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Today I’m writing about Stephen Breyer, whose legacy in antitrust law is important, though not for the reasons you imagine.

First, here are some other stories in BIG this week.

The Bicycle Thieves: There’s a roll-up of independent bicycle shops by the big bike brands. Biking is a unique space, a 200 year-old industry controlled by a bike parts duopoly and then a larger group of powerful branded firms who buy from them, with scattered independent stores and smaller brands as part of the broader ecosystem. The biking business is also intertwined with the history of antitrust law itself. As biking becomes a key transportation mode in the transition to a cleaner energy system, what does the destruction of the independent bike store model mean?

The Fed Can’t Print Semiconductors: Federal Reserve Chair Jay Powell pointed out two weeks ago that supply chain disruptions are a significant driver of inflation, and there’s little the Fed can do on that front. Plus the first economic paper on the impact of the semiconductor shortage on inflation is out, and it’s not pretty.

Our Systems Are Down, So You Can't Have Your Medicine: What happens when the IT system of a health care payment provider monopoly like Surescripts, or that of an important middleman like CVS Caremark, goes down? People don’t get their medicine!

And now…

Supreme Court Justice Stephen Breyer to retire, giving Joe Biden chance to nominate with Democratic control in Senate - 6abc Philadelphia — Stephen Breyer wants you to know he’s better than you.

”Breyer is the candidate of big business and monopoly in America”

“President Clinton has been misled into making a grave mistake in nominating to the Supreme Court Judge Stephen Breyer,” wrote former FTC official Charles Mueller, the then-editor of the Antitrust Law and Economics Review in 1994, on the eve of Breyer’s confirmation. “On the basis of his antitrust record, he is an unjust man. He is also one who is intellectually and politically committed to a set of ‘economic’ theories that are demonstrably false and that will callously reduce the standard of living of the average American family in the decades to come.”

Mueller was clearly very angry as he wrote this. Breyer had, in Mueller’s view, lied to disguise his record during his nomination hearing. Howard Metzenbaum, perhaps the last Senator in the 1980s to take antitrust seriously, had asked Breyer about the track record of big businesses in his court, since it was well-known that Breyer believed strongly in theories that size were a marker not of bad behavior but efficiency. Breyer replied, “Sometimes plaintiffs did win in antitrust cases I’ve had and, as you point out, defendants have often won. The plaintiff sometimes is a big business and sometimes isn’t. The defendant sometimes is and sometimes isn’t.”

In response, Mueller sent a list of antitrust cases heard by Breyer, showing that “no plaintiff, so far as I can determine, has ever won an antitrust case in his court.” Mueller came as close as he could to calling Breyer a liar, saying the judge consistently had “trouble with the facts,” and arguing that “Breyer is the candidate of big business and monopoly in America.” Here’s Mueller’s list.

Mueller’s essay mixed politeness with fury in a manner I’ve rarely seen. Breyer’s adoption of “economics,” Mueller noted, was mere “ideological fiction churned out by laissez-faire ideologues.” After mocking the economic rigor of Breyer’s thinking, Mueller pointed out that “in one of his cases, Breyer suggested that those harmed by the monopoly practices at Boston’s Logan Airport could just go out and ‘build competing airports.’”

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Today, in the bar, the thinking is generally that Democrats support stronger antitrust policy, and Republicans seek weaker rules on big business. But what’s remarkable about Mueller’s screed against Breyer, who is the leading thinker on antitrust among Democrats on the court, is that it was basically correct. Breyer really has been a key ally of big business. And those who pay attention to anti-monopoly laws know it. For instance, when his retirement announcement came earlier today, I was watching an event on antitrust at the Mercatus center, which is a Republican-leaning libertarian academic forum sponsored by firms like Google. The big law partners, upon learning the news, immediately turned from bashing Lina Khan to lamenting Breyer’s retirement. Here, for instance, is well-known law and economics lawyer Alden Abbott citing Douglas Ginsburg, about as establishment as you can get in the pro-monopoly camp.

Alden Abbott @AldenAbbott1

Ginsburg: Breyer had supported institutional rules. He will be missed.

The Law and Economics Movement

When I was writing my book Goliath, I was trying to figure what had gone wrong with the Democrats, why they chose to consolidate wealth and power during and after the financial crisis. I realized that the story went back to the 1970s, when the generation in charge in 2008 came of age. I didn’t focus much on Breyer, but I could have, because he is the perfect legal character showing the triumph of elitism within what had been a populist party. But since he announced he’s stepping down from the court, I’m going to run down Breyer’s career on antitrust and regulatory policy, which started in the 1960s as an aid to Lyndon Johnson’s Assistant Attorney General for Antitrust, Don Turner.

