Obama Administration Seeks to Strengthen the Antitrust Racket

The Obama administration plans to strengthen antitrust rules:

President Obama’s top antitrust official this week plans to restore an aggressive enforcement policy against corporations that use their market dominance to elbow out competitors or to keep them from gaining market share.

The new enforcement policy would reverse the Bush administration’s approach, which strongly favored defendants against antitrust claims. It would restore a policy that led to the landmark antitrust lawsuits against Microsoft and Intel in the 1990s.

The head of the Justice Department’s antitrust division, Christine A. Varney, is to announce the policy reversal in a speech she will give on Monday before the Center for American Progress, a liberal policy research organization. She will deliver the same speech on Tuesday to the United States Chamber of Commerce.

The speeches were described by people who have consulted with her about the policy shift. The administration is hoping to encourage smaller companies in an array of industries to bring their complaints to the Justice Department about potentially improper business practices by their larger rivals. Some of the biggest antitrust cases were initiated by complaints taken to the Justice Department.

Ms. Varney is expected to say that the administration rejects the impulse to go easy on antitrust enforcement during weak economic times.

She will assert instead that severe recessions can provide dangerous incentives for large and dominating companies to engage in predatory behavior that harms consumers and weakens competition. The announcement is aimed at making sure that no court or party to a lawsuit can cite the Bush administration policy as the government’s official view in any pending cases.

The policy of antitrust intervention is fundamentally flawed in its very essence. I already explained why in Antitrust and Monopolies:

The coercive intervention creates a less competitive environment with less competitive pressure for the new business, since it doesn’t have to fear competition from the previous market monopoly business, and the consumers ultimately suffer.

The intervention sends out the message that as an entrepreneur you shouldn’t strive for perfection when selling to consumers. For if your product becomes too popular your output might be restricted by the government.

Thus the policy doesn’t help the consumer at all and is bound to fail.

Please read the entire post for details.

While this policy is obviously bound to fail, hurt the economy, destroy value for consumers, and rewad misuse of our scarce resources, trial lawyers will jubilate about the inevitable wave of lawsuits that will follow the DOJs encouragements. They are, as always, the beneficiaries of government interventionism, in particular of the enforcement of antitrust and labor legislation. To pursue such a policy during an economic downturn is not just irresponsible, it is downright criminal.

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Saving the X Industry

Henry Hazlitts Economics in One Lesson is timeless, clear, and simple. When it was written in 1946 its lessons were as true as they are today. Unfortunately most journalists, economists, and politicians have not learned from it and still resort to the same tired arguments that have been refuted long ago. Please consider Chapter 14, “Saving the X Industry”. Feel free to substitute “Auto” or “Banking” for the “X”:

The lobbies of Congress are crowded with representatives of the X industry. The X industry is sick. The X industry is dying. It must be saved. It can be saved only by a tariff, by higher prices, or by a subsidy. If it is allowed to die, workers will be thrown on the streets. Their landlords, grocers, butchers, clothing stores and local motion picture theaters will lose business, and depression will spread in ever-widening circles. But if the X industry, by prompt action of Congress, is saved—ah then! it will buy equipment from other industries; more men will be employed; they will give more business to the butchers, bakers and neon-light makers, and then it is prosperity that will spread in ever-widening circles.

It is obvious that this is merely a generalized form of the case we have just been considering. There the X industry was agriculture. But there are an endless number of X industries. Two of the most notable examples in recent years have been the coal and silver industries. To “save silver” Congress did immense harm. One of the arguments for the rescue plan was that it would help “the East.” One of its actual results was to cause deflation in China, which had been on a silver basis, and to force China off that basis. The United States Treasury was compelled to acquire, at ridiculous prices far above the market level, hoards of unnecessary silver, and to store it in vaults. The essential political aims of the “silver Senators” could have been as well achieved, at a fraction of the harm and cost, by the payment of a frank subsidy to the mine owners or to their workers; but Congress and the country would never have approved a naked steal of this sort unaccompanied by the ideological flimflam regarding “silver’s essential role in the national currency.”

