Executive Order 14036

On July 9th, the Biden Administration issued Executive Order 14036, “Promoting Competition in the American Economy.” It takes a “whole of government” approach to improve our free-market capitalist system. Citing the trust busting of Teddy Roosevelt and the New Deal of FDR, the long executive order includes 72 separate regulatory suggestions and directives spread across a dozen agencies.

In his introductory comments President Biden noted that his goal was, “bringing fair competition back to the economy,” and to assuage the building concerns in the markets, he declared himself a “committed capitalist.”

Although Biden naturally takes a central planner’s perspective, this order is not just about more regulation. In fact, he itemizes a few regulatory excesses that ought to be curtailed.

He points out that buying a hearing aid requires a doctor’s prescription dramatically raising the cost of a device that otherwise should have enjoyed technology-driven improvements in cost and performance over the past decades. Further, he points out the excessive licensing requirements and training periods for hair and nail salons. For the record, in San Francisco, fortunetellers are closely regulated and they pay an annual license fee. When the law was put in place, one wag asked an industry participant if she foresaw the new requirements.

Getting rid of these barriers to entry would certainly increase competition and likely lower prices. But these are all examples of excessive state regulation. It is not clear if the Administration will be able to stretch the Commerce Clause to federalize the regulation of nail salons.

Executive Order 14036 also highlights the assorted airline fees for ticket changes (before COVID), checked bags, overhead compartments, seat size and food that are a result of robust competition. They cite the fact that checked bag fees seem to move in lock step across the industry as a point of possible collusion. The unbundling of these services, however, reduced ticket prices for the passengers that don’t use them.

Reregulating the airlines could be a slippery slope. Consider the state of air travel before President Carter began deregulation in 1978. Prices were high, few people could afford to fly, and the government set routes, fares and schedules.

Today you can fly a round trip from SFO to JFK for $192, the equivalent of $38 in 1975. The seat will be small and uncomfortable, and you will have a baggage limit, but you can make that trip. This $38 compares with the government mandated fare in 1975 of $1,442 (or $7,282 in today’s dollars).

Increased government intervention in markets does not always increase competition.  Historically, in many cases, it had the opposite effect.

With powers granted under the Economic Stabilization Act, on Aug. 15, 1971, President Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.” Increases were prohibited without the approval of a “Pay Board” and a “Price Commission.” Nixon was fighting inflation, but his actions reflected an earlier President with a different problem.

FDR’s New Deal was designed to decrease competition, reduce production and increase prices as they were fighting the deflationary pressures of the depression. That is when the federal government started paying farmers not to grow food crops, putting thousands of tenant farmers out of work.

We all recall the bizarre story of 49-year-old Jacob Maged of Jersey City. In 1934, he was arrested, convicted and jailed for charging only 35 cents to press a suit while the federal law under the NRA Cleaners and Dyers Code required that he charge 40 cents.

A key component of this Order is to launch more anti-trust actions against proposed mergers. The Administration even contemplates unwinding completed mergers that have not produced socially beneficial results.

In this regard, economic policy has moved away from the “maximize consumer welfare” standard in anti-trust enforcement to a philosophy known as neo-Brandeis or hip-hop anti-trust. Hip-hop anti-trust includes more malleable objectives, shifting the focus away from consumer welfare to income inequality, employment and wage growth.

When I started working in the technology sector in the 1980s, there were over 100 disk drive manufacturers in the U.S. Today, there are only a handful. Yet, given the improvement in price and performance, it is impossible to argue that consumers did not benefit from that consolidation. Under hip-hop anti-trust this consolidation would have been limited to preserve jobs.

Once again, we find, “net neutrality” on the list. When last invoked, the 1930s-style regulation reduced competition, investment, and innovation in broadband services. With the emergence of 5G and expected expansion of wireless broadband, we struggle to understand why Comcast et al. need government protection from new competition and the forces of dynamic pricing.

Although they won’t be open about it, big business should be pleased with this agenda. The new White House Competition Council gives them a simpler and more direct lobbying target than spending time and money on 535 representatives.

As during the New Deal, the principle of regulatory capture, whereby those that are regulated ultimately craft the rules under which they will be governed, ensures that the biggest companies will benefit most from this program. The examples are legion.

The Dodd-Frank Act passed in the hysteria following the sub-prime loan meltdown in 2008, is a recent example. Some 800 small banks shut down, unable to support the cost of compliance with 19,000 pages of new regulations. The result: the big banks got bigger.

None of this will happen overnight. The agencies need time to craft rules and subject them to public comment periods. Inevitably, there will be legal challenges. In the long-term we do not expect outcomes different from the historical effect of government intervention in free markets. Companies will compete aggressively to influence these regulatory programs. As they succeed with their lobbying campaigns, innovation and competition will suffer.

-Jim Anderson

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