#matt stoller

[mostlysignssomeportents]

Antitrust is a labor issue

I'm touring my new, nationally bestselling novel The Bezzle! Catch me SATURDAY (Apr 27) in MARIN COUNTY, then Winnipeg (May 2), Calgary (May 3), Vancouver (May 4), and beyond!

This is huge: yesterday, the FTC finalized a rule banning noncompete agreements for every American worker. That means that the person working the register at a Wendy's can switch to the fry-trap at McD's for an extra $0.25/hour, without their boss suing them:

https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

The median worker laboring under a noncompete is a fast-food worker making close to minimum wage. You know who doesn't have to worry about noncompetes? High tech workers in Silicon Valley, because California already banned noncompetes, as did Colorado, Illinois, Maine, Maryland, New Hampshire, North Dakota, Oklahoma, Oregon, Rhode Island, Virginia and Washington.

The fact that the country's largest economies, encompassing the most "knowledge-intensive" industries, could operate without shitty bosses being able to shackle their best workers to their stupid workplaces for years after those workers told them to shove it shows you what a goddamned lie noncompetes are based on. The idea that companies can't raise capital or thrive if their know-how can walk out the door, secreted away in the skulls of their ungrateful workers, is bullshit:

https://pluralistic.net/2022/02/02/its-the-economy-stupid/#neofeudal

Remember when OpenAI's board briefly fired founder Sam Altman and Microsoft offered to hire him and 700 of his techies? If "noncompetes block investments" was true, you'd think they'd have a hard time raising money, but no, they're still pulling in billions in investor capital (primarily from Microsoft itself!). This is likewise true of Anthropic, the company's major rival, which was founded by (wait for it), two former OpenAI employees.

Indeed, Silicon Valley couldn't have come into existence without California's ban on noncompetes – the first silicon company, Shockley Semiconductors, was founded by a malignant, delusional eugenicist who also couldn't manage a lemonade stand. His eight most senior employees (the "Traitorous Eight") quit his shitty company to found Fairchild Semiconductor, a rather successful chip shop – but not nearly so successful as the company that two of Fairchild's top employees founded after they quit: Intel:

https://pluralistic.net/2021/10/24/the-traitorous-eight-and-the-battle-of-germanium-valley/

Likewise a lie: the tale that noncompetes raise wages. This theory – beloved of people whose skulls are so filled with Efficient Market Hypothesis Brain-Worms that they've got worms dangling out of their nostrils and eye-sockets – holds that the right to sign a noncompete is an asset that workers can trade to their employers in exchange for better pay. This is absolutely true, provided you ignore reality.

Remember: the median noncompete-bound worker is a fast food employee making near minimum wage. The major application of noncompetes is preventing that worker from getting a raise from a rival fast-food franchisee. Those workers are losing wages due to noncompetes. Meanwhile, the highest paid workers in the country are all clustered in a a couple of cities in northern California, pulling down sky-high salaries in a state where noncompetes have been illegal since the gold rush.

If a capitalist wants to retain their workers, they can compete. Offer your workers get better treatment and better wages. That's how capitalism's alchemy is supposed to work: competition transmogrifies the base metal of a capitalist's greed into the noble gold of public benefit by making success contingent on offering better products to your customers than your rivals – and better jobs to your workers than those rivals are willing to pay. However, capitalists hate capitalism:

https://pluralistic.net/2024/04/18/in-extremis-veritas/#the-winnah

Capitalists hate capitalism so much that they're suing the FTC, in MAGA's beloved Fifth Circuit, before a Trump-appointed judge. The case was brought by Trump's financial advisors, Ryan LLC, who are using it to drum up business from corporations that hate Biden's new taxes on the wealthy and stepped up IRS enforcement on rich tax-cheats.

Will they win? It's hard to say. Despite what you may have heard, the case against the FTC order is very weak, as Matt Stoller explains here:

https://www.thebignewsletter.com/p/ftc-enrages-corporate-america-by

The FTC's statutory authority to block noncompetes comes from Section 5 of the FTC Act, which bans "unfair methods of competition" (hard to imagine a less fair method than indenturing your workers). Section 6(g) of the Act lets the FTC make rules to enforce Section 5's ban on unfairness. Both are good law – 6(g) has been used many times (26 times in the five years from 1968-73 alone!).

The DC Circuit court upheld the FTC's right to "promulgate rules defining the meaning of the statutory standards of the illegality the Commission is empowered to prevent" in 1973, and in 1974, Congress changed the FTC Act, but left this rulemaking power intact.

The lawyer suing the FTC – Anton Scalia's larvum, a pismire named Eugene Scalia – has some wild theories as to why none of this matters. He says that because the law hasn't been enforced since the ancient days of the (checks notes) 1970s, it no longer applies. He says that the mountain of precedent supporting the FTC's authority "hasn't aged well." He says that other antitrust statutes don't work the same as the FTC Act. Finally, he says that this rule is a big economic move and that it should be up to Congress to make it.

Stoller makes short work of these arguments. The thing that tells you whether a law is good is its text and precedent, "not whether a lawyer thinks a precedent is old and bad." Likewise, the fact that other antitrust laws is irrelevant "because, well, they are other antitrust laws, not this antitrust law." And as to whether this is Congress's job because it's economically significant, "so what?" Congress gave the FTC this power.

