The New York Times has been wringing its hands about the
expansion of market power of companies in certain industries as they have grown
through mergers and acquisitions (of course, the NYT applauds the growth of
government power wherever it occurs).
Mergers to gain scale are especially bothersome to the editors at the Times
since Jason Furman and Peter Orzag’s
research seems to show that firm size is a factor that exacerbates income
inequality (big firms pay better).
(http://www.nytimes.com/2015/11/01/opinion/sunday/how-mergers-damage-the-economy.html?_r=0)
The NYT caterwauling about consolidation reminds me of the story of
the charity concert at which Bono was performing. Bono stood up and began clapping his hands
over his head and said, “Every time I do this, a child in Africa dies.”
From the back row, someone stood up and yelled, “Well stop
f—ng doing that then!!”
The NYT, ever the supporter of larger, more intrusive government
spending and regulation, cheered the Obama administration on when it bulldozed
its way into the finance and health care industries. In these two major industries, the Affordable
Care Act and Dodd Frank have themselves ignited industry consolidation.
Christopher Pope, in his article, “How the Affordable Care
Act Fuels Health Care Market Consolidation,” he noted:
The shackling of competition is an essential feature of Obamacare, not a bug. The health care system it establishes relies on unfunded mandates to raise revenue, seeks to cross-subsidize care with regulations, and views genuine competition as a threat it its funding structure. As a result, it is obliged to standardize insurance options and eliminate cheaper alternatives that threaten to undercut its preferred plan designs. By inhibiting competition between insurers and encouraging their integration with providers, Obamacare further erodes competitive checks on monopoly power of hospitals. It strengthens incentives for hospital systems to buy up independent medical practices and surgery centers, weakens the competitive discipline on prices, and reduces the array of options available for patients.
It is no surprise then, that consumers have been harmed with higher costs and higher premiums that resulted from enactment of the ACA and that government policy is creating incentives for entities to consolidate.
Likewise, Dodd-Frank, which was enacted in response to the financial crisis of '08 had much the same results. As Eugen Fama noted in his comments a few weeks ago, Dodd-Frank did not do away with "Too Big to Fail" as a policy. Rather, it enshrined it. And by raising compliance costs dramatically, the law is wiping out an essential aspect of the finance industry that in no way was responsible for the meltdown--community banks. Community banks now cannot afford the hugely burdensome compliance requirements demanded by the government. As a result, no new banks have been chartered and there has been a precipitous drop off in numbers of community banks and assets that are held by them. The large banks have grown even larger and more powerful--precisely the opposite of what policymakers thought would be the correct prescription for the finance industry following the crash.
In a recent Harvard study by Marshall Lux and Robert Greene, the authors noted:
Likewise, Dodd-Frank, which was enacted in response to the financial crisis of '08 had much the same results. As Eugen Fama noted in his comments a few weeks ago, Dodd-Frank did not do away with "Too Big to Fail" as a policy. Rather, it enshrined it. And by raising compliance costs dramatically, the law is wiping out an essential aspect of the finance industry that in no way was responsible for the meltdown--community banks. Community banks now cannot afford the hugely burdensome compliance requirements demanded by the government. As a result, no new banks have been chartered and there has been a precipitous drop off in numbers of community banks and assets that are held by them. The large banks have grown even larger and more powerful--precisely the opposite of what policymakers thought would be the correct prescription for the finance industry following the crash.
In a recent Harvard study by Marshall Lux and Robert Greene, the authors noted:
Consolidation is likely driven by regulatory economies of scale--larger banks are better suited to handle heightened regulatory burdens than are smaller banks, causing the average costs of community banks to be higher.
With the regulators of the Obama administration merrily and
prolifically spinning out hundreds of pages of new rules as we speak, small
businesses cannot hope to keep up, nor can they afford the huge compliance
staff necessary to satisfy the army of regulators decending upon them.
Anecdotally, I can attest to conversations with several business owners of small
companies that told me the same tale of woe. One small meat processor told me, “I have to
sell. I simply cannot afford a 20 person
compliance department.”
Government interference in markets had a substantial role to
play in the housing crisis, just as its policies were responsible for gas lines
in the 70’s. Similarly, look behind the
inflation in college tuition and what do we find? Again, you guessed it--Big Government.
(http://www.cnsnews.com/commentary/hans-bader/federal-financial-aid-drives-tuition-and-college-costs-study-finds)
Proponents of Big Government are decrying the widening of
income inequality. If Furman and Orzag
are correct and firm size is a large factor in income inequality, then we are
really seeing is that Big Government policies are actually driving consolidation in several different industries.
If the NYT really wants mergers, and by implication, the growth in income disparity to slow down, it should call
upon Big Government to “stop f---ng doing it then.”
