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Intervention in One Lesson

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Tags Corporate WelfareInterventionismMonopoly and Competition

Google’s antitrust woes are only the most recent example of private firms using government power to stifle their competition. This story is as old as governments and commerce, but even though the details change, the basic narrative stays the same. With that in mind, why not save some writing time by distilling intervention down to its basic elements? I propose a simple form commentary for discussing these kinds of interventions:

It was announced today that [government agency] will be seeking legal action against [firm a] for alleged violations of [a law written by a combination of bureaucrats and their corporate partners].

The [government agency]’s claims fail on a number of grounds. First, definitions of [alleged offense] are vague and tend to be arbitrarily interpreted by regulators. Second, the prevailing economic perspective on such issues is based on [discredited but politically useful economic theory], inspired by the work of [discredited but politically useful economist]. It is therefore difficult to prove that any violation has occurred, or if it has occurred, that it represents a serious threat to consumer welfare.

In fact, the [government agency] has been encouraged to bring these charges by [firm a]’s major competitors, [firms b, c, dn]. These rivals have been unable to compete with [firm a]’s innovative [business practice protected by regulation], and would rather resort to political gamesmanship than try to pass the market test.

However, the fact that [firm a] is being targeted unfairly does not mean it should be defended either ethically or economically. It is not a paragon of market entrepreneurship and human progress. Quite the contrary, in fact: [firm a] has also used rent-seeking tactics to suppress its rivals and acquire monopoly privileges. It has supported [increases in the minimum wage, stricter licensing laws, trade protection, intellectual property litigation, etc.], which has helped protect its market share.

With that said, however, the recently proposed penalties on [firm a] will hurt the market, not help it. New regulations will be piled on old ones, additional privileges granted, and a slightly different distribution of wealth will emerge among [firms a, b, c, dn].

The solution is to end all regulations and privileges, which will ensure that market entrepreneurs can profit only to the extent they improve consumer welfare.

Matt McCaffrey, former Mises Research Fellow, is assistant professor of enterprise at the University of Manchester.

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