Rule-Based Antitrust & the #DeleteConsumerWelfare Movement

FullSizeRenderThe Consumer Welfare (CW) standard is under attack.

It is criticized as under-inclusive (see this Lina Khan piece).

CW’s focus on short term price-effects (and output) allegedly leaves other economic harms unchallenged (and perhaps even political ones). And tech firms benefit from a regime of unjustified per se immunity because they supply free goods and expand output.

As a result, some voices have suggested to do away with CW in antitrust policy. Matt Stoller – a member of the Open Markets Institute – has even tweeted that CW was an instrument of class domination, invented by Robert Bork “to eliminate constraints on plutocrats“.

All of this betrays a fundamental misunderstanding of what CW is, and of what it is not.

CW is not as much an applied decision-making tool as it is a rule designed to lift (some) discretion from policymakers, and with it to insulate them from political interference, rent seeking and crony capitalism.

This struck me as crystal clear as I was reading First Principles by John Taylor. John is a longtime advocate of a rule-based monetary policy.

Here is what he writes in his book:

In any organisation, a clear, well-specified goal usually results in a consistent and effective strategy for achieving that goal. Too many goals blur responsibility and accountability, causing decision-makers to choose one goal some times, and another goal at other times, in an effort to chart a middle course.

In the case of monetary policy, multiple goals enable politicians to lean on the central bank to do their bidding and thereby deviate from a sound money strategy. There is no justification for an independent agency of government to undertake interventions in those areas. They are best left to Congress and the President to handle through the regular appropriations process.

Last, but not least:

Central bank intervention is a poor substitute for sound fiscal policy and it removes incentives for Congress and the President to do their own jobs well

Notice the parallels with antitrust. All those words apply almost equally well to antitrust policy.

The upshot?

If we throw away CW, we are putting antitrust officials in a tough spot. It is not comfortable to face the demands of politicians. Compromizing is the easy exit. And this just does not happen when clear and predictable rules are in place.

The bottom line?

CW may have some limitations in tech markets. But until the literature advances a substitute devoid of its defects, no case has yet been made to #DeleteConsumerWelfare.


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