forced to compete on the merits. In the case of banks, competition on the merits means increasing rates on deposits for customers with sizeable savings or decreasing overdraft fees for customers with limited funds.

Last week, the Consumer Financial Protection Bureau (CFPB) finalized a rule that requires financial institutions, credit card issuers, and other financial providers to unlock a customer’s personal financial data—including her transaction history—and transfer it to another provider at the consumer’s request for free. It marks the CFPB’s attempt to activate dormant legal authority of Section 1033 of the Consumer Financial Protection Act. Officially dubbed the “Personal Financial Data Rights” rule, or more casually the “Open Banking” rule, the measure was greeted by those in the budding anti-monopolist movement with glee.

Indeed, FTC Chair Lina Khan, the ultimate champion of competition, tweeted an endorsement of the CFPB’s new rule.

But it wasn’t all rave reviews. The Open Banking rule was also greeted by a swift lawsuit from the Bank Policy Institute (BPI), alleging that the bureau exceeded its statutory authority. The lawsuit also claims the rule risks the “safety and soundness” of the banking system by limiting banks’ discretion to deny upstart banks access to transaction histories. Based on its website, BPI’s membership includes JP Morgan Chase, Bank of America, and Barclays, or what I will call the “incumbent banks.” And JP Morgan’s Jaime Dimon is the Chairman of BPI. Why are the incumbent banks so angry about being compelled to share these transaction histories with upstarts, when such data are arguably the property of the banks’ clients in the first place?

When I first heard about the CFPB’s new rule, I didn’t understand why I needed a regulatory intervention to play one bank off another. For example, after being offered a high CD rate by a scrappy bank, I asked my stodgy bank to match it, only to be ignored by my stodgy bank; I proceeded to write a check from the stodgy bank to the scrappier rival. But having studied the issue, I now understand the particular market failure that the rule seeks to address.

The Rule Would Induce More Aggressive Offers by Upstart Banks

When an upstart bank seeks to pick off a customer from an incumbent bank, the upstart would prefer to extend the most aggressive offer possible, as an inducement to overcome any switching costs that customer might incur. (Fun fact: When interest rates were regulated and interest on checking accounts was banned, banks used to compete by offering toasters to customers at rival banks!) Today’s competitive offer by a rival bank might include a host of ancillary services or “cross-sales” alongside a checking account, such as a credit card, a loan, a line of credit, and payment services. The terms of such offers are governed by the customer’s creditworthiness.

And that’s the catch—the incumbent bank and only the incumbent bank has access to the customer’s transaction history, which includes nuggets like your history of maintaining a balance, overdraft tendencies, and relative timing of payments to income streams. The scrappy upstart, by contrast, is flying blind. And this granular information cannot be obtained through the purchase of a credit report.

Economists refer to such a predicament as “asymmetric information,” and in 2001 three economists even won a Nobel prize for explaining how such asymmetries lead to market failures. In the absence of this information, when formulating its offer, the upstart bank must assume the average tendencies of the borrower based on some peer group, or even worse, it might hedge by assuming the borrower’s creditworthiness is slightly worse than average. As a result, the competitive offer is unnecessary weaker than it could be, and too many customers are sticking with their stodgy (and stingy) bank.

(A fun digression: Some employers inject provisions into a worker’s employment contract that create similar frictions to substitution, which relaxes competitive pressure on wages. You’ve likely heard of a non-compete, which is the ultimate friction. But you may not have heard of a “right-to-match” provision, which gives the incumbent employer a right to match any outside offer from a rival employer. Because the rival employer knows of the provision, and because it’s costly for the rival to formulate an offer, most rivals will give up and the employee never enjoys the benefit of competition.)

The purpose of the Open Banking rule is to induce more aggressive offers by upstart banks and thereby overcome the switching costs associated with changing one’s bank. Put differently, it juices the part of the fin-tech community that seeks to assist consumers, which likely explains the narrow opposition to the rule from incumbent players only. Suppose the customer’s switching costs are $100 and the (weakened) offer from an upstart would improve the customer by $90; under those circumstances, the customer stays put. But if the rule can induce more aggressive offers, boosting the customer benefits of switching to (say) $200, the customer moves. Or she now, with a powerful offer in hand, credibly threatens to switch banks and her stodgy bank improves her terms.

The Open Banking Rule Could Generate Billions in Annual Benefits

The economists of the CFPB have tried to value what this enhanced competition might mean for bank customers. At page 525 of the rule, in a section titled “Potential Benefits and Costs to Consumers and Covered Persons,” the economists explain their valuation methodology:

First, those consumers who switch may earn higher interest rates or pay lower fees. To estimate the potential size of this benefit, the CFPB assumes for this analysis that of the approximately $19 trillion 207 in domestic deposits at FDIC- and NCUA-insured institutions, a little under a third ($6 trillion) are interest-bearing deposits held by consumers, as opposed to accounts held by businesses or noninterest-bearing accounts. If, due to the rule, even one percent of consumer deposits were shifted from lower earning deposit accounts to those with interest rates one percentage point (100 basis points) higher, consumers would earn an additional $600 million annually in interest. Similarly, if due to the rule, consumers were able to switch accounts and thereby avoid even one percent of the overdraft and NSF fees they currently pay, they would pay at least $77 million less in fees per year.

