October 19, 2018

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Monopoly: The Ultimate in Upward Mobility

The Horatio Alger rags-to-riches ideal was born in the Gilded Age of the Robber Barons. A century and a half later, it remains an enduring icon of the American Dream and still makes for inspiring stump speeches.

If only it were true.

Truth is, something more powerful than pluck fueled the Robber Barons, and continues to fuel today’s Meristocrats and Robber Nerds. Yes, things like ingenuity, vision, determination, and hard work have had a lot to do with it, both historically and currently, but the essential element for creating mega-companies (sometimes whole new industries) and staggering personal wealth has been none other than government policy, which by definition favors selected economic activities over others.

A trio of distinguished economics and political science professors[1] provide one of the more provocative summaries of this economic reality in their book Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (2009). Harvard sociologist Steven Pinker described it this way:[2]

The economists Douglass North, John Wallis, and Barry Weingast argue that the most natural way for states to function, both in history and in many parts of the world today, is for elites to agree not to plunder and kill each other, in exchange for which they are awarded a fief, franchise, charter, monopoly, turf, or patronage network that allows them to control some sector of the economy and live off the rents (in the economist’s sense of income extracted from exclusive access to a resource).

This practice is sometimes called the “Medici Cycle,” after the famous Florentines:

In Towards a Political Theory of the Firm, [Luigi Zingales of the University of Chicago Booth School of Business] theorizes that firms use their economic power to acquire political power. They then apply that political power to achieve greater economic gains, which in turn helps them acquire ever more political power. It’s a cycle Zingales likens to the Medici dynasty of 15th-century Florence, Italy. The Medicis leveraged their lending relationships with the Roman Catholic Church into considerable political influence in Renaissance Europe.[3]

As an example, consider how Andrew Carnegie made his money:

The competitive strategy of the steelmakers in 1875 was simple: Collude and fix prices. . . . Carnegie was invited to join the newly formed Bessemer Steel Association. The association was a cartel, and in the days before antitrust laws, completely legal. Rather than compete tooth and nail for every bit of railroad business, it made far more sense for the steelmakers to establish quotas to limit the total supply in the market. By agreement, each firm was to produce its quota and sell into the market at agreed-upon prices.[4]

The upside is that Medici Cycle government policies have supported all kinds of timely innovation and inventions, social and cultural trends, and quality of life improvements. The downside is what happens when monopolistic are allowed to go unchecked for too long. Researching this article, I came across several recent expressions of concern that this is happening on many levels in the current U.S. economy:

1) In their book The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality (2017), Brink Lindsey and Steven M. Teles[5] describe their concern with “regressive regulation” — monopoly-perpetuating policies — especially these four types:

(1) subsidies for financial institutions that lead to too much risk-taking in both borrowing and lending;

(2) excessive monopoly privileges granted under copyright and patent law;

(3) the protection of incumbent service providers under occupational licensing; and

(4) artificial housing scarcity created by land-use regulations.

2) Nobel Laureate Joseph Stiglitz and the Roosevelt Institute issued a 2015 report that lists numerous government policies that support or deter monopoly. You can download the full report here or read a Business Insider article published earlier this month that serves as a sort of executive summary of the report, and also brought it up to date: Nobel Prize-Winning Economist Joseph Stiglitz Says The US Has A Major Monopoly Problem.

3) This recent article from The Institute For New Economic Thinking describes the derivative problem of “monopsony”:

Center stage in the meeting of the Federal Research Bank of Kansas City’s annual symposium in Jackson, Wyoming this August was a discussion of the repercussions of having a small number of companies dominating the labor markets where they hire workers–what economists call ‘monopsony.’

In a nutshell, the problem with monopsony is that, “When a small group of companies can dominate a labor market, wages—and workers—suffer.”

4) Finally, state-supported monopoly is also evident in the current “rentier economy,” which, as the Steven Pinker quote above indicates, is the result of government policy that grants “exclusive access to a resource.” This is another instance of “regressive regulation.”

