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Some serious reading first on American Needle, Inc. v. National Football League, No. 08-661 (U.S. S. Ct.)…

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The possibility of new Merger Guidelines has been much discussed in the antitrust community, particularly in light of appointment of the two new chief agency economists, Carl Shapiro and Joe Farrell, who have done substantial work on the economics of horizontal mergers and market definition.  Today, the FTC and DOJ announced a series of workshops and period for public comment to explore potential revision of the Guidelines…

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Abstract

The creation of a new Consumer Financial Protection Agency (“CFPA”) is a very bad idea and should be rejected. The proposal is not salvageable and cannot be improved in substance or in form. The foundational premise of the CFPA is that a failure of consumer protection, and specifically irrational consumer behavior in lending markets, was a meaningful cause of the financial crisis and that the CFPA would have or could have averted the crisis or lessened its effects. To the contrary, there is no evidence that consumer ignorance or irrationality was a substantial cause of the crisis or that the existence of a CFPA could have prevented the problems that occurred. The CFPA is likely to do more harm than good for consumers. In this article, we highlight three fundamentally problematic truths about the CFPA: (1) The CFPA is premised on a flawed understanding of the financial crisis, (2) the CFPA will have significant unintended consequences, including but not limited to reducing competition, consumer choice, and availability of credit to consumers for productive uses; and (3) the CFPA creates a powerful bureaucracy with undefined scope, risking expensive and wasteful regulatory overlap at both the federal and state levels without any evidence of its own expertise in the core areas it is designed to regulate.

Today’s installment of our series featuring statements so self-evidently absurd you wonder how anyone could have made them with a straight face focuses on US Trade Representative Ron Kirk. Here’s Captain Kirk failing Economics 101…

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Abstract

Harold Demsetz once claimed that ‘economics has no antitrust relevant theory of competition.’ Demsetz offered this provocative statement as an introduction to an economic concept with critical implications for the antitrust enterprise: the multi-dimensional nature of competition. Competition does not take place upon a single margin, such as price competition, but several dimensions that are often inversely correlated such that a liability rule deterring one form of competition will result in more of another. This insight has important implications for the current policy debate concerning how to design antitrust liability standards for conduct involving both static product market competition and dynamic innovative activity. The primary purpose of this essay is to revisit Demsetz’s broader challenge to antitrust regulation in the context of the frequently discussed tradeoffs between innovation and price competition. I summarize recent developments in our knowledge of the relationship between competition and innovation, highlighting the deficiencies that significantly constrain antitrust enforcers’ abilities to confidently calculate inevitable welfare tradeoffs. I conclude by discussing policy implications that follow from these limitations.

Professor Birdthistle has a very thoughtful reply to my earlier post over at the Conglomerate on Jones v. Harris and behavioral economics.  I thank Professor Birdthistle for his reply.  I’ve learned a great deal about Jones v. Harris from reading his posts at the Conglomerate and have no doubt that I’ll learn more from this exchange.  The thrust of my original post was that, in general, my view was that behavioral law and economics has been too quick to rely on findings in the behavioral/ experimental literature demonstrating systematic deviations from rationality to justify paternalistic regulation.

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Much has been made about the importance of Jones v. Harris as a battle in the ongoing war between behavioral economics  and rational choice/neoclassical framework (see, e.g. the NYT).   If the case if to be about the appropriate economic methodology or model for assessing legal questions, it is definitely an interesting turn to have Judge Easterbrook representing the rational choice economists while Judge Posner (who is simultaneously taking some flack for fast and loose and incorrect uses of macroeconomics) defends the behavioral view, considering that the latter wrote an important critique of the behavioral law and economics literature (here is an excellent summary of Posner’s opinion from Professor Birdthistle).  Professor Ribstein frames the issue of Jones v. Harris and the New Paternalism nicely with a prediction…

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A big chunk of the fraudulent advertising (diet, exercise, work-at-home, credit repair) prosecuted by the FTC involves a testimonial advertisement that mentions a number, e.g., “I lost 74 pounds wearing slimming insoles.” Some consumers do not seem to understand that the results for the endorsers may not be typical, despite the disclaimer required by the FTC, “results not typical.”

Read the full piece here. 

University of Chicago economist (and behavioralist doyen) Richard Thaler thinks “the question of whether a ‘public option’ should be part of the health care solution” is just “one big distraction.” In Sunday’s New York Times, Thaler argues that the debate over the public option is a “red herring” if, as President Obama insists, the public plan will have to break even and won’t be granted “the power to impose special deals with suppliers like hospitals and drug companies.” If those two conditions are satisfied, Thaler contends, the public plan is unlikely to have much success and certainly won’t drive out private insurers.

Read the full piece here.