Hence, bank customers who switch banks due to more robust competitive offers made possible by the Open Banking rule would benefit by $677 million per year, based on very conservative assumptions about substitution. And this estimate does not include benefits created for those customers who stay put but nevertheless benefit from the mere threat of leaving. The economists explain that competitive reactions by incumbent banks could lead to a doubling of the aforementioned benefits, to the extent that interest rates on deposits of the non-switchers increase by a mere one basis point. Those benefits would be a transfer from incumbent banks to consumers.

Beware of Fraud Arguments

The Open Banking rule requires that a bank make “covered data” available in electronic form to consumers and to certain “authorized third parties” aka the upstart banks. Covered data includes information about transactions, costs, charges, and usage. The rule spells out what an authorized third party must do to get the covered data, as well as what the “data provider” (aka the incumbent bank) must do upon receiving such a request. The data provider will run its normal fraud review process upon receipt of a data request. Indeed, CFPB even included a provision that states when the data provider has a “legitimate risk management concern,” that concern may trump the data sharing rule.

So any claim that the BPI lawsuit is motivated to protect consumers against fraud or to ensure the safety and soundness of the banking system seems farfetched. The more likely motivation for the challenge is that the Open Banking rule will spur competition among banks, and hence put downward pressure on the incumbent banks’ hefty margins. To wit, JP Morgan Chase, America’s biggest bank, has thrived in a rising rate environment, posting record net income figures since 2022. As the CFPB economists estimate, the rule could raise rates on deposits and reduce rates on overdraft fees, cutting into these record margins. In a similar vein, the CFPB’s new rule might spark competition in the nascent payment system market. Some large banks would like to build their own payment systems (think BoA’s Zelle). By compelling the incumbent banks to share their customers’ transaction histories, however, the Open Banking rule reduces the costs for a scrappy entrant to build a competing payment system. If pay-by-bank gets going, it will be a threat to the incumbent banks’ lucrative credit card and debit card interchange fees. And that threat alone provides billions of reasons to sue the CFPB.

As Google faces aggressive scrutiny from the Department of Justice—with the search trial moving to the remedies phase and the ad tech trial moving to closing arguments—there’s an elephant in the room that many antitrust watchers are failing to see: YouTube.

With the platform’s presence on our phones, the part it plays in our online searches, its rapid invasion of our living rooms, and the volume of advertising it serves us, YouTube is an increasingly unavoidable part of our lives. We and other observers have called it “the third leg of the stool that supports Google’s monopoly.” Separating the video giant from the rest of the Google behemoth makes sense as one of the remedies for Google’s decades of monopoly behavior and would reshape the digital landscape for the better—ultimately benefiting consumers, shareholders, and smaller companies in a market newly opened to competition.

Judge Amit Mehta is currently considering what remedies to impose after ruling against Google in August in its landmark search engine antitrust trial. Requiring divestment of one or more business units, like YouTube, is one of his options. A second big antitrust trial, with the government alleging Google illegally controls the advertising technology market, is already underway; and here, too, if the government prevails, divestment would be an option. In the interest of market competition and consumer choice, YouTube—which is intimately bound up with Google’s domination of both sectors—should be among the Google units to be spun off.

Google dominates search with more than 80% of the market, giving it an effective monopoly on the flow of internet information. But YouTube by itself has been recognized as “the world’s second-largest search engine,” handling an estimated 3 billion searches per month. As one commentator noted, after YouTube was founded in 2005, it was “purchased just over a year later by none other than Google, giving it control over the top two search engines on this list.” Another commentator noted recently in the New York Times that, “The gargantuan video site is a lot of things to a lot of people—in different ways, YouTube is a little bit like TikTok, a little like Twitch and a little like Netflix—but I think we underappreciate how often YouTube is a better Google. That is, often YouTube is the best place online to find reliable and substantive knowledge and information on a huge variety of subjects.”

Especially for many younger people, who increasingly prefer video content, YouTube is already the search engine of choice. For these reasons, the European Union recently classified YouTube not only as a large online platform, but a large online search engine. And because YouTube is so tightly integrated with Google Search, it doesn’t represent true competition.

Right now, Google faces little pressure to innovate because it dominates nearly every business it’s in; and when it does innovate, it does so with an eye toward further cementing its complete control of the internet. Google’s recent “innovations” have significantly degraded the Google Search experience, as the company increasingly curtails linking to external sites and instead imposes a “walled garden” strategy that keeps you interacting only with Google’s own content instead of the content you really want. The collateral damage is vast, not only to consumers, but also to content publishers, news organizations, and a variety of other third-party businesses that depend on Google traffic for revenue.

Separating YouTube from the rest of Google would shake up the search, ads, and video markets, and—freed from the market imperatives of a giant corporate parent—could take YouTube development in new directions, with the scale, resources, and user base to challenge Google to compete on features and quality. This would yield more diverse content that better meets user needs, and new opportunities for smaller players to enter the market and innovate.

