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Jumping the Inequality Shark: The Antitrust Episode

The left and much of the news media are trying to make inequality the central political issue for our time. Their success would create a bigger state with more discretionary powers and, ultimately, less wealth for those at the bottom, because a focus on inequality per se is not directed to improving the living standards of the worse off. As Margaret Thatcher once replied to an MP who complained that her policies were increasing inequality: “So long as the gap is smaller, [those focusing on inequality] would rather have the poor poorer. You do not create wealth and opportunity that way. You do not create a property-owning democracy that way.”

The dangers of a focus on inequality become salient in a recent column by Eduardo Porter, in which he argues that concern about inequality should lead us to revise a variety of regulations and structures in democratic society. Many of his proposals, like empowering unions, would have adverse effects on the poor, as evidenced by the bad effects of public sector unions on education, but the most absurd example is his call for change in antitrust to account not only for efficiency but also inequality.

In the last half century, antitrust law has been improved by a single-minded focus – on the part of enforcers and judges – on whether government intervention will improve consumer welfare. This concept takes all consumers into account, including the poor. For example, through efficient distribution, Walmart and other big box stores have helped keep prices relatively low for the poor, more than for any other group in society. At the same time, however, Walmart may have increased inequality by increasing the wealth of the Walton family who are far richer as a group than either Bill Gates or Warren Buffet.

Antitrust law relies on well-understood microeconomic concepts, like monopoly and the elasticity of supply and demand, to measure or predict the effects of a business practice or proposed merger on competition and consumer welfare. But there are no similar tools for inequality. How would a bureaucrat or a court tell whether a particular business practice or combination would have a long run good or bad effect on the Gini quotient—the conventional measure of inequality?

Putting inequality at the center of antitrust law would set it to sail on a sea of doubt. And when doubt comes to regulation, cronyism and arbitrariness quickly follow. That kind of regime will aggrandize government and lobbyists while depressing economic growth that could otherwise benefit the poor, either directly or by providing more resources for government transfers.

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