A Posner-Stigler Smoking Gun?

A memo from George Stigler and Richard Posner to the Reagan administration was not too long ago unearthed. To know the which means behind the memo, in addition to its affect, it is very important study the context of antitrust attitudes on the time it was written.

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In late 1980 legislation Professor Richard A. Posner and economist George J. Stigler despatched an undated memorandum to Martin Anderson, an economist serving on President-elect Ronald Reagan’s transition workforce.  Posner was a professor on the College of Chicago Legislation College and had already written an influential e book on antitrust legislation. In 1981, President Reagan would nominate him to america Courtroom of Appeals for the Seventh Circuit, the place he completed out his profession. George J. Stigler was a distinguished professor of economics on the College of Chicago. His identify was strongly related to the Mont Pelerin Society and the Chicago College of economics. Considered one of his notable contributions was to politicize the speculation of financial regulation by rejecting its neoclassical foundations in favor of a concept specializing in competitors amongst companies for presidency favors. Martin Anderson himself would go on to be one among President Reagan’s main financial advisors.

Some conspiracy theorists declare that this memorandum proves a right-wing cabal to unleash American company energy. Hardly. White Home transition groups obtain a whole bunch of coverage suggestions. The memorandum is one small piece of proof that the brand new administration was being beseeched by neoliberal leaders in financial and political thought. They obtained a distinguished place not solely within the Reagan Administration but in addition that of Margaret Thatcher within the UK and elsewhere. That agenda included the appointment of conservative lecturers reminiscent of Antonin Scalia, Robert Bork, Richard Posner, and Frank Easterbrook to excessive judicial places of work.

A extra reasonable solution to view the memorandum and Reagan period antitrust coverage is as a continuation of insurance policies that originated within the Nixon administration. Nixon’s appointment of Chief Justice Burger in 1969 introduced the period of the Earl Warren Courtroom and New Deal dominance to an finish. It additionally successfully killed any political effort to pursue industrial focus laws. For antitrust, the Nixon election was the true watershed. What occurred through the Reagan administration was a continuation of adjustments that had already been set in place, however that ultimately went too far.

The Posner-Stigler memorandum’s title, “Throttling Again on Antitrust: A Sensible Proposal for Deregulation,” instructed that “deregulation” concerned a discount in antitrust enforcement. In a single sense that’s true.  On the atmospheric degree neoliberal financial coverage wished for much less authorities intervention of every kind. On the micro degree, nevertheless, deregulation opened the way in which for extra antitrust enforcement in newly deregulated industries reminiscent of air journey, trucking, telecommunications, and securities regulation. In actual fact, deregulators themselves requested that antitrust immunities be eliminated as soon as deregulation occurred.

Two issues concerning the Posner/Stigler memorandum appear noteworthy. First, it was completely right that regulation and antitrust had been in a foul place within the Nineteen Seventies. Second, nevertheless, the neoliberal alternate options proposed by the Posner/Stigler memorandum had been excessive and counterproductive.

On the primary level, the regulatory excesses of the Sixties and Nineteen Seventies had been legendary. Within the late Nineteen Seventies Alfred Kahn, chair of the (now defunct) Civil Aeronautics Board, famously ridiculed proposed authorities regulation of the utmost measurement of sandwiches served to passengers. In antitrust a lot of the harm was carried out by the Supreme Courtroom. In merger coverage the Courtroom had condemned the Brown Shoe merger as a result of it resulted in “decrease costs or in greater high quality for a similar value,” thus making it harder for smaller rivals to compete.  The Courtroom routinely condemned mergers in unconcentrated markets with low entry obstacles that might not presumably have resulted in greater costs. In distribution legislation the Courtroom had made it illegal for producers to manage the areas of their sellers, to restrict the resale costs of price-gouging sellers, or to forbid companies from providing low priced financing of their very own properties except they made the identical phrases accessible to purchasers of rivals’ properties. Enforcement of the Robinson-Patman Act was an anticompetitive mess, condemning suppliers for rewarding better-performing sellers with reductions, and grocery distributors for promoting unadvertised home manufacturers at decrease costs than nationally marketed identify manufacturers. The Federal Commerce Fee had a coverage forbidding value reductions to wholesale consumers who picked up their purchases fairly than having them delivered, losing hundreds of gallons of gasoline.