By owning supply (ad inventory) and setting the terms of demand, Google has been able to charge inflated prices for online advertising while funneling disproportionate revenue to itself and YouTube. Internal communications confirm Google knows their ad fees are roughly double the fair market rate, which one employee admitted is “not long term defensible.” But when you own the entire market, you can charge whatever you want, and Google’s vertical integration has killed competition and put the squeeze on advertisers and publishers. Numerous companies have blamed Google for putting them out of business; new startups that try to break into the business find it tough going.

An independent YouTube would enable the new video company to go head-to-head with Google and negotiate its own deals with advertisers. This would likely lower the fees that Google charged advertisers, increase transparency in how digital ads are bought and sold, create more opportunities for advertisers to effectively reach more target audiences through more platforms, and also open up space for smaller ad tech companies to thrive.

All of this would unlock significant new shareholder value. An independent YouTube’s unique market position and strong brand identity would make it a highly attractive investment, pushing its valuation higher than it is today; analysts have speculated that it could be worth up to $400 billion on its own. Its video-based business model is sufficiently different from Google’s core business of search, so it could attract a different class of investors with different expectations, allowing it to grow more independently and with greater strategic flexibility. And a smaller and more nimble Google would likely provide better returns to its own shareholders.

In short, it’s time to face the elephant in the room, and require Google to spin off YouTube into an independent entity positioned to be a market counterweight. This would be a win-win-win-win: for advertisers, publishers, competitors, and consumers. And it would kick one leg out from under the stool that props up Google’s internet monopoly, which has done too much market damage in too many ways for way too long.

Emily Peterson-Cassin is the Director of Corporate Power at Demand Progress, a national grassroots group with over nearly one million affiliated activists who fight for basic rights and freedoms needed for a modern democracy.

Each semester at universities around the world, students in introductory economic classes are generally told the same stories. Perhaps to the surprise of some students who have met human beings, economists teach their classes that human beings are rational creatures who primarily seek to maximize their own utility in making choices. These students are also taught that firms are led by perfectly rational people who can objectively measure worker productivity and respond quickly to new information. In addition, economists teach that the competitive nature of markets forces rational business leaders to provide goods and services that benefit society. And finally—and for some economists this seems to be the most important point—all of these beneficial products are bought and sold by rational consumers and producers without any need for government direction.

Perhaps some students don’t believe these tales. But it must appear to most students that economists have always believed the stories they tell about rational human beings and competitive markets.

Once upon a time, however people writing about economics were less confident about the behavior of people in business. Consider this quote from the 18th century: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Yes, that is Adam Smith. When Adam Smith’s Wealth of Nations is invoked today, it is often used to convey the magical invisible hand of the market. Smith certainly mentioned the invisible hand. But in reality, Smith only mentioned this concept one time in the entire Wealth of Nations. So, we really can’t believe this was Smith’s central point. As Paul Sagar explains, Smith was primarily concerned with the danger of monopoly power.

About a century later, the economist Thorstein Veblen shared the same concern. Introductory students today are not likely to hear much about Veblen. But once upon a time, it was a different story in economics. In fact, Kenneth Arrow, who won the Nobel Prize in Economics in 1972, argued that “Thorsten Veblen’s ideas pervaded the intellectual culture” at Columbia University when Arrow was a graduate student in economics before World War II.

Veblen’s writings mostly appeared during the Robber Baron era around the beginning of the 20th century. Decades before Veblen, it appears Americans seemed to think that markets did not need much government intervention. This approach to markets, though, didn’t quite work. By the end of the 19th century—just as we can imagine Adam Smith would have predicted a century before—the American economy was dominated by monopoly power. Confronted with the late 19th century economy dominated by the Robber Barons, Veblen found it hard to believe that competitive markets were the norm and what business leaders did always made society better off.

Veblen was also highly skeptical of the idea that human beings were rational utility maximizers. As Veblen sarcastically wrote in 1898:

The hedonistic conception of man is that of a lightning calculator of pleasures and pains who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact.

Veblen was not the only who questioned the idea that human beings were rational “lightning calculators.”John Maynard Keynes, who argued markets were often motivated by “animal spirits,” also noted:

It is not a correct deduction from the Principles of Economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these.

For a person living before World War II, what Veblen and Keynes argued probably wasn’t very surprising. Many people living at this time probably doubted the existence of competitive markets populated by rational business leaders consistently producing socially beneficial results. The Robber Baron era very much contradicted that story. And the behavior of the Robber Barons led to the enactment of antitrust laws, the federal income tax, government regulations of business, and much of the New Deal. All of this makes clear that many people in the first half of the 20th century certainly didn’t believe that the market, when left to its own devices, always produced outcomes that enriched the lives of everyone in society.

Of course, all of this government intervention didn’t make the wealthy Robber Barons happy. But what could the wealthy do? In the early 20th century, there weren’t many people who believed that unfettered markets were always a great idea.

This all changed after World War II. Led by Milton Friedman and his allies at the Chicago School, the wisdom of Smith, Veblen, and Keynes was gradually pushed aside. Suddenly economists were arguing human beings were rational, markets tend to be competitive, and government intrusion in the marketplace was a bad idea. The question is how did this happen?

One could argue that maybe government policy was too successful. Higher taxes and more government regulation mitigated the power of the very wealthy. Incomes in the middle of the 20th century became more equal. And as time went by, maybe people just forgot how the Robber Barons behaved.

