George Bush's Antitrust Tax: No one informed his Justice Department that this is no longer the era of Teddy Roosevelt- or Jimmy Carter
Moore, Stephen
George Bush's Antitrust Tax No one informed his Justice Department that this is no longer the era of Teddy Roosevelt—or Jimmy Carter. BY STEPHEN MOORE LMMY CARTER'S JUSTICE DEPARTMENT...
...For all the vilification of Michael Milken, his firm Drexel Burnham easily created more wealth for American shareholders single-handedly than all the trustbusters in American history combined...
...A Business Week expose on merger mania reported that "the M&A bonanza during these six years (1995-2001) shattered record after record...
...The same federal government that says we have to have quotas to protect the steel industry and subsidies to aid the rice, sugar, and cotton producers because these are "American strategic industries" tries to cripple our leading technology company in Microsoft...
...today it has been bought up by one of the baby bells it gave life to...
...The idea that a United-U.S...
...Are government lawyers more likely to safeguard shareholder value than the shareholders themselves...
...More bewildering is why the Bush administration would block a merger between two U.S...
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...BY STEPHEN MOORE LMMY CARTER'S JUSTICE DEPARTMENT treated virtually every proposed corporate merger as villainous and monopolistic...
...The Clinton administration ramped up the enforcement arm of the federal trustbusters, but actually few deals were disallowed in the late 1990s as the market tripled again in value...
...In this way, hostile takeovers help the little-guy shareholders rid corporations of arrogant, abusive, excessively compensated, and ineffective corporate management...
...We do expect to be out of this watch in just a few weeks, so please act quickly...
...Consumer prices fell rapidly in the 1980s and continued to fall throughout the 1990s as well...
...You see, NextTen has become synonymous with high qualitywatches at extraordinary values...
...The Justice Department's harassment of Microsoft in the 1990s for its high crime of building a better mousetrap proves the Washington law of unintended consequences...
...Ironically, it is the administration of George W. Bush, with its pro-business credentials, that has kept the antitrust cops on the beat—and much to the detriment of consumers, business owners, and shareholders...
...Does anyone with even basic economics training really believe that steel is, in the long run, a more strategic industry for the U.S...
...These poison pills merely protect the jobs and the perks of upper level management...
...Steel seemed to be swallowing up the U.S...
...Satellite dishes, for example, hold cable TV prices in line even when the cable market is technically a monopoly...
...shareholders is if these antitrust bloodhounds at the Justice Department and the Federal Trade Commission were called off...
...In 2001, the Justice Department boneheadedly blocked a proposed merger between United Airlines and U.S...
...The issue then is, who should decide...
...As economist Burton Fulsom proved in his masterpiece, The Myth of Robber Barons, real prices were actually falling for consumers in most of these industries, thanks to technological and productivity advances and economies of scale...
...definition of a pro-consumer competitive industry...
...The battle between the two telecommunications giants has been complicated every step of the way by Justice Department snoops threatening lawsuits if MCI agrees to hook up with either of its deep-pocketed suitors...
...Antitrust activity and investigations are up about 50 percent since the Reagan years and more closely resemble the pit bull enforcement agenda of the economically illiterate Jimmy Carter than the free market policies of the Gipper...
...The PeopleSoft management tried to save their own skins arguing that their shareholders were being offered an undervalued price for their stock, when in fact Oracle offered $24 a share, quite a generous premium when the stock was selling at below $20...
...they are economically destructive...
...What makes it special...
...This complaint, U.S...
...These competitive forces explain why prices are stable or falling in virtually every industry except where the government has created its own legal monopoly, as in the Postal Service and education...
...The Justice Department regulators argued that these two mega airlines would acquire excessive market power, drive up airline ticket prices, and reap the rewards of monopolistic pricing power...
...still would have been served by at least five major air-lines...
...companies when the "market" of business software has been dominated for years by a German rival, SAP...
...Hewitt Pate is stepping down as the head of antitrust at Justice—his replacement should under-stand that the real danger is the trustbusters...
...We are offering the Regulator for a miraculous price—$349.75...
...Last year the Justice Department brought a law-suit against computer business software firm Oracle in order to block CEO Larry Ellison's hostile takeover of its software rival PeopleSoft...
...Yet discouraged they are...
...nor are they likely to reappear...
...The other luxury watch manufacturers had locked up the shelf space at the high end jewelers by offering large advertising con-tracts, so Max is left with 3,435 of these magnificent "Regulator Series 3" watches...
