What a Cheerleading Monopoly Says About the American Economy


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

A week ago I would not have predicted that I would be studying cheerleading. I study monopolies, big tech, and politics. But after writing that story a few days ago and seeing the reaction, I think the story on cheerleading is important, because it says something about our larger political economy.

Every corporate monopoly, in every sector and across history, uses similar power arrangements: coercive contracts, secret rebates, retaliation, buying up competitors, political corruption, etc. All of these are present in the Varsity brands story. Since publishing the story, I have heard from cheer coaches, international cheer officials, parents, and one Harvard Law professor of antitrust.

Here are a few observations.

  • I missed out on two anti-competitive practices in the industry. The first is called “Stay to Play.” For many cheerleading competitions, though not all, out-of-town contestants are required to stay at a specific area hotel or set of hotels, or they cannot enter the contest. This is yet another way to raise prices on cheerleaders, and parents hate it. The second is that Varsity tends to be very aggressive about takedown notices for cheer contest video. If you film your kid at an event and put it up on Facebook or YouTube, Varsity is likely to ask you to take it down because it’s competitive with their VarsityTV streaming app. As one parent told me, it’s basically Varsity preventing you from sharing your memories publicly with your family or friends.

  • Cheerleading is more dangerous to monopolize because it involves children. There’s a whole tangled legal fight between the NCAA, the Department of Education Office of Civil Rights, and Varsity over the definition of sport. This is one area where policymakers at the Education Department, and not just at the antitrust agencies, have some authority. The bottom line is children are doing dangerous gymnastics and tumbling on surfaces like grass and rubber tracks that have not been proven safe, and one result is more catastrophic injuries than might otherwise happen. (I also heard rumblings about other safety concerns that go beyond physical injuries endured during contests.)

    There is an alternative to the existing Varsity model of cheerleading. Roughly ten years ago, some college coaches basically took competitive cheerleading and turned it into a safer and regulated sport. After a series of bitter fights over branding, they eventually had to name it Acrobatics and Tumbling instead of Competitive Cheer. Now there’s a battle about cheer internationally, with questions about whether and how it can become an Olympic. To give you a sense of the stylistic differences, here’s a picture of Acrobatics and Tumbling.

  • While the story I wrote was about cheerleading, it has broader implications for how we understand our political economy. For about thirty years, corporations in America have been getting bigger, and it’s harder and harder to start and run a small business. Some scholars, like Edward Lazear of Stanford University, Michael Strain of the American Enterprise Institute, and John Van Reenen of M.I.T. believe that this rise in concentration is happening for natural technical reasons. Their argument is that bigger corporations are just better at what they do because they have ‘economics of scale,’ aka it’s more efficient to produce more steel or more search queries if you’re making a lot of them. This argument comes from an intellectual movement started at the University of Chicago known as ‘the Chicago School.’

    Other scholars, like Columbia University’s Tim Wu, economist Luigi Zingales, and Northeastern University’s John Kwoka are making a more traditional American anti-monopoly argument that this increase in scale is a function of legal changes that make it easier to charge higher prices and exclude competitors. This would include pointing at practices like mergers, rebates, the ability to exclude competitors, and other things that, as it turns out, Varsity seems to be doing.

    This debate is more than academic. Right now, there’s a bipartisan investigation by the House Antitrust Subcommittee into large technology corporations, and it’s led by Democrat David Cicilline and Republican Doug Collins. They are wrestling with whether concentration is a function of power, not efficiency. How we resolve this debate is likely to have significant impacts on how we organize our markets and our corporations going forward.

    What’s useful about the story of cheerleading is that it seems to resolve this debate in favor of the anti-monopolists. There are no obvious economies of scale involved in cheerleading. As Harvard Law professor Einer Elhauge put it, “If something as naturally decentralized as cheerleading can be monopolized so easily, it really demolishes so many Chicago School premises.” Cheerleading just doesn’t follow the standard example of a tech business. It’s not like making steel or building a search engine, training two cheerleading teams takes twice as much time as training one. Yet cheerleading seems to be as or even more monopolized as, say, social networking, syringe manufacturing or airlines, all of which are highly concentrated industries.

    In other words, the example of Varsity suggests industries are probably more concentrated today because of political arrangements, not technological advances.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. So this next part is technical and in the weeds about economics and financial policy, so if that’s not your cup of tea, well… you have been warned.

Last week, I wrote about the point of economics. One of my arguments was that the discipline has an implicit bias towards those who have control of data, because economists like to measure things. That means economists are going to be controlled, at least partially, by corporations that have large stores of data to share with them. I also pointed out that the way we organize regulations and force what’s called ‘cost/benefit’ analysis on every rule implicitly gives power to economists who use opaque models.

I got an email response from someone who used to work for the Commodities Futures Trading Commission, which regulates derivatives trading. His point of view is worth sharing.

CFTC has an abundance of amazing data. Due to various bad excuses, CFTC doesn't do much with it. A past Chief Economist, Andrei Kirilenko, started to use our data to get published, personally. He brought in interns and contractors to help him sift through what he needed. He ended up getting published and leveraged that to become a professor at MIT. I'm fairly certain he got the job just so they could have access to his data set. Incidentally, he didn't exercise good custody of the data, and there was a breach where some interns and/or contractors left with the same set. Whoops!

Cost-benefit analyses:

I always saw this as a second executive veto on Congress, and I still don't understand why it's constitutional. If Congress says implement a thing or behave in a way, and then a federal agency says it's going to impose too great a cost on industry, what authority does Congress have?

The CFTC's rulemakings started out in 2010 writing extensive cost-benefit analyses with economist projections of costs, savings, etc. The Office of General Counsel then ordered the rule teams to scrap it all and use a boiler-plate "we considered the costs" paragraph. That was successfully challenged in court, and those rulemakings had to be re-proposed with new CBAs. I found all of that a waste of time, and said so. In soliciting comments, industry would provide their own cost estimates (without any justification), and we were ordered by OGC to assume the costs at face value. I fought to include a benefit as avoiding a multi-trillion dollar financial collapse, as we had just experienced, which obviously was not adopted.

