Do You Want To See One Of The Republicans Win In 2016? If So, Backing Hillary Is The Way To Go

Greg Sargent raised the warning signals, based on a new poll released yesterday by Stan Greenberg, that core Democratic voters-- particularly millennials (but also unmarried women and minorities-- are not as energized by the 2016 elections yet as core Republican voters. Perhaps that's because anti-establishment Democrats have come to the conclusion that their party's horribly flawed establishment candidate is inevitable, while Republicans have all but vanquished her equivalent (Jeb) and will probably pick an altogether anti-establishment candidate, if not "outsiders" Trump or Carson, then Texas neo-fascist Ted Cruz.

The Democratic establishment strategy is always "but we have the lesser-of-two-evils." And that's true. Bernie summed up the conundrum on ABC's This Week Sunday when he told viewers, when asked about the party's establishment-backed candidate, that "on her worst day, Hillary Clinton will be an infinitely better candidate and president than the Republican candidate on his best day. But having said that, we have very significant differences, and the key difference is I see a nation in which we have a grotesque level of income and wealth inequality." Bernie is the Democrats' anti-establishment candidate, even to the point of leaving big money from wealthy progressives on the table."

Sanders' refusal to engage in big money politics provides a striking contrast to Clinton. Northern California trails only Washington and New York, and arguably Southern California, as a campaign cash target for her campaign. And its huge financial role was underscored last week by a 900-person, hour-and-a-half gathering headlined by Clinton at a manor deep in Silicon Valley on Wednesday afternoon and a 290-person event at a Napa winery on Thursday evening.

Meanwhile, the Vermonter's lack of interest in the region's cash is a phenomenon that jibes with his campaign's singular focus on Iowa and New Hampshire this fall. But by not sending emissaries-- and not even stopping by the San Francisco area for one of his signature megarallies-- the insurgent Vermont senator is missing out on potentially millions of dollars.

When Bernie told ABC News viewers that the key difference between Hilary and himself is that he sees "a nation in which we have a grotesque level of income and wealth inequality," the implication is that she doesn't. Or that, at the very least, stressing over it isn't her top priority. David Dayen's American Prospect article, Bring Back Antitrust, on the prevalence of "market concentration" (monopolies) as a driving force in American business, helps explain why it should be and why progressives are so much more excited about Bernie than about... the establishment candidate. "Market concentration," he wrote, "has a powerful impact on the day-to-day lives of every American, not just because monopolists have pricing power. Monopolies can also stunt innovation, degrade quality of service, increase inequality, and concentrate political power.

This trend operates against a background of weakening antitrust enforcement. Some of the new techniques to defend market power were not anticipated by the authors of the major antitrust laws more than a century ago. Others would be all too familiar, such as squeezing and then buying out competitors, or creating tying arrangements to compel a consumer to buy one product as a condition of buying another. “We’re back to a little bit of the new Gilded Age,” says Allen Grunes, a former antitrust official at the Justice Department.

This hidden concentration and its negative effects on consumers may seem paradoxical. First, this is a low-inflation economy. So if monopolists are jacking up prices, why does this not show up in a higher consumer price index? Secondly, thanks in part to the Internet, some innovation does result in greater consumer choice and price discipline. Amazon, for instance, has forced booksellers to cut prices. Internet shopping generally increases consumer knowledge to shop for the best deals.

But in a segmented economy, monopoly pricing power and suppression of innovation in some sectors can co-exist with competitive markets elsewhere. As for low inflation, much of it reflects depressed wages, in some ways driven by market concentration. So the consumer is hit twice-- once in the paycheck and again at the store. And the Internet, for all of its ability to facilitate shopping around, has facilitated platform monopolies or near-monopolies such as Amazon and Google, with other anti-competitive effects.

...American progressives have long had an ambivalent view of bigness. The split was evident in the presidential election of 1912. Bull Moose Teddy Roosevelt’s idea was to allow some concentration to most efficiently distribute goods, but to let experts regulate those firms for the public benefit. Democrat Woodrow Wilson, and his adviser Louis Brandeis, saw concentrated power as dangerous, and held that monopolies that unduly restricted competition should be broken up.

The fuel for the Brandeis-Wilson perspective came from below. In the late 19th century, economic regulation was a function of the states, which were unable to deal with the rise of giant national trusts. The growth of railroad and telegraph monopolies restricted the channels for the flow of information and the transport of goods, raising prices in some cases and denying access to markets in others. Farmers, gouged by railroad tycoons and fearful of the trusts’ power, organized the Granger movement and others, fomenting a revolt against these practices and ultimately compelling national politicians to act.

