Not since 1933, when the Supreme Court found Franklin Roosevelt’s New Deal unconstitutional, and more recently, in 2022, when the Supreme Court found Roe v. Wade unconstitutional, has there been an issue before the public of such genuine intellectual interest, the revisiting of the question: Should government regulate free markets for their own good? Lina Khan v. Jeff Bezos.
Lina Khan, chair of the Federal Trade Commission (FTC), has alleged that Amazon is illegally using its monopoly to overcharge customers, exploit sellers, and restrict competitors.
It’s interesting because the subject is timeless. It’s interesting because the litigants are equally knowledgeable, equally persistent in the pursuit of their vision. The FTC will hear arguments based on classical economic theory.
Amazon founder Jeff Bezos will argue the “efficient market hypothesis,” that in competitive markets, rates of return are timeless (1–2 percent on savings; 2–3 percent on mortgage lending; 3–5 percent on venture capital) and that high return on production of a new product is not a rate of return but short-term entrepreneurial compensation, without which new products would not be produced. During its first 20 years, Amazon had no return, which is why its high return today is simply recoupment, compensation as if it were just starting out. That was the plan: growth over profits.
Ford, General Motors, and Fiat Chrysler, for example, have been replaced by Tesla, whose book value far exceeds those three corporations’ combined. Mr. Bezos will argue that Amazon’s business model works well at the moment but that in 50 years people will ask, “What’s Amazon?”
Taking a page from Ayn Rand’s “Atlas Shrugged,” Mr. Bezos will argue that trying to prove that Amazon is a monopolist predator is simply jealous progressivism screaming, “It’s not fair!” Mr. Bezos will argue that new firms always offer low prices and high quality, and that once they’ve grabbed market share, they try to stave off competition. He will argue that once the original entrepreneur leaves (which they do), successor CEOs have but one function: slow the rate at which the firm is losing market share. The notion that firms start off low-price, high quality and then switch to high-price, poor quality, as well as the notion that firms can block competition, is a timeless red herring.
In the 20th century, Sears Roebuck had the best mail-order business, practically a monopoly. In the 21st century, Amazon has the best mail-order business.
In her Sept. 29 article “What Lina Khan’s Antitrust Case Could Mean for Amazon,” Financial Times opinion writer Camilla Hodgson argues that Amazon is a complex and often opaque network whose function is more than the sum of its parts—and that unpicking Amazon’s services may present no benefit. Ms. Hodgson also asks whether federal judges know how to break up business empires, and she argues that it will probably cost consumers more.
She quotes Scott Devitt of Wedbush Securities: “The complex web of interconnected products and services that Amazon has built over the past 30 years required bundling because they’re cross-pollinated. It’s why the model works.”
Ms. Khan, citing her now classic 2017 Yale policy paper “Amazon’s Antitrust Paradox,” will refer to classical economic arguments but then reject them, reject Milton Friedman’s famous idea (1970) that “the main responsibility of a business is to maximize revenue and increase returns to shareholders.” Ms. Khan will argue that firms also have environmental and social duties, along with the duty not to destroy their own market.
Yet efficient market hypothesis—zero profit—guarantees that distracted corporations factoring in such things as climate change and social justice (rather than asking individuals within the corporation to personally contribute to those causes) will, under competition, fail. Just look at Silicon Valley Bank.
Ms. Khan will skip the equally important arguments of F.A. Hayek and Ronald H. Coase, who, like Friedman, each received a Nobel Prize in economics. Hayek gave the world the notion that freely evolving prices are the only thing producers have upon which to decide what to produce, how much to produce, and how much to charge; and that freely emerging prices emerge only with the existence of markets free of government intervention.
Ms. Khan, in “Amazon’s Antitrust Paradox,” The Yale Law Journal (2017), p. 716, states: “In some ways, the story of Amazon’s sustained and growing dominance is also the story of changes in our antitrust laws. Due to a change in legal thinking and practice in the 1970s and 1980s, antitrust law now assesses competition largely with an eye to the short-term interests of consumers, not producers or the health of the market as a whole; antitrust doctrine views low consumer prices, alone, to be evidence of sound competition. By this measure, Amazon has excelled; it has evaded government scrutiny in part by fervently devoting its business strategy and rhetoric to reducing prices for consumers. Amazon’s closest encounter with antitrust authorities was when the Justice Department sued other companies for teaming up against Amazon. It is as if Bezos charted the company’s growth by first drawing a map of antitrust laws and then devising routes to smoothly bypass them. With its missionary zeal for consumers, Amazon has marched toward monopoly by singing the tune of contemporary antitrust.”
Based on her own arguments, Ms. Khan will lose. She is asking for higher consumer prices, restraint on trade, and restraint on creative business activity.