We’ll be looking more at the rentier economy in the weeks to come. But first, next week we’ll look at a surprising twist in the original version of the Monopoly board game.


[1] Douglass C. North is co-recipient of the 1993 Nobel Memorial Prize in Economic Science. He is Spencer T. Olin Professor in Arts and Sciences at Washington University, St Louis and Bartlett Burnap Senior Fellow at the Hoover Institution at Stanford University. Barry R. Weingast is Ward C. Krebs Family Professor in the Department of Political Science and a Senior Fellow at the Hoover Institution at Stanford University. John Joseph Wallis is Professor of Economics at the University of Maryland and a research associate at the National Bureau of Economic Research.

[2] As described in Enlightenment Now: The Case For Reason, Science, Humanism, and Progress, Steven Pinker (2018).

[3] From this post on the CFA Institute’s Enterprising Investor blog.

[4] From Americana: A 400-Year History of American Capitalism, Bhu Srinivasan (2017). I’m not the only one who didn’t learn about this in my American history class. See this interview with the author of Lies My Teacher Told Me: Everything Your American History Textbook Got Wrong.

[5] The authors combine for one of the more unique economic collaborations I’ve come across in my research. They’re a pair of political science professors at Johns Hopkins University who are also associated with the Niskanen Center, a libertarian think tank. Brink Lindsey is a libertarian, so no surprise there, but Steven M. Teles is a liberal, and together they offer an mix of perspectives that provides heartening evidence that not everyone of conflicting persuasions is so entirely polarized that they can’t talk to each other or agree about anything.

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

Colorado Supreme Court: Allowing Alternate Juror to Deliberate Did Not Affect Parties’ Substantial Rights

The Colorado Supreme Court issued its opinion in Johnson v. Schonlaw on Monday, September 17, 2018.

Jury Deliberations—Conduct Affecting Jurors—Risk of Prejudice—Harmless Error.

Johnson sought review of the court of appeals’ judgment reversing jury verdicts in his favor on personal injury claims against Schonlaw and VCG Restaurants. At the close of the case, the district court overruled the objections of Schonlaw and VCG to its announced decision to allow the alternate to deliberate to verdict with the other jurors. The court of appeals concluded that the trial court had erred in allowing an alternate juror to participate in jury deliberations over the objection of a party, and that the error gave rise to a presumption of prejudice, which remained unrebutted by Johnson, and therefore  required reversal.

The supreme court reversed, holding that because the error did not affect the substantial rights of any defendant, it should have been disregarded as harmless, as required by C.R.C.P. 61.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Evidence of Guilt Overwhelming so Any Error in Failing to Discharge Alternate Juror was Harmless

The Colorado Supreme Court issued its opinion in James v. People on Monday, September 17, 2018.

Jury Deliberations—Conduct Affecting Jurors—Risk of Prejudice—Harmless Error.

James sought review of the court of appeals’ judgment affirming his conviction for possession of methamphetamine. Upon realizing that it had failed to discharge the alternate juror before the jury retired to deliberate, the district court recalled and dismissed the alternate, instructed the jury to continue with deliberations uninfluenced by anything the alternate may have said or done, and denied the defense motion for dismissal or mistrial. The court of appeals concluded that the trial court’s error in allowing the alternate juror to retire with the jury and the juror’s presence for part of the deliberations were harmless beyond a reasonable doubt and, after rejecting James’s other assignments of error, affirmed his conviction. The supreme court held that the evidence proving defendant’s guilt of the offense of possession was overwhelming, and therefore the district court’s failure to recall an alternate juror for approximately 10 minutes amounted, under the facts of the case, to harmless error. Accordingly, the judgment of the court of appeals was affirmed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Unpublished Opinions, 9/19/2018

On Wednesday, September 19, 2018, the Tenth Circuit Court of Appeals issued no published opinion and one unpublished opinion.

Hawes v. Pacheco

Case summaries are not provided for unpublished opinions. However, some published opinions are summarized and provided by Legal Connection.