The Sherman Antitrust Act of 1890, passed almost unanimously by Congress, gave the Justice Department (and later, via the Clayton Act, the Federal Trade Commission) authority to attempt to block anti-competitive mergers and price-fixing through the courts; the act authorized criminal penalties as well as civil remedies. But the Sherman Act authors made clear that “innocent monopolies” created by superior business practices could be tolerated as long as they did not suppress innovation and price competition. So even in the heyday of antitrust, the courts rejected the proposition that size per se was anti-competitive. Restraints of trade had to be demonstrated.

In Standard Oil v. United States, for example, the Supreme Court effectively modified the Sherman Act, saying that monopolistic restraint of trade was only objectionable if it was “unreasonable,” a determination to be made by the courts. The decision did break up Standard Oil, ending their Gilded Age dominance. However, U.S. Steel won its antitrust case in 1920, as did International Harvester in 1927, because they passed the reasonableness test.

...In general, the Justice Department’s Antitrust Division was fairly aggressive during the period between the 1930s and the 1960s, seeking to safeguard market competition while recognizing that scale could sometimes be pro-competitive. And then, a future failed Supreme Court nominee named Robert Bork took this nuance to an extreme, arguing that antitrust enforcement was actually bad for innovation and consumer well-being.

In his 1978 book The Antitrust Paradox, Bork, a devotee of University of Chicago economic theories, contended the Sherman Act was merely a “consumer welfare” prescription, not a presumption against market power (which generally can’t exist in Chicago theory). So if a merger made the resulting business more efficient, that merger should be approved. Scale, likewise, generally enhanced efficiency. In both cases, consumers would see the benefits in lower prices. If the incumbent abused its dominant position and raised prices beyond a market-clearing price, competitors (by definition) would invariably arise. The power of incumbency was assumed away. The “paradox” of his book’s title was that antitrust enforcement made consumers worse off.

Recent scholarship has shown Bork’s assumptions to be backward. John Kwoka, an economics professor at Northeastern University, collected retrospective data on 46 closely studied mergers, and found that 38 of them resulted in higher prices, with an overall average increase of 7.29 percent. In cases where the Justice Department imposed some sort of condition for accepting a merger, like divestiture of some product lines or bans on retaliation against rivals, the price increases were even higher, ranging from 7.68 percent to 16.01 percent. By this analysis, consumers don’t benefit at all from merger activity, as market power overwhelms whatever efficiency gains.

But Bork’s ideas found a ready ally when Ronald Reagan took the White House. In 1982, Bill Baxter, head of the Antitrust Division at the Justice Department, rewrote the guidelines the agency would use to examine mergers, incorporating many of Bork’s theories. The earlier 1968 guidelines, authored by Assistant Attorney General Donald Turner, looked skeptically upon mergers where the resulting company would control as little as 5 percent of an industry. Baxter’s rewrite incorporated supposed efficiency into the equation, and significantly increased thresholds for market concentration that would even trigger official scrutiny, much less litigation.

Changing the enforcement guidelines transformed antitrust policy without altering a comma of the law. What was once a political issue became a question for micro-economists, and corporations could always find one to assert massive efficiencies from any merger. Judges began to require a higher threshold for merger challenges as well as a presumption against abuse of market power, as the Bork intellectual theories infected the entire apparatus.

...Since the Reagan Justice Department neutered antitrust enforcement, a posture substantially ratified by increasingly conservative courts, two new factors have reinforced the trend. The first is the rise of intensified merger and acquisition activity, driven less by economic efficiency than by the fact that M&A is a huge Wall Street profit center that fits with the desire of CEOs to run bigger empires that produce fatter paydays. Mergers and acquisitions activity is poised to hit a record this year, with $4.58 trillion in takeover announcements expected.

Obviously, more mergers mean more commissions for the Wall Street firms that shepherd the deals, as well as more opportunities to profit from trades. Investors are also demanding consolidation as a means to increase pricing power and to show growth. It’s easier to use market power to extract more from suppliers and consumers than to make a better product and increase sales volume. “From society’s perspective, it’s complicated. But from the inside, I always want to have a monopoly,” said billionaire venture capitalist Peter Thiel in London in May.