Or maybe the Robber Barons just used their money to purchase some economists as apologists. Economists teach that people respond to incentives. Maybe that is true for economists as well!

Both of these are great stories. And these stories might very well be true. But neither story is very funny!

For a better story, let’s talk about a show that probably most people don’t know existed.

Back in 2015, Rob Lowe and Fred Savage starred in a sit-com called “The Grinder.”The show only lasted a season. So perhaps not everyone found this as funny as me. Nevertheless, I think the second episode of this show’s only season very much captures what Milton Friedman and his allies did to our understanding of economics.

Let’s start with the show’s premise. Rob Lowe plays a television actor, named Dean Sanderson, who starred as the lead in an over-the-top law drama called “The Grinder.” As the show begins, Lowe becomes dissatisfied with his show and moves to Boise, Idaho. There he moves in with his brother, Stewart, who is married with children. Played by Fred Savage, Stewart is an actual lawyer. At the onset of the show, Dean makes it clear that he thinks his experience as an overly dramatic actor on a legal drama could help his brother argue real cases. (You can watch parts of the trailer here.)

Of course, Lowe is just an actor. And again, an overly dramatic actor. Although Dean knows some legal phrases, he has no idea what they mean. Yet that doesn’t stop him from offering overly dramatic arguments that don’t always make sense.

In the second episode, Dean offers one of the best examples of a nonsensical argument. In the first minutes of the episode, Stewart is discussing which legal case his firm should choose next. Here is how Dean argues the firm should select its next case:

Dean: We don’t choose the case. We let the case… choose us.

Stewart: That’s insane. If we throw out all these cases, we will go out of business. This is a real law firm. We can’t do that.

Dean: But what… if we could!

Stewart: But we can’t.

Dean: But what… if we could!

Yes, Dean generally paused dramatically as he said this. And this is what made it funny (and as you can see here and here and here… people who heard Rob Lowe say this thought this was hilarious!).

Something like this phrase gets repeated several times in the episode. The case Dean chooses turns out to be one where the law firm’s clients don’t have a legal argument to stand on. When Dean is told that the fate of his brother’s clients was perfectly consistent with the law, he responds:

But what… if it wasn’t!

As Stewart notes in the episode: “It’s impossible to argue [with such statements]. You can use it any situation. Because… it means nothing.”

Okay, what does all this have to do with the turn economics took in the 20th century?

I would like us all imagining that once upon a time, Milton Friedman and his colleagues at the Chicago School were told:

Adam Smith knew markets were not always competitive and people in business didn’t always take actions that made society better off. Veblen and Keynes also both knew that people were not perfectly rational, and they both knew markets didn’t always work. We have known all of this for decades. You simply can’t assume markets are competitive and human beings are rational!

Upon hearing this, Friedman and his colleagues effectively said (just like Dean):

But what… if we could!

There were a few economists, like Herbert Simon, who tried to argue at the time human beings weren’t perfectly rational. But each time the Chicago School heard this argument, they simply said:

But what… if they were!

Just like Stewart noted, there is no real response to this line of reasoning. Those who use this technique aren’t providing a real argument. What Milton Friedman and the Chicago School assumed about markets and rationality wasn’t technically true. All they were doing was taking these assumptions to their natural conclusion.

Unfortunately, those assumptions often dictated the conclusions reached. And this intellectual exercise eventually resulted in future generations of students being taught it was okay to start with the assumption of competitive markets and rational actors. And it was okay to build arguments, based on those assumptions, that led economists to argue taxes on the rich should be lower, antitrust laws should be weakened, and government regulations should be dismantled. In fact, given the money rich people would pay to hear such stories, it was in the interest of economists to make such arguments.

Yes, maybe this story is all about people just forgetting what happened and economists responding to their monetary incentives.

Maybe, though, this is just a school of thought in economics doing their best Dean Sanderson impression. Just maybe, once upon a time Milton Friedman and the Chicago School really were told you can’t just assume markets are competitive and human beings are rational. And just maybe, they all just collective said:

But what… if we could!

In February 2023, Doha Mekki, the Principal Deputy AAG for Antitrust announced the withdrawal of the FTC-DOJ guidelines on information exchange. It had become painfully apparent that oligopolists had found exchanges of confidential business information to be an effective means of restraining competition without entering into overt conspiracies. In December of that year, we published our article, Pooling and Exchanging Competitively Sensitive Information Among Rivals: Absolutely Illegal Not Just Unreasonable, 92 U. Cin. L. Rev. 334 (2023), on the exchange of such information. We argued that most such exchanges are naked restraints of trade. Because there are a few plausible explanations for limited kinds of exchanges that are unlikely to result in restraint on competition, we recommended that a “quick look” approach would be the appropriate standard. Moreover, we stressed that the focus of such an assessment should be on the merits of any purported justification rather than market shares or other indicia of market power.

Late in 2023, the DOJ sued Agri Stats for its program of collecting, analyzing and sharing confidential business information for pork packers and poultry and turkey integrators. Then in 2024, it sued RealPage for its information collection, processing, and rent recommendations to landlords. Both complaints were unclear as to the exact standard that the government was claiming applied to such information exchanges. What is clear is that the government is contending that the agreements to share such competitively sensitive information are in themselves unlawful restraints of trade regardless of whether there is a further agreement to fix prices or control output. This is an important step in the process of reclaiming a critical analysis of such agreements.