...Practically every hostile takeover, even those financed with "junk bonds," made hundreds of millions, if not billions of dollars for stock owners...
...The fine horologists (watchmakers) at Stuhrling just built a super luxury watch for this Christmas...
...The antitrust action by the Justice Department has potentially robbed U.S...
...Moreover, the consumer and the investor are often one in the same...
...I am keeping three for myself since I'm convinced that the rare design will make this watch sought after by col-lectors in years to come...
...If there is any action needed by the government in M&A activity, it should be by the SEC to investigate the legality of these anti-investor poison pills and to protect shareholder rights...
...economy...
...N N 14101 Southcross Drive W., Dept...
...Yes, there are a few examples, like OPEC or local utilities, which can in the short term artificially lift prices, but in almost all cases the monopoly survives because of government sanction, not because the competitive forces of the free market failed...
...20 THE AMERICAN SPECTATOR JUNE 2005F COURSE, NOT ALL MERGERS MAKE SENSE...
...In fact, both groups benefited from it...
...v. IBM, was filed in 1969 by the Justice Department alleging that IBM's supercomputer System/360 was a technology that would monopolize the "electronic digital computer market" and thus a violation of the Sherman Act...
...firms from gaining size, market share, and financial resources to compete against rival firms from Japan, Europe, and China...
...4 Stephen Moore is a senior fellow at the Cato Institute...
...Even if the merger had been approved, the U.S...
...other tech companies that hit it big as well...
...High-tech is a high risk, high pay off investment...
...But when Ronald Reagan entered the White House in 1981 one of the first policies implemented by his new laissez-faire administration was effectively to shut down the antitrust operations of the Justice Department and the Federal Trade Commission...
...Third, and most importantly, the forces of creative destruction that drive mergers and acquisitions in most cases add value to shareholders and drive down prices for consumers...
...firms from gaining size, market share, and financial resources to compete against rival firms from Japan, Europe, and China...
...And while the pro-regulatory forces cried horror at Reagan's green light policy to Wall Street mega-deals, 16 THE AMERICAN SPECTATOR JUNE 2005the predicted anti-consumer impact of these conglomerations never emerged...
...shareholders of $5 to $10 billion (the combined losses of U.S...
...Consider General Motors: a firm that once dominated the auto industry and yet today is a teetering corporate giant with multi-billion dollar losses, potentially in need of a federal subsidy to maintain its operations and workforce...
...As former Reagan chief economist William Niskanen recently wrote, "Shareholders are clearly paying a high price for rules that defend managements against proxy fights and hostile takeovers...
...It is time to repeal the Sherman Act, which launched this unproductive witch hunt against corporate mergers and supposed monopolistic corporate behavior...
...Last year United Airlines lost $2.5 billion and U.S...
...wielded his big stick at the big bad monopolistic Robber 18 THE AMERICAN SPECTATOR JUNE 2005Barons who drove prices through the roof and unfairly gouged working-class Americans...
...The Justice Department's actions against Oracle were stunningly inane...
...To order by mail, please call for details...
...it is what drives innovation, investment, and entrepreneurship and is part of the natural life cycle of a firm...
...The evidence of price-gouging by unregulated monopolistic enterprises was negligible...
...Even when firms may capture large market share or there appears to be a "natural monopoly"—broadband service to homes, for example—cut-throat competition from parallel industries keeps prices in check...
...It was five times greater than any other M&A boom in American economic history...
...than computer technology...
...Stii ding's big mis When quality isn't enough to take on the big guys...
...In each of these cases and more, the victims of Bush administration interventions have been American shareholders...
...Studies indicate that firms with strong shareholder rights tend to have higher profits, sales, and growth in share prices...
...In each instance we can look back with 20-20 hindsight and point to the economic illogic of the antitrust cops...
...H W AT WOULD INCREASE U.S...
...Max is in tears, but he needs the cash...
...Justice Department try to pre-vent a marriage that would benefit America's ability to compete in a vital high-tech market...
...firm in an industry, it typically competes against worldwide rivals...
...It was just a few years ago the Justice Department and many usually right-thinking economists actually believed that Microsoft exercised monopoly control over software markets...
...In the three busiest years, 1998-2000, deals totaled nearly $4 trillion—more than in the preceding 30 years combined...
...The mythology is that T.R...
...SRW147-01 Burnsville, Minnesota 55337 A back as beautiful as the front The unique bronze-finished movement is absolutely stunning...
...When the 3,435 watch-es are sold, that will be the end of them...
