In Goliath,
author Matt Stoller argues that American policymakers have stopped fighting
monopolies since the 1970’s, which has led to a new age of robber barons that
corrupt our politics. Stoller sees the Democratic Party of Woodrow Wilson and Franklin
Delano Roosevelt as the good actors against monopolies. He claims that the
modern Democratic Party of the Clintons is more like Teddy Roosevelt, seeking
to co-opt monopolies rather than destroy them. The book is very good and
important, though I thought it would go into more detail in the pre-FDR era.
One aspect I really liked was Stoller’s chapter on Andrew Mellon, who was Secretary
of the Treasury from 1921-1933. Mellon was incredibly corrupt and Stoller goes
over his crimes, writing that, “Mellon had, as treasury secretary and thus boss
of the Bureau of Internal Revenue, given his own companies tax refunds. He held
bank stocks while serving as chair of the Federal Reserve. He also owned a
massive distillery while enforcing Prohibition, and illegally traded with the
Soviet Union. Patman even noted that Mellon had had the Treasury Department
launch a magazine dedicated to the use of aluminum in architecture, while controlling
the Alcoa aluminum monopoly. The basic accusation was self-dealing; Mellon had
been transacting his own business at the Treasury Department, and had retained
control, if not formal ownership, in over three hundred corporations engaged in
global commerce.”
Something
that I had not realized is that FDR was the biggest trustbuster president. It makes
sense with the New Deal and all, but I had always associated that sort of thing
with Teddy Roosevelt and Taft. The FDR DoJ brought charges against Mellon’s Gulf
Oil, seventeen major oil companies, forty-six individuals, and three trade
publications just for fixing gasoline prices. The whole middle of the book is
basically dedicated to legislation that acted as a collective shield against
monopoly and big business power, all passed from in the New Deal Era up until
1970:
- The Revenue Act of 1937 passed, which closed loopholes that allowed the wealthy to avoid taxes.
- The Banking Act of 1935, according to the author, “moved power from privately owned Fed branches to the presidentially appointed board in Washington, D.C. It transformed the Federal Reserve into a public entity, ensconcing power over the economy in the hands of a publicly run central bank.”
- The Robinson-Patman Act, also known as the “anti-A&P Act” barred the use of discriminatory pricing to gain monopoly power. A&P Supermarket was famous for doing this to destroy its competitors. The law also outlawed the kickback system that A&P used to get special bulk discounts through advertising allowances from producers.
- The Celler-Kefauver Act of 1950 banned anticompetitive mergers.
- The Bank Holding Company Act Amendments of 1970 is, according to Stoller, “one of the most important antimonopoly laws of the twentieth century. It stopped the banking industry from buying major insurance companies through holding companies, preserving the traditional barrier between commerce and banking that Fed Chairman Alan Greenspan would break in 1998.
Everything
changed in the 1970s. It seemed like the New Deal had transformed itself in the
1960s to lower taxes without lowering spending, which caused huge inflation.
Then, when the oil shocks of the 1970s came, instead the government couldn’t increase
spending without increasing inflation. Republicans and Jimmy Carter were
strongly against inflation and Carter famously made Paul Volcker, a very
right-wing dude, his Fed chairman. Instead of raising taxes and spending to
fight both inflation and unemployment, Volcker raised interest rates to
astronomical levels to kill inflation through the creation of unemployment.
This was paired with the fact that the Fed became too worried to ever let bankers
fail, so it would bail out the bankers in any crunch. As banking monopolies
grew “too big to fail,” it would create some very bad incentives for them when
they knew that the government would always save them no matter what.
The 1970s
brought political change as well. Committee chairs in Congress would now be
decided by a vote of their entire party, rather than just selecting the most
senior member of the committee. This led to the defeat of many older chairs,
including Wright Patman, who Stoller makes the hero of the book. The Watergate
Babies, Democrats who were elected in 1974 and 76, were not concerned about
economic issue and monopoly power, primarily concerning themselves with social
issues and Vietnam. This led to pro-banking interests leading major committees,
most notably the Banking Committee, of which Patman, a strongly anti-bank
warrior, had been chair. The shield against big business’ power was slowly
dismantled. Stoller writes of the Consumer Goods Pricing Act of 1975, which
invalidated state-level fair trade laws, the kind that stopped chain stores from
predatory pricing. Stoller calls it the “single biggest step toward the destruction
of the independent business enterprise—and the small producer and small
retailer—in the history of America.” Due to the 1975 legislation, small businesses
became very vulnerable to powerful chain stores and producers could not longer
say what middlemen would do with their products. It would create an age of
powerful middlemen.
