Increasingly Unmeasurable Consumer Welfare When Governments Market Meddle

          Currently, both U.S. presidential candidates tout the benefits of having government intervene in commercial markets.  Former President Trump wants to impose tariffs, up to 20%, on foreign goods deemed below cost, so-called predatory pricing and dumping.  Vice President Harris wants price caps on food to foreclose gouging.

           I am skeptical whenever governments try to manage aspects of a market economy even with noble intentions, such as remedying so-called market failures.  Markets rarely fail.  Consumers and elected officials do not like certain market outcomes and unanticipated manipulations. Consumer/voter sentiment considers a market outcome wrong, unfair, or distorted and candidates for elective office better pay attention and “fight” to make thing right.

           Former President Trump wants to level the competitive playing field in a variety of markets, such as steel, solar panels, clothing, and electric vehicles, by imposing a surcharge he asserts will have to be paid by exporting companies that have achieved a lower cost of doing business advance thanks to government subsidies, cheaper labor, and other distortions. Vice President Harris wants to punish greedy corporations that have achieved high profit margins, no longer justified by higher costs and lower demand occurring during the Covid pandemic.

           Curiously, there is little analysis of what constitutes a government-imposed market intervention that can actually remedy a prior intervention (by another government) that has distorted the marketplace and created new winners and losers.  Price dumping companies acquire market share abroad, based on a price discount made possible by a government benefactor. Losers include U.S. companies without access to a government subsidy and their employees who might lose a well-paying job, and opportunity to realize the American Dream.

           Markets get distorted and lots of stakeholders have both legitimate and opportunistic reasons to complain and “vote their pocketbook.” Anyone unemployed, or no longer able to operate a profitable business, can blame imports and the arrival of illegal aliens willing to work for less pay. Anyone looking at the rising cost of food might believe corporations are gouging, despite the economic gospel that above cost pricing encouraging market entry and enhanced competition.

           It looks like there are lots of fallacies, false assumptions, and wishful thinking in play.  I have devoted a career trying to find the truth in telecommunications markets.  What enormous, distorted reality I have seen. I especially loath the gospel truth that all mergers and acquisitions “enhance competition and consumer welfare,” No one seems obligated by courts and the court of public opinion to explain how the marketplace improves.

           The Chicago School advocates point to lower prices, but often one cannot determine actual cost of doing business.  For example, how can one determine the actual cost of providing wireless broadband, when carriers bundle, “at no additional charge” streaming video.  For an industry with very high initial sunk costs, the cost of providing an additional unit of service approaches zero. Accordingly, consumers have no clue whether an attentional text message is properly priced at 5 cents by a reseller, but bundled in with unlimited voice and data.

           If an economic assertion is touted long enough and loud enough by credible speakers, then it becomes true no matter how illogical and bogus.

           For example, what happens when a market consolidation does not trigger market entry and the assumed increase in competition? In telecommunications there are extremely high barriers to market entry in light of the high sunk investment costs and regulatory decisions that often create a scarcity in a mission critical component such as radio spectrum.

           The Chicago School doctrine that mergers can enhance consumer welfare is based on the premise that a concentrated market will not result in higher prices.  But what is the correct price in a concentrated market?  Vice President Harris has generated much pushback, if not contempt, for her foolish economic thinking. Why have Chicago School mandarins avoided similar disdain when new market entry does not occur, prices exceed any measure of ongoing inflation, and there is ample proof that competitive markets in other countries offer consumers a clearly better value proposition?

           Right now, voters are told that tariffs will not raise product costs, governments can identify and sanction price gouging, and mergers are a wonderful event for consumers.

           Do these gospel truths make sense to you?