“How influential was the Posner-Stigler memorandum? As a game-changer, in all probability not very.”

Posner and Stigler had been clearly right that antitrust legislation had misplaced its manner, changing into obsessive about imaginary harms or captured by associations of small enterprise entities. This was on the expense of shoppers and likewise labor, which suffers when product output declines on account of greater prices. This abject failure in Sixties antitrust coverage explains why the Chicago College was initially so in style.

The memorandum’s substantive suggestions present Stigler’s hand greater than Posner’s—not shocking, since Stigler was practically thirty years Posner’s senior and on the verge of receiving the Nobel Prize in economics. Stigler had devoted a lot of his profession to defending excellent competitors financial fashions over theories of imperfect competitors that referred to as for better authorities intervention. Per that assumption, the memo really helpful a big discount in non-public enforcement and appointment of conservatives to the Federal Commerce Fee. Extra starkly, it additionally really helpful that antitrust enforcement be restricted to cost fixing and huge horizontal mergers.

As Posner’s profession developed his personal positions moderated, embracing better recognition of oligopoly and exclusionary practices as antitrust issues. Stigler remained intransigent, though his concepts about excellent competitors had been already shedding theoretical and empirical help in American economics departments. They’d proceed to seek out life in legislation faculties, though at present that’s not true. Stigler’s concepts aren’t as far out of the mainstream on the suitable as Sixties-era antitrust coverage was on the left, however they’re out of the mainstream nonetheless.

How influential was the Posner-Stigler memorandum? As a game-changer, in all probability not very. The memo was per the ideology that was already driving the Reagan Presidential marketing campaign. However below the extra reasonable Nixon administration and the management of Chief Justice Warren Burger, the Supreme Courtroom had already begun trimming antitrust legislation’s excesses. In 1974 the Authorities misplaced one horizontal merger case and one potential competitors merger case. That ended a string that after provoked Justice Potter Stewart’s criticism that the one consistency in U.S. merger circumstances was that the federal government at all times wins. By 1980, the Courtroom had already overruled the antitrust rule forbidding producers from setting vendor areas, in addition to the rule forbidding companies from providing sponsored financing restricted to their very own merchandise. It had already restricted the vary of harms for which plaintiffs may get better antitrust damages, recoveries in self-regulated industries, and had positioned extreme limitations on antitrust class actions and oblique purchaser lawsuits. It additionally put the brakes on Robinson-Act enforcement, instructing that courts ought to interpret the Act extra persistently with the competition-enforcing objectives of the opposite antitrust legal guidelines. For instance, it held that the Robinson-Patman Act ought to not be interpreted to require companies to confirm rivals’ costs, within the course of facilitating collusion, or to forbid consumers from making an attempt to acquire decrease costs from suppliers. In 1977 the Carter Justice Division’s stinging Report on the Robinson-Patman Act successfully introduced that the Justice Division would not implement it. All of these items had occurred previous to Reagan’s election and the Posner-Stigler memorandum. In contrast, probably the most aggressive adjustments that the Posner-Stigler memo really helpful would by no means happen.

The memorandum clearly may have influenced some Reagan administration antitrust insurance policies, nevertheless. One was the 1982 revision of the Authorities’s Merger Pointers. This was probably the most neoliberal and laissez-faire model of the Pointers, and subsequent variations had been extra reasonable, however they’ve had an enduring affect on merger coverage. One other Reagan accomplishment was the Authorities’s 1982 dismissal of the IBM case, though it was already foundering by the point of the election. In contrast, and inconsistent with the memorandum’s suggestions, the Reagan administration used the antitrust legislation of monopolization to attain the most important breakup in antitrust historical past – that of the phone system. Apart from that, nevertheless, the Reagan administration remained on a path that already been set.

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Originally posted 2022-04-29 12:00:00.