Now, none of this matters if the Supreme Court strikes down the rule, and what's more, if they do, they might also neuter the FTC's rulemaking power in the bargain. But again: so what? How is it better for the FTC to do nothing, and preserve a power that it never uses, than it is for the Commission to free the 35-40 million American workers whose bosses get to use the US court system to force them to do a job they hate?

The FTC's rule doesn't just ban noncompetes – it also bans TRAPs ("training repayment agreement provisions"), which require employees to pay their bosses thousands of dollars if they quit, get laid off, or are fired:

https://pluralistic.net/2022/08/04/its-a-trap/#a-little-on-the-nose

The FTC's job is to protect Americans from businesses that cheat. This is them, doing their job. If the Supreme Court strikes this down, it further delegitimizes the court, and spells out exactly who the GOP works for.

This is part of the long history of antitrust and labor. From its earliest days, antitrust law was "aimed at dollars, not men" – in other words, antitrust law was always designed to smash corporate power in order to protect workers. But over and over again, the courts refused to believe that Congress truly wanted American workers to get legal protection from the wealthy predators who had fastened their mouth-parts on those workers' throats. So over and over – and over and over – Congress passed new antitrust laws that clarified the purpose of antitrust, using words so small that even federal judges could understand them:

https://pluralistic.net/2023/04/14/aiming-at-dollars/#not-men

After decades of comatose inaction, Biden's FTC has restored its role as a protector of labor, explicitly tackling competition through a worker protection lens. This week, the Commission blocked the merger of Capri Holdings and Tapestry Inc, a pair of giant conglomerates that have, between them, bought up nearly every "affordable luxury" brand (Versace, Jimmy Choo, Michael Kors, Kate Spade, Coach, Stuart Weitzman, etc).

You may not care about "affordable luxury" handbags, but you should care about the basis on which the FTC blocked this merger. As David Dayen explains for The American Prospect: 33,000 workers employed by these two companies would lose the wage-competition that drives them to pay skilled sales-clerks more to cross the mall floor and switch stores:

https://prospect.org/economy/2024-04-24-challenge-fashion-merger-new-antitrust-philosophy/

In other words, the FTC is blocking a $8.5b merger that would turn an oligopoly into a monopoly explicitly to protect workers from the power of bosses to suppress their wages. What's more, the vote was unanimous, include the Commission's freshly appointed (and frankly, pretty terrible) Republican commissioners:

https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-moves-block-tapestrys-acquisition-capri

A lot of people are (understandably) worried that if Biden doesn't survive the coming election that the raft of excellent rules enacted by his agencies will die along with his presidency. Here we have evidence that the Biden administration's anti-corporate agenda has become institutionalized, acquiring a bipartisan durability.

And while there hasn't been a lot of press about that anti-corporate agenda, it's pretty goddamned huge. Back in 2021, Tim Wu (then working in the White wrote an executive order on competition that identified 72 actions the agencies could take to blunt the power of corporations to harm everyday Americans:

https://www.eff.org/deeplinks/2021/08/party-its-1979-og-antitrust-back-baby

Biden's agency heads took that plan and ran with it, demonstrating the revolutionary power of technical administrative competence and proving that being good at your job is praxis:

https://pluralistic.net/2022/10/18/administrative-competence/#i-know-stuff

In just the past week, there's been a storm of astoundingly good new rules finalized by the agencies:

A minimum staffing ratio for nursing homes;

The founding of the American Climate Corps;

A guarantee of overtime benefits;

A ban on financial advisors cheating retirement savers;

Medical privacy rules that protect out-of-state abortions;

A ban on junk fees in mortgage servicing;

Conservation for 13m Arctic acres in Alaska;

Classifying "forever chemicals" as hazardous substances;

A requirement for federal agencies to buy sustainable products;

Closing the gun-show loophole.

That's just a partial list, and it's only Thursday.

Why the rush? As Gerard Edic writes for The American Prospect, finalizing these rules now protects them from the Congressional Review Act, a gimmick created by Newt Gingrich in 1996 that lets the next Senate wipe out administrative rules created in the months before a federal election:

https://prospect.org/politics/2024-04-23-biden-administration-regulations-congressional-review-act/

In other words, this is more dazzling administrative competence from the technically brilliant agencies that have labored quietly and effectively since 2020. Even laggards like Pete Buttigieg have gotten in on the act, despite a very poor showing in the early years of the Biden administration:

https://pluralistic.net/2023/02/11/dinah-wont-you-blow/#ecp

Despite those unpromising beginnings, the DOT has gotten onboard the trains it regulates, and passed a great rule that forces airlines to refund your money if they charge you for services they don't deliver:

https://www.whitehouse.gov/briefing-room/statements-releases/2024/04/24/fact-sheet-biden-harris-administration-announces-rules-to-deliver-automatic-refunds-and-protect-consumers-from-surprise-junk-fees-in-air-travel/

The rule also bans junk fees and forces airlines to compensate you for late flights, finally giving American travelers the same rights their European cousins have enjoyed for two decades.