Quantitative modeling:

This is the group I worked most closely with. We evaluated the risk models various clearing houses used to price and project risk, in order to calculate how much collateral to collect on trades (or "margin," to your point of elites using obfuscation to hide their actions). The Dodd-Frank Act sought to incentivize clearing, or mutualizing, trades under a regulated system by making collateral for uncleared trades more expensive. Industry proposed a standardized model for uncleared products. For stupid office politics reasons, our group was barred from writing a report on this model. To no one's surprise, the industry model consistently under-estimated and over-discounted all sorts of factors in order to make uncleared products cheaper than cleared products in contravention of Dodd-Frank's stated goals.

As far as [Federal Reserve Chairman] Jay Powell goes, Chairman Massad considered him a friend and did everything he could to bend our actions to Powell's will. I will say that in the fight to pass Dodd-Frank, the Fed wanted oversight of derivatives and didn't get it. They did get the power to let us know their opinion, and the senior management there tried relentlessly to use that to coerce us. There are a number of good stories related to this, in how the Fed is beholden to small cartel of banks hell-bent on protecting their oligopoly status and keeping their moats intact.

This is Not a Democracy, It's a Cheerocracy: The Cheerleading Monopoly Varsity Brands


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to write about Varsity Brands, the Bain Capital-owned corporation which controls the sport of cheerleading. I love this monopoly because it’s so easy to explain, and also because the tactics Varsity Brands uses are the same that every monopolist uses, only with more glitter. But first, two pieces of good news.

One, the Federal Trade Commission blocked a merger! The FTC threatened to file suit against a merger of two companies - TreeHouse Foods and Post Holdings - in the private label cereal market. So the companies abandoned the deal. Stopping mergers like this sends a message that there are cops on the beat. The popular interest in monopoly is working. Absent a more highly charged political atmosphere, the FTC would almost certainly have let this one go through.

Two, the Federal Trade Commission and Department of Justice withdrew their 1984 non-horizontal merger guidelines. Basically they are admitting that the way they looked at mergers for forty years is dumb. It’s good but not great news. The FTC/DOJ are trying to replace those guidelines with new rules so silly they don’t even mention ‘data.’ But at least we’re out of the Reagan era hellscape.

And now…

Image result for bring it on gif

Bring It On

One of the most fascinating parts of studying monopolies is how most of them use very similar tactics in different industries, like Bill Gates and John D. Rockefeller, or A&P supermarket in the 1920s vs Amazon. What I also love is finding weird areas of monopolization, and there are so many, because concentration is a systemic feature of the American political economy. This monopoly combines both aspects.

Two days ago, a colleague of mine, Sarah Miller, told me, ‘hey did you know there’s a cheerleading monopoly?’ I looked, and sure enough, there is! And it’s owned by Bain Capital. Sometimes the universe aligns and gives me the perfect monopoly to write about.

Cheerlebrities and Dollars

Cheerleading is a huge part of American culture, evolving from a male oriented sideline spectacle in the 1940s to a serious female-dominated sport that sits between dance and gymnastics. There were many later famous men who were cheerleaders, everyone from FDR to Jimmy Stewart to George W. Bush. Here’s a picture of cheerleader Ronald Reagan.

Today most cheerleaders are girls and young women, with one estimate of 400,000 in public high schools alone. But cheer goes way beyond high schools, there are now thousands of competitive dance teams, with members ages 7-17, who enter competitions, with something like 3.3 million who cheer in any given year, and 1.3 million cheerleaders across American who cheer for more than 60 days a year.

High school and college age athletes participate in high profile competitions, get sponsorships, endure immense amounts of pain, and show off in contests and on social media. Cheerleaders are disciplined and often fanatical. The sport causes more than half the catastrophic injuries for female athletes in America, including skull fractures. And yet thousands of young girls wear cheer leggings and t-shirts, practice arm motions and cartwheels nonstop, and obsess over Instagram star “cheerlebrities.”

It’s an expensive sport, especially at the top, with top athletes spending $15,000 or more a year for competition uniforms, practice clothes, jackets, personalized bags, summer camps, tumbling classes, squad practices with professional cheerleading programs, and choreography fees. Families involved in cheerleading are above average in terms of affluence, and even non-top athletes spend between $2,500 to $10,000 a year.

And that’s where the monopoly comes in. The key player in the cheerleading world is Varsity Brands, which makes its money from cheerleading apparel, camps and competitions. The founder, Jeff Webb, started Varsity in the 1970s to offer high school training camps and clinics, eventually creating competitions for cheerleaders.

It’s with equipment and apparel where Varsity makes its money, “everything from the sequined uniforms on cheerleaders’ backs to the big bows in their poofed-up hair.” The key to Varsity’s monopoly is its chokepoint control of major cheerleading competitions. In the early 1980s, ESPN began showcasing the new sport, giving it wide distribution. In 2004, Varsity bought the National Cheerleaders Association, and has rolled up a dozen more, including its main competitor in 2015, Jam Brands. Today, competing means entering Varsity’s world.

While Webb is an aggressive businessman, Varsity had help from private equity; Charlesbank Capital Partners bought the company in 2014. Charlesbank organized a roll-up of the industry, in its public case study noting that it helped orchestrate the Jam Brands purchase, as well as a series of “highly strategic acquisitions.” These new private equity owners had Varsity buy up sports equipment distributors and enter the marching band space. Charlesbank sold it to fellow private equity firm Bain Capital in 2018.

Varsity’s market power over the business of cheerleading is entrenched. Participating in cheerleading competitions is expensive. If you want to see a bunch of cynical cheerleaders and cheerleading families angry about monopoly power, check out the discussion on Fierceboard about the acquisition and what it meant for what they would have to pay. It’s also costly to be a spectator. Here’s a sycophantic interviewer interviewing Webb about how much it costs as a parent spectator to watch one of these events, congratulating the CEO on his pricing power. This market power extends to media. Not only does Varsity own magazines, but on Netflix’s Cheer, cheerleaders complain that they can’t watch cheerleading on TV anymore, because Varsity streams its competitions over its for-pay app Varsity TV, moving ESPN out of the picture.