To save the coal industry Congress passed the Guffey Act, under which the owners of coal mines were not only permitted, but compelled, to conspire together not to sell below certain minimum prices fixed by the government. Though Congress had started out to fix the price of coal, the government soon found itself (because of different sizes, thousands of mines, and shipments to thousands of different destinations by rail, truck, ship and barge) fixing 350,000 separate prices for coal! One effect of this attempt to keep coal prices above the competitive market level was to accelerate the tendency toward the substitution by consumers of other sources of power or heat—such as oil, natural gas and hydroelectric energy.

But our aim here is not to trace all the results that followed historically from efforts to save particular industries, but to trace a few of the chief results that must necessarily follow from efforts to save an industry.

It may be argued that a given industry must be created or preserved for military reasons. It may be argued that a given industry is being ruined by taxes or wage rates disproportionate to those of other industries; or that, if a public utility, it is being forced to operate at rates or charges to the public that do not permit an adequate profit margin. Such arguments may or may not be justified in a particular case. We are not concerned with them here. We are concerned only with a single argument for saving the X industry—that if it is allowed to shrink in size or perish through the forces of free competition (always, by spokesmen for the industry, designated in such cases as a laissez-faire, anarchic, cutthroat, dog-eat-dog, law-of-the-jungle competition) it will pull down the general economy with it, and that if it is artificially kept alive it will help everybody else.

What we are talking about here is nothing else but a generalized case of the argument put forward for “parity” prices for farm products or for tariff protection for any number of X industries. The argument against artificially higher prices applies, of course, not only to farm products but to any other product, just as the reasons we have found for opposing tariff protection for one industry apply to any other.

But there are always any number of schemes for saving X industries. There are two main types of such proposals in addition to those we have already considered, and we shall take a brief glance at them. One is to contend that the X industry is already “overcrowded,” and to try to prevent other firms or workers from getting into it. The other is to argue that the X industry needs to be supported by a direct subsidy from the government.

Now if the X industry is really overcrowded as compared with other industries it will not need any coercive legislation to keep out new capital or new workers. New capital does not rush into industries that are obviously dying. Investors do not eagerly seek the industries that present the highest risks of loss combined with the lowest returns. Nor do workers, when they have any better alternative, go into industries where the wages are lowest and the prospects for steady employment least promising.

If new capital and new labor are forcibly kept out of the X industry, however, either by monopolies, cartels, union policy or legislation, it deprives this capital and labor of liberty of choice. It forces investors to place their money where the returns seem less promising to them than in the X industry. It forces workers into industries with even lower wages and prospects than they could find in the allegedly sick X industry. It means, in short, that both capital and labor are less efficiently employed than they would be if they were permitted to make their own free choices. It means, therefore, a lowering of production which must reflect itself in a lower average living standard.

That lower living standard will be brought about either by lower average money wages than would otherwise prevail or by higher average living costs, or by a combination of both. (The exact result would depend upon the accompanying monetary policy.) By these restrictive policies wages and capital returns might indeed be kept higher than otherwise within the X industry itself; but wages and capital returns in other industries would be forced down lower than otherwise. The X industry would benefit only at the expense of the A, B and C industries.

Similar results would follow any attempt to save the X industry by a direct subsidy out of the public till. This would be nothing more than a transfer of wealth or income to the X industry. The taxpayers would lose precisely as much as the people in the X industry gained. The great advantage of a subsidy, indeed, from the standpoint of the public, is that it makes this fact so clear. There is far less opportunity for the intellectual obfuscation that accompanies arguments for tariffs, minimum-price fixing or monopolistic exclusion.

