Monopoly Cost Disease
March 11, 2017 2:01 AM   Subscribe

The Misunderstanding at the Core of Economics - "In a system where virtually all resources are available for a price, economic power can be translated into political power by channels too obvious for mention. In a capitalist society, economic power is very unequally distributed, and hence democratic government is inevitably something of a sham." [1,2] (via)

'Superstar Firms' May Have Shrunk Workers' Share of Income - "It was long Keynesian dogma that two-thirds of economic output goes to labor. That truism has come undone, and corporate consolidation may be a cause."

'Superstar' Companies Are Eating Into Workers' Wealth, Study Finds - "Companies that capture markets but don't need big staffs help explain American workers' shrinking share of the economic pie, economists say."

Blame Monopolies for Short-Changing U.S. Workers - "If industries are shifting from many players toward a winner-take-most situation, where the big successful companies can charge higher prices, that would cause capital to take more of the pie and labor to take less... profit -- which in a perfectly competitive economy would be zero -- has gone from just over 2 percent of the economy in the early 1980s to more than 15 percent today."

Monopolies Are Worse Than We Thought - "If technology is behind the increase in monopoly power, it's going to be a tough problem to solve. The old remedies of antitrust enforcement and increased competition won't work -- the superstars will win and take most of the market, and it will be back to square one. Meeting the challenge of tech-powered monopoly would require radically new policy ideas."

Amazon's Antitrust Paradox - "Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm's structure and conduct pose anticompetitive concerns—yet it has escaped antitrust scrutiny."
This Note argues that the current framework in antitrust—specifically its pegging competition to “consumer welfare,” defined as short-term price effects—is unequipped to capture the architecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon’s dominance if we measure competition primarily through price and output. Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors.

This Note maps out facets of Amazon’s dominance. Doing so enables us to make sense of its business strategy, illuminates anticompetitive aspects of Amazon’s structure and conduct, and underscores deficiencies in current doctrine. The Note closes by considering two potential regimes for addressing Amazon’s power: restoring traditional antitrust and competition policy principles or applying common carrier obligations and duties.
Market Failure Looks Like the Culprit in Rising Costs - "Scott Alexander has a long, excellent rundown of high costs in five areas -- K-12 education, college, health care, infrastructure and housing. He's right. Americans pay much more for a university education than do people in Europe or East Asia. They pay about twice as much for health care, even though the quality is about the same. And the U.S. pays about twice as much for infrastructure, again without any clear difference in quality. I'd add one more sector: finance... In Akerlof and Shiller's reckoning, markets don't just sometimes fail -- they are inherently subject to both deceit and mistakes."

America's Monopolies Are Holding Back the Economy - "Consolidated corporate power is keeping many products' prices high and quality low. Why aren't more politicians opposing it?"

Financialization and the Political Economy of Corporations - "For corporations to serve the economy best, those who control them and those who set and enforce the rules for the economy must be able to address market frictions and the potential for excessive rent extraction, fraud, and negative externalities. Bargains between those who control corporations and those who control government institutions to benefit themselves even at the expense of others can maintain distortions, inefficiencies and harm. Such bargains are particularly pervasive in the financial sector, contributing to the inefficiencies brought about by the financialization of corporate governance. By recognizing political realities, and exposing situations where policies based on inappropriate assumptions distort markets and cause harm, economists can help hold governments accountable to the public."

Stuart Dreyfus on Richard Bellman, Dynamic Programming, Quants and Financial Engineering - "The place that [dynamic programming] is used the most upsets me greatly — and I don't know how Dick would feel — but that's in the so-called 'quants' doing so-called 'financial engineering' that designed derivatives that brought down the financial system. That's all dynamic programming mathematics basically. I have a feeling Dick would have thought that's immoral. The financial world doesn't produce any useful thing. It's just like poker; it's just a game. You're taking money away from other people and getting yourself things. And to encourage our graduate students to learn how to apply dynamic programming in that area, I think is a sin."

Nobel Laureates: Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality - "A lot of the inequality in the U.S. comes from rent seeking. It comes from firms and industry seeking special protection or special favors from the government."

Political Engagement by Corporations Derives from and is Focused on Seeking Monopolistic Power - "The neo-classical model simply does not comprehend the modern corporation. But if we are talking about a theory carefully constructed on a set of axioms, the theory really can't consider political engagements. The essence of the neo-classical theory is the constraint on choice imposed by given and widely shared technology and competitive markets for resources and vendors. Political engagement derives from and is focused on seeking monopolistic power. The various theories of monopolistic competition are instructive but fall far short of the standard sought by neoclassical theory."