In 2018, when speaking to Chief Executive magazine, Webb made it clear that monopolization was the strategy.

We were really creating an industry as we went along and it became an ecosystem in that we were creating the concept, we were creating the industry, and then we were positioning ourselves to provide all the products and services that that affinity group utilized.

Webb’s strategy worked. In 2016, competitors estimated that Varsity had 80% of the market for apparel, and 90% of the market for competitions.

Rebates, Gyms and Vertical Integration

Varsity uses tactics reminiscent of a glittery John D. Rockefeller. According to Leigh Buchanan in Inc., “Teams appearing in Varsity competitions can wear whatever uniforms they want. But rival apparel makers can't show their wares at those events, which are important showrooms for cheer merchandise.” That is in antitrust parlance a form of ‘vertical foreclosure,’ or using your control of one part in the supply chain, in this case competitions, to block rivals who compete with you in another area, apparel. This became quite obvious when Jam Brands, which ran most non-Varsity competitions, merged with Varsity, immediately ending marketing agreements with Varsity apparel competitors.

There’s more than blocking advertising and distribution at these competitions. Webb admitted that in at least one contest, cheerleaders got more points if they used more Varsity equipment as props. In other words, it’s not just a rigged game as some sort of metaphor, Varsity actually rigged the rules of its cheerleading competition to coerce purchases of Varsity products. Indeed, Webb has testified in court that the competitions exist solely for the “promotion of his cheerleading supply business.” 

This level of control hasn’t gone unnoticed. As one person in the cheerleading world sarcastically put it in 2014:

Shocking that they don't have officially sanctioned Varsity make-up, underwear, and no-show socks yet (or maybe they do, who knows?) I can foresee the Varsity Secret Police (the same ones that patrol the lobbies of non-STP hotels looking for girls in bows & bling) checking each athlete in warm-ups to make sure they are wearing Varsity brand hair clips and rubber bands.

And then there are the gyms, where cheerleaders train and form teams. Most cheerleaders buy their uniforms and apparel from their gym. Varsity owns some gyms, and has strong control over others. Varsity signs multi-year supply contracts with gyms, giving them a cash rebate if gyms send their cheerleaders to Varsity competitions and buy Varsity equipment. It’s not a surprise to see rebates used in this space. Rebates are a standard tool of monopolists; they are how Standard Oil controlled railroads, and how Microsoft orchestrated its power over computer makers.

Like a good organizer of market power, Varsity also extends and expands its legal powers. The corporation sued a competitor for copyright violations, going all the way to the Supreme Court to establish the ability to copyright cheerleading outfits (Sotomayor, Kagan, and RBG took Varsity’s side).

Suffice to say, it is difficult to compete in the market.

Some small competitors just throw up their hands. Tish Reynolds launched Just Briefs, a maker of cheerleading practice wear, in 2005, and grew the business to $3 million. But “Varsity kept telling [customers] you’ve got to buy your uniforms from us,” says Reynolds. Varsity acquired Just Briefs in 2010 and closed it, even though it hired Reynolds as part of the deal. 

Varsity has such an entrenched competitive position that CNBC noted that it “stands out as one of the few retail businesses of scale that may also have an Amazon defense.” That’s how powerful Varsity is, it’s a retail brand that is not even afraid of Amazon.

Fear, Safety, Political Control and Monopoly

As with nearly all monopoly power, Varsity also has imposed fear of retaliation across the industry.

“Varsity has free rein,” Kimberly Archie, founder of the National Cheer Safety Foundation, said. Archie said she has tried to loosen Varsity’s grip on cheerleading by assisting plaintiff teams during personal injury claims and even attempting to bring antitrust lawsuits against Varsity. But she said she has been unable to get any current gym owners or cheerleaders to testify against Varsity because they fear possible retaliation.  

“Varsity has control over cheerleading at every level in the U.S. and abroad,” she said. “There is no resistance.” 

In a glittery version of Google’s financing of civil society groups focusing on privacy, Varsity finances nonprofit associations associated with cheerleading, including the governing body that handles safety, the nonprofit American Association of Cheerleading Coaches & Administrators. And it aggressively lobbied to prevent cheerleading from being considered a sport so that it could remain unregulated. (It’s ‘more than a sport’ says Varsity.)

In one of Varsity’s 2003 filings with the Securities and Exchange Commission (Varsity was briefly a public company), the company stated that recognition of cheerleading as an official sport and the ensuing increased regulation “would likely have a material adverse affect on Varsity’s business, financial condition and results of operations.”  

Should cheerleading be more closely regulated, it could mean implementing participation restrictions on teams and athletes, threatening Varsity’s competitions and its off-season camps, one of the company’s most profitable components.

There is one looming problem for Varsity. Last year, the NCAA, which controls college athletics, established a cheerleading-like sport called “Acrobatics and Tumbling,” and placed control of the sport not under Varsity but under scandal-ridden USA Gymnastics. In other words, the only thing that has stopped Varsity was another more powerful monopoly.

So there we have it all. Catastrophic injuries, rigged competitions, vertical foreclosure, private equity. Fixing this situation isn’t that hard, and basically requires a restoration of basic anti-monopoly principles, with glitter. That means stopping coercive rebates, ending long-term gym contracts, having competitions not controlled by Varsity, and regulating cheerleading like a sport.

Oh, and there’s one more thing. Cheerleading monopolist Jeff Webb, after selling his business to private equity, has entered politics. He now runs a pro-Trump anti-immigrant political advocacy group called the New American Populist, one of whose goals is to “advance our use of existing anti-trust laws.”

You can’t make this up. And what I love about studying monopoly is that you really don’t have to.

What I’m Reading

Wells Fargo Attorney Moonlights as Buttigieg Campaign Policy Antitrust Adviser (The Prospect)

‘I Honestly Don’t Trust Many People at Boeing’: A Broken Culture Exposed (Seattle Times)

Beyond pilot trash talk, 737 MAX documents reveal how intensely Boeing focused on cost (Seattle Times)

‘Techlash’ Hits College Campuses (New York Times)

Chinese Spyware Pre-Installed on All Samsung Phones (& Tablets), Reddit

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. I’ve gotten requests for places to have discussion forums so it’s not just me lecturing. I’m working on it. In the meantime, if you have thoughts, send them my way and I’ll include some of them in the post-script.