The preference for debt over equity in the tax code also incentivizes mergers, since borrowed money to acquire companies produces a tax break. In principle, antitrust enforcement provides a counterweight, but as merger activity has increased, antitrust has declined. Today, corporate America’s most innovative activity is financial engineering, rather than invention that enhances consumer welfare.

Despite all the buzz about the start-up culture, entrepreneurship has suffered from these barriers to competition. The New America Foundation found start-ups fell 53 percent between 1977 and 2010. This removes urgency from incumbents to invest, and makes the economy sluggish.

Merger activity, John Kwoka shows, typically leads to price increases, as companies controlling concentrated markets gouge consumers. You can see the consequences of oligopolistic pricing simply by looking at your cell phone or cable bill, sectors where dominant players still enjoy market power.

...The rise of the Internet has been double-edged for market concentration. For example, Amazon is the dominant delivery outlet for books, willing and able to keep out publishers if they don’t conform to their standards. This produces bargains for consumers, but undermines supplier industries, in this case author royalties and publisher earnings. “The focus on consumers led people to think, if Amazon can get cheaper prices, who’s to complain, without realizing that monopsony power is squeezing authors,” says Nobel Prize–winning economist Joseph Stiglitz. “The consumer may get better prices, but not on the other side.”

Monopsony creates many spillover effects. Suppliers can cut corners on labor and environmental standards to keep their profit margins up amid the squeeze. Wages can drop. So even if inflation stays low, the public can suffer. In other words, while some monopolies and monopsonies generate “cheap” goods for Americans, antitrust policy should look beyond simply prices and efficiency to incorporate all of the consumer effects of market concentration. And they are legion.

Perhaps most critically, given the current political climate, monopolies drive inequality. Executives and Wall Street traders make astronomical incomes, while wages are squeezed. Post-merger price increases, from health care to cable TV service to airline tickets, translate into a decline in real wages. Big mergers also encourage reduction in actual wages, when consolidations produce layoffs and limit avenues for employment. And though high skills are supposedly a defense against wage cuts, cartel behavior by Silicon Valley firms to prevent raiding each other’s workers kept wages for coders and engineers low.

Suppliers to platform monopolies experience a price crunch across the spectrum, reducing their own profits and funneling them to the biggest firms, where they pass to executives. “High concentration in the PC platform market with Microsoft gives rise to the richest person in the country,” says Stiglitz. “Monopoly increases wealth at the top, and for average Americans real wages decrease.”

Senator Sherman did not anticipate the Internet, but he previewed this broader problem in 1890 when he warned of the “inequality of condition, of wealth, and of opportunity that has grown within a single generation out of the concentration of capital.” And in the Citizens United age, all this market power and collection of exorbitant monopoly profits can’t help but lead to the entrenchment of political power.

“Monopolies are as much political forces as they are economic ones,” says Zephyr Teachout, a former New York gubernatorial candidate and Fordham University law professor who now runs Mayday PAC, a federal political organization dedicated to public financing of elections. “I talk about fair elections as the rhythm of an open, free democracy, and decentralized economic power as the melody.”

...At the outset of the Obama administration, things looked promising for a resurgence of antitrust. George W. Bush’s Antitrust Division had been dismissive of antitrust, in a manner straight out of the pages of Robert Bork. Antitrust chief William Kolasky said in a speech in 2002, “All of us know that the rationale for most mergers is pro-competitive and that most mergers have no adverse effects on competition.” Bush’s FTC issued a report on Section 2 of the Sherman Act that was deferential to monopolies. The incoming Obama administration withdrew it.

Then, the new head of the Antitrust Division, Christine Varney, held joint hearings with the Department of Agriculture in five cities, with Attorney General Eric Holder and Agriculture Secretary Tom Vilsack attending. The field hearings looked at monopsony power—the concentration of agribusiness conglomerates, like Tyson, ratcheting down the rates they pay farmers for meat and poultry. “This was great, all these farmers, herders, everyone involved in the production of food, they’re up in arms,” says Maurice Stucke, antitrust law professor at the University of Tennessee. “DOJ itself said, the message is coming through.”

But when it came to actual enforcement, the administration largely took a pass. According to data collected by Northeastern University’s John Kwoka, from 2009 to 2011, for every merger that reduced competitors in a market to four or fewer, the administration made some investigation or challenge. But for mergers that left five or more competitors, they enforced none of them. Historically, a good chunk of those would have been challenged. “These are moderately concentrated industries, right on the cusp,” Kwoka says. “They took a pass on every one of them. It’s remarkable and a complete anomaly.”