...The trustbusters at the Justice Department see monopolistic goblins in almost every merger and acquisition—even in cases where the takeover would increase the competitiveness of U.S...
...You can watch the smooth movement of the rotor and the 22 jewels work in precise harmony...
...None of those conditions exist today...
...Wrong...
...ment to dictate the terms of a sale oftentimes on terms congenial not to the owners, but to the firm's competitors...
...The antitrust cops never fathomed, nor did IBM's executives, that the person-al computer revolution, laptops, PalmPilots, and BlackBerries would erode their monopoly over larger and bulkier machines...
...But every year it is losing market share in a ferociously competitive open and level playing field...
...The movement oscillates at 21,600 vibrations per hour for accuracy to within seconds per day...
...President Bush wisely wants to create a pro-investor ownership society...
...New products fall rapidly in price and quickly become commoditized...
...In recent years corporate management has inserted in corporate bylaws insidious poison pills that prevent shareholders from getting a higher price during a hostile takeover attempt...
...Why shouldn't we celebrate when firms make enormous profits...
...Pricing power is just another name for profits...
...industry...
...Even if there is only one U.S...
...Federal regulators never learn that today's monopoly is tomorrow's corporate welfare recipient wielding a tin cup...
...Under this administration if two of three leading competitors in an industry attempt to consolidate, the Justice Department treats this as a de facto monopolistic endeavor...
...Phone companies now compete with satellite companies, cable companies, and others for phone and Internet services...
...But the desire to collect extra profits is not a criminal pursuit...
...Well, Max made a mistake...
...Federal Reserve Board Chairman Alan Green-span has echoed these very sentiments...
...It is unimaginable that if Microsoft were a Japanese firm, the government in Tokyo would try to break it up because it is too profitable...
...This is he case for several reasons...
...Air and United over the past four years) in wealth...
...The economic literature is clear that the biggest gainers from M&A activities are not the acquiring firms, but the owners of the acquired firms...
...Several years ago he told Congress, "I am not saying that dominant positions in industries cannot be maintained for extended periods...
...By the end of Reagan's first term, investigations into restraint of trade cases fell by half...
...One can understand JUNE 2005 THE AMERICAN SPECTATOR 17 GEORGE BUSH'S ANTITRUST TAX why the European Union courts took every possible action to undermine this merger...
...Finally, antitrust actions often inhibit U.S...
...NTITRUST LAWS ARE WORSE THAN OBSOLETE...
...In the 21st century with truly planet-wide markets, the antitrust laws are as obsolete as telegraph machines...
...Instead of the potential of one economically healthy—or at least break even—airline, we now have two anemic birds, neither of which may be flying in 18 months...
...We lament when our firms lose money, lay off workers, and close down...
...PeopleSoft share-holders reaped an enormous windfall from the sale...
...Those that come to mind in recent times fail this test miserably...
...First, every business strives to seek out opportunities to take advantage of pricing power...
...In the early 1980s AT&T was forced by federal regulators to break itself up into bite-sized pieces...
...The in-tent of the takeover was to create a hyper-efficient U.S...
...Since deregulation, long distance prices to businesses and consumers have fallen in some cases by 67 per-cent...
...But to get there his team of economists and lawyers will need to understand that the greatest risk to the stock market and America's economic superpower status is not the trusts...
...But why in the world would the U.S...
...Using one of the most complex regulator movements ever designed, they engineered the Regulator Series 3. With it's large separate minute dial and small hour dial, this watch was built to take on the likes of Rolex"" and Patek Phillipen' and was to retail for $5,750...
...This is no longer an American marketplace...
...Some have been colossal failures, most notably the AOL-Time Warner merger...
...At a time when 55 percent of American house-holds are investing, it makes no sense to "help" consumers with trustbusting activities that will hurt their investments...
...The government in effect says to the Microsofts and Office Depots: you can win, but not too much...
...In a $25 trillion hyper-competitive global economy that operates largely without borders, and with technological advances tearing down in the blink of an eye once-powerful industries and products that just yesterday dominated the market place, there simply is no such thing as monopoly power in pricing...
...But let us for the moment concede the point that strict antitrust policing and price controls had at least some economic justification in that bygone era of the early 20th century when markets were small and geographically restricted, where firms had elbowed out more than half the market, where there was no competition from global trade, and where there were tall technological barriers to new entrants (as in the railroad industry...
...But I suspect in free competitive markets that it is possible only if dominance is maintained through cost efficiencies and low prices that competitors have difficulty matching...
...The Sherman Act dates back to the trustbusting era of Teddy Roosevelt when Standard Oil and U.S...