P.P.S. The title comes from the movie Bring It On.

What Is the Point of Economics?


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

This morning on Bloomberg TV, I watched a clip of economist Larry Summers making an argument for what to do in the event of a recession. Couched in the technical terminology was something profound about how we make political decisions. So today I’m going to write about the point of economics, as a discipline.

So I Was Talking to Olivier Blanchard…

This morning, on Bloomberg TV, Larry Summers said he was musing on how to deal with recessions, and felt that the government needs to spend more money to address the next downturn. “I was talking to Olivier Blanchard…” he said, Blanchard being his economist colleague for four decades. They came up with something called ‘semi-automatic stabilizers.’

There are a many ways to talk about how to run a society, and economists have their own language. They talk about ‘monetary space’ when they mean printing money and ‘fiscal space’ when they mean the government spending money. Summers is trying to create a new word, in this case ‘semi-automatic stabilizers,’ which are ways of changing “tax or spending measures triggered by the crossing of some statistical threshold,” like shifts in output or unemployment.

Are ‘semi-automatic’ stabilizers a good way to address recessions? We already have automatic stabilizers like unemployment insurance, income/corporate taxes, and welfare. They work and we should make them stronger. I don’t have a strong view of semi-automatic stabilizers one way or the other, because I don’t know what ‘semi’ means in the context and institutional details matter. I can easily imagine them being gamed to place economists in a position of authority over fiscal policy they way they run monetary policy, but they could also be done simply and well. That said, while technocratically organized constraints on fiscal policy may or may not serve useful ends, they certainly can shift authority from elected leaders to economists. And I suspect for Summers, that’s the point.

More important than the proposal is the rationale. Summers argued in favor of ‘semi-automatic’ stabilizers not on the economic merits but because Congress’s decision-making is too slow to handle recessions. He is clearly burned from the financial crisis, when he proposed a stimulus undersized relative to the economic hole needing to be filled. As Reed Hundt pointed out in A Crisis Wasted, the economists in the White House knew they were misleading the public and Congress about the depth of the nation’s problems. So when they asked Congress for more spending, Congress refused. This wasn’t a Congressional procedure problem of speed, as Summers alleges, but a political problem. One important reason Congress refused more spending is Summers and the White House never asked for what they needed in the first place. Having lied to Congress about the problem, Congress didn’t trust the administration when they asked for a bit more. And frankly, the White House was split; White House economist Peter Orszag and Obama himself sought to reduce the deficit.

Summers’s point in proposing ‘semi-automatic stabilizers’ is to blame Congress for a problem Summers helped cause. Summers is open that he’s not trying to solve an economic problem, he’s just trying to get around Congress, which he thinks shouldn’t be making key decisions about resources in the economy. One thing that is clear is we definitely should have had a better response from Larry Summers during the recession, when he ran economics in the White House and screwed it up. And if there’s a choice between having economists choose how to spend money or democratically elected leaders, it should probably be the latter.

And this brings me to the point of economics, which has taken me a long time to understand. There are many economists who focus on trying to uncover important truths about the world, and there are many economists who seek to serve concentrated capital. There are smart ones, and dumb ones. But truth or falsehood, or empirical rigor, is besides the point. The point of economics as a discipline is to create a language and methodology for governing that hides political assumptions from the public. Truly successful economists, like Summers, spend their time winning bureaucratic turf wars and placing checks on elected officials.

Chameleons in Economics

Let’s start with a basic question. Is it the job of economists to understand the world accurately? The answer is far from clear. As finance professor Paul Pfleiderer notes, many economists use models that are chameleons, designed to launder political assumptions about the world through such aesthetics as “mathematical elegance, subtlety, [and] references to assumptions being “standard in the literature.”

More broadly, prominent leading economists just get things wrong, big things, with no impact on their standing in the profession. This indifference to empirical results is mirrored in the indifference offered by economists to the claims and arguments of non-economists outside the profession, whose views are simply relevant.

I’ll bring you through a few examples.

(1) In 2004, Ben Bernanke gave a speech called the Great Moderation, in which he lauded the placid prosperity economists had brought forth since the 1980s. “One of the most striking features of the economic landscape over the past twenty years or so,” he argued, “has been a substantial decline in macroeconomic volatility.” As Bernanke was speaking, the FBI was warning of an “epidemic” of mortgage fraud. Needless to say a few years later there was the most gruesome financial crisis in 80 years.

(2) In 2017, antitrust economist and Google consultant Carl Shapiro described his tenure as the head economist at the DOJ antitrust division, and explained why the division had brought no monopolization claims in the period he was there.

First, I can say from personal experience that when I was the chief economist at the DOJ during 2009-2011, the Antitrust Division was genuinely interested in developing meritorious Section 2 cases, and we were prepared to devote the resources necessary to investigate complaints and other leads, but we found precious few cases that warranted an enforcement action based on the facts and the case law.

Is that right, that there were literally no cases of monopolization in the American economy from 2009-2011? It’s hard to imagine so. And yet, this is Shapiro’s claim.

(3) In the middle of the 2000s, millions of Americans were complaining that they were losing their jobs, which were being offshored to China. Economists largely rejected these complaints. For instance, in 2004, Bush official and economist Greg Mankiw argued offshoring was largely a good thing and anyone who said otherwise was a quack. In asserting this he was simply reflecting the economic consensus. Ten years later, several economists pulled apart this consensus coining the term “China shock” in 2016. In other words, it took ten years for those within the discipline of economics to even be able to hear the views of millions of normal Americans being injured, and their views had to be laundered through other economists.

(4) Today, many Obama era antitrust officials are discussing the need for more assertive antitrust enforcement, arguing they were hamstrung by limited legal tools while in power. That is not what they said at the time (much as Larry Summers today argues for more spending but in office sought different policy choices). In 2016, the consensus of antitrust economists and lawyers - as illustrated by the American Bar Association Antitrust Transition Report - was that competition law was quite robust.