There’s a myth in modern antitrust discourse that Robert Bork and the conservative “Chicago School” movement were the only actors in defanging antitrust, that the right and left tussled, with the right trying to help monopolies while the left stood strong against them. Obama-era antitrust enforcers like this myth. But as antitrust expert William Kovacic notes, it is not true. The obsession with the Chicago School simply cannot account for Stephen Breyer. For in many ways, Breyer was part of Robert Bork’s project, or perhaps, Bork was part of Stephen Breyer’s.

Bork and the Chicago School made two key claims about antitrust. The first is that antitrust law is a science to be interpreted by economists, and the second is that those economists should use neoclassical models to guide the law. By far the most freighted ideological claim was the first one, because it removed antitrust from the realm of democratic politics and into the cloistered halls of economics departments.

The last gasp of populist antitrust was in the 1970s, but there were ostensible opponents of the Chicago School in the 1980s, who came to be known as the “Harvard School.” But to call the Harvard School and the Chicago School opponents is imprecise. While the Harvard School objected to certain kinds of economic models put forward by Bork’s crew, they accepted the broader ideological objective that the law should be removed from democratic discourse. As one liberal critic of the Chicago School, Jonathan Baker, put it in 1989, “economics has become the essence of antitrust” and the center-left “challenges to Chicago arise from within the efficiency paradigm.”

Antitrust is part of a broader field known as competition policy, which includes industrial and banking regulation, monetary policy, budgetary matters, and trade questions, basically the allocation of resources in our commercial arena. The goal of both the Chicago School and Harvard School was to remove questions of justice and equity from these areas, and replace them with the notion of ‘efficiency’ as calculated by arid economists, what they called ‘the law and economics movement.’ Both the Harvard and Chicago Schoolers were part of this movement.

One of the key leaders of the Harvard School is Stephen Breyer. His mentor had been Don Turner, the first economist ever to run the Department of Justice Antitrust Division. LBJ appointed Turner because Turner was a ‘structuralist,’ meaning he believed in breaking up big firms. But over the course of the 1970s, Turner was seduced by Robert Bork, and came to believe that size represented efficiency, essentially a ‘diet Chicago School’ approach.

In the 1960s, muckraker Drew Pearson despised Turner, and alleged he was slothful and corrupt, a kind of proto-Obama era enforcer. Turner accepted flights on the corporate jets of firms he was investigating, and lacked the courage to file the most important complaint that had been sitting at the division since the 1950s, a complaint to break up the largest firm in the world, General Motors.

More importantly, Turner was an elitist. Turner brought in a set of young Ivy Leaguers to vet cases, often overriding the line attorneys who actually did the work of taking on monopolists. Breyer was one of Turner’s golden children, on leave from Harvard Law, and widely disliked. In a sense, Breyer was an original ‘law and economic’ bureaucrat, the first to get into the guts of the bureaucracy and start ruining enforcement.

After leaving the Division, Turner quickly shifted with the social currents. In 1975, Turner and Harvard Law professor Phil Areeda wrote a paper attacking the very idea of predatory pricing, while on the payroll of IBM, which was then being sued for, you guessed it, predatory pricing. Citing Turner’s and Areeda’s work, courts simply stopped allowing predatory pricing claims to move forward. Soon, Turner, Areeda, and their younger colleague Breyer came to be known as the leaders of the Harvard School.

In the 1970s, Breyer went to work for Ted Kennedy, and while there, played the key staff role in deregulating the airline industry. By 1978, Breyer’s skepticism towards regulation led him to question the efficacy of the most important achievement of the consumer rights movement, the mandate for seat belts. While Kennedy’s challenge to Carter in the 1980 primary is understood as some sort of ideological contest, it really wasn’t; Breyer encouraged Kennedy to make ‘deregulation’ a theme of the campaign. In 1980, Breyer was the last judge appointed by Jimmy Carter, before the Reagan Revolution. In 1994, when he was appointed to the Supreme Court, the U.S. Chamber of Commerce endorsed his nomination, which today we understand as some sort of bipartisan good old days, but was in fact the quiet acceptance of corruption.

As the New York Times put it:

The chamber’s imprimatur helped reassure Republicans about Breyer, and he was confirmed with a vote of 87 to 9. “Frankly, we didn’t feel like we had anyone on the court since Justice Powell who truly understood business issues,” U.S. Chamber official Robin Conrad said. “Justice Breyer came close to that.”

(Interestingly, Joe Biden, at the time a young Senator, really disliked Breyer and the law and economics movement, with its balancing tests of costs and benefits. He told Breyer his views were “presumptuous and elitist,” saying he found it offensive to presume Americans “would change their cultural values if” they knew the true costs. In a later interview, Biden then called Breyer’s ideas “"Harvard-ese ... that offends me.")

