The Economics of Shortages

Ramsi A. Woodcock–

The price of food increased 2.6% in April, the largest single-month increase since 1974, but food industry executives are insisting that the country has enough food. So why are prices going up?

The explanation provided by the industry is that consumers are buying more than they need, creating shortages.

But a shortage is not a good excuse for increasing prices. Contrary to what you might have learned in Econ 101, there’s only one reason for which a shortage should give rise to higher prices: profiteering, as I explain in a forthcoming law review article.

If shortage were the only explanation for these price increases, then the increases would need to be condemned.

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Historicizing Consumer Protection

Luke Herrine–

Learned Hand once described the task of the Federal Trade Commission as “discover[ing] and mak[ing] explicit those unexpressed standards of fair dealing which the conscience of the community may progressively develop.” In a previous post, I argued that moving consumer protection law beyond consumer sovereignty requires recovering this way of thinking, common among Progressives and inspired by the common law. Talking in terms of fair dealing requires recovering the instinct for moral economy. “Democratic forms of moral economy,” I elaborated, “require developing institutions that enable collective deliberations about which (and whose) interests various consumer markets serve and which interests they ought to serve,” and endowing these institutions with the power to shape the rules that govern those markets.

If we are to recover this style of reasoning, we will have to overcome the defense mechanisms against it in contemporary legal consciousness.

With respect to the FTC’s consumer protection authority, the most powerful defense mechanism is a morality tale about what happened when the FTC tried to imbue the notion of “unfairness” (which lies at the core of its consumer protection authority) with too much moral content. Most consumer protection lawyers have at least a vague notion that the current legal standard for determining whether an act is “unfair” was written after the FTC was chided for attempting to use its unfairness authority to ban children’s advertising some time in the 1970s. On the standard version of this story, the public recoiled at the FTC’s audacity, Congress forced the FTC to develop a more neutral/objective standard for determining whether something is “unfair”, and economists were called in to add some rigor to the proceedings. The lesson is that only bad things result when morals and politics guide consumer protection. The FTC should stick to promoting “consumer choice”.

In a new draft article, I argue that this story is bunk.

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Consumer Protection after Consumer Sovereignty

Luke Herrine–

The consumer is at the center of the neoliberal’s moral universe. For both neoclassical welfarists and Hayekian moralists, the consumer is the Everyman. For, whatever else we do, we are all consumers. The “free market” has value because it forces the firms that control the process of production and distribution to compete for our business. Because firms’ very survival depends on their ability to convince us to pay them and because we only pay for things we think are valuable, firms are incentivized to take our interests into account in every decision they make. As they compete to serve our interests more and more effectively, the process of production and distribution becomes more and more efficient at giving us what we want.

According to this ideology of consumer sovereignty, we collectively control the social provisioning process through our individual decisions. Democratic governance is the facilitation of free consumer choice.

Consumer sovereignty is at the center of many familiar neoliberal reform projects. Chicago School antitrust builds on the proposition that the only reason to prevent business consolidation is to lower prices for consumers. Virginia School public choice (and its theory of regulatory capture) depends on the idea that citizenship is basically like consumption, with elected officials acting as firms that compete for votes and appointed officials as firms that compete for resources. Part of the First Amendment’s Lochnerization has involved undermining legislative and regulatory power in teh name of protecting consumers’ right to the information that judges deem necessary to make their purchasing decisions. Etc.

It has become familiar to those who follow the LPE movement that, in building a post-neoliberal way of thinking, we need to move beyond consumer sovereignty. LPE thinkers in antitrust have pointed out the implications of corporate power for workers, for productivity, for corruption of our political system, and generally for our collective ability to control our social system. Similarly with respect to public choice theory and the Lochnerized First Amendment.

But what does all of this mean for how we think about consumers and the law that is supposed to protect them? How can we think about consumer protection law if we reject the ideology of consumer sovereignty?

As I argue in a draft article, consumer protection law should be understood as a variety of moral economy.

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Predatory Lending and the Predator State

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Raul Carrillo–

Like most advocates of Modern Monetary Theory (MMT), I didn’t embrace the paradigm because I dig late-night chats about accounting identities. Rather, I found it while pursuing economic justice (following the lead of Angela Harris, Emma Coleman Jordan, and other allies). Today, I fight financial predators — banks, landlords, debt collectors, and agencies engaged in racialized wealth extraction — on the daily. And so, my MMT enthusiasm remains…practical.

Although the commentariat caricatures MMT as a rationalization for U.S. deficit spending, it’s something more powerful — a new interdisciplinary lens, shaped for eyes on the prize of justice. Most importantly, MMT is rooted in legal analysis; its neochartalist foundations help illuminate financial hierarchies — so we can better dismantle them around the world.

As elites literally claim human survival is “too expensive”, it’s crucial for movements to absorb this symposium’s chief insight: money itself, although not always starkly a creature of the “state”, is a creature of law, just like the institutions through which it flows.

When we analyze money as public software, rather than private hardware, we see political economy differently. For example, as Harris argues, any movement for economic justice must overcome the toxic trope of the “undeserving benefit recipient” (and the corollary trope of the put-upon khaki-clad patriarch). In my view, MMT helps us challenge this divide-and-conquer strategy, by undermining the technical premises of “taxpayer citizenship” — the racialized and gendered notion that rights should correspond to one’s nominal contributions to government coffers. When Stephanie Kelton reminds us that “money doesn’t grow on rich people”, she is making an inference LPE readers should appreciate: the wealthy do not get their money by generating it, but by mastering a system that routes tradeable legal claims on real resources that we collectively produce (i.e. “money”) to themselves. As I’ve emphasized, the coercion Robert Lee Hale described leads the rest of us not merely to work, but to work for legal tender, which can settle debts between individuals, but must satisfy debts to the state (most notably, taxes).

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From Territorial to Functional Sovereignty: The Case of Amazon

Frank Pasquale

Economists tend to characterize the scope of regulation as a simple matter of expanding or contracting state power. But a political economy perspective emphasizes that social relations abhor a power vacuum. When state authority contracts, private parties fill the gap. That power can feel just as oppressive, and have effects just as pervasive, as garden variety administrative agency enforcement of civil law. As Robert Lee Hale stated, “There is government whenever one person or group can tell others what they must do and when those others have to obey or suffer a penalty.”

We are familiar with that power in employer-employee relationships, or when a massive firm extracts concessions from suppliers. But what about when a firm presumes to exercise juridical power, not as a party to a conflict, but the authority deciding it? I worry that such scenarios will become all the more common as massive digital platforms exercise more power over our commercial lives.

A few weeks ago, the Friedrich Ebert Stiftung (a think tank affiliated with the Social Democratic Party in Germany) invited me to speak at their Conference on Digital Capitalism. As European authorities develop long-term plans to address the rise of powerful platforms, they want to know: What is new, or particularly challenging, in digital capitalism?

My answer focused on the identity and aspirations of major digital firms. They are no longer market participants. Rather, in their fields, they are market makers, able to exert regulatory control over the terms on which others can sell goods and services. Moreover, they aspire to displace more government roles over time, replacing the logic of territorial sovereignty with functional sovereignty. In functional arenas from room-letting to transportation to commerce, persons will be increasingly subject to corporate, rather than democratic, control. Continue reading