Antitrust figured prominently in the 2016 Election: for the first time in recent memory, both major parties prominently featured their respective viewpoints on competition and consumer protection policy. Campaign commentary included sharp criticism of an alleged absence of vigor and overall ineffectiveness in current patterns of antitrust enforcement, with comments calling for sharp, even radical reorientation of enforcement policy, especially in the review of proposed mergers and treatment of large industrial firms. As will be seen in this Report, the Section does not share these views about the current state of antitrust enforcement policy. To the contrary, … the Section’s view is that the Nation’s system of competition enforcement has been in good hands, [and] that an arc of continuous improvement and advancement can be discerned that stretches back over many years and multiple administrations.

So there we go. If the goal of economics were to ascertain truthful views about the world, if economics were as its proponents offer, a ‘science,’ then one would remark on the lack of self-policing within the profession. Of course, given that there is limited self-policing at best and the top practitioners in the field are routinely wrong about fundamental questions, we can conclude that uncovering truth may be an incidental outcome of the practice of economics, but it is certainly not the goal of the discipline.

Methodological Biases in Economics

There are three main problems with economics as a ‘science’ that can guide public policy choices. The first is that it is a post-mortem discipline. Economists often assert we need data before drawing conclusions. Economist Thomas Phillipon noted this in his book on the institutional basis of markets that an economist was like that of Sherlock Holmes, asserting ‘data data data, I cannot make bricks without clay.” And yet, there was no data in 2000 when the U.S. changes its policies vis-a-vis China, because the consequences were in the future. There’s nothing wrong with being a study of the past that has a specific quantitative framework, as long as there is a genuine acknowledgment that there’s no science here and projections have no scientific validity whatsoever.

The second is that using economics to make judgments about the world can be extraordinarily costly and exclusionary. This may or may not be a big deal when considering macro-economic forecasting, but when economics becomes a key part of institutional legal arguments it shades who can use the law to protect their rights. For example, showing that someone robbed me by breaking into my house requires evidence and common sense. But bringing an antitrust lawsuit showing someone robbed me by excluding me from a market often requires millions in economics consulting services. If you don’t have that money, the law becomes meaningless.

The third is that an obsession with quantifying leads to political control by those who have access to data. A well-known example is famous economist Alan Krueger, who was paid by Uber and then wrote widely circulated scholarship based on internal Uber data about the corporation’s wage setting terms. But it’s broader than just one company, most of the big tech platforms work with economists, giving these powerful corporate entities a measure of political control over lines of research. Beyond tech, it’s actually quite hard to get information on a whole host of practices in the economy. For example, the Trump administration had to battle hospitals just to get them to disclose their official price list for different procedures (which isn’t even real considering the extent of secret discounts and rebates throughout the industry).

How Does Economics Work?

The actual goal of economics as a discipline is to embed itself as a governing language in our institutions of power. There are four institutions in which this takes place domestically.

(1) The Congressional Budget Office: This obscure bureaucratic agency does modeling for all legislation in Congress, projecting economic impacts and observing whether legislation will increase or lower the deficit. Importantly, the House and Senate have delegated to CBO an important chokepoint in the legislative process; bills that raise or lower deficits as per CBO projections be be held to points of order, which is to say, members of Congress have to affirmatively vote to ignore what is portrayed as the scientific truth.

CBO seems to get things wrong in ways that privileged concentrated capital and a certain form of austerity-driven politics. Here are two simple examples. First, CBO for most of the post-2009 era assumed, based on opaque and reactionary economic modeling, that interest rates would soon snap back to 5%, which effectively meant that spending more money through tax cuts or spending increases, as many legislators wanted to do to help their constituents would be quite costly. Turns out interest rates didn’t come back to 5%, and the assumptions behind those interest rate models had hidden political biases favorable to concentrated capital.

In other words, CBO prolonged the recession through bad projections. CBO’s response to criticism is that they basically grabbed interest rate projections from mainstream economists at prestigious universities and investment banks. The top economists got it wrong, so CBO got it wrong. It’s very much ‘nobody got fired for buying IBM’ except in this case what is happening is that legislators are hearing that the ‘scientists’ are falsely telling them what we can and can’t afford based on models that hide their politics in complex math.

Another example, perhaps a simpler one, is that CBO scored the effect of derivative deregulation legislation - such as a bill known as the Swaps Pushout Provision in 2014 - at essentially zero. Such legislation may cause a financial crash, and that would cost the government money, but since CBO can’t project how much or when, and since economists don’t have models for it, they say it costs zero. In other words, spending money through the regular budget gets subject to points of order, but spending money by shifting risk onto the public balance sheet by letting banks gamble with our money doesn’t. Guess which one Congress regularly enables?

(2) The Office of Information and Regulatory Affairs - Last month, an anonymous government lawyer wrote an issue of BIG on how economists at this little known agency probably weakened a law against prison rape by subjecting the rule to a process called ‘cost/benefit analysis.’ You can read how that worked, but the gist is that such cost/benefit analysis is another place where hidden political choices are inserted into policy through opaque economic models. OIRA is part of the White House Office of Management and Budget, and they review nearly every regulation put out throughout the government. Cost/benefit sounds good, but it’s another choke point where democratically elected policymakers delegate power to economists.

(3) Federal Trade Commission/DOJ Antitrust Division - I noted above the problem with economics and antitrust. To bring a case, plaintiffs have to spend a few million dollars just for an economist to model the harm. The joke is “I know it happens in reality, but show me in theory.” The demand for quantitative models - which are often garbage and yet trusted by judges trained to believe in economics expertise - is just a smokescreen for replacing the rule of law with the rule of economists. The net effect is that Facebook, Google, and Amazon bought hundreds of companies over the past twenty years through three administrations, and there hasn’t been a single merger challenge. Or to be more granular, John Kwoka did a merger retrospective analysis, and observed that the FTC has systemically allowed too many mergers in concentrated industries, which induced significant price hikes across multiple sectors. And as we saw above, noted economist Carl Shapiro, from 2009-2011, couldn’t find a single instance of monopolization in the American economy.

