To promote economic growth, enforce antitrust laws

Opponents of the Biden administration’s antitrust enforcement stimulus say antitrust enforcement will lead to slower economic growth. For example, Larry Summers, who has served on the Reagan Council of Economic Advisers and the Obama National Economic Council, tweeted that “Brandeisian hipster antitrust, which the administrator and his appointees flirt with, is more likely to rise than lower prices” and “lead to reduced supply. He also tweeted: “Brandeisian populist antitrust policy will make the US economy more inflationary and less resilient” and “could reduce efficiency.”

Is strict enforcement of antitrust laws bad for the economy? To answer this, I have gathered data on economic growth from 1948 (the earliest available) to the present day. I mark the deadline as 1980, with the adoption of the Consumer Welfare Standard (CWS) under the Reagan administration, which marked the end of vigorous antitrust enforcement.

The red line in the attached graph shows real GDP growth each year before 1980, before the adoption of the SPC standard. The blue line shows real GDP growth from 1980 onwards, as the CWS standard was adopted by subsequent administrations, including Democratic administrations.

The red dotted line represents the average real GDP growth during the pre-SCF era, equal to 3.86%. The blue dotted line shows the average real GDP growth in the post-FCS era, which is 2.56%. The difference between the two means is economically significant (more than 1 percentage point of growth) and statistically significant at the 5% level.

Clearly, a myriad of factors affect real GDP growth. And the adoption of the CWS standard may not have been directly responsible for the decline in average real GDP growth since 1980. But it is dishonest for antitrust status quo defenders such as Summers to argue that the abandonment of CWS will cause a horrible parade for the economy. Economists (including myself) have shown that labor productivity and total factor productivity declined significantly with the adoption of the SPC. We noted that greater enforcement of antitrust laws could spur economic growth, especially to protect workers. As income moves towards workers and away from capital, every dollar of income generated by a business is associated with a higher multiplier effect, resulting in faster growth. Economic theory and empirical analysis suggest that a stronger antitrust policy could benefit the US economy.

Hal Singer is managing director of Econ One, an economic advisory firm, and adjunct professor at Georgetown University. This column was provided by InsideSources.

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