It's the latest in a string of muscular actions taken by the DOT, a period that coincides with the transfer of Jen Howard from her role as chief of staff to FTC chair Lina Khan to a new gig as the DOT's chief of competition enforcement:

https://prospect.org/infrastructure/transportation/2024-04-25-transportation-departments-new-path/

Under Howard's stewardship, the DOT blocked the merger of Spirit and Jetblue, and presided over the lowest flight cancellation rate in more than decade:

https://www.transportation.gov/briefing-room/2023-numbers-more-flights-fewer-cancellations-more-consumer-protections

All that, along with a suite of protections for fliers, mark a huge turning point in the US aviation industry's long and worsening abusive relationship with the American public. There's more in the offing, too including a ban on charging families extra for adjacent seats, rules to make flying with wheelchairs easier, and a ban on airlines selling passenger's private information to data brokers.

There's plenty going on in the world – and in the Biden administration – that you have every right to be furious and/or depressed about. But these expert agencies, staffed by experts, have brought on a tsunami of rules that will make every working American better off in a myriad of ways. Those material improvements in our lives will, in turn, free us up to fight the bigger, existential fights for a livable planet, free from genocide.

It may not be a good time to be alive, but it's a much better time than it was just last week.

And it's only Thursday.

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/04/25/capri-v-tapestry/#aiming-at-dollars-not-men

[st-just]

Merger cases don’t have juries, they are ‘bench trials.’ The judge is not only making all forms of rulings on procedural motions, but is the decider of the case as well. And thus, except for the vague possibility of an appeal, the judge becomes all-powerful, able to reorganize industries almost based on gut feel.

As a result, the entire social dynamic is organized around the judge, who sits physically above everyone else on a raised platform. Every joke from the judge is hilarious, every story is charming, and every command is obeyed instantly. Everyone stands when the judge enters or exits, and anyone saying anything to the judge uses ‘his honor’ or ‘her honor’ at all times. If the judge wants brown M&Ms, fifteen lawyers paid $1 million apiece will reach out their hands holding a bag their junior associates spent all night sorting.

-Matt Stoller, All Rise: How Judges Rule America

[houseofbrat]

Wow! Boeing has its own Michael Clayton scandal.

[link]

[theculturedmarxist]

[arthropooda]

[arcticdementor]

(link)

[consolecadet]

Big news: Google has lost its first antitrust case. Via Matt Stoller:

So what happens now? In this case, the judge will come up with remedies next year. The order could be broad, and will likely loosen Google’s control over the mobile app ecosystem. Google has already announced that it will appeal, so the case isn’t over.

That said, Google is likely to be in trouble now, because it is facing multiple antitrust cases, and these kinds of decisions have a bandwagon effect. The precedent is set, in every case going forward the firm will now be seen as presumed guilty, since a jury found Google has violated antitrust laws. Judges are cautious, and are generally afraid of being the first to make a precedent-setting decision. Now they won’t have to. In fact, judges and juries will now have to find a reason to rule for Google. If, say, Judge Amit Mehta in D.C., facing a very similar fact-pattern, chooses to let Google off the hook, well, he’ll look pretty bad.

[insanityclause]

Deadline’s Contenders Television, the event where stars and showrunners talk up their shows ahead of Emmy voting, has unveiled its lineup.

The event kicks off on Saturday April 13 and runs through Sunday April 14 at the Directors Guild of America in LA. There will also be a virtual livestream of the event. Full details of the event and an RSVP link can be found here.

It will give you a sense of the hits of the last twelve months, as well as some shows that you’re about to be talking about, as the networks, studios and streamers vie for some awards love.

Stars attending include Tom Hiddleston, Nicole Kidman, Brie Larson, Kristen Wiig, Rebecca Ferguson, Lily Gladstone, David Oyelowo, Common, Jimmy Fallon, Giancarlo Esposito, Joey King, Andrea Riseborough, Sebastian Maniscalco, Bill Pullman, Kiefer Sutherland, Logan Lerman, Kelsey Grammer, Matt Bomer, Jonathan Bailey, Allison Williams, Maya Erskine, Nathan Fielder, Skeet Ulrich, Jeff Probst, Omar J. Dorsey, Harriet Dyer, Patrick Brammall, Sophia Di Martino, Sarayu Blue, Ji-young Yoo and Taylor Zakhar Perez.

Shows that will be featured across the two days include Parish, Masters of the Air, Lessons in Chemistry, The Morning Show, Silo, Palm Royale, The New Look, Survivor, Colin From Accounts, A Murder at the End of the World, True Detective: Night Country, We Were the Lucky Ones, Under the Bridge, Murdaugh Murders: The Movie, Loki, Alice & Jack, Genius: MLK/X, The Tonight Show Starring Jimmy Fallon, 3 Body Problem, Mr. Monk’s Last Case: A Monk Movie, Lawmen: Bass Reeves, Frasier, Mr. & Mrs. Smith, Fallout, Expats, Red, White & Royal Blue, Fellow Travelers, The Curse, The Caine Mutiny Court-Martial, Platonic and Bookie.