...The Regulator will make you want to learn how to tell time all over again...
...One of the most bizarre and unforeseen repercussions of the lawsuit, as documented by stock market analysis, was that nearly every time things went poorly for Microsoft in the JUNE 2005 THE AMERICAN SPECTATOR 19 GEORGE BUSH'S ANTITRUST TAX court proceedings, not only did the share price of Microsoft fall (as would be expected), but the shares of Sun Microsystems, Oracle, and other software rivals who were plaintiffs in the complaint against Microsoft also fell (completely unexpected...
...Trillions of dollars in new wealth flowed to them as the Dow Jones nearly quadrupled in value from 800 in 1982 to 3,000 by 1989...
...The competitiveness of American industry surged and employment soared...
...Entrepreneurs often start businesses, and venture capitalists invest in them, with the very intention of someday being bought out at a high price...
...One value of the raiders is that they serve as the ultimate cops on the financial market beat, searching out and destroying flab and inefficiencies...
...The onus should be on the trustbusters to cite a single example of a government intervention against a "restraint of trade" that yielded economically beneficial effects...
...The government on one hand won't allow firms to achieve too much—or then to fail...
...In the end the courts dismissed the Justice Department complaint and the merger finally took place...
...SOME OF THE ENFORCEMENT ACTIONS by the Bush antitrust cops defy all economic logic and basic common sense...
...Barriers to international trade have been substantially lowered...
...The winners have been lawyers, who exact millions of dollars of fees to sort out these cases, entrenched corporate management, and our foreign rivals...
...The telecommunications field is the very In the 21st century with truly planet-wide markets, the antitrust laws are as obsolete as telegraph machines...
...The tonneau styled case is fused in 23k gold and the alligator-embossed band is fitted with the finest butterfly clasp that we have seen in our travels...
...And this has been an industry where the competitive forces of discount airlines have driven ticket costs to passengers downward by almost 60 percent over the past 25 years since deregulation...
...Even more absurd were the decade-long legal battles entangling IBM...
...The dial is machined in a silver-white star burst and the escapement is visible through the dial so you can watch the balance wheel in action...
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...That these laws ever made sense has been one of those enduring bits of American folklore perpetuated by leftist history...
...And when competing on that scale, often bigger is better...
...If the Justice Department wishes to safeguard investors and consumers, it should turn its attention to activities by boards of directors that prohibit takeovers...
...In fact, a recent study by the National Bureau of Economic Research reviewing 12,000 mergers from 1980 to 2001 finds that on balance the giant mergers were bad for the acquirers' shareholders (but, again, good for the shareholders of the acquired firm), though marriages between smaller firms were generally wealth-enhancing for both parties...
...Then he continued: "By the measures of what benefits consumSTEPHEN MOORE ers, such enterprises should not be discouraged...
...Second, as legal expert Robert Levy of the Cato Institute points out, antitrust laws "debase the very idea of private property by allowing the governIn each instance we can look back with 20-20 hindsight and point to the economic illogic of the antitrust cops...
...The Regulator movement is utilized in the master clocks at observatories, but Stuhrling has miniaturized this complex movement for the Regulator Series 3. Separate hour and minute dials will make you stare at this unique watch...
...Air merger was monopolistic now looks like a cruel joke...
...competitiveness and raise stock values for the 110 million U.S...
...This triggered a frenzy of Wall Street-financed corporate mergers and acquisitions...
...Max needs to liquidate these luxury watches so he came to us at NextTen...
...You invest in dozens of firms that lose money in the hopes that one or two will hit it big and more than pay off for the losses...
...In fact, most tech stocks took a hit when Microsoft faced severe penalties...
...The media snarled at the frenzy, describing it as the rise of New Robber Barons with a "greed is good" Wall Street ethic that would hurt shareholders and consumers...
...High profits are typically transitory as they signal to potential competitors to enter the market...
...Who should regulate the advisability of merger activities: investors who put up their own money, or government lawyers...
...Airways sits in Chapter 11 bankruptcy proceedings...
...Now the Justice Department is investigating whether to impede the $10-billion-plus sale of MCI to either of two competing phone companies, Verizon and Qwest...
...Antitrust has the effect of a "tax" on the winners...
...firm to compete on equal footing...
...Wall Street reckoned that if the Justice Department could with a stroke of the pen destroy wealth in Microsoft, it could shear off profits from Antitrust actions often inhibit U.S...
...Today most high value-added industries are knowledge-based...
Vol. 38 • June 2005 • No. 5