Most recently the DOJ submitted a Statement of Interest in the Pork Antitrust case where it more clearly invited the court to focus on the justification for the exchange and the market context in which it occurred rather than measuring market shares or other inferences of market power. Moreover, the Statement initially pointed out that the Supreme Court has held that agreements to exchanges competitively sensitive information can in themselves violate the antitrust law.

Leading decisions such as Todd v. Exxon have referred to the “rule of reason” as the standard and seemed to embrace a requirement of finding market power as a predicate to condemning such an exchange. The Statement is at pains (unnecessarily in my view) to advance a broad definition of the rule of reason as a flexible inquiry into the merits of the conduct at issue. Quoting from the Gypsum decision, however, the Statement stressed that the focus should be on how the exchange affects competition among the participants and in the market. Implicit in this approach is a rejection of the standard rule of reason model in which restraints are presumed lawful unless there is substantial market power.

Indeed, why would rivals, even if they did not dominate the market, exchange competitively sensitive information? Such an exchange would be likely to and is almost certainly intended to stabilize and restrain the competition between those rivals for customers in common. The primary function of any such exchange among rivals, however inclusive, is to provide a common understanding of the market to reduce or eliminate the incentives to compete.

The Statement of Interest in the pork case moves the government closer to recognizing that the appropriate standard is one that both presumes illegality and requires a legitimate explanation. Explicitly, it first emphasizes that exchanges of information inherently involve an agreement or understanding which satisfies that element of a section 1 case. Second, pointing to a long history of antitrust decisions, such exchanges can be in themselves illegal. They need not only serve as facilitating devices for express collusion on price, output, or customer allocation. This is a very important point to emphasize in relation to such agreements and is the basis on which the government has sued both Agri Stats and RealPage.

Third the Statement emphasizes that even if information is aggregated, it can still serve an anticompetitive function. Implicit, in this point is the proposition that the focus of analysis should be on why this information is being exchanged, which includes a variety of extrinsic factors. This leads to a section that identifies four factors that a court should consider. They are 1) the nature (“sensitivity”) of the information exchanged, 2) its granularity (how detailed is the information and how easily can a participant determine what its rivals are doing), 3) the public availability of the information, and 4) its contemporariness. Missing from this list is any recognition that legitimate bench marking projects might require exchanges of information that satisfy most of these criteria, but if this is a legitimate benchmarking project, there are ways to limit the granularity and contemporaneousness of the data.

The Statement regrettably failed to take a sufficiently strong and clear position that once the plaintiff established that an agreement to exchange confidential business information exists, that should create a rebuttable presumption that it constitutes a restraint of trade. Only if the defendant(s) can offer and provide proof of a plausible explanation for the exchange that does not involve a restraint should there be any need for a more nuanced investigation of the merits of the conduct. At that point, the four factors that the government identified are indeed relevant as is a direct rebuttal of the asserted justification for the exchange.

The legal doctrine governing information exchange continues to wrestle with two decisions from 1925 involving the maple flooring and cement industries that upheld anticompetitive information exchanges. Those case came during a time of “open competition” advocated by Herbert Hoover, then the Secretary of Commerce, and others to limit competition among business though use of information exchange and trade associations. Justice Stone, the author of both these opinions, was a friend of Hoover’s and apparently supported this kind of restraint on competition. A decade later, the Court essentially rejected these decisions. Justice Stone chose not to participate in that decision rather than dissent.

Nonetheless, the legacy of this early 20th century childlike faith in the potential that such exchanges might serve some public interest has continued to dog the development of a coherent doctrine. Deference to the dead-hand of the past leaves open too many paths for defendants and courts to justify or excuse harmful information sharing. The best hope is that the judge in either the Agri Stats or RealPage case (or better both) focus the decision on a presumption of illegality and require the defendants to bear the burden of persuasion that the presumption is inapplicable to the specific case. The Statement of Interest in the pork case does move the analysis a little closer to the appropriate standard.

In August, Judge Mehta of the Federal District Court in Washington, D.C., concluded in a careful and detailed opinion that Google had a monopoly in both the internet search market and the associated text advertising market. Google was found to have abused its market power by engaging in exclusionary conduct, including paying large sums of money to equipment makers, browser operators, and cell phone systems to retain this dominance. The opinion declared that while Google got its monopoly because of its “skill, industry, and foresight,” it then used unlawful tactics to entrench and reinforce that position. The decision also recognized the enormous cost of creating and maintaining an effective search engine, as well as a suggestion that the text advertising system involved substantial costs. Given the apparent durability of both these monopolies, the question that the Court now faces is finding an effective remedy.

This week, the Department of Justice (DOJ) is expected to file proposed remedies for this abuse of monopoly power. Several voices have weighed in on remedy design, including The Economist, in a leader titled “Dismantling Google is a terrible idea.” Divestiture of Chrome or Android should be avoided at all costs, argued the magazine, even if that means embracing behavioral remedies such as “limiting its ability to use its search engine to distribute its AI products,” or “mak[ing] public some of the technology that enables its search engine to work, such as its index of web pages and search-query logs.”