There will also be numerous top showrunners and exec producers including Chuck Lorre, David Benioff, D.B. Weiss, Alexander Woo, Benny Safdie, Graham Yost, Gary Goetzman, Lee Eisenberg, Abe Sylvia, Brit Marling, Zal Batmanglij, Gina Prince-Bythewood, Francesca Sloane, Lulu Wang, Sarah Schechter and Nicholas Stoller.

The studios, networks and streamers participating include AMC, Apple TV+, CBS, CBS Studios, FX, HBO and Max, Hulu, Lifetime, Marvel Studios and Disney+, Masterpiece on PBS, National Geographic, NBCUniversal, Netflix, Peacock, Paramount+, Prime Video, Showtime, Sony Pictures Television and Warner Bros. Television.

The event is sponsored by Apple TV+, Eyepetizer Eyewear and Final Draft + ScreenCraft in partnership with Four Seasons Resort Maui and 11 Ravens.

---

Both Tom and Sophia will be there.

[projazznet]

Harry Edison and His Orchestra – Sweets

“Recorded in 1956, Sweets is one of the quintessential Edison albums showcasing the former Count Basie bandmember at the height of his abilities with a stellar ensemble of other Basie-ites, including tenor saxophonist Ben Webster, guitarist Barney Kessel, pianist Jimmy Rowles, bassist Joe Mondragon, and drummer Alvin Stoller.”- Matt Collar/AllMusic.

[mostlysignssomeportents]

The learned helplessness of Pete Buttigieg

The apocalyptic airline meltdown over the Christmas break stranded thousands of Americans, ruining their vacations and costing them a fortune in unexpected fees. It wasn't just Southwest Airlines' meltdown, either - as stranded fliers sought alternatives, airlines like AA raised the price of some domestic coach tickets to over $10,000.

This didn't come out of nowhere. Southwest's growth strategy has seen the airlines add more planes and routes without a comparable investment in back-end systems, including crew scheduling systems. SWA's unions have spent years warning the public that their employer's IT infrastructure was one crisis away from total collapse.

But successive administrations have failed to act on those warnings. Under Obama and Trump, the DoT was content to let "the market" discipline the monopoly carriers, though both administrations were happy to wave through anticompetitive mergers that weakened the power of markets to provide that discipline. Obama waved through the United/Continental merger and the Southwest/AirTran merger, while Trump waved through Virgin/Alaska.

While these firms were allowed to privatize their gains, Uncle Sucker paid for their losses. Trump handed the airlines $54 billion in covid relief, which the airlines squandered on stock buybacks and executive bonuses, while gutting their own employee rosters with early retirement buyouts:

https://www.bloomberg.com/opinion/articles/2020-05-04/airlines-got-the-sweetest-coronavirus-bailout-around

Incredibly, the airlines got even worse under the Biden administration. In the first six months of 2022, US airlines cancelled more flights than they had in all of 2021, while the airlines increased their profits by 45% - and kept it, rather than using it to pay back the $10b in unpaid refunds they owed to fliers:

https://www.economicliberties.us/press-release/economic-liberties-releases-model-legislation-to-eliminate-airlines-liability-shield/

Dozens of state attorneys general - Republicans and Democrats - wrote to Transportation Secretary Pete Buttigieg, begging him to take action on the airlines. After months without action, they wrote again, just days before the Christmas meltdown:

https://www.levernews.com/state-officials-warned-buttigieg-about-airline-mess/

For his part, Secretary Buttigieg claimed he was doing all he could, trumpeting the order to refund fliers as evidence of his muscular regulatory approach (recall that these refunds have not been paid). He assured Americans that the situation "is going to get better by the holidays."

https://www.youtube.com/watch?v=6FlD6fHq8-g&t=145s

But the numbers tell the tale. Under Buttigieg, the DOT "issued fewer enforcement orders in 2021 than in any single year of the Trump and Obama administrations."

https://www.economicliberties.us/press-release/economic-liberties-releases-model-legislation-to-eliminate-airlines-liability-shield/

As the crisis raged, enraged fliers and opponents of unchecked corporate power blamed Buttigieg. So did opportunistic, bad-faith Republicans looking to score political points. The "liberal" media lumped all this criticism together, insisting that Buttigieg had done everything in his power and declaring it unreasonable to expect the Transport Secretary to prevent transportation catastrophes:

https://www.levernews.com/the-partisan-ghost-in-the-media-machine/

Buttigieg's defenders trotted out a laundry list of excuses for the failure, ranging from the nonsensical to the implausible to the contradictory - Pete's Army continued to claim that the aviation meltdown was the weather's fault, even after Buttigieg himself went on national TV to say this wasn't the case:

https://twitter.com/GMA/status/1608075800254767105?s=20&t=wmaJq3OWU0r0e6TS9V-9sA

Buttigieg is the Secretary of a powerful administrative agency, and as such, he has broad powers. Neither he nor his predecessors have had the courage to wield that power, all of them evincing a kind of learned helplessness in the face of industry lobbying. But there is a difference between being powerless and acting powerless.