In the 1980s
the deregulation got even worse. In 1982, Reagan allowed banks to pay whatever
they wanted on deposits and eliminated rules that restricted savings and loan
banks to their core business of helping people finance homes. This allowed them
to start speculating in riskier investments like financial derivatives and
commodities. Reagan’s administration, essentially run by big business
interests, had no interest in busting trusts. While Nixon and Carter had
seriously slowed DOJ suits against companies, the Reagan administration filed
just four (next to nothing) and cut the anti-trust division’s staff almost in
half. Economists were elevated in the DOJ to be necessary in any case and they
tended to be economists who favored monopolies. New guidelines made it much
harder to challenge mergers. They required complex cost/benefit analyses that
were used to shut down any attempts at stopping a merger. With no way to stop
mergers, the economy grew increasingly concentrated, and competition decreased.
Corporate raiders entered the scene. These financiers would look for companies
that “generated cash, had little debt, and owned assets.” These conservatively
managed companies were perfect victims on whom they would pile their debts
after a hostile takeover, in which the raider would surreptitiously buy out a majority
of the company. It would end up costing next to nothing since a raider put all
of his debt on the company once he had it, essentially paying himself back.
Stoller
saves what is honestly the angriest portion of his book for the last chapter.
He discusses the Clinton administration and the ways in which Democrats, the
same party who created the shield to protect democracy against big business,
were cutting off parts of it to achieve the economic gains of the few. In 1999,
Clinton worked with a Republican Congress to pass the Graham-Leach-Bliley Act,
which fully repealed Glass-Steagall, the Depression-Era law that famously split
commercial and venture capital banks. The Commodity Futures Modernization Act
of 2000 eliminated public rules that limited the use of derivatives by enormous
banks. The Telecommunications Act of 1996 started to allow telecom companies to
re-merge together, and AT&T, the old monopoly, started to re-form through
buying back its old constituent parts. The number of mergers that occurred
under Clinton is astounding. In the twelve years of Reagan and Bush, there were
85,064 mergers valued at $3.5 trillion, but under just seven years of Clinton
there were 166,310 deals valued at $9.8 trillion. Stoller writes that the DOJ
even approved the Exxon and Mobil merger, unifying two parts of the old Rockefeller
empire of U.S. Oil.
Stoller
is really upset that Democrats have betrayed their old anti-monopoly creed. I
think that he is angrier at them than Republicans because he had always expected
this behavior from Republicans but not from the Democrats who had saved the
country in the 1930s and 40s. For example, Obama promised Congresswoman Donna
Edwards that as part of the $700 billion TARP deal, he would attach protections
for homeowners that would allow bankruptcy to cover mortgage debts, but he did
not. Today, the outlook is dark, especially in the technology sector. Google
and Facebook took 60% of all online ad revenue in 2018. Google has 90% of the
search ad market, “can track users across 80 percent of websites, and its ad
subsidiary AdMob has 83 percent of the market for Androis apps and 78 percent
of iOS apps. Facebook has 77 percent of mobile social networking trafficking,
and roughly two thirds of Americans get news on social media.” This is in the
context in which local news is dying. “Roughly 1,800 local newspapers in
America have disappeared since 2004, and over 2,000 of the 3,143 counties in
America now have no daily newspaper. Pittsburgh has become the first midsized
regional city without a daily newspaper. Specialty newspapers are dying as
well; from 1999 to 2009 the number of black newspapers was cut in half. From
2005 to 2015, roughly 26 percent of newspaper journalists—including digital
outlets—were laid off. There have also been massive declines in the workforce
of related industries, like radio, book publishing, magazines, and music.” With
no alternate sources of news, Facebook will become more or less the only place
people get news anymore. “Meanwhile, Amazon captures nearly one of every two
dollars Americans spend online, and it is the leading seller of books, toys,
apparel, and consumer electronics in the nation. Its cloud computing subsidiary
has over one million enterprise customers, it is a major movie producer and
defense contractor, and it has 100 million U.S. customers that are members of
its Prime bundling service. It is the number one threat to independent
retailers.” At the very end Stoller breaks into first person to openly advocate
for resistance against this and for the creation of new protections against
monopolies. I think that the book was extremely convincing and hopefully
important people are listening.
Miscellaneous Facts:
- Due to a wave of mergers, 40% of hospital stays happen in markets where one entity controls all of the hospitals.
- Teddy Roosevelt reached a deal with JP Morgan to bring anti-trust suits against large corporations but not against those owned by Morgan.
- In the early 1920s, 90% of money-producing patents and 90% of all dividends and interest payments were held in the North. Of the top 200 corporations, 9 were in the South, 11 in the West, and 180 in the North.
- FDR tried to veto the Bonus Bill of 1935 that offered earlier benefits to veterans of World War One, but he was overridden by Congress.
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