From the Great Transformation to the Great Financialization - "Levitt aptly uses the term 'The Great Financialization' to describe the regime that took over after the Keynesian order inscribed in the Bretton Woods arrangements collapsed... that once again raised the market – and financial markets in particular – above the needs of society. Europe, America, and eventually most middle-income developing nations embraced financial globalization. Free flows of finance across borders, they were led to believe, would allocate savings and investment where they could be used most profitably. Domestic economic management became hostage to the whims of financial markets."

A New Narrative for a Complex Age - "If 2008 was the year of the financial crash, 2016 was the year of the political crash. In that year we witnessed the collapse of the last of the four major economic-political ideologies that dominated the 20th century: nationalism; Keynesian Pragmatism; socialism; and neoliberalism. In the 1970s and 80s the centre-right in many countries abandoned Keynesianism and adopted neoliberalism. In the 1980s and 90s the centre-left followed, largely abandoning democratic socialism and adopting a softer version of neoliberalism."

Unless It Changes, Capitalism Will Starve Humanity By 2050 - "Capitalism has generated massive wealth for some, but it's devastated the planet and has failed to improve human well-being at scale... Corporate capitalism is committed to the relentless pursuit of growth, even if it ravages the planet and threatens human health. We need to build a new system: one that will balance economic growth with sustainability and human flourishing."

Nickel-And-Dime Socialism - "Socialism is the idea that capital (the means of production) should be owned collectively. There are divergent ideas about how to achieve this in reality. One approach is to have the government hold it collectively in social wealth funds. This is (more or less) the socialism of Yanis Varoufakis, Rudolf Meidner, and John E. Roemer."
posted by kliuless (22 comments total) 111 users marked this as a favorite
That "economic power" graphic from the WSJ is ATROCIOUS. The coloring is quite obviously just based on the y-axis of each pyramid, yet there are not one but TWO other dimensions that add area to each group, making the groups on the bottom look far, far larger than they should. Somebody deserves to be shot with a very badly designed gun.
posted by ropeladder at 2:53 AM on March 11 [2 favorites]

(Great post, though! Lina Kahn's work (on Amazon here) is always thought provoking.)
posted by ropeladder at 2:58 AM on March 11

Wow, the titles here look great. But it will take me weeks to get through it all. Thanks for your great effort.
posted by mumimor at 3:01 AM on March 11 [1 favorite]

"...A nation turns its lonely eyes to you, woo woo woo, what's that you say, Mrs. Robinson? Joltin' JoeKarl has left and gone away, hey hey hey...."

I'm being facetious and allusive. But your post did make me realize something, or at least more clearly articulate it: The top half contains within it the seeds of the bottom half's destruction. In that, in a world in which capitalism is less and less reliant on labor, the revolt of the labouring classes loses force as a threat. You cannot break a stytem by your refusal to cooperate if that system doesn't need you to work. The capture of the government by the wealthy and the corporations means their control of the monopoly of force. Change your hounds for Big Dogs, armour-plate your Pinkertons, and let 'em come. You'll have a roomba to mop up the streets should they need mopping. The revolution has come, and we're all against the wall.
posted by Diablevert at 3:02 AM on March 11 [12 favorites]

Remarkably, academic macroeconomists have largely ignored these limitations,

Maybe that's remarkable in a perfect world, far removed from the one humans actually inhabit.
posted by Obscure Reference at 5:28 AM on March 11

The very definition of monopoly may need to be updated. The exponential growth of tech is changing some rules. Amazon may never cause the problems of traditional monopolies as it can encode value of economies of scale for general benefit. How does a single company with world wide dominance of a specific market (information search) be labeled a monopoly if it does not charge for it's product?
posted by sammyo at 6:53 AM on March 11

You cannot break a stytem by your refusal to cooperate if that system doesn't need you to work.

The system does, however, need you to buy. Henry Ford knew this. The latter day MBAs who prefer to cut costs by cutting/outsourcing/automating jobs, seem not to.
posted by IndigoJones at 7:01 AM on March 11 [7 favorites]

In that, in a world in which capitalism is less and less reliant on labor, the revolt of the labouring classes loses force as a threat. You cannot break a system by your refusal to cooperate if that system doesn't need you to work.

It also no longer needs you to spend as evidenced by the turn of almost all brands to focus on the luxury market.
posted by srboisvert at 7:11 AM on March 11 [1 favorite]

From an Al Jazeera article that's linked inside the Slate Star Codex article linked above:
Forrest has pioneered what he calls a direct care model, which makes seeing your doctor like a health club membership. He doesn't take insurance, but for about $50 a month, patients have unlimited access to his clinic, plus free blood work and other basic diagnostic tests.