There’s also a level of intimidation toward elected officials by the cult of the neutral technocrat. When Elizabeth Warren pointed out we have to break up Google, Facebook, and Monsanto, several of her opponents argued that singling out specific companies is ‘Trump-like’ and a violation fo the spirit of the rule of law. Such an argument is quite anti-democratic. The FTC Act Section 6(D) allows the President or Congress to order an investigation into a specific company, because a large corporation is a matter of public concern. And yet there’s an attempt to science-ize what are inherently political decisions of social concern.

(4) The Federal Reserve - As Paul Conti-Brown showed in his excellent book on the Fed, Paul Volcker established the social norm that politicians shouldn’t meddle with monetary policy, that printing money is technocratic. This is couched in the framework of ‘independence.’ And yet, independence is yet another mechanism to move policymaking authority from elected leaders to economists.

Economists have no credible claim to be good at central banking. I noted Bernanke’s problematic assertion in 2004 that we were in a period of a great moderation. In 2005, Raghuram Rajan at a Jackson Hole conference of central bankers noted hidden risks in the financial system, which nonprofit advocacy groups dealing with mortgage origination in bubble-y markets such as Las Vegas had recognized as early as 1999. Larry Summers mocked Rajan, praising Alan Greenspan’s stewardship of the Federal Reserve.

It hasn’t really improved. A few months ago, Fed Chair Jerome Powell, with his complex matrix of data points and his legions of economists, got into a highly publicized argument with Donald Trump, over interest rates. Trump criticized Powell for potentially tightening at a moment when the economy was slowing, saying you have look beyond data and ‘feel’ the market. Powell reversed himself after data finally came out showing Trump, with his gut feel, was right.

What Now?

The point of this essay isn’t to argue economists are corrupt or bad or anything of the sort. There are many wonderful economists, and I sometimes - even in this essay - rely on their work. The point is to note that doing useful work is only incidental to the discipline of economics, whose real institutional goal seems to be the development of an exclusionary language and methodology, and then the embedding of economists into policymaking positions where they have a good chance of overriding the judgment and authority of elected officials.

There is a tension between how economists have arrogated policymaking ability within our governing institutions, and the need for democratic accountability. The way to address this dynamic is to put economists back into a position where they are offering advice rather than making policy.

Institutionally, this means making politics explicit instead of hiding political assumptions in models. To that end, it might make sense to split up CBO into a Democratic and Republican versions, and remove points of order from the legislative process. It probably means a return to direct Congressional or executive direction of monetary policy, a means of governance that existed through most of the 19th century and from 1935-1951. It means eliminating the Bureau of Economics at the FTC (as well as the newly created Office of Economics and Analytics at the FCC), and placing economists in a supportive role under lawyers, as well as developing a style of lawyering that doesn’t rely on economic expert witnesses. And finally, it means ending the rigged game of cost/benefit analysis as a chokepoint on promulgating regulations.

In 1938, Franklin Delano Roosevelt warned Americans of rising forces abroad. “History proves that dictatorships do not grow out of strong and successful governments,” he said, “but out of weak and helpless governments.”

What has ultimately happened with economists arrogating policymaking authority is that our government has become weak and unresponsive to the concerns of its citizens. Economists and non-economists must address this problem by focusing on renewing the ability of ordinary people to have their concerns heard above the din of error-ridden charts. Otherwise, autocratic forces will be happy to take advantage and make the case that democracy can’t deliver.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

UPDATE: I edited the opening bit on Larry Summers because it could be read as making a blanket argument against rules-based programs, which was not the claim I was trying to put forward.

Bible Lobbyist: We Can't Print Bibles in America Anymore


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Last week I wrote about how the Trump administration, spurred by Senator Marco Rubio, has begun to organize an industrial policy, which is to say government officials financing specific industries explicitly and directly. There’s a lot to say about industrial policy both positive and negative, and I will be saying a lot more.

But today I’m going to make a very simple point about the main political problem in America, and across the West. We don’t value making things, and so increasingly we’ve lost the ability to make things.

A few months ago, I was reading complaints about Trump tariffs filed with the United States Trade Representative’s office, and I found a whole host of industry lobbyists arguing that tariffs were bad because America can’t actually do anything anymore. I wrote about this last year.

The list of products and commodities companies say they can no longer make in America is long. Nylon products, optical scanners, consumer robotics, electronics, all types of clothing, specialty chemicals… 

And the arguments were always the same, which is that we can’t do things in the U.S., and if we try, consumer prices will go up and prevent Americans from getting the [insert important thing] they depend on. The head of the American Bridal & Prom Industry Association said, “we can't make wedding gowns and prom dresses in the United States.” The entire labor force for doing so, and even things like beads for hand-sown adjustments, are now in China. “It’s impossible… We can't even get the materials in this country to make this clothing.”

As I noted, “from prom dresses to point of sale terminals, the argument from American distributors is pretty much always the same. The ecosystem of production doesn’t exist in the U.S. anymore and it would be too expensive to bring it back.”

I went over the hearings again, and found an even better complaint. This one was from Stan Jantz from the bible lobby. I don’t mean he’s got some religious agenda, I mean he represents the Evangelical Publisher's Association, which sells religious texts.

These publishers wanted to avoid bibles being subjected to tariffs. Here’s Jantz:

Chinese printers have developed the technology and the artistry to produce the kinds of bibles people want which is why over 50 percent of the bibles published by ECPA members are printed in China. In fact, more bibles are printed in China than any other country on earth.

This isn’t some high tech industry, it’s printing books. It is literally the oldest mass production industry in history, with bible printing dating from the 15th century. And yet, here’s more of what Jantz had to say:

While there are some domestic printing options available, the U.S. printers, as has been remarked already, that are comparable to China on price and quality do not have the capacity to meet current demand….

The people who buy and read the bible would potentially have to pay a much higher price, perhaps higher than they could justify. Christians depend on the bible for their daily input of spiritual nourishment… Some publishers believe such a tariff would place a practical limitation on religious freedom.

A dramatic increase in the price of the bible, not to mention books that help people better understand the bible, would deter average Americans from getting the guidance and spiritual connectivity they depend on.