To see what a fully operational battle-station looks like, cast your eye upon Lina Khan, chair of the FTC, another agency that has a long history of dormancy in the face of corporate power, but which Khan has transformed - not through ideology, but through competence. Khan - and her fellow Biden administration trustbusters Jonathan Kantor and the recently departed Tim Wu - have an encyclopedic knowledge of their powers, and they haven't been shy about using them:

https://pluralistic.net/2022/10/18/administrative-competence/#i-know-stuff

Over the Christmas break, even as the airline industry was stranding Americans far from their families, Khan proposed a rule to ban noncompete agreements, which are widely used to prevent low-waged workers like fast-food cashiers from quitting their jobs and seeking better pay from competitors:

https://mattstoller.substack.com/p/antitrust-enforcers-to-ban-indentured

These are, as Matt Stoller writes, a form of indentured servitude, used by private equity crooks to lock in their workforces. "30% of hair stylists works under a non-compete, as do 45% of family physicians." Noncompetes destroy the livelihoods of workers who start their own businesses, too: "One comment to the FTC came from a graphic designers for signage who was bankrupted by a lawsuit from her control-hungry former boss and a small town judge":

https://www.regulations.gov/comment/FTC-2019-0093-0015

Noncompetes are a scourge, and there should be bipartisan agreement on this. If you're a Democrat who believes in labor rights, noncompetes are manifestly unfair. But that's also true if you're a Republican who believes in competition and the power of entrepreneurship.

Nevertheless, noncompetes have trundled on, with neither Congress nor the administrative branch showing the courage to act - until now. Khan's proposed rule bypasses Congressional inaction by invoking powers that she already has, under Section 5 of the Federal Trade Commission Act.

Section 5 gives the FTC broad powers to prohibit "unfair methods of competition" - an incredibly broad power to wield, and one that the FTC hasn't bothered to use since the 1970s (!):

https://casetext.com/case/national-petroleum-refiners-assn-v-f-t-c

Which brings me back to Secretary Buttigieg and the airlines. Because Chair Khan isn't the only federal regulator with these broad powers. As David Dayen writes for The American Prospect, "the Department of Transportation has the exact same authority":

https://prospect.org/infrastructure/transportation/ftc-noncompete-airline-flight-cancellation-buttigieg/

Under USC40 Section 41712(a), Buttigieg has the power to unilaterally ban transportation industry practices that are "unfair and deceptive" or "unfair methods of competition." Per the DOT's own guidance, this provision is "modeled on Section 5 of the Federal Trade Commission Act":

https://www.govinfo.gov/content/pkg/USCODE-2020-title49/pdf/USCODE-2020-title49-subtitleVII-partA-subpartii-chap417-subchapI-sec41712.pdf

The are a lot more recent examples of the DOT using this power than there are of the FTC using its Section 5 authority, like the Tarmac Delay Rule. But as Robert Kuttner writes, the airlines reneged on their end of the $54b bailout, slashing staffing levels and failing to invest in IT modernization - examples of the "unfair and deceptive" practices that the DOT could intervene to prevent:

https://prospect.org/infrastructure/transportation/ftc-noncompete-airline-flight-cancellation-buttigieg/

As Dayen writes, "The definition of 'deceptive' is 'likely to mislead a consumer, acting reasonably under the circumstances.' If the airline scheduled a flight, took money for the flight, and knew it would have to cancel it (or, if you prefer, knew it would have to cancel some flights, all of which it took money for), that seems plainly deceptive."

This is the same authority that Buttigieg used to fine 5 non-US airlines (and Frontier, the tiny US carrier that flies 2% of domestic routes) for cancelling their flights - his signature achievement to date. But as Dayen points out, this authority isn't limited to taking action after the fact.

The DOT can - and should - act before Americans' flights are canceled. It can use its authority under 41712(a) to "say that the cancellation itself is an unfair and deceptive practice and issue a fine for each canceled flight." It could "promulgate a rule saying that cancellations due to insufficient crews, or due to dysfunctional computer scheduling systems, are unfair and deceptive, with stiff fines for each violation."

Both of these were within Buttigieg's power months ago, when the State AGs begged him to take action to prevent the mounting epidemic of cancellations. Both of these are within his power now. Heads of federal agencies are among the most powerful people in the world and they can use that power to materially improve the lives of the American people.

Just ask Lina Khan.

Image: Gage Skidmore (modified) https://www.flickr.com/photos/gageskidmore/49560191032

CC BY-SA 2.0 https://creativecommons.org/licenses/by-sa/2.0/

[Image ID: A vector drawing of a man slumped at a desk with his face on his laptop. The man's face has been replaced with that of Transport Secretary Pete Buttigieg. He has a DOT logo on his shoulder. There are also DOT logos on a coffee-cup on the desk and behind the desk, on the wall.]

[st-just]

In 1933, Supreme Court Justice Louis Brandeis penned one of his most famous dissents on a case, Liggett v Lee, involving a Florida law prohibiting the expansion of chain stores. Brandeis was writing at the height of the Great Depression, during the worst wave of bank failures in American history, as Germany was falling into fascism and democracies collapsed worldwide. It was a moment of total paralysis, not only economically but psychologically as well. Citizens had stopped believing they could govern themselves. They hungered for someone, anyone to step up. No one was in charge, and a spiral downward, of banks, of prices, of lives, of hunger, continued. In that moment, the Supreme Court made it slightly worse.