Robert Bork Jr. wrote in The Epoch Times on Oct. 4, “If FTC Chair Lina Khan can somehow beat a company that is utterly consumer-centric and with the lowest prices on antitrust grounds, she will have enacted a new progressive paradigm in antitrust in which anyone can be sued for anything.”
What’s always missing from the economic arguments of the left are the economic consequences. It’s not enough to simply put those arguments front and center, then dismiss them. During the hearing, Ms. Khan will gain the respect of the nation, showing that she has nerves of steel, and with her platform as chair of the FTC, turn that respect into elected office. Perhaps the Senate. Win or lose, her aristocratic, progressive, hipster, egalitarian arguments, a page out of the U.N. charter’s socialist central governance of corporations for the good of humanity, will give her that political victory.
She wrote in her article: “My argument is that gauging real competition in the twenty-first century marketplace—especially in the case of online platforms—requires analyzing the underlying structure and dynamics of markets. Rather than pegging competition to a narrow set of outcomes, this approach would examine the competitive process itself. Animating this framework is the idea that a company’s power and the potential anticompetitive nature of that power cannot be fully understood without looking to the structure of a business and the structural role it plays in markets. Applying this idea involves, for example, assessing whether a company’s structure creates certain anticompetitive conflicts of interest; whether it can cross-leverage market advantages across distinct lines of business; and whether the structure of the market incentives and permit predatory conduct.”
Whoa! Absolutely beyond the ability of government. Only socialist economies would attempt such an impossibility—take 20 years to analyze a problem, 20 to enact a solution. The communist five-year plan.
Which misses Darwin’s argument; namely, that stronger ideas crush weaker ones—political philosopher Herbert Spencer’s argument that explains the Industrial Revolution as the product of a superior civilization.
In other words, suppliers withdraw production the moment they suspect government is about to intervene in the economy. Or raise prices. Worse, pounce on firms that cannot comply—crushed by the legal fees.
Government regulation of an economy, then, creates monopolies of those few corporations that can comply, whose low long-run average costs (economies of scale) enable them to gobble up the smaller ones that cannot. The corporate state: a few corporations owning everything. Bismarck, Germany, 1870. National Socialism, Germany, 1933.
Finally, in the name of consumer protection, Ms. Khan will never mention that well-meaning government intervention in the economy is always a tax paid by the middle class—directly or indirectly (as loss of employment from business failure). The poor can’t pay; the rich won’t pay. (Apple has a beautiful space station in Cupertino, California. That’s not its headquarters. Apple is headquartered in low-tax Ireland; its money, at least $200 billion in cash, is deposited on Jersey Island, a tax haven in the English Channel.)
Regulate corporations, and they will move offshore. They will take their money offshore, pay taxes offshore, and fire millions of employees. Environmental regulation does the same.
Has the Environmental Agency solved our environmental problems? Has the Federal Drug Administration solved our health problems? Has the Federal Reserve solved inflation? Has the Department of Education raised the standard and quality of education? Has the FTC regulated the meat-packing oligopoly, which controls 85 percent of beef processing, is vertically integrated, and also establishes dominance in the pork and poultry industry?
The FTC and the Justice Department seem interested only in high-profile cases that promote their personal careers as prosecutors. Busting Mr. Bezos and Amazon is like the Securities and Exchange Commission (SEC) zeroing in on Martha Stewart after the 2008 financial crisis. Because the SEC almost never wins its cases, because it’s almost impossible to prove insider trading, the SEC made a huge effort to pursue Martha Stewart. It needed a high-profile victory.
It didn’t, however, go after the CEO of ImClone, who quickly told Ms. Stewart his patent approval had been denied, as he and his family dumped their shares. No, the SEC only pursued Ms. Stewart and couldn’t convict her. So they dragged the deposition on for years, hoping she eventually would perjure herself. Which she did—when Martha Stewart Living Omnimedia stock plunged.
To protect her $400 million corporation (shareholders, and a corporation she founded from scratch), Ms. Stewart fibbed. That’s how they got her: lying under oath to protect your stock price is a felony.
Perhaps government should stay out of the economy. Government regulation of business doesn’t make markets free. Deregulation of business makes markets free.
Jeffrey Tucker wrote in “The FTC Has a Weak Case Against Amazon,” published in The Epoch Times in September: “Amazon is likely much larger than it would be in a genuine free market. A really competitive market is exactly the answer. That doesn’t require FTC action but a gigantic effort of emancipating the whole of American free enterprise.”
With timeless rates of return, with government regulation of industries forcing industries to raise prices (or fail), the middle class is left holding the bag. Always. The middle class pays all taxes. Ms. Khan, having read “Robin Hood,” the rich know you’re coming.