In two prior posts, we spelled out two alternative ways to remedy bottleneck monopolies. These monopolies are ones that connect otherwise competitive markets but for a variety of reasons are durable and unavoidable. Obvious examples include electric transmission systems, cell phone service, and natural gas pipelines. The internet world is also subject to a number of bottlenecks.

The Search and Text-Advertising Engines Are Bottleneck Monopolies

Google’s search engine stands between the great mass of users with questions and the entire internet’s resources. Its search engine functions to identify and classify potential responses to the question. The cost of creating the Google search engine was over $20 billion and it requires many billions annually to maintain and expand it. Only two other search engines exist, and one recent effort failed after massive investment. Of the survivors, Microsoft’s Bing has a 10 percent market share overall and the other, Yahoo, has less than 3 percent. Hence, neither is a significant competitor. Browser providers need to have one or more search engines easily accessible for users, and they can’t charge searchers for their searches.

Because the search engine is costly to create and maintain, the question is how to pay for this service. The text-advertising engine is the means for paying for all searches. Text advertisements are the textual lines appearing at the top of any search that implicates a good or service. The line links a searcher to the website of the advertiser that hopes to make a sale.

Google sells such access to advertisers as does Microsoft and Yahoo. Judge Metha found that the creation and maintenance of the text-advertising engine is also very substantial. But at the same time, the other search engines appear to have their own text-advertising engines. This at least suggests that such engines are more readily producible, and that Google’s dominance comes primarily from its control over the search engine. Both browser operators and advertisers agree that they have to use Google’s search engine. They accept the text search engine because that is the means by which Google is compensated. Google also shares that revenue with the browser operators.

The DOJ’s Theory of Harm and Implicit Remedy

The litigation seems to have focused primarily on the anticompetitive effects of the various exclusive dealing contracts that Google obtained to ensure the dominance of its search engine. These contracts involved multi-billion-dollar payments to cell phone makers (like Apple) and browsers (like Mozilla) to ensure Google search was the default option. Nominally, other options could be provided and were included in some browsers, but the effects of Google’s brand recognition and its placement in cell phone and computer browsers resulted in effective retention of a monopoly market share.

While the opinion focuses on the harms resulting from the exclusionary practices of Google, the underlying factual findings suggest that regardless of the specifics of the contracts at this point and for the foreseeable future, the Google search engine will retain its monopoly position. Removing the exclusionary terms from the contracts is unlikely to result in any significant change in the structure of the search engine market.

Perhaps the government belatedly recognized this situation and so tried to shift the focus of its case from an attack on the specific exclusionary effect of the contracts to a broader claim of monopolization. Judge Metha rejected that move because it came late in the litigation. This is somewhat similar to the government’s failure to think through its case against Microsoft in the late 1990s, which started as a challenge to the tying of the operating system to its browser but ultimately morphed into a broader challenge to Microsoft’s monopoly. The failure of the government in that case to have a remedy that would effectively address the monopoly bottleneck of the operating system explains why 25 years later, Window’s still has a monopoly share of computer operating systems and their applications.

The fundamental challenge is to find an effective remedy that will eliminate or significantly reduce the incentive to exploit the bottleneck monopoly and use it to exclude competition in the upstream or downstream markets that the monopoly serves. Eliminating at this point exclusionary contracts given the extraordinary costs of building and operating a search engine that would, at its best, basically duplicate the Google engine, is unlikely to affect the search market in the foreseeable future.

Consider the Alternatives

The central thesis of our prior posts was that where there was an unavoidable bottleneck monopoly, an effective remedy is to change the ownership of that monopoly in a way that would eliminate or greatly attenuate the incentives to exclude and exploit. We also recognized that the first best option would be to break up the monopoly. But in many cases, this is not a feasible option. We suggested that there were two other ways to reallocate ownership and control of the bottleneck. One way is to create a “condominium” that collectively owned the bottleneck, but each user had its own piece to use. The alternative is to move ownership to a “cooperative,” which would both own and operate the bottleneck. While a divestiture remedy is possible, we think that the more likely option is to have either a condo or cooperative own and operate the search engine. As suggested earlier, our assumption here is that the text engine is one that has little exclusionary power on its own and will be further weakened if the current case, in trial, concerning Google’s monopolization of the “ad stack” (e.g., ad server, ad network, and ad exchange) results in dissolution of that monopoly.

Option A: Divestiture

The historic response to monopoly expressly declared in the Standard Oil and American Tobacco cases is to break up the monopoly into separate competing firms. It is hard to imagine how a search engine could be subdivided, but it is possible to imagine that multiple entities could receive the right to use the existing engine, “hiving off” the search engine. Each might then have the right to undertake further development of the search engine. There probably would have to be some significant compensation to Google given its massive investment to date in the search engine. This would limit the number of browser or cell phone operators that could even consider a license.

A second concern would be brand loyalty. Would searchers, assuming that Google was allowed to retain its own version of the search engine, be willing to use alternatives in sufficient quantity that the result would be economically attractive? To recover the costs and make money, text advertising needs to be attractive to advertisers.