Now of course, the Chinese government is cracking down on the 60 million Christians inside China, with party plans of “retranslating and annotating” the Bible to establish a “correct understanding” of the text. It’s not as well-known as the concentration camps set up for Muslim Uighurs, but it’s quite likely that Chinese Christians are not getting what Jantz calls their “daily input of spiritual nourishment.”

But the point here is not about religious freedom, but about whether we as a society value the ability to produce things. We certainly used to. We could make fantastic airplanes and invent a host of wonderful technologically sophisticated products to improve our lives. And yet today, our book distributors tell us we can’t even print books. There are a lot of reason for that, but the main one is that we have elevated the rights of financiers over the rights of workers, engineers, farmers, artists and businesspeople.

And this is a crisis. Bibles and prom dresses don’t matter so much, but a few months ago, the head of acquisitions for the Air Force, William Roper, noted that the U.S. had to depend on only two prime contractor makers of fighter jets, down from 13 in the 1950s. Our anti-production philosophy is so profoundly embedded that Roper framed his hope for solving this problem with the following comment.

"I don't think we'll have like a new prime, but maybe a company that's founded by a bored billionaire who just wants to build cool airplanes, just because." 

I am skeptical of the Trump administration’s industrial policy approach. But I respect the that important policymakers have noticed we have lost the ability to make things.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. I got this note awhile back and meant to publish it. So here goes. Also if you have thoughts, send them my way, I sometimes publish letters from readers (without your name attached of course).

As an American who is living in economic exile in China, I really appreciate what you are writing about China.  For the last few years, I have had conversations like this with friends back home, who didn’t fully seem to understand how dangerous China is.

I wanted to share with you a personal anecdote about just how good the Chinese propaganda machine is.

A couple of years ago, when I lived in Beijing, a friend and I were out very late at a bar.  We start chatting in English with a young Chinese woman, and Taiwan comes up.  -My friend, is an American guy who speaks fluent Mandarin and knows Chinese history like it is the back of his hand.-.  We tell her that most of the Western world is not really behind China on the whole Taiwan thing, is she started crying.  Like legit, full on tears.  My friend is able to prove to her that he really knows Chinese history as well, so we aren’t just a couple of no-nothing white guys (China is filled with 0 to hero foreigners).  She was genuinely shocked, that the world isn’t 100% behind China on Taiwan, that there is another side to this issue.

Many Chinese people take their national identity personally in a way I can’t really understand.  It has created a population of people who have both a victim complex and a superiority complex. Many perceive an attack on China to be a personal attack on them.  

I really appreciate what you are writing.  China is the number 1 issue in the world today.  As China sells its surveillance tech to other non-Democratic states, the threat only increases.  One of the key ways of fighting China, is to heal our liberal democracy.  Live up to our values.

P.P.S. This is Johannes Gutenberg, the inventor of the printing press. He is judging us.

Trump's Surprising Embrace of Industrial Policy to Fight China


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to write about the Trump administration’s surprising rejection of the traditional Republican free market orthodoxy. He is embracing a more traditional American concept for organizing the economy: Industrial policy.

But first, happy new year. I started writing BIG last June to get my thoughts out on the politics of monopoly power, and I’ve had a good time exploring some of the nooks and crannies of commerce. I’ve been surprised how much traction this newsletter has gotten, and which parts of the business and political world in which it is resonating.

The ten popular posts last year were:

  1. WeWork and Counterfeit Capitalism (9/25/2019)

  2. The Coming Boeing Bailout (7/3/2019)

  3. The Slow Death of Hollywood (7/9/2019)

  4. Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor (12/5/2019)

  5. Why Private Equity Should Not Exist (7/30/2019)

  6. Why New York City Is On the Verge of Disaster (8/20/2019)

  7. Airplanes and Accounting Games: The Coming Boeing Collapse (12/19/2019)

  8. It’s Time to Break Up Disney (11/5/2019)

  9. How Bill Clinton and American Financiers Armed China (10/1/2019)

  10. Google’s Dangerous Monopoly-Based Foreign Policy (12/17/2019)

I sort of happened upon a niche, which is to connect the corruption of management consultants, finance, and monopolization to the current moment of political crisis. The newsletter (and the book) seems to be making a difference, and though it’s always hard to tell how ideas move, a lot of the themes I’m writing about are gaining popular traction. I intend to continue writing BIG as long as it’s fun, as long as you enjoy it, and as long as I think it’s making a difference.

And now…

Trump Rejects Libertarian Politics

Late in 2018, Donald Trump signed into law the National Quantum Initiative Act, which authorized the government to create centers on quantum computing. Many such laws are passed, and they usually mean little. There’s a big difference between authorizing - which allows an agency to do something - and appropriating, which means funding it. An authorized program is a wish, a funded program is a priority.

Usually, something like the National Quantum Initiative Act would have been relegated to that of a wish. That’s what happens to lot of authorized programs in an age of austerity. Members of Congress get to brag about passing something but nothing actually emerges into existence because Congressional appropriators refuse to write the check. Jeff Connaughton wrote about a particularly toxic example in his book The Payoff, in which Senator Ted Kaufman helped pass a law authorizing a financial crimes prosecution unit during the height of the financial crisis, but the Senate Appropriator Barbara Mikulski refused to fund it.

Surprisingly, however, the Senate followed through on the quantum computing law, with appropriators putting in a request for $195 million in the funding bill (see p. 112). The final bill that passed last month will add this money and more to quantum computing research through a variety of government agencies (specifically the National Science Foundation, the National Institute of Standards and Technology and the Department of Energy Science Office).

This chart on spending is from the American Institute of Physics, which shows an interesting shell game.

The Trump administration has been asking for deep cuts in science agencies every year through its formal budget requests, but in practice has been bumping up spending on science fairly dramatically. They play act libertarian but spend like they are trying to have the government do something.