It is obvious in the case of a subsidy that the taxpayers must lose precisely as much as the X industry gains. It should be equally clear that, as a consequence, other industries must lose what the X industry gains. They must pay part of the taxes that are used to support the X industry. And consumers, because they are taxed to support the X industry, will have that much less income left with which to buy other things. The result must be that other industries on the average must be smaller than otherwise in order that the X industry may be larger.

But the result of this subsidy is not merely that there has been a transfer of wealth or income, or that other industries have shrunk in the aggregate as much as the X industry has expanded. The result is also (and this is where the net loss comes in to the nation considered as a unit) that capital and labor are driven out of industries in which they are more efficiently employed to be diverted to an industry in which they are less efficiently employed. Less wealth is created. The average standard of living is lowered compared with what it would have been.

These results are virtually inherent, in fact, in the very arguments put forward to subsidize the X industry. The X industry is shrinking or dying by the contention of its friends. Why, it may be asked, should it be kept alive by artificial respiration? The idea that an expanding economy implies that all industries must be simultaneously expanding is a profound error. In order that new industries may grow fast enough it is necessary that some old industries should be allowed to shrink or die. They must do this in order to release the necessary capital and labor for the new industries. If we had tried to keep the horse-and-buggy trade artificially alive we should have slowed down the growth of the automobile industry and all the trades dependent on it. We should have lowered the production of wealth and retarded economic and scientific progress.

We do the same thing, however, when we try to prevent any industry from dying in order to protect the labor already trained or the capital already invested in it. Paradoxical as it may seem to some, it is just as necessary to the health of a dynamic economy that dying industries be allowed to die as that growing industries be allowed to grow. The first process is essential to the second. It is as foolish to try to preserve obsolescent industries as to try to preserve obsolescent methods of production: this is often in fact, merely two ways of describing the same thing. Improved methods of production must constantly supplant obsolete methods, if both, old needs and new wants are to be filled by better commodities and better means.

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Geithner’s Desperate Power Grab

People have to understand that government-made crises always precipitate a grab for more power by the very institution who causes them. Thus, in a predictable and mindless effort … U.S. Seeks Expanded Power to Seize Firms:

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

The administration plans to send legislation to Capitol Hill this week. Sources cautioned that the details, including the Treasury’s role, are still in flux.

Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill about the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials have said that the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers.

The administration’s proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed’s other responsibilities, particularly its control over monetary policy.

The government also would assume the authority to seize such firms if they totter toward failure.

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit.

The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan.

Geithner plans to lay out the administration’s broader strategy for overhauling financial regulation at another hearing on Thursday.

The authority to seize non-bank financial firms has emerged as a priority for the administration after the failure of investment house Lehman Brothers, which was not a traditional bank, and the troubled rescue of AIG.

“We’re very late in doing this, but we’ve got to move quickly to try and do this because, again, it’s a necessary thing for any government to have a broader range of tools for dealing with these kinds of things, so you can protect the economy from the kind of risks posed by institutions that get to the point where they’re systemic,” Geithner said last night at a forum held by the Wall Street Journal.

The powers would parallel the government’s existing authority over banks, which are exercised by banking regulatory agencies in conjunction with the Federal Deposit Insurance Corp. Geithner has cited that structure as the model for the government’s plans.

Tim Geithner’s lack of understanding is truly astonishing. I haven’t heard him say a single thing that made sense. He is as lost as Ben Bernanke when it comes to understanding the workings behing credit expansion, and its inevitable result, the credit crunch.

His actions are nothing new. Ayn Rand wrote in Atlas Shrugged in 1957:

“Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.”

Ludwig von Mises wrote in his analysis Interventionism in 1940:

The various measures, by which interventionism tries to direct business, cannot achieve the aims its honest advocates are seeking by their application. Interventionist measures lead to conditions which, from the standpoint of those who recommend them, are actually less desirable than those they are designed to alleviate. They create unemployment, depression, monopoly, dis­tress. They may make a few people richer, but they make all others poorer and less satisfied. If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the short­comings of earlier interventions, they will find eventually that they have adopted socialism.