Finally, the engine itself needs continued work. This means that those entities that took the engine would need to develop additional capacity to perform those tasks, which is unlikely to be easy or inexpensive. This suggests that divested versions of the Google search engine would struggle to compete in the market.

It would also appear that if the text-advertising engine is currently a bottleneck monopoly in its own right, a licensing system for its use with the further right of each user to amend and improve its version would probably resolve this part of the monopoly. There is no brand loyalty for such engines. Moreover, as noted above, the pending Google ad tech monopoly case is likely to result in a further increase in competition in that area of technology.

Option B: A Condominium Solution

If the search engine is sufficiently distinct from the operation of browser and cell phone operating systems, then one remedy would be to transfer ownership of search engine to an entity owned by the various users, but with the on-going maintenance performed by a separate entity that contracts to provide this service to the owners. This is analogous to a condominium association contracting with a management company. Each owner of a condominium would pay for the managerial services and would be able to use the search engine.

The manager would have significant capacity, however, to exploit this system. If compensation were on a cost-plus basis, that might reduce the risk. An even more open system in which the manager’s task is only to review and implement proposed improvements developed by third parties might reduce further the risk of exploitation. The puzzle then would be how to compensate third parties for developments.

Overall, we are skeptical that a condominium-type structure would be a very effective solution to the monopoly bottleneck that the Google search engine presents.

Option C: Cooperative Solution

A cooperative type of organization would own the search engine itself and share the ongoing costs of its operation, based on usage by the participating enterprise. The cooperative would in turn either have its own staff to maintain the engine or it would contract with various third parties to supply necessary inputs. Each participant would be able to use the search engine as it saw fit and match it with whatever text-advertising system was most attractive given the customer base and technology of that entity.

A cooperative solution to the search engine monopoly is a much more promising solution than the options of injunction, divestiture, or condominium ownership. But we see two real risks and problems. First, there is a question of the incentives to innovate especially where some users would be advantaged over others. The risk is that if most distributors of the search engine are using the same vehicle, they may have a hard time supporting innovations that might favor some types of users, e.g., cell phones, over others, e.g., computers.

Second, as Judge Metha observed, and as The Economist points out, there is a possibility that AI may eventually make search engines obsolete or offer a very credible and open alternative. The judge concluded, however, that this potential was only that. There is no current or immediately foreseeable AI search system. The concern would be that if most search providers are participating in a cooperative that provides a search engine, they may have a collective disincentive to support or sponsor the potentially costly and time-consuming effort to develop an AI search system.

Conclusion

Finding an effective remedy for the monopoly created by Google search and text-advertising engines is a major challenge. Our concern is that the government has too narrowly focused on Google’s exclusionary contracts. Removing those contracts at this late date is unlikely to produce any significant change in the monopolization of these markets and potential for ongoing exploitation and exclusion. It is regrettable that the government did not initiate its case with an explicit focus on a remedy or remedies that could actually affect the future structure and conduct in this market. We have here examined three options that could dissipate the underlying monopoly power. Each has risks and problems, but each is a better alternative than a simplistic elimination of exclusionary contracts.

Washington Post columnist Eduardo Porter, in his recent piece, “Corporations are not destroying America,” seems to be taking cues on economic policy from his colleague Catherine Rampell. To Porter’s credit, he, contra Rampell, seems to actually read the materials he’s writing about. Yet the entire piece is emblematic of columns favored by the Post: ones that casually brush aside progressive policy ideas by dispatching with a straw man and infantilizing anyone to their left rather than engaging head on.

Porter takes issue with the “idea that American markets have become monopolized across the board, with dominant companies raising prices at will,” which he calls “ludicrous.” But that’s really not the point that progressives—or the Harris campaign, who Porter’s “memo” is addressed to—have been arguing. Could you find someone who thinks that every market in the country is overly concentrated with greedy fatcats leeching off the public? Absolutely. But it’s not the argument that progressives in the policy community and Harris have articulated.

The actual argument is not that every industry is overly concentrated, but that a number of key industries are, which enables opportunistic price gouging to ripple through key sectors of the economy and cause acute harms because of how critical those industries are. These are industries like meatpacking, airlines, credit-card issuing and processing, railroads, Internet search, ocean shipping, and baby formula. Porter can cite all the studies he wants that say overall concentration levels are not soaring or concerningly high and still not get to the substance of the argument. That said, there are numerous methodological and theoretical questions about measuring market concentration. But that’s hardly necessary here; the examples above are so obviously oligopolistic that there’s really no need for formal measurement.

Similarly, Porter simply misrepresents what opponents of corporate power claim big firms with pricing power are doing. He frames it as a matter of “dominant companies raising prices at will,” but the throughline in nearly all versions of progressives’ arguments is about companies leveraging particular disruptions, like inflation, as a smokescreen to exploit customers by raising prices in excess of the increased costs they’re incurring. Harris’s grocery price-gouging restriction has been much maligned by Rampell and other neoliberal pundits who usually either paper over that it only applies in emergencies (and only in the food industry) or elide it with a slippery slope “but what is an emergency?” distraction, preferring to hyper obsess over fringe cases when most of the time it will be pretty clear if we’re in an emergency; Harris’s plan specifically is inspired by the real-world exploitation of large groceries, as found by the FTC and revealed in the Kroger-Albertsons merger trial, during the last disaster.

