August 17, 2022

Art Laffer: “Antitrust Laws Will Make Inflation Worse”

The last thing we should be doing in the face of record-breaking inflation is giving the government more authority over the market.

A famous quote by Tom Stoppard goes, “Words have meaning, they deserve respect. If you get the right ones in the right order you can move the world a little bit.”

But increasingly, political leaders are not so careful with their language. They’ll label antitrust as capitalism, call corporate welfare “support for American business,” and claim that companies like Amazon are monopolies.

None of these things is true of course. Antitrust is a direct infringement on the free market, handouts to businesses are cronyism no matter how you spin it, and to describe as a monopoly a company like Amazon—which counts practically any business that sells goods online as a competitor—is as disingenuous as it gets. Yet, politicians get away with these statements because the media often fails to challenge them. (Disclaimer: I am a Fellow for Netchoice which works against antitrust.)

Thankfully, we still have independent outlets and academics who are here to set the record straight.

When it comes to the antitrust debate around Big Tech, one such well-respected figure recently stepped forward and threw the gauntlet down.

Dr. Art Laffer, a prominent economist and former member of President Ronald Reagan’s Economic Policy Advisory Board, recently released his first paper on antitrust in over 25 years. The report is a stern rebuke of the anti-free market policies currently being floated around Congress by both Democrats and Republicans.

The paper begins by stating, “This first study offers a sober, clear-headed assessment of the potential economic impacts of recent antitrust proposals and offers persuasive evidence that digital products and services steadily lower prices (emphasis added)—which is the opposite of monopolistic behavior.”

Laffer continues, “Allegations of monopolistic pricing behavior in the technology sector are misplaced. We show that many of the technology companies that would be affected by the antitrust bills before Congress have driven dramatic reductions in prices paid by consumers. The Klobuchar bill could add dramatically to the prices that consumers pay for routine tech services from package deliveries, to cell phones, to search engine services.”

That will surely take the wind out of some sails, particularly Amy Klobuchar’s. The bill he is referring to here is her “American Innovation and Choice Online Act”—a massive piece of legislation that would radically restructure our markets and antitrust system. Laffer’s rebuke of the bill is substantial, not only because of his economic credentials, but also because of the depth of his research into the issue.

In the paper, Laffer goes on to state, “Democrats say they want to ‘make antitrust cool again,’ But the reality is that the recent wave of antitrust legislation—some supported by Republicans, most notably Sen. Klobuchar’s American Innovation and Choice Online Act, S. 2992—would harm consumers, increase inflationary pressures, and by installing European-style antitrust rules, threaten to weaken America’s leading technology firms and relegate them to the same status as their European counterparts. The biggest beneficiary will be U.S. international competitors, mostly notably China.”

So all in all, Laffer is pouring ice cold water on Amy Klobuchar’s plans for a “hot antitrust summer.”

The paper will be followed by two additional installments, but in the first of the three papers Laffer offers a few key takeaways:

  1. “Big Tech businesses aren’t monopolies according to objective interpretations of publicly available data.”
  2. “The digital economy is a powerful force for lowering prices throughout the economy, while prices from traditional businesses tend to rise with inflation. Bills such as S. 2992 will mitigate the digital economy’s strengths and in all probability raise prices for consumers.”
  3. “These bills mandate tech stagnation.”

Supporters of antitrust have frequently relied on the talking point that a tech company being large makes it a monopoly, and that the very size of these businesses harm consumers.

This is of course quite silly. For a business to become as large as Amazon or Facebook it must be providing a service that as a whole consumers prefer and continue to return to. And while Laffer’s paper backs this up, anyone who has casually used Amazon knows that they prefer this service not only for its ease but also because it brings millions of cheap products to our doors within days, sometimes within hours.

According to Forbes, “An astounding 85% of Prime shoppers visit Amazon at least once a week, while 56% non-Prime shoppers report the same.” Also they report that Amazon,“ranks No. 8 among the top 10 most reputable firms in North America and No. 18 among the world’s most reputable companies, according to the 2017 Global RepTrak study by the Reputation Institute.” Additionally, consumers say, “Product reviews play an important role in giving them confidence to buy” and their “top reason for visiting Amazon is to compare prices (51%), and nearly half (44%) say they will always check prices on Amazon before purchasing on another site.”

Amazon is not only able to offer cheap products and fast deliveries, it’s also providing consumers with assurance and information on the products they’re buying too. Not only that, but during the pandemic, Amazon became an absolute lifeline for millions of Americans who were unable to leave their homes but still needed various products delivered to them to make that possible.

But the American Innovation and Choice Online Act threatens to take all of that away from consumers.

While Laffer is certainly not the first to call attention to the harmful economic effects these antitrust bills pose, it is hopeful his voice will make an impact.

In recent years, many conservatives have embraced big government, anti-capitalist policies to attack companies they dislike, such as Big Tech content moderation practices. This is short-sighted.

Laffer’s analysis is an important reminder that the consequences of big government and anti-free-market policies are almost always worse than the problems they set out to address.

Furthermore, many of the large tech companies have the market power and size they do as a direct result of government protections through regulations and corporate welfare. If politicians actually want to elevate and protect the free market, they should focus on removing regulations, tariffs, and other protections for special interests.

The fact that this is not their focal point suggests they are more interested in increasing their own power over the market (and scoring points against political enemies) than in actually helping consumers.

We didn’t end up with our problematic mixed-economy overnight. Rather, we currently face the numerous problems in the market that we face because we slowly but surely allowed the government to take more and more control of private industry for short-term wins or to punish people we didn’t like. This is not the way.

We know market competition is what truly drives down prices. That means we need more companies to enter the field. Antitrust laws actually work against that goal by making it harder for companies to survive and meet consumer demands.

Our economy cannot withstand such foolishness much longer. The last thing we should be doing in the face of record-breaking inflation is giving the government more authority over the market. It’s absurd to suggest that politicians and unelected bureaucrats could do a better job running any company or sector than business leaders. And it is equally outlandish to believe that in giving them such power consumers would have more choice or fairness.

This article, Art Laffer: "Antitrust Laws Will Make Inflation Worse", was originally published by the Foundation for Economic Education and appears here with permission.  Please support their mission.