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Antitrust and Rule by Judges

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The early-1980s Posner-Stigler memorandum to incoming president Reagan’s transition team is interesting for a host of reasons, but most of all in terms of constitutionalism’s values.

The recently uncovered memo by George Stigler and Richard Posner to president-elect Ronald Reagan is more akin to a piece of political punditry than a careful policy note weighing the pros and cons of transforming antitrust policy, or asking what might plausibly go wrong. It takes swipes at all sorts of things, including the burden of paperwork (most surely an issue, but a separate one), and also privately brought antitrust cases, which is amusing given Chicago’s celebration of private tort cases. But the bigger point, I suggest, concerns the values of a constitutional democracy or, as the memo’s authors might have termed it, a democratic republic.

Their proposal was to transform policy through appointments to head the Department of Justice’s antitrust enforcement division and/or the Federal Trade Commission, an independent administrative agency. Rather than try to persuade Congress to amend the primary legislation, they thought it expedient to exploit vagueness in the prevailing statutory provisions in line with the incoming president’s agenda. Since Chicago is often associated with hating the exercise of discretion by administrative officials, that is intriguing. Maybe, the ends justify the means. But where would that end up? 

It turned out their desired policy changes were largely ushered in by the courts, which, starting in the 1970s, used a series of cases to overturn Trade Commission or Justice Department measures in order to enshrine the Chicago School antitrust doctrine. Whatever its merits, that was rule by judges — not exactly consistent with the values that supposedly animate the Constitution. Why wouldn’t advocates of market mechanisms also prioritize political mechanisms that disperse power to households via the ballot box? There are at least three possible explanations.

Maybe, despite the school’s manifesto, the memo’s authors did not really prize liberty above all else, instead favoring liberty for only the few. That would no doubt have been the view of Frankfurt School radicals, whose first generation (Adorno, Horkheimer, Marcuse and others) maintained everything, from high policy via advertising to popular culture, was effectively a conspiracy to prop up a system favoring elite owners of capital (including, as it happened, their fathers).

Alternatively, discombobulated by Arrow’s Impossibility Theorem on fair voting on community preferences  (notwithstanding its being about as damaging to democracy as Godel’s Incompleteness Theorems on axiomatic systems were to the utility of logic), maybe the authors had little faith in electoral representation. It is interesting that later, in Law, Pragmatism, and Democracy (pp.245-47 ), Posner advocated antitrust policy as a model for how the courts should invigilate democracy: new political parties could be allowed but too many would hopelessly confuse the voters (p.238). This contemptuous attitude to regular people is, ironically, reminiscent of that, on the radical Left, of Herbert Marcuse (Jeffries, Grand Hotel Abyss, pp.307-09), who believed only those in possession of the truth could see through the fog. Posner and Marcuse held quite different truths, of course, but they were joined in a super-elitism that, whether via public choice theory or critical theory, applies penetrating insights to everything and everyone other than themselves.

Or maybe, finally and more charitably, the authors simply did not anticipate where an apparently technocratic policy could end up. The essence of Chicago School antitrust doctrine is that business size (whether vertical or horizontal) does not matter so long as consumer prices are reduced, leaving households with more disposable income for other things. Taken on its own, this is surely a worthy goal. Even so, things are unavoidably fuzzy—no doubt in judicial minds, as well as in the real world. Can judges identify enhanced “consumer welfare” if the short-term effect of, say, incumbents swallowing up-and-coming rivals is higher profits (producer welfare)?  Well, they can if they can find some basis for saying the benefits will eventually flow through to prices (without deterioration in the quality of goods or services — a condition inviting reflection).

The bigger issue, though, is whether a judicial antitrust standard can, prudently or decently, be taken on its own. One question they might have asked themselves—did they?—was whether accumulations of private economic power would lead to concentrations of private political power, and whether that would be a bad thing or worth the price. Here one might recall that continental Europe’s ordoliberal tradition, which is hardly allergic to market mechanisms, gives greater weight to ongoing competitive rivalry. That is because it emphasizes the role of antitrust policies in underpinning a liberal republic in which power is dispersed: a core republican value over the centuries. As explained in Giuliano Amato’s Antitrust and the Bounds of Power, that way of thinking’s post-WW2 revival owed a lot to the Third Reich’s easy recruitment of the commanding heights of German industry during the 1930s. It couldn’t happen here, the authors’ ghosts might say. Sure?

The answer depends partly on other laws. Where, for example, campaign-finance laws increase the political leverage of great wealth accumulated from concentrated economic power, the possible wider consequences of antitrust policy begin to come into view. Combined, the two doctrines generate political and legitimacy externalities. One could decently have Chicago School antitrust in combination with constraints on concentrated private political power, but I would hazard that it was (and remains) beyond the justices to think things through in a joined-up way. Whether conscious or not, the compound amounts to a “let’s build an aristocracy” policy, with the justices emerging as modern-day ephors gone AWOL (at least Sparta’s were chosen annually in a community where each was well known to all).

Generally speaking, the difficulty faced by judges in gauging their policies’ externalities is one reason for wanting major policy changes to be mediated through the legislature, so that the full range of legal, welfare, political and moral arguments can be aired: good and bad, obviously self-interested and not, myopic and farther sighted. Also, a political community is better protected against bad outcomes when what turn out to be flawed policies—including well-intentioned policies with unexpected costs; surely, the general case—can be amended, rather than leaving reform to judges’ interpretative acrobatics as they navigate around supposed precedent. It should be no surprise that the common law’s attachment to precedent—and hence judicial self-restraint—is more incentive-compatible in political systems where the legislature can enact laws fairly easily: a system that combines inter-temporal with cross-sectional checks and balances. If that is beyond reach in the US, then policy falls either to unelected judges or unelected technocrats. Faced with the constitutional setup’s incentives-values incompatibility, Posner and Stigler proposed handing policy to bureaucrats but would have been just as pleased with rule by judges, given it delivered what they wanted.

All in all, then, the memo was an accomplished piece of advocacy by political pundits feeding an administration desperate for ideas in line with its ideological preferences and constituencies. All to the good had the arguments and options been subject to scrutiny in the legislative assembly but, partly reflecting the Founding Fathers’ allergy to faction, that is not what Madison and Hamilton, great men though they were, bequeathed to the American people. When unelected rule opens a door to concentrated private political power, that is not nothing.

Meanwhile, the equilibrium is vague statutes that allow bureaucrats and judges to shift high policy while virtuously claiming fidelity to the law. It is a habit by no means limited to the political Right.