I’ve been, for some time, a behavioral law and economics skeptic.  Sometimes this position is confused with skepticism about behavioral economics, as in — believing that behavioral economics itself offers nothing useful to economic science or is illegitimate in some way.   That’s not true.  Now, I have some qualms about the explanatory power of some of the behavioral models as well — but the primary critique (in my view) has always been the threat that behavioral economics will be used as the intellectual cover for regulation judged by the preferences of the regulators rather than rigorous economic analysis of any sort.

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Simon Johnson argues that the conventional antitrust tools of Sherman Act are outdated and ill-equipped to deal with the power of big banks…

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As Congress moves toward likely passage of the colossal Dodd-Frank Wall Street Reform and Consumer Protection Act, it’s worth reflecting that many of the bill’s 2,315 pages have little to do with preventing another financial meltdown and leaves considerable collateral damage in its wake.

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Part 1 of this short blog series on “Nudging Antitrust,” focused on defining Commissioner Rosch’s recently articulated vision of behavioral economics as it relates to antitrust and competition policy and its differences with more “conventional” economic approaches that are bound by the rationality assumption.  By the way, one should note that these more conventional approaches include both Chicago and game-theoretic Post-Chicago approaches, though the Commissioner reserves most of his ire for the former.  Today, in Part 2, I’ll turn to Commissioner Rosch’s vision for antitrust policy informed by a particular version of behavioral economics focuses on the Commissioners case against the critiques of behavioral economics as he interprets them.

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Increasingly, the notion that updating antitrust policy with the insights of behavioral economics would significantly improve matters for consumers.   Others have called for more major surgery, favoring an outright rejection of the current economic foundation of antitrust policy — and especially the portions of the foundation “Made in Chicago” — in favor of a new regime based on behavioral economics.  There are plenty of antitrust scholars who’ve begun to make this case, with perhaps Professor Stucke having been the most prolific on this score.  And behavioral economics has provided the intellectual support, or perhaps cover depending on who you ask, for the recent regulatory expansion involving consumer credit.  The issue is also getting more and more attention.  Competition Policy International recently published a symposium issue dedicated to the topic.

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The new Consumer Financial Protection Bureau is right around the corner  Talk has now turned to who might run the powerful agency and what it might do.  The WSJ names names…

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I’ve been struck of late by the level of activity surrounding antitrust exemptions: health care, insurance, beer and wine wholesalers, retail merchants for the purpose of negotiate interchange fees, newspapers, agricultural cooperatives, and sports leagues.  Throw in the high-stakes games being played between rivals to influence the decision-making processes of competition agencies in the US and abroad (and of course, private suits in the US), and it would appear that the insights of public choice for understanding antitrust has never been more important.  Or maybe not.  Consider the following 1982 NY Times article I found discussing the major push for antitrust exemptions in the early 1980s.  There are, of course, earlier examples.  But this one struck me as having some interesting parallels with current times…

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Lately, business could really use a friend. Regulatory panic has followed fresh on the heels of the financial meltdown. Grand political ideas that competing interest groups can smother in good times tend to burst out in post-bust regulatory orgies. Legislators tend to focus on reining in unbridled business with little concern for how laws might reduce the economic blessings business can confer. When reform’s fires rage, rhetoric rules, difficulties melt away and compromises suddenly materialize, wrapped in vague statutory language that grant broad discretion to regulatory agencies.

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Judge Posner offers his thoughts on financial reform, mostly negative, at Bloomberg.   The thrust of the essay is that the financial regulation produced by the political process has, at best, a poor nexus to the actual causes of the economic crisis, and that what we are left with is primary reorganization and reshuffling to look busy.  Judge Posner discusses the political advantages to reshuffling as a response to government failure…

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