Breyer on the Court

On the court, Breyer did what he had always done. He was hostile to plaintiffs in antitrust, and deferential to big business. In the early 2000s, just after the Bush administration essentially settled the Microsoft antitrust case with a slap on the wrist, the Supreme Court delivered a devastating blow for antitrust plaintiffs and government enforcers in Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, a decision authored by Antonin Scalia but joined by every other member of the court, including Stephen Breyer.

At the time, Verizon was a local phone monopoly that controlled the wires connecting customers homes to the telecom network. The 1996 Telecom Act, passed a few years earlier, sought to enforce competition in such services. As such, it required Verizon to lease its lines to competitors at a wholesale rate so that they could compete with the firm to sell telecom services. Verizon refused, and customers sued under the Sherman Antitrust Act. The Supreme Court not only said that Verizon could monopolize the market by shutting out competitors from its essential service, but that it should do so.

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices–at least for a short period–is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.
Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.

This decision is a crazy inversion of the point of antitrust, with the court openly asserting that the most important law against monopolization should not discourage monopolization. It’s also an opinion that was crafted, in part, by Breyer. Breyer was the intellectual titan on antitrust for the Democrats, and Scalia was able to persuade him to sign on. Had Breyer asked for different language but the same decision, Scalia would have complied. But Breyer was satisfied with a decision asserting that the “possession of monopoly power, and the concomitant charging of monopoly prices” is an “important element of the free-market system.”

Microsoft was the last hurrah for antitrust enforcers, and the political flip of the Bush administration, combined with the court shutting the door with Trinko, effectively ended monopolization cases at the Department of Justice for that era. And Breyer was one of the key figures shutting that door.

There were a host of unanimous decisions following Trinko that gutted antitrust law. There was Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber, which privileged big businesses who wanted to drive their competitors out of a market by overpaying for supplies in high fixed capital industries (which is one reason there are shortages today!). There was Pacific Bell Telephone Co. v. linkLine Communications, Inc, in which monopolists were allowed to use a tactic called a ‘price squeeze’ in which they exploited control over a vital resource to destroy competition. It got so bad that Breyer served as the Democratic leader in what the New York Times came to call Supreme Court Inc, for its favoratism to big business. (If you want a full rundown of some of Breyer’s decisions on corporate power, this blog post is good.)

Even Breyer’s ‘good’ decisions are a mess, because his faith in complex theoretical economics is overwhelming. Law professors joke about Breyer’s arbitrary ‘five part tests’ and weird attempts to clarify the law, which almost always makes things more complicated. In Actavis, for instance, Breyer wrote an opinion on whether pharmaceutical companies are allowed to pay competitors to stay off the market so they can keep their drug prices high, what is known as ‘pay for delay.’ Rather than just writing “No that’s a bribe and it’s a violation of antitrust law,’ Breyer said that every case had to be judged individually using an economic analysis of whether that particular arrangement might have some sort of efficiency benefit. It’s ridiculous, bribing someone to stay off the market should be the definition of an antitrust violation. Instead, Breyer’s sloppiness and unwillingness to state the obvious led to a decade of messy litigation, billions of extra costs in higher drug prices, and bitter unresolved Congressional debates.

Over the last ten years, Breyer got a bit better on antitrust, or perhaps, the cases were so bad it was hard for him to stay where he had been. (One characteristic of the Harvard School is their propensity to shift with the winds, as Turner did in the 1970s when he turned from structuralist to neoliberal.) Actavis was obnoxious but expanded the scope of antitrust law. More importantly, Breyer was a dissenter in Ohio vs American Express, which will make it harder to bring cases against tech platforms. And he joined the decision in NCAA vs Allston, which blocked the NCAA from wage suppression against college athletes. But he’s still pretty bad.

Breyer leaving the court will hopefully be an important inflection point for how Democrats think about corporate power (even as the GOP is beginning its rethink). Supreme Court judges tend to have territory, areas of expertise, and antitrust and regulatory policy were Breyer’s. And why wouldn’t they be? He is perhaps the most important intellectual on antitrust and market power to sit on the court from the 1990s onward. Other justices deferred to him. He has influenced generations of scholars, and the people he cites and the clerks he chooses acquire wealth and power. But his time is past, and we need a new generation that recognizes the problem of market power is one that requires a resurrection of our democratic tradition, and an end to the law and economics movement that has so damaged the American experiment.

Thanks for reading.

And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.

cheers,

Matt

P.S. I love this quote in Bloomberg.

"Antitrust is the main concern for merger-arbitrage funds, according to a Bloomberg News survey this month of 12 U.S.-based fund managers, analysts, and brokers."

We’re winning.

BIG by Matt Stoller

Stephen Breyer’s Legacy of Destruction