...[T]he administration’s decision to close four of the seven antitrust field offices (in Atlanta, Cleveland, Dallas, and Philadelphia) in 2012 was taken as a strong signal. These field offices did primarily criminal cases, such as conspiracies to rig municipal contracts or construction bids. Dozens of prosecutors lost their jobs. The shuttering of over half of the field offices damaged agency morale. “The remaining offices can’t cover the territory,” says Robert Connolly, chief of the field office in Philadelphia when it was closed. “I think there’s a sense that the Antitrust Division is not that interested in local and regional cases. … They want a case with headlines, a lot of zeroes.”

...In 1964, historian Richard Hofstadter gave a speech at the University of California, Berkeley, titled “What Happened to the Antitrust Movement?” He wondered why anti-monopoly sentiment ceased to become the subject of public agitation. “Once the United States had an antitrust movement without antitrust prosecutions,” Hofstadter said. “In our time, there have been antitrust prosecutions without an antitrust movement.”

Now we have lost both the movement and the prosecutions. When we talk about banks that are too big to fail, we’re talking about antitrust. When we talk about the high cost of health care, we’re talking about antitrust. So many of our key domestic issues are fundamentally questions about whether we should tolerate monopolies, or dismantle them. But this formulation-- a centerpiece of public debate in the last robber-baron era between the 1880s and 1910s—has all but disappeared from popular discourse.

Can anti-monopoly sentiment be revived? When New York’s Working Families Party first recruited Zephyr Teachout to run for governor, she said she would only do it if she could talk about monopolies. “They polled it, and they were correct that nobody knew what I was talking about,” Teachout says. But when she eventually ran an insurgent campaign against incumbent Andrew Cuomo, she was determined to talk about it anyway.

“The minute you got past the sound-bite level, people responded to the concentration of power,” Teachout says. They did campaign events at places where people paid their cable bills, using the pending Comcast–Time Warner merger, eventually abandoned, as the hook. She engaged farmers in upstate New York about monopsony power, and discussed Amazon and big banks on the stump. And it resonated. After only one month of campaigning, Teachout won 35 percent of the vote, with particular strength in upstate counties where farming issues were prominent.

“The Tea Party talks to people and says, ‘You’re out of power because government is taking it away from you,’” Teachout says. “Far too often, Democrats say, ‘You’re wrong, you’re not out of power.’ That’s dissonant with our lived experience. You’re out of power … because your priorities don’t matter and JPMorgan’s do.”

Beyond Teachout, you can see through the haze the stirrings of a grassroots antitrust agenda. The greatest anti-monopoly victory of the modern age, the Federal Communications Commission’s net-neutrality rules, owed much to a smart, tech-savvy movement that leveraged big protest platforms. Web-native activists fought for the decentralized power of the Internet, without gatekeepers collecting tolls along the way. And they made the connection to things like the Comcast–Time Warner merger, which failed amid public outcry.

“After this existential threat to the Web, you see the same groups becoming interested in the deep history of anti-monopoly laws,” Teachout says. “It’s kind of an exciting intellectual moment, a fusion between old-school farmers who have been complaining for 30 years and new net-neutrality dreamers.”

The next administration must show “leadership that has a certain intellectual curiosity,” says Maurice Stucke, pointing to the Google case as a missed opportunity. An alteration in posture would make enforcement far more vigorous, and bringing more cases will give litigators more experience and confidence to negotiate the judicial barriers. The American Antitrust Institute plans to create a transition document for the incoming administration, as they did for the Obama transition.

But at a time of political disempowerment, teaching about the dangers of monopolies and how we have the laws on the books to fight them, and creating upward pressure to do it, offers great potential for a paradigm shift. Connecting Senator Elizabeth Warren’s fight against a rigged financial system and Al Franken’s fight against media concentration can spark broader political energy.

But here's where the source of Clinton's backers and her corporate-oriented campaign contributions come into play-- and why the Politico story about Bernie not wanting to chase Silicon Valley money is so important. This chart from the Greenberg poll was all over the internet yesterday. Understanding the "whys" behind it... less so. If you feel we need to bring back antitrust, please consider a contribution to the candidates who see eye-to-eye with you on that.

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