This turn isn’t a one-off. There are of course the tariffs, with the goal of moving supply chains out of China. And a few months ago, Congress appropriated $1 billion to help rural telecom providers replace Huawei equipment. Even more interesting is a provision passed last month to have the U.S. government explicitly subsidize exports in areas in which China has staked out a claim to global leadership. This is being done through the Export-Import Bank, which has to set up a “Program on China and Transformational Exports” to neutralize Chinese subsidies by having the government offer competitive American financing subsidies in every hot button industrial area: AI, biotech, 5G, quantum computing, renewable energy and batteries, semiconductors, fintech, and water treatment.

And then there’s 5G, the communications technology which will serve as the platform for future mobile networks and data transmission. I’ve written about how the U.S. used to lead the world in telecommunications, but now we have no telecom equipment makers to compete with Chinese giants Huawei and ZTE. It turns out the Trump administration has noticed, and is trying to do something about it by moving money to Nokia and Ericsson, European rivals of Huawei.

One senior government official said: “We gave up our superiority in making telecoms equipment decades ago, and now we are realising that this might not have been the best choice for national security reasons. Almost every department and agency is desperately looking right now for ways to get back into this game.”

“If we don’t, Huawei could soon be the only option for anyone wanting to roll out 5G networks.

Another said: “This is one of the big concerns of the government right now. Everyone from the defense department, to the commerce department, to the department of homeland security, is looking at this.”

In other words, Donald Trump is overseeing the explicit shaping of corporate behavior by the state, which is a stark break from the libertarian framework that has guided U.S. policy since the 1990s.

Throughout much of the 20th century, United States policymakers organized its political economy framework by having the state structure domestic and global markets to meet social goals involving more than shareholder value. The U.S. constructed an aerospace industry and much of its industrial infrastructure through its defense build-up in the 1930s and 1940s, and then continued to build out new industries like electronics, computing and semiconductors through a robust space program and aggressive funding of scientific and academic institutions.

In the 1980s, for instance, the Reagan administration engaged in a mixture of protectionist and state support of the semiconductor industry to ward off the attempt by the Japanese to take over the memory chip market. Some of the Reagan industrial policy framework was corrupt and done through the Pentagon, but there was financing that went into a host of domestic industries. But in the 1990s, the Clinton administration essentially got rid of much of our industrial policy apparatus by enabling consolidation among defense contractors and then enabling financiers to take over and erode the research capacity of private industrial giants like General Electric, Lockheed and Lucent. Clinton, Bush and Obama further eroded American industrial sovereignty by allowing Chinese acquisition of much of this apparatus.

The consequence is that today China has monopolized or is attempting to dominate key areas of industrial might, including electric battery production, artificial intelligence, renewable energy and 5G telecommunications equipment. China does this the way any savvy monopolist would, with subsidized predatory pricing and merger policy to buy technology. It also can use its vast espionage apparatus, and does. But mostly the Chinese have benefitted from the absence of American governance, with American leaders foolishly imagining that the ‘invisible hand’ is a real thing.

The Senator with the most aggressive take on industrial policy is Marco Rubio, who gave a speech last month at the National Defense University. As he put it, “For public policy makers, the common good can’t just be about corporate profits.” Rubio’s rejection of free market doctrine was stunning.

What I am calling for us to do is remember that from World War II to the Space Race and beyond, a capitalist America has always relied on public-private collaboration to further our national security.

And from the internet to GPS, many of the innovations that have made America a technological superpower originated from national defense-oriented, public-private partnerships.

This kind of collaboration is not a rejection of capitalism. It is a call to encourage and harness the dynamism of our economy’s most productive private industries to further our national security and ultimately our national economic development.

It is a call for a 21st-century pro-American industrial policy.

When it comes to Chinese firms, our companies aren’t competing with private enterprises; they are competing with a large and powerful nation-state.

And in the long run it is a competition that market fundamentalists won’t win.

The Trump administration’s recent moves suggest Rubio is winning the debate within the Republican Party and across government. It isn’t just spending, but a new attempt to organize corporate behavior. Take this interesting suggestion from the Pentagon R&D shop.

Lisa Porter, who oversees research and development at the defense department, has asked US companies to develop open-source 5G software — in effect opening up their technology to potential rivals — warning they risk becoming obsolete if they do not.

The Pentagon is now asking U.S. companies to undertake specific product design strategies to ward off Chinese competition, which since the 1990s has been an unusual line for the DOD. Getting 5G hardware vendors to have their products interoperate, is a way of reducing the market power of corporations like Huawei that can provide a full suite of products to build a network. The Trump administration is taking an even more hands on approach to generating an American alternative asking Oracle and Cisco whether they would try to build key radio transmission technology to compete with Huawei. Both corporations have said no.

There are many problems waiting for the Trump administration going forward. American corporations like Cisco and Oracle are run by executives with little interest in national security; many multi-nationals have leaders who scoff at the idea of the nation-state itself. Moreover, the U.S. government just doesn’t have a bureaucracy anymore capable of structuring key industrial sectors on behalf of the national interest. There’s a fairly reasonable likelihood that the money that is supposed to go to quantum computing research goes instead to McKinsey white papers and powerpoint presentations about quantum computing. In addition, even if the Trump administration can build out some new industrial or scientific capacity, can they bring themselves to stop private equity goons from buying it up? That’s not clear. Certainly their antitrust division and Federal Trade Commission is not up to the task.

At any rate, it’s inevitable that things get screwed up, and part of the process of restoring a government means trying things and iterating by fixing problems as they crop up. The Trump administration’s lack of organization and lack of ideological coherence is actually sort of helpful here, because it means new things emerge out of the chaos.

Regardless of what happens, the libertarian era is over. Going forward, U.S. government policymakers are beginning to think of themselves once again as key actors in structuring industrial outcomes. This is likely to continue regardless of who wins in 2020. If Democrats win, there will be a lot more carbon emission reduction embedded in the industrial policy framework, if it’s Trump it will tilt more towards defense oriented technological development. Regardless, someone’s going to need to deal with the fact that our industrial capacity is radically diminished, that we can’t produce 5G radio equipment ourselves anymore, and that Boeing is a catastrophe. And that someone, as the Trump administration has made clear, will increasingly be the U.S. government.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. Let me know what topics you’d like me to cover in 2020.

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