In return, Forrest says he no longer needs the large staff handling the insurance and billing paperwork. That means Forrest does not need to generate as much income to cover his costs, which gives him the ability to spend more time with fewer patients and still remain profitable. He’s no longer rushing from patient to patient just to make ends meet, no longer fighting with insurance companies and no longer chasing patients who don’t pay.
Even with insurance, I easily pay more than $50 a month out of pocket on primary care physician expenses. First, there's the doctor's copay. Then, I have to schlep across town to get tests and routine bloodwork done because my insurance doesn't pay to have them done at the doctor's office, or pay for them out of pocket at the office. Even if I go to the clinic across town where my blood work is covered, it's still a $40 copay. And the clinic does all their billing externally, which means they won't take my copay then and there, which means that by the time the building company gets around to actually sending me a bill, there are already late charges attached.

Granted, I'm an outlier because most people don't have multiple chronic illnesses but necessitate monthly doctor visits and bloodwork. But, if there was a primary care physician in my area who worked on Forrest's model, I would consider it a godsend.
posted by The Underpants Monster at 7:17 AM on March 11 [3 favorites]

I wonder it it's possible to unwind the current health care financial system to identify what percentage of cost is raw materials+dr-nurse salary vs paperwork overhead.

Also the model of paying for drug discovery by lottery (the one huge drug) seems intrinsically broken.
posted by sammyo at 8:11 AM on March 11 [1 favorite]

Wow. This is pretty much the model of what a FPP should look like. Superb sourcing.
posted by mrdaneri at 8:18 AM on March 11 [7 favorites]

sammyo I dropped this here. It has nothing to do with my day gig or my RL.

The 'official pharmaceuticals intervention cost % #' is 22.4B of about 367B or 8%, in answer to your specific question, with the remainder being direct care costs. Breakdown by % is available from each care group trade lobby, and is viciously defended, of course, as absolutely necessary and rock-bottom.
posted by mrdaneri at 8:26 AM on March 11 [3 favorites]

Great list – some I've read. Others I have not. Many thanks for putting together such a multi-facteted view. The issue – corporate efficiency and power – quickly comes to define many people's lives. Either as beneficiaries or... as non-beneficiaries. I've been considering writing a book around this space, as if something is not done about, it does seem that we are (quickly) reaching some kind of an end-game.

One of the (most) fundamental issues is corporate taxation – and avoidance. On the front of it, that looks like companies not paying appropriate rates for value extracted. It's well-known that many companies fail to pay full tax. Some of the largest fail to pay any. Further, there's the classic low-hours contracts that were first seen en masse with Wal-Mart. Shifting things like healthcare from the private sector onto the public sector.

If we consider that corporates 'consume' resources generated by the public sector – everything from educating children into workers, to healthcare, roads, resources, etc. – it begins to look like massive wealth transfers from the public sector to the private sector. It is hard to make the argument that corporates are overtaxed, given the massive cash piles that they sit on.

How this looks in practice? Consider how many Silicon Valley tech employees were educated in the University of California. The university draws billions in public funds and kicks out well-educated engineers, scientists, marketers, accountants, lawyers, etc. When those employees move into private companies and generate value, both the company and the individuals are taxed on the profits of their work. When companies fail to pay tax, they break the loop. Governments then go to debt markets to fund services, although with such a leaky bucket, eventually they hit a debt ceiling. All while paying high interest rates.

Another example is the shift of research from tax spending to private investment. The deal made in the United States was that the government would fund university research. That university research could then be privatised for exploitation. The profits would be taxed and then fund more research. Now, companies minimise tax payments and set up institutions directly in partnership with universities for direct benefit of the company. While that value change is more efficient for the company, the company also decides what (and who) to fund.

The examples continue. One of the most interesting ideas presented here is that it's difficult to tag the rising monopolies for unfair competition or practices because they are so diverse. The last successful prosecution may have been of Microsoft. When it sold a single operating system. Trying to pin down what industry Apple, Google, or Amazon is in is much more difficult.

Beyond that, there's the problem of the network effect. Many of these monopolies are actually quite beneficial. Facebook, for example, works because of the power of its network effect. Amazon similarly becomes a single destination. Google's power comes from its concentration of information.

