Award Winning Blog

Sunday, July 26, 2020

When Economist-Created “Rules” and “Laws” Do Not Work or Are Forgotten

            Having frequently chatted with economists and read many textbooks and articles on economic subjects, I marvel at the absolute certainty in answers offered to various thorny questions.  Economists like to create rules and laws that provide certain solutions, if only the public and politicians followed their lead.

            It should come as no surprise that absolute economic gospel truth fails both in terms of practical application and even adherence by economists.  Suddenly a firm rule has exceptions, or an economist conveniently forgets the widespread acceptance of the rule.  This dismissive attitude greatly contrasts with the conventional attitude that economics is a legitimate science. And of course, economists know best.

            Several questions about economic doctrinal certainty and amnesia come to mind having read a New York Times article on sponsored briefings of foreign antitrust enforcement agency officials.  See  In Big Tech Funds a Think Tank Pushing for Fewer Rules. For Big Tech, Daisuke Wakabayashi reports that firms, such as Amazon, Google and Qualcomm contribute six figure sums for antirust law and policy briefings organized by institutes and foundations affiliated with George Mason University’s Antonin Scalia Law School.

            Have both teacher and student forgotten one of the most fundamental rules of economics that “there is no such thing as a free lunch”? The article reports on the high quality and cost of the venues hosting the conferences and the meals served.  Such opulence juxtaposes with the conferences I pay to attend.  I am used to rubber chicken, or self-catering in places like Dallas in August and Louisville in March.  Next month, I will participate in a virtual conference and still had to pay $250 for the opportunity to present an academic paper via Zoom.  Obviously, I hang out with wrong class of people.

            Who, other than the sponsors and the sponsored organizers and participants, can ignore the no free lunch rule?  There’s a quid pro quo here, not that there’s anything illegal about it. What unnerves me is the apparent obliviousness of all involved to a straightforward rule of economics and human behavior.

            While apparently exempt from the no free lunch rule, organizers of the conferences surely do not forget to preach the gospel certainty of Chicago School antitrust policy.  This economic doctrine, now widely embraced by judges and their law clerks, proscribes sanctioning any behavior—no matter how much it concentrates a market or bolsters the market power of an incumbent—if some enhancement of consumer welfare occurs.  Chicago School devotees concentrate on consumers’ out of pocket costs and point to declining, or zero costs as proof positive that a particular market is thriving.  They conveniently ignore offsetting costs like that occurring in the broadband mediated marketplace when platform operators mine data and sell the surveillance data to advertisers and data analytics firms.  Oh, and let us not forget the costs to society when privacy, trust, belief in the rule of law and confidence in the integrity of elections become questionable.

            The Chicago School doctrine has become unimpeachable, no doubt validated and revalidated in the numerous free conferences sponsored by stakeholders who fund non-profit academic institutes that organize law and economics conferences.  Some of these events reimburse all travel expenses and pay several thousand dollar honorariums to speakers and paper presenters.  Sweet indeed.

            What is unsweet and intellectually questionable in my view is the apparent adamancy with which Chicago School acolytes embrace the doctrine, even as they ignore the free lunch rule. Anyone who dares to suggest modification or exceptions to the Chicago School rules is branded an advocate of “Hipster Antitrust,” as though their insights were nothing more than trendy, undisciplined analysis.

            I will stop with one more question about seemingly unquestionable economic rules: if demand substantially drops for a good or service and the incremental cost to serve one additional customer is tiny, then why do the airlines refrain from sizably discounting fares?