Where We've Been (Panel Transcript)

• Pages: 175-207

175

CHAPTER VIII

WHERE WE‘VE BEEN (PANEL TRANSCRIPT)

Moderator

Edward Cavanagh

St. John‘s University, Jamaica, N.Y.

Panelists

Jonathan Baker

American University, Washington, D.C.

Alan J. Meese

William & Mary, Williamsburg, VA

Sam Peltzman

University of Chicago, Chicago, IL

MS. MAJORAS: Our first panel is being moderated by Ned

Cavanagh from St. John‘s University School of Law. T he session is to

look back in history and to look at where we have been in terms of

competition as a basis for policy.

MR. CAVANAGH: In the United S tates, we‘ve embraced the

competition model without hesitancy, and we really don‘t discuss it very

much. What underlies our preference for competition? This is what our

first panel is going to look at in an historical perspective: how did we get

to where we are in 2009? Thereby, the panel will lay, I think, the

foundation that is going to support the discussion for the rest of today

and also for tomorrow.

This is a tall order. But, fortunately, we have three academicians

who are more than up to the task. I apologize in advance for the short

form of the introductions.

First, Sam Peltzman, who is the Ralph and Dorothy Keller

Distinguished Service Professor (Emeritus) of Economics at the Booth

School of Business at the University of Chicago, where he has taught

since 1973. Sam has written extensively on the interface of public sector

and private economy, including banking regulations, auto safety, and

innovation in the pharmaceutical industry. He also serves as an Editor of

the Journal of Law and Economics. Sam was the first expert witness I

ever interviewed. In the fall of 1977, I went to Chicago to visit him with

a partner from Donovan & Leisure to talk about the Tetracycline case.

176 Competition as Public Policy

Sam came in patched madras pants and a Kelly green sweater, dapper.

Afterwards, the partner said, ―Well, what do you think?‖ I said, ―I think

he‘s great, but I think we have to put a suit on him when we bring him to

court.‖ It‘s great to have you, Sam.

Alan Meese is the William and Mary Ball Professor of Law at

William and Mary School of Law. Prior to joining academia, Alan

practiced antitrust law and also clerked for Judge Easterbrook and Justice

Scalia. Alan has written extensively in the areas of law and economics

and antitrust and also served as a senior advisor to the AMC [Antitrust

Modernization Commission] the last couple of years.

Jon Baker is both a lawyer and an economist. He has a JD from

Harvard and a PhD from Stanford. He was Director of the Bureau of

Economics at the FTC, and also served as a Special Assistant to the

Assistant Attorney General for Economics at the Department of Justice.

He is the co-author of a leading antitrust casebook. Jonathan has always

been a great friend of the Section and is always willing to do what we

need him to do.

Our presentation today breaks down nicely, I think, into three

separate time periods. Sam is going to begin the discussion with a talk

about the historic conditions of regulation and the changes in r egulation

and regulatory approaches over the years, the implications of those

changes, especially today for the financial markets, and will make some

concluding observations on whether we might be at the end of capitalism

as we know it.

Alan is going to talk about antitrust enforcement in the period of

Hoover through Thurmond Arnold, which of course also encompasses

the New Deal, the NIRA, the NRA, and Appalachia n Coals, and Alan

will make some observations on the extent to which the lessons that we

learned from antitrust enforcement at that time still have relevance today.

Jonathan is going to talk about the period after that, post Thurmond

Arnold, where what he sees as a bargain between consumers and big

business, which was the progenitor of modern antitrust, took place. He is

then going to talk to us about the Chicago School revolution and the

impact of that bargain, and also give us a hint of where things might be

going.

Now, the ground rules: each of the panelists is going to give a

presentation, no more than 25 minutes. Afterwards, I‘m going to give the

panelists an opportunity to comment on what each other has said; and

then I‘m going to throw it open for questions from the audience.

Where We‘ve Been (Panel Transcript ) 177

One thing I would ask: if you want to make a remark—this is an

academic exercise—tip your card up. I‘ll look at it, keep a queue, and

try to keep the discussion moving.

With that, Sam, please.

MR. PELTZMAN:

Let me start with what I‘m going to do. I‘m going to talk about

recent regulatory change and, in particular, what are the forces that move

that change. I‘m going to focus on two important sources of regulatory

change. I‘ll give some examples that fit each source. Then I‘m going to

deal with the question about what does change mean in terms of, when

we say ―change,‖ is it more regulation, is it less regulation, and how does

that vary with the forces that are pushing the change?

I‘ll say a little bit about how the financial s ervices industry fits into

this history. You can‘t ignore that. We have a separate panel on

financial services tomorrow. I don‘t want to encroach too much on their

territory, but you just can‘t ignore financial services, it‘s so important.

There is a paper in this binder that I got to you folks a couple of days ago

that goes into financial services a little bit more than I will today. And

there is a paper by Larry White that goes into it in much greater depth

than I would. So those two papers are a little bit complementary and will

flesh out a lot of what I‘m just going to skip over in terms of financial

services.

And then, as has been mentioned, I want to give some assessment of

this change, sort of where are we headed?

I‘m going to talk about two sources of change, as I said. I want to

emphasize this is not in any sense comprehensive in terms of a full y

fleshed out theory of regulatory change. There are lots of other things

that contribute to change, such as when the government becomes a big

buyer, it also becomes a regulator. We‘re going to talk about health care;

that‘s a prime example of that.

I want to focus on a couple of things that have been particularly

important in recent history. You‘ll see one motivation for this is the

financial services industry as it came unglued in the recent period. The

two sources of change that I am going to talk about you could call

obsolescence as one, and crisis as another source of change.

By ―obsolescence,‖ I simply mean that the regulation doesn‘t work

anymore. The regulator, in some important sense, loses the ability to

regulate cheaply, efficiently, or it becomes so costly that it becomes

politically untenable to regulate that particular industry. This can be

because market forces are pushing that way; or there is technological

change that raises the cost of effective regulation; or it can be the