In terms of solutions, rather than prosecute monopolies, I wonder if we need a seperate tax rate for them. Given the efficiencies of network effects and scale, perhaps we need to let them go, but also tax them appropriately. Further, there's also the very different tax treatment of labour and capital. Given the tax on labour gets quite high, capital has a comparatively easy regime. Looking at that, one sees that given the tax advantages of capital, the benefits increasingly accrue to capital. Further, while the returns to labour are limited by time, as a passive income stream, capital more easily dominates as multiple streams can be deployed simultaneously.

There are many more different facets to the argument as well. Some I see well-presented here. Others I do not. For example, with the rounds of quantitative easing that got us out of the financial crisis, the baseline value of many things has changed. For example, minimum wage. As minimum wage is nominally valued, significantly increasing the money supply effectively devalues it. Yet, we do not adjust the minimum wages for changes in the money supply. It remains a nominal value divorced from the underlying supply of money.
posted by nickrussell at 10:24 AM on March 11 [8 favorites]


posted by Joseph Gurl at 4:12 PM on March 11

They broke up Ma Bell, and we didn't lose our telephones.
posted by The Underpants Monster at 5:51 PM on March 11

This article suggests the decline of St. Louis can be pinned on the corporate merger wave that rose with the blessing of the Reagan administration.
posted by LoveHam at 10:32 PM on March 11 [1 favorite]

For example, with the rounds of quantitative easing that got us out of the financial crisis, the baseline value of many things has changed. For example, minimum wage. As minimum wage is nominally valued, significantly increasing the money supply effectively devalues it. Yet, we do not adjust the minimum wages for changes in the money supply.

There are many arguments you can make against quantitative easing but the idea that it, or the money supply, has devalued the minimum wage or money in general is simply false. Inflation has been at or near historic lows for the last 10 years. Quantitative easing has increased the prices of certain investments, but general prices, no.
posted by JackFlash at 11:09 AM on March 12 [2 favorites]

Robert Bork is the godfather of modern anti-anti-trust philosophy arguing that monopolies actually benefit consumers. More recently this philosophy has been propagated by political hacks like Judge Richard Posner.

Although even Democrats haven't been as aggressive as they could be, they have been far better than Republicans who have been ardent monopoly enablers.

For example the Microsoft anti-trust case was started under Clinton but instead of a breakup, resulted in a much milder settlement under Bush.

The Obama administration has fought hard against mergers of giants in the telecom and healthcare industries but I expect those mergers to accelerate under Trump. Cigna and Anthem and Humana and Aetna. AT&T and Verizon and Tmobile and TimeWarner. And the end of net neutrality.
posted by JackFlash at 11:25 AM on March 12

also btw:
  • Primed: Are investors too optimistic about Amazon? - "They think Amazon is going to grow faster, longer and bigger than almost any firm in history."
  • Amazon, the world's most remarkable firm, is just getting started - "So long as shareholders retain their faith in this model, Amazon's heady valuation resembles a self-fulfilling prophecy. The company will be able to keep spending, and its spending will keep making it more powerful... Investors value Amazon's growth over profits; that makes predatory pricing more tempting. In future, firms could increasingly depend on tools provided by their biggest rival. If Amazon does become a utility for commerce, the calls will grow for it to be regulated as one."
oh and...
Robots and Inequality: A Skeptic's Take - "Japan and Germany haven't seen the same increase in inequality as the US and other Anglo countries after 1980 (graphs below). What can explain the dramatic differences in inequality across countries? Fairly blunt changes in labor market institutions, that's what. This is documented in the Temin/Levy 'Treaty of Detroit' paper and the oddly ignored series of papers by Piketty, Saez and coauthors which argues that changes in top marginal tax rates can largely explain the evolution of the Top 1% share of income across countries... inequality is really a story of incomes at the very top -- changes in other parts of the income distribution are far less dramatic. This evidence also is not suggestive of a story in which inequality is about the returns to skills, or computer usage, or the rise of trade with China."
posted by kliuless at 10:04 PM on March 24 [2 favorites]

This evidence also is not suggestive of a story in which inequality is about the returns to skills, or computer usage, or the rise of trade with China."

It's a bummer those are apparently the only stories palatable to elite discourse.
posted by PMdixon at 6:49 AM on March 25 [2 favorites]

Monopoly rents and land value seem like the two finalists in the battle to explain the decrease in the labor share, viz. cf. "Maybe if I saw @ryanavent's theory in math I'd understand it better. This is why even unrealistic math can be useful for explaining ideas..."
posted by kliuless at 9:26 PM on April 6 [1 favorite]

« Older "You come at the king, you best not miss." ~~...   |   The probability we are living in simulation is... Newer »

This thread has been archived and is closed to new comments