Monopoly Power and the Malfunctioning American Economy

[Note:  This item comes from friend David Rosenthal.  DLH]

Monopoly Power and the Malfunctioning American Economy
How the 1920s can help us solve the 2020s
By Sam Long
Jan 21 2020
https://www.institutionalinvestor.com/article/b1jz6grn07x012/Monopoly-Power-and-the-Malfunctioning-American-Economy

“Tax reform has delivered for workers!” 

So proclaims a recent editorial in The Wall Street Journal by Gary Cohn, former director of the National Economic Council under President Donald Trump. The onetime Goldman Sachs senior executive mounts a vigorous defense of the 2017 tax bill, calling it a victory for supply-side economics and for the American people. 

In the past decade the gap between income growth for ordinary Americans and that for their wealthiest countrymen has widened at a rate unseen since the Gilded Age. As a result, populists now openly challenge neoliberalism from both the left and the right. Talk of tax cuts and trickle-down effects by financial elites is a rearguard action fought on behalf of a crumbling economic consensus. Like the delusional Vietnam War–era generals who pointed to rising body counts as progress toward victory, Mr. Cohn, President Trump, and others frequently refer to a soaring stock market and low unemployment as indicators of a “surging economy.”

At this point many of us understand that beneath the hood, the once powerful American engine of mass prosperity is malfunctioning. When 10 percent of the American population owns 80 percent of equities, a 35 percent gain in the Nasdaq is a vanity metric rather than a true indicator of system performance. Similarly, low unemployment rates mask the neo-serfdom of the sharing economy — and thus tell only part of the story. To borrow a metaphor from writer Anand Giridharadas, tussles over the American economy have played out in just two different “stadiums” since 1932. 

The Stadium of Franklin Delano Roosevelt stood on a New Deal consensus from the mid-1930s until well into the 1970s. Policymakers in both parties sought to limit the concentration of economic power, decentralize the corporate sector, and ensure free and fair competition for small business. In the mid-1970s, American politicians abandoned this accord for the Stadium of Ronald Reagan, where subservience to the free market and an abiding skepticism of government became shibboleths in both parties. It may have been Reagan who convinced Americans that their government was out to get them, but it was a Democratic president from rural Arkansas who gutted the federal bureaucracy in the mid-1990s and then used his State of the Union address to brag about it. 

The one thing — perhaps the only thing —  that the left and the right seem to agree on today is that the current field of play no longer seems so prosperous for the average citizen. 

Following leaders like Bernie Sanders and Elizabeth Warren on one team and Marco Rubio and Josh Hawley on the other, people are looking for the exits. Where they will go is unknown, but whether closure comes in 2020 or a few years later, the lights are flickering in the House that Ronnie Built. 

Matt Stoller’s Goliath: The 100-Year War Between Monopoly Power and Democracy is a timely guide for those looking to understand how, where, and by whom the next stadium will be built. Goliath’s central assertion is that to understand why our economy distributes its fruits so unevenly, you must recognize what many elites and policymakers struggle to see: The present-day prevalence of monopolies and other significant concentrations of economic power is unprecedented in American history. 

His time on Capitol Hill during the financial crisis propelled Stoller into a decade-long exploration of American economic history. In Goliath he unearths a century’s worth of antitrust debates to show the consequences of monopolization and economic concentration. For decades, American antitrust battles were led by a seemingly forgotten assemblage of anti-monopolists that includes John Sherman, Louis Brandeis, and America’s most famous class traitor, Franklin Roosevelt.

The book’s unlikely hero, however, is Congressman Wright Patman, the son of an East Texas tenant cotton farmer. The populist Patman’s 46-year career in the House of Representatives, launched on the eve of the Great Depression, mirrors the rise and fall of the New Deal economy. Patman was instrumental in passing the Bonus Bill for World War I veterans; he also led impeachment proceedings against then–Secretary of the Treasury Andrew Mellon. He was, as one eulogizer said, a man who “comforted the afflicted and afflicted the comfortable.” 

In 1975 a group of newly elected Democrats known as the “Watergate Babies” deposed the elderly Patman as chairman of the House Financial Services Committee. That Patman’s ouster came neither at the hands of Republicans nor at those of his enemies on Wall Street is a central point in Goliath: In their zeal to end the Vietnam War and enact civil rights legislation, Democratic legislators ceded thought leadership on matters of political economy to a rising technocratic elite. Patman — elderly, white, and Southern — fell victim to the grandfathers of today’s woke capitalists. 

A credentialed technocracy soon led the Democratic party astray. Well-intentioned, corporatist liberals undermined the New Deal consensus, allowing Chicago School libertarians to peddle simplistic views of the relationship between the government, the citizen, and the economy. Stoller reserves his sharpest critiques not for Big Business or Wall Street, but rather for educated elites on his own team who, after a century of looking out for small businesses, farmers, and workers, quickly abandoned them for free trade, private equity, and, eventually, Amazon. 

To ensure the complete and lasting victory of neoliberalism, its forces buried the New Deal vocabulary. Financial elites, their allies on Capitol Hill, and a not-yet-discredited cadre of libertarian economists dismantled the guardrails on capitalism erected by New Deal policymakers from both parties. Thereafter, to suggest that the market might need some degree of oversight was to invite scorn and derision.

The resurrection of the anti-monopoly lexicon and its history is a positive step toward a new economic consensus. So is the fledgling movement to build a 21st-century industrial policy, incubated by intellectuals on the right and now embraced by mainstream politicians. Business culture also appears to be shifting, and it has once again become possible to be “pro-business” while objecting to returns earned through labor arbitrage. Even JPMorgan Chase’s Jamie Dimon now suggests that the efficiencies-over-everything-else shareholder economy might not be right for our democracy. 

Throughout Goliath, Stoller asserts that the past century’s antitrust struggles can and, indeed, must inform the challenges in front of us. A conversation about Amazon is incomplete without understanding the pitched battles that unfolded in the 1930s between federal regulators and the A&P chain store. It might surprise young investors and managers today to discover that for decades, American law protected producers’ ability to price their own goods. The monopoly issue is also one of national security: As we grapple with the implications of Big Tech’s cozy relationship with an ascendant, cyber-forward China, we might look to the 1930s, when the federal government belatedly intervened to prevent Standard Oil and Alcoa from helping Hitler reconstitute the German war machine. 

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