-Matt Stoller, The Monopolies Behind the Adderall Shortage

[kenyatta]

One of the great tropes in war movies is the lag time between the launch of a slow-moving torpedo and its explosion. In the movie Pearl Harbor, seamen on scaffolding attached to their ship watch with a confused look as a torpedo slowly moves into the side of their boat. It’s an awful moment, where they have time to realize they are going to die, but cannot do anything about it. Then comes the explosion. 

[...]

Changes in bureaucratic procedure, though obviously not dramatic, have a similar lag time. The policy fight happens, then there is the lag time as the bureaucracies move around seating charts and guidelines, and finally, there’s an impact. The process can take a long time, especially when it comes to filing cases, because of the need to investigate, draft complaints, and move the whole process through the court system. It can take even longer if it’s a new or unused area of law, which requires policy formulation and information-gathering before the process of bringing cases can start. And of course this must all be preceded by the White House and Congress setting up the agencies in the first place with nominations.

Right now, we’re in that lag time, the period after the launch of a torpedo, but before it has struck. Let’s start with the policy shift, aka the launch. That started when the White House appointed enforcers with a dedicated mandate. And that took awhile.

The Department of Justice Antitrust chief Jonathan Kanter came into office in November of 2021, which was over a year after Biden was elected. His counterpart at the Federal Trade Commission, Lina Khan, was seated in June of 2021, four months earlier. Unlike the DOJ, the FTC is a commission and requires a majority vote to do anything. For about 100 days, Khan had a working majority, but then one of the commissioners Rohit Chopra left to run the Consumer Financial Protection Bureau. For seven months, she did not have a full majority, which gave her Republican colleagues a veto. Last month, Alvaro Bedoya joined the commission, giving Khan a majority.

Since being seated, Kanter and Khan, along with allies like Tim Wu at the White House, have launched an array of initiatives that will bear fruit. These are structural changes to how we police markets, the tectonic plates of economic ordering. As such, they are not what most political people notice when the initiatives are launched. But they will be noticed when the explosions start.

Torpedoes In the Water - BIG by Matt Stoller

[collapsedsquid]

IF you invent a thing and patent it, and then somebody else makes a similar thing that infringes on your patent, you can sue them. For various reasons, this may be inconvenient for you, as an inventor: You may not have money to pay for lawyers, or you might be too busy inventing and making stuff to sue, etc.

But you can sell your patents to somebody else. You can, for instance, sell your patent to somebody who is not in the business of inventing and making things, but who is in the business of acquiring patents and suing people who make things that allegedly infringe on the patents. This is a business that benefits from scale; the people in this business — sometimes called “non-practicing entities,” or more pejoratively “patent trolls” — will want to acquire lots of patents and sue a lot to maximize their returns.

The downside of scale in litigation is that, if you are constantly suing everyone in the world for infringing on your portfolio of patents, people are going to start rolling their eyes when they see your lawsuits. “These guys again,” they will say. “Patent trolls,” they will say.

But you can sell your patents to somebody else. You can, for instance, find some guy, and give him one of your patents, and then pay for him to sue people who make things that allegedly infringe on the patents, and sign an agreement with him where he’ll give you most of the money if he wins and just keep a little tip for himself for letting you use his name. And then when he sues, he doesn’t have a long history of patent litigation, and maybe people won’t roll their eyes at him.

Matt Stoller would approve, folks we're breaking up the patent troll monopolies

[theculturedmarxist]

Big Bottle and the Baby Formula Apocalypse

As anyone with an infant knows, there is a major crisis in the feeding of America’s babies right now, because parents in some areas can’t get baby formula. A few months ago, a major producer of formula - Abbott Labs - shut down its main production facilities in Sturgis, Michigan, which had been contaminated with the bacteria Cronobacter sakazakii, killing two babies and injuring two others. Abbott provides 43% of the baby formula in the United States, under the brand names Similac, Alimentum and EleCare, so removing this amount of supply from the market is the short-term cause of the problem. (Abbott and Mead Johnson produce 80% of the formula in the U.S., and if you add in Nestle, that gets to 98% of the market.) The problem is not, however, that there isn’t enough formula, so much as the consolidated distribution system creates a lot of shortages in specific states.

First, it’s hard to convey what a nightmare this situation is for parents, especially those whose children require special kinds of formula because of gastrointestinal issues or food allergies. “The shortage has led us to decide to put a feeding tube in our child,” said one parent, who simply could not get the specialized formula her daughter needs.

Baby formula is not just food, but the primary or sole nutrition for a vulnerable person in a stage of life in which very specific nutritional requirements are necessary for growth. Baby formula was created during the 19th century as we developed modern food preservation techniques. Before this remarkable innovation, baby starvation was common if a mother couldn’t breastfeed her infant (which happens a lot). The invention of industrialized formula was one of those creations we take for granted, but like antibiotics and other medical and scientific advances, it was one that fundamentally changed parenthood and the family.

