The Finance Curse. Nicholas Shaxson

but there is no doubting it: he was a piece of work.

      His colossal contribution to the game at hand was a little firecracker of a book published in 1978 called The Antitrust Paradox. This built on work by Richard Posner and Ronald Coase, shifting the focus of antitrust law even beyond Coase’s emphasis on “efficiency” to something simpler and narrower: prices for consumers. “The only legitimate goal of American antitrust law,” he said, “is the maximization of consumer welfare.” Channeling his guru, Aaron Director, he made some astonishing arguments based on the assumption that markets behave efficiently. Predatory pricing—in which players in a market collude to extract profits by restricting competition—was “a phenomenon that probably does not exist,” he said, because monopolists making large profits would be instantly undercut by “entrants who would arrive in sky-darkening swarms for the profitable alternatives.” It was “all but impossible” for actors to corner markets by buying up competitors, he asserted. (Try telling that to anyone who has tried going head-to-head with Amazon or Google.) If monopolies did persist, Bork said, it was only because they were more efficient, and if monopolists did raise prices, this was just fine because monopolists were consumers too! Traditional antitrust concerns, he argued, were “nonsense … mechanisms the law has imagined.” The book was, as the US antitrust expert Gerald Berk put it, “vehemently anti-constitutional democracy.” What is perhaps oddest about this episode is what Bork eventually became most famous for: arguing that the US Constitution should not be interpreted according to prevailing democratic spirits but instead should be taken literally, just as the founding fathers had originally intended, however much the country had moved on. Yet his arguments on consumer prices as the sole lodestar for antitrust were exactly contrary to what the framers of the constitution had intended. Indeed, the words ‘consumer prices’ don’t appear anywhere in any of America’s antitrust laws.¹⁸

      What mattered to Bork was not reality but elegant models of reality. Boil everything down to price, ignore all this leftist claptrap about laws and rights and power, and efficiency would follow. Instead of regulating preemptively by focusing on the structure of markets and whether any players have too much power in those markets, regulation should happen only after the event, once an alleged monopoly had been established and you could measure its effects. Monopolies staring people in the face could be assumed out of existence because they just couldn’t exist, and if they did, well, they might just be brilliant. Bork’s book was so influential, says the Open Markets Institute, America’s leading independent anti-monopoly group, that it became “the main guide to more than a generation of policymakers and enforcers.”¹⁹

      These ideas gained heavy tailwinds. The high inflation of the 1970s and early 1980s encouraged a worldview focused on lowering consumer prices. And big business and big banks loved Bork too, of course. A “Law and Economics” school set up in 1974, first in Miami and now at George Mason University, also began to spread the ideas of applying cost-benefit analysis to laws, while its founder, Henry Manne, worked to raise corporate donations and, with Bork’s help, spread the word. At George Mason, Manne joined forces with the conservative thinker James McGill Buchanan, another godfather of the libertarian Right who would join with Charles Koch and other antigovernment billionaires and corporations to fund and spread these ideas. (By 1990, according to the historian Nancy MacLean, Manne could boast that 40 percent of the U.S. federal judiciary had been treated to a Koch-backed curriculum.)²⁰ One Chicago consulting firm, Manne frankly admitted, “more than once expressed their appreciation to me for substantially boosting their business.” These anti-antitrust attitudes spread and spread, not so much by transforming the laws themselves, which remained on the books, but by getting judges to interpret them in new, narrower ways.

      When Republican Ronald Reagan became president in 1980, another old argument came to the fore—just like the one Mark Zuckerberg would later use to try to bamboozle the US Senate—that American national economic champions and “America’s international competitiveness” weren’t compatible with strong antitrust laws.²¹ Let American giants exploit American consumers, workers, and suppliers more effectively, it argued, to boost their profits so they can better compete on the world stage.

      Some US firms were then large vertically integrated companies guided by Fordism—a one-stop-shop production model named after the Ford Motor Company, which brought coal, iron ore, and other raw materials into one side of its vast River Rouge Complex and produced finished cars out the other. US antitrust authorities had until then recognized that in industries such as vehicle manufacture it was necessary to operate on a large scale, so they tolerated these behemoths but tried to ensure there were several competing against one another in any market. Europe, for its part, wanted its own champions to take on the Americans and the Japanese and set up projects like Airbus and the Ariane rocket program. European financial and market integration, it was calculated, would provide the expanded base for launching these cross-border Eurochampions into the world economy, going head-to-head with the Americans and Japanese. With these changes, anti-monopoly took another hit.

      As the 1970s became the 1980s, American antitrust law shifted its focus away from worrying about the structure of markets, and the immense wealth and power that can be milked from rigged markets, to a narrower focus on simple metrics based on price. The authorities stopped writing detailed analyses of the industries and markets they regulated and came to understand less and less about how they worked or what made economies tick. A growing band of anti-antitrust academics also realized there was money to be made by selling consultancy services to big corporations and increasingly “seemed like paid apologists for wealthy corporate interests,” says Kenneth Davidson, a veteran US antitrust expert and former regulator. Many academics got rich in the Wall Street–led feeding frenzy of monopolizing mergers and acquisitions in the 1980s that would have been forbidden a few years earlier (and they continue to do so: economics professors today can earn over $1,000 per hour defending megamergers²²). From 1981 to 1997 there were more than seven thousand bank mergers in the United States alone, almost unopposed. To understand how badly things went from there and why this matters so much to us now, it is necessary to delve further into the madness of the real world and look at how monopolies work.