The Obama administration is doing everything it can to continue the interventionist path that the U.S. has been on since the beginning of the 20th century. There is absolutely no change coming in this matter. The outcome of these policies is pre-ordained. Ayn Rand and von Mises are just a few among many who predicted long ago what would happen.

Our leaders would be well advised to pick up some of their books, book a trip to the Bahamas, and just read for a couple of months. That would be the best possible stimulus plan I could think of.

Price for Will Tim Geithner depart as Secretary of the Treasury? at intrade.com

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Pubic Realizes – Stimulus Won’t Work

While Congress tries to figure out whether the final solution to the economic crisis needs to cost $800 billion or maybe rather $1.1 trillion, the people have already figured out that it won’t work either way.

A CNNMoney.com poll shows that 77% out of  145,000 readers have realized that the spending spree stimulus “won’t make any difference”:

Stimulus Poll

I would add to this: Not only will it not make a difference, it will make the situation worse than it would have been, had the spending not occurred. I explained this on numerous occasions in articles such as The Trouble With Bureaucracy or The Economics of Corporate Bailouts, or Reflate the Economy? Now?? or Welcome to Krugmanland.

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More Money Needed for Banks

Clueless House Speaker Nancy Pelosi says more money may be needed for banks:

Speaking on ABC’s “This Week,” Pelosi resisted the notion that the government would nationalize some banks, but when asked whether more funds would be needed above those already approved for the TARP, she said that “some increased investment” in return for equity might be necessary.
“Change has to happen in terms of what is done, what the transparency of it is, what the accountability of it is,” Pelosi said. “Only then would we be able to pass any additional funding.”
With banks reporting ever-increasing losses, Wall Street has been hoping for new plans to tackle the financial crisis from the newly arrived administration of President Barack Obama.
But some segments of the public, especially those who own financial stocks, fear that the government might seize ailing banks, getting rid of their bad assets and making a profit where possible but also wiping out their shareholders.

Whoever still owns bank shares has to be out of his mind. Dump that crap. The government will dilute your holdings and destroy your wealth. House Speaker Nancy Pelosi is the epitome of bureaucratic arrogance. She has absolutely no idea what she is talking about. Her unquestioning bailout policy will be instrumental to the destruction of the US economy.

TARP I hasn’t worked. And before even embarking upon TARP II, which will also not work of course, we are being prepped for yet more bank bailout money. I hope people will hold Pelosi and other enablers accountable once we see the inevitable consequences. Not a single thing she suggests will in the slightest fix our problems. It will perpetuate and aggravate them. My only wish is that people don’t pretend to be surprised once the painful collapse occurs.

Vice-President Joseph Biden said Sunday on CBS’s “Face the Nation” that Timothy Geihtner, who is expected to be confirmed Monday as Treasury Secretary, will first try to get more funding for TARP to help the banks.

Of course he will. It’s probably futile to point out that Geithner was making statements to the contrary just a few days ago:

Geithner also said Treasury had no current plans to request additional bailout money beyond the existing $700 billion already authorized, but said the situation was “dynamic” and required careful monitoring.

I have low expectations and hence do not expect anything else than more lies and deceit. Of course all these measures were and are bound to fail as already pointed time and again.

Unfortunately we have a fascinating propensity to keep listening to those people who have been, without a single exception, wrong on what they have been saying, again and again.

Everyone should pull out their money from US assets and put them into gold or silver. I still believe Silver has Bottomed out and reversed its trend. An interesting trend has emerged last week: The Dollar rose against the Euro and the Pound but at the same time gold and silver still went up in Dollar terms. This is a very strong sign of global delevaraging coupled with save haven investments. Since governments abroad are not acting any better, the current Dollar strength will likely continue for a little while. However, regardless of that, in absolute terms holding US Dollars in cash is a much bigger gamble than holding hard assets.

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