Porter’s column also pointedly veers into an argument that narratives about “the monopolization of America often rests on evidence about corporate concentration at the national level. But the market relevant to consumers is, in many cases, local.” And that’s true to an extent, but Porter’s own example of hardware stores (directly following this) is a good demonstration of why this elides the harms to which progressives are trying to draw attention. Porter discusses “mom and pop” hardware stores vis-à-vis national chains Home Depot and Lowe’s (apparently he’s not a fan of ACE). But there are no mom-and-pop airlines or baby formula manufacturers or oil firms.

As far as the corporate big tech “Godzillas,” as Porter terms them, apparently they aren’t “squashing competition to reduce wages, keeping new rivals from entering their markets, and sticking it to consumers.” (Let’s ignore for a moment the very serious allegations that Uber and Amazon have suppressed the wages of their drivers. Or the recent verdict by a jury in Epic v. Google that Google overcharged app developers for transacting on the Play Store. Or the recent finding of a judge in U.S. v. Google that Google monopolized the search industry and the associated market for text advertising.) Rather, Big Tech’s fearsome power has come, per Porter, “first and foremost from deploying new technology and offering better value to customers.”

Presumably then, Facebook didn’t go buy out a bunch of other social media and networking websites and softwares. But it did. It bought ConnectU in June 2008, FriendFeed in August 2009, sharegrove in May 2010, Hot Potato in August 2010, Beluga in March 2011, Friend.ly in October 2011, and Instagram in April of 2012. Definitely not buying out competitors to sit on a huge pile of market share, just good old innovation!

And Amazon definitely got to where it is by besting its rivals through good old market competition! Except when it bought dozens of other online retailers and web service companies. Oh and when it artificially skewed its marketplace to disadvantage third party retailers in favor of Amazon’s own products, many of which were reproductions of other companies’ products.

Porter also seems to have overlooked the fact that Google acquired its way to power in the ad stack, gobbling up, among others, DoubleClick, Invite Media, and AdMeld.

The entire piece is vapid left-punching; Porter even actively agrees with the substance of the critiques against monopolists. For instance, this paragraph:

For sure, corporate consolidation has reduced competition in some markets. It was probably a bad idea to allow Whirlpool to take over Maytag in 2006, or to allow Miller to merge with Coors two years later. Hospital mergers deserve a much more skeptical view than they have received in the past. Let’s be careful about drug manufacturers buying out competitors for the purpose of killing a potential competing drug.

Yes, there is discourse about the American economy becoming more consolidated writ large, but the core of the debate is about intra-industry dynamics where market power creates unique opportunities for profit at the expense of consumers. Like when pharmaceutical companies buy out a firm working on a competing treatment. In sum, we have yet another piece to file away in the classic genre of “WaPo doesn’t have anything substantive to add, but feels the need to put down uppity leftists.” (It’s only gotten worse after new data revisions showed an even sharper uptick in corporate profits than earlier data had indicated.)

The last thought Porter offers is that “taking a wrecking ball to big business in the service of a rickety theory of harm will do everyday Americans no good.” What is the wrecking ball? Who is proposing to destroy major corporations?

The entire case laid out in this “memo” is that Harris, at progressives’ behest, is calling for leveling all large corporations. But Porter would do well to remember that the story of Rampell’s he links to in order to outline the consequences of this “wrecking ball” literally lies about what Harris’s pricing gouging law narrowly targeted at suppliers in the food industry (as opposed to all large companies) would look like. There are no “price controls” in the proposal, contrary to Rampell’s suggestion; food suppliers could justify price hikes during the next crisis so long as they were cost-justified. Rampell says Harris’s plan is likely to be modeled after a bill from Senator Warren (D-MA) that would give the FTC power to punish firms for price gouging.

As a justification for why such a law would be disastrous, Rampell says that “the legislation would ban companies from offering lower prices to a big customer such as Costco than to Joe’s Corner Store, which means quantity discounts are in trouble.” No, it doesn’t. There is absolutely no prohibition against quantity discounts. Rampell is, at best, warping this line stating that one standard that would give a firm “unfair leverage,” which would make it presumptively in violation of the statute, is when it “discriminates between otherwise equal trading partners in the same market by applying differential prices or conditions.”

If two firms are buying vastly different quantities of something, they are not “otherwise equal trading partners” of that supplier. What that line actually means is that if Joe’s Corner Store and Bob’s Corner Store both order identical shipments of widgets but Widgets Incorporated charges a much higher rate to Joe than Bob, then that is unfair pricing.

This is not the first time that Rampell has grossly misrepresented what Warren’s legislation says. Back in March, she said that it, and a similar bill from Senator Casey (D-PA), would be “[f]orbidding companies from changing the prices and sizes of everyday products without government say-so.” Neither bill said anything remotely like that. The fact of the matter is that Catherine Rampell is so committed to lashing out at the left that she either doesn’t bother to read the things she’s complaining about or is happy to just outright lie. Whatever the case may be, Porter should look elsewhere for insights about the economy.

Dylan Gyauch-Lewis is a Senior Researcher at the Revolving Door Project. She leads RDP’s Economic Media Project.