Book Review: The Myth of Capitalism

In the book The Myth of Capitalism: Monopolies and the Death of Competition (Amazon,) authors Jonathan Tepper and Denise Hearn lay out the case that capitalism is dead in America and that over regulation and under-enforcement of anti-trust is to blame.

Key points:

  • Regulation suppresses startups and cements the lead of incumbents who can afford the added compliance costs.
  • Current anti-trust only focuses on “consumer welfare.” And the welfare of the consumer is really only measured by low prices. But what about keeping markets open to all new entrants, dispersing economic and political power, preventing collusion, and protecting small suppliers from predatory pricing?
  • What is good for the CEO to do for his company is not necessarily good for the whole economy. In the economy, it is logical for big companies to try to seek efficiencies, acquire competitors, pay lower wages, and increase their own income, but when all companies try to do this at the same time, everyone is worse off.
  • Investing in a portfolio of companies that spend the most on lobbying and influencing regulators would consistently beat the market. Over the past 10 years, the Strategas Lobbying Portfolio beat the Standard & Poor’s 500 by five percentage points every year.
  • Government is not a passive bystander in the increase in inequality. It is an active participant, granting favors to the wealthy and powerful, looking after the interests of the well connected.

I thought I had a personal philosophy about competition but according to the book, I am an “Ordoliberal.” Ordoliberalism argues that capitalism requires a strong government to create a framework of rules that provide the order (ordo in Latin) that free markets need to function properly. And I completely agree with the label.

A lot of supporting evidence is provided in the book to further the point. And the policy prescription is fairly straightforward. But here are some exceptions that do not really fit the narrative:

  1. Amazon routinely steals ideas from successful marketplace products. Does this mean we need marketplace regulation? Probably not because without Amazon, those businesses probably wouldn’t exist in the first place. And there are other market place competitors, like Etsy, Instagram, Pinterest, etc who act as a counterweight.
  2. Facebook is effectively a payola scam where you have to pay up if you want your own fans to see your content. Does this mean it should be regulated as a media company? The last company that had a walled garden of content was AOL. The world wide web is just a click away.
  3. Kraft Heinz took a huge markdown on its brands because consumer tastes changed and they hadn’t invested enough in R&D to be on top of it. Moats are only apparent when they are under attack.

Do I agree with the authors that capitalism needs fixing? Yes. But do I think the situation is as alarming as it is made out to be in the book? No.

Recommendation: Must read!

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