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Scale-Based Antitrust

Crypto-blogging in a meeting, but...

One of the questions that came up after my "Resilience Economy Model" post was precisely how we could prevent businesses from becoming "too big to fail." A report on NPR's Marketplace offers one suggestion:

Scale-Based Antitrust. Bob Moon interviewed Zephyr Teachout.

MOON: So how do you augment these antitrust laws to apply to the banks?

TEACHOUT: You could pass a new act, which would join the other antitrust law acts -- Clayton and Sherman acts. This new law would look at size as an independent variable. That could be a combination of looking at profit, assets or market value but would have a default rule that says no company can become larger than a certain size depending on the industry.

Teachout wrote a piece for The Nation, "Trustbusting 2.?" that spells out this argument in more detail.

I haven't had a chance yet to think this through, but it strikes me as a promising direction.


I have the feeling we could try, say, enforcing the laws we already have.

There are a whole host of ways you could encourage it without actually forbidding it, or as a prelude to it, which would probably be more politically acceptable. For instance you could progressively tax companies depending on the size of their profit or turnover. You could withdraw or reduce depositor protection from banks that are bigger than X.

You almost certainly have to come up with a measure that affects companies locally as many/most are based overseas. Global agreement on this isn't likely anytime soon so local regulation of some sort seems inevitable.

Actually, until the past several decades, big was bad according to antitrust law

Brad DeLong describes the situation as follows:

During the Great Depression, another principle was added to the mix. Congress decided the government should put its thumb on the scale on the side of relatively small producers: There was a public purpose to be served in outlawing practices that made it difficult for the small-scale producer to survive alongside oligopolistic giants, even if they were not the lowest-cost producers, even if the giants' practices were not necessarily unreasonable restraints.

Thus, antitrust became a tangled web of different laws pursuing contradictory purposes. For most of the past 50 years, lawyers, judges and analysts have gradually picked that web apart. The Chicago school of economists shifted from being enthusiastic advocates of aggressive antitrust enforcement to advocating a hands-off position. Future Judge Robert H. Bork suggested that antitrust law be revised to focus solely on consumer welfare.

Over the years, Bork's view gained strength. People scratched their heads as they watched the virtual repeal of antitrust statutes like the Robinson-Patman Act undertaken by those who in other areas (civil-rights law, say) exalted the original intent of legislatures and decried judge-made law. But it was not clear that small-scale producers deserved a special edge. A looser approach recognizing that close business links could be beneficial seemed likely to make us all better off.

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