This shortage is showing just how reliant we are on industrialized formula. The causal factor behind the crisis is poor regulation and a consolidated and brittle supply chain. Imports from Europe are often prohibited, even if there were excess productive capacity elsewhere. I spent a bit of time calling around to people who work in formula, and the industry is basically on a war footing. Everyone is panicking, because the situation is, in short, a nightmare.

I’m going to try and lay out the situation, and explain the market structure. There are two basic mechanisms that have created a concentrated and brittle market. The first is that regulators are tough on newcomers, but soft on incumbents. And the second is that the Federal government buys more than half of the baby formula in the market, and under the guise of competitive bidding, it in fact hands out monopoly licenses for individual states. That makes it impossible to get newcomers of any scale into the market, along with the more resiliency that such competition brings. It also makes it hard to address shortages in one state with extra formula from elsewhere.

But first, let’s start by following the money.

Financial Returns or Your Baby’s Life

The simplest way to understand why there’s a shortage is to look at the incentives for the CEO of Abbott Labs. Here’s a Reuters report coming out of the company’s investor call in April, after the factory shutdown was underway. Keep in mind, the executives on this call are the people responsible for managing this vital resource, and here’s how seriously they took the problem.

“Abbott called the recall a "short-term hindrance" and said it was working closely with the regulator and has begun implementing corrective actions and enhancements to the facility.Abbott shares rose 2.4% to $122.90 in morning trade as some analysts said the comments during the conference call allayed worries over the recall.Despite the recall and supply chain issues, Abbott beat quarterly profit and revenue estimates in the first quarter.”

Not a single Wall Street analyst asked about the recall. Why? In some ways, it’s because it doesn’t matter that much to the bottom line. Abbott Labs is a diversified medical devices and health care company, and its nutritional segment is a relatively small part part of its business. But also, if you need baby formula, which is highly regulated by the Food and Drug Administration, and distributed by a monopoly-friendly system run by the Department of Agriculture, where else are you gonna go?

And that’s the problem. Baby formula is a shared monopoly, and we are at the mercy of Abbott Labs, Read Johnson, and Nestle. And their execs know it. So how does this shared monopoly work? Let’s start with the regulators.

The Failed Priesthood at the FDA

Entering the baby formula market is a difficult process, and takes years of work. For instance, Bobbie, which makes European-style formula with a contract manufacturer, is the first firm to come into the market in five years. Bobbie is also a direct to consumer niche firm, so it doesn’t have the scale to address the market dislocation at hand. It was a rough road getting started; the firm faced a recall and a shut down purely for manufacturing in Germany, and it had to go through millions of dollars of capital and a steep learning curve to get its product accepted by the FDA.

The reason for regulatory hurdles seems good, on the surface. Manufacturing formula is very specific, it’s not like a snack bar, it fits in somewhere between medication and food in the regulatory spectrum. Congress put extremely detailed instructions in the Infant Formula Act of 1980. To get a product approved, an entrant needs protein efficiency studies, thousands of quality tests from raw ingredients to the end product, nutritional tests to make sure it is suitable for infants, and approvals for new suppliers. There are specialized forms of formula for babies with different conditions. Naturally, starting a new formula firm takes a massive amount of time, patience, and capital.

And that’s if you just want to make a product and can even find a contract manufacturer to produce it for you. There is just one contract manufacturer of baby formula in the U.S. - Perrigo Nutritionals, and it requires a large initial order volume, which adds a hurdle to new potential firms. What about new factories? Earlier this year, a nutrition company ByHeart became just the fourth infant formula brand to have its own factory, something no one else had done in fifteen years. Certifying a factory for infant formula, like making a new product, is difficult and expensive.

Is this expense necessary? Not entirely. The institutional risk tolerance of the FDA is extraordinarily low. FDA officials see themselves as an elite priesthood, pursuing excellence merely by dint of being at the FDA. From this perspective, there is zero incentive to let new players into the baby formula market when, in their view, there are already excellent quality companies serving the market, such as Abbott Labs, Mead Johnson, and Nestle. It’s true that baby formula is overpriced in the U.S., costing about twice as much as it does throughout much of Europe. But to an FDA official, price is incidental.

The thinking goes, who wants to be the official that accidentally lets a reckless entrepreneur poison a bunch of babies, just so that there’s some competition in a market that is already delivering good products? When there is no problem at hand, there is no reason to allow innovation in the industry, or additional capacity.

The problem, of course, is that the FDA is harsh to newcomers, but deferential to incumbents. According to Healthy Babies Bright Futures, baby formula made by the big guys in the U.S. is full of dangerous brain-altering heavy metals. HBBF tested thirteen different baby formulas, and every single one had “detectable levels of arsenic, cadmium, lead and/or mercury,” which are all considered to be neurotoxic, interfering with brain development and “causing permanent IQ reductions in children.”

Moreover, FDA inspections of Abbott plants are obviously a disaster. Abbott had old and dirty equipment making formula, falsified records, deceived regulators, had bad product tracing, and did not fix problems after discovery. FDA inspectors noticed problems with the plant in September, but ignored them. Then, a whistleblower told the FDA of these problems in October, but regulators didn’t even bother to interview him/her until December. Moe Tkacik, in a viral Twitter thread, persuasively laid out parallels to the Boeing/FAA disaster.

So that’s the regulatory problem. Then there’s the market structure, which creates a lumpy distribution system when there’s a shortage.

Rebates and Scams

The biggest buyer of infant formula in the U.S. is WIC, or the Special Supplemental Nutrition Program for Women, Infants, and Children, which is run by the Department of Agriculture. Roughly half of women get formula from WIC. Rather than food stamps, which is a set amount of cash that can be used for most products, most states only allow women to buy formula from one company, though each company offers a bunch of different brands.

To save money, the government requires states to hold auctions to get the lowest price for formula. The problem is, state agencies use a complex rebating system to give the contract for the entire state to one manufacturer, and that contract can only be changed once every four years. Here’s the USDA explaining the program.

Typically, WIC State agencies obtain substantial discounts in the form of rebates from infant formula manufacturers for each can of formula purchased through the program. In exchange for rebates, a manufacturer is given the exclusive right to provide its product to WIC participants in the State. These sole-source contracts are awarded on the basis of competitive bids. The brand of formula provided by WIC varies by State depending on which manufacturer holds the contract for that State.

This rebate system distorts the entire market in a state, because it’s just not worth having alternative formulas on a retail shelf if half of the buyers simply cannot purchase those formulas. As a result, the market tips to the WIC supplier, and that supplier raises prices on non-WIC recipients, and does so by between 26-35%.

Here’s what happened to the baby formula market in California when the WIC contract changed hands.

This whole scheme, done under the guise of welfare, is essentially a transfer of wealth from the middle class to the poor, done by enriching the baby formula cartel. The monopoly friendly program design was peddled by the anti-poverty group the Center for Budget and Policy Priorities, which is both on the center-left of the political spectrum and aligned with Wall Street.

This brings us back to the shortage. According to Truthout, Abbott is the monopoly provider of formula for 34 states, seven Indian tribal organizations, four territories and Washington, D.C. So that’s where we’d expect the shortages to be focused. Because of the design of the program, it’s not particularly easy to move different kinds of formula to WIC recipients.

And that, perhaps more than any actual national shortage, is the problem. Here’s the Wall Street Journal today. “The FDA said overall the nation’s infant formula manufacturers are making enough to meet demand even w/out Abbott’s main factory online. The industry sold more formula in April than it did the month before the recall, the FDA said." The White House echoed these claims, asserting that “more infant formula has been produced in the last four weeks than in the four weeks preceding the recall.”

There’s a well-known black market in formula, which speaks to the dysfunction of the distribution system. The shortages are concentrated in certain areas even if nationally there might be enough to get by. According to Heather Bottemiller Evich, there are just “6 states that had baby formula out-of-stock rates higher than 50 percent: Iowa, South Dakota, and North Dakota were 50-51%. Missouri was 52%. Texas was 53% and Tennessee was 54%.” But nationally, it’s not so bad.

In some ways, the problem is that there’s baby formula, but it’s not in the right place (though the Sturgis factory was a monopoly producer of lots of specialized formulas, so the actual shortage itself is a huge problem). The simplest solution here is to get aggressive and capable leadership around logistics, and then move the formula where it needs to go. We’ll have to open up imports temporarily, and move supply around the country while allowing WIC recipients to buy non-contract brands. I suspect at some point the Biden administration will get their hands on the situation, and fix it. There will be Congressional hearings, and Abbott’s CEO will get yelled at.

Longer-term, I hope there will be consequences. First, we need to explore forcing Abbott to break off its nutritional division from the rest of the firm, since it’s fairly obvious that there’s little corporate focus on making sure the baby formula division is run well. Conglomerates are usually inefficient. Second, Congress should really restructure the WIC program so that the auctions don’t create monopolies, and lumpy distribution patterns that induce regional shortages.

Finally, the FDA needs wholesale reform, since this kind of crisis seems to happen a lot. I mean, the relationship between the FDA and Abbott Labs was also behind the rapid Covid testing scandal, where FDA official Tim Stenzel - who had worked at Abbott - then approved Abbott as one of two firms to make those tests, and blocked all other entrants. That’s why rapid Covid tests were both in shortage and much more expensive in the U.S. than they are in Europe. The FDA needs to be broken up so that its drugs and food divisions are separate, and it needs to take its mandate seriously for a resilient supply chain.

In some ways, this baby formula crisis is the same problem as United having passenger David Dao being beaten up in 2017 and removed from the plane, to public horror and Congressional rage. United’s stock went up after the incident. Or it’s like nurses wearing garbage bags at the beginning of the pandemic because of our dependence on China, and the sad reality that policymakers in the last two years have refused to stop sourcing from China. Hopefully, these kinds of failures, and the public rage, are laying the groundwork for wholesale reform of our government. At every level of policymaking, we have a systemic bias against people who focus on making things, in favor of well-branded monopolists and cloistered regulators who are obsessed with fanciness instead of actual critical thinking.

And that’s no way to run a democracy.

[azspot]

According to one mobile carrier, 98% of iPhone owners buy a new iPhone. In China however, that number, at least a few years ago, was just 50%. The reason is simple. In America, it’s difficult to move out of the Apple ecosystem. In China, it’s easy.

Matt Stoller

[arcticdementor]

(link)