Regulation and Deregulation, pt. 2

So is there any validity to Keynes’ theory?  If the Consumption Function is incorrect, can any part of the General Theory hold water?  And what are the implications for government intervention going forward?  There are many reasons why a Keynesian regulatory approach will fail over the long run, some of which have already been explained in the context of complex systems.  These can be thought of as being outside of the model, though, and not intrinsic to Keynesianism, which is really concerned with a subset of all governmental regulatory activity.  My analysis of the General Theory and its offshoots indicates that there are two fundamental flaws in Keynesianism, and two adjunct flaws. 

The first fundamental flaw is an inaccurate representation of the relationship between inflation and unemployment.  Although not an intrinsic aspect of Keynes’ original publication, the “Philips Curve” can be derived from the math, and early on became an accepted principle of Keynesianism.  The idea is that unemployment and inflation are not independent quantities, but inversely related, and that opposing government policies must be utilized to manage either.  In particular, Keynesians fear unemployment more than they fear inflation, and so they favor government policies that attack unemployment while leaving inflation to float.  Unemployment is managed by increasing government spending, which in turn requires raising taxes and increasing deficit spending.  Inflation, conversely, is expected to rise when unemployment is low, and can therefore be managed by monetary policy that reduces the money supply.  The assumption is that inflation will sink as unemployment rises, and vice versa.  However, the Stagflation era of the 1970s demonstrated conclusively that unemployment and inflation are not complementary quantities, and can indeed both rise at the same time.  The causes behind Stagflation are fairly straightforward:  the Oil Shocks of the early 1970s, coupled with price control measures enacted first by President Nixon and later by President Carter, distorted the market, provoking recession and inflation simultaneously.  The problem the government faced was in how to deal with the situation:  standard Keynesian measures to combat unemployment would only make inflation worse, and standard Keynesian measures to combat inflation would only make unemployment worse.  There was no unified approach to managing the economy, and all the measures taken throughout the 1970s only exacerbated one or both problems.   

The second fundamental failing is in the mission of Keynesianism itself.  The basic principle of Keynes’ economic system was that decisions made by firms in the private sector are not always optimal in terms of Pareto efficiency.  This means that problems like unemployment will occur periodically, and the private sector will be unable to deal with them immediately.  To anybody versed in macroeconomics, this is simply a statement of the existence of business cycles.  But Keynes took the statement further and argued that it is therefore up to government to step in and manage economic decisions in order to improve Pareto efficiency across the board.  The flaw in this approach is implicit in the assumption that government has any better access to information or motivation that would permit it to make more Pareto-efficient decisions.  This is intuitively obvious to anyone who is aware that there are millions of firms, and tens of millions of entrepreneurs, on the ground in the marketplace observing economic conditions every day and making their decisions on that basis:  the government, acting through monolithic bureaucratic organizations, does not have the sampling capability to gauge economic conditions everywhere and respond to them in realtime.  But the problem goes deeper than that.  Pareto efficiency is defined as the inability to reallocate resources such that at least one person is better off without making any other person worse off.  It follows that any market in which not all people are as well-off as they can be is an inefficient market.  The goal of Pareto analysis is to determine how to allocate resources to maximize the position of as many people as possible without damaging the position of any other.  Keynes believed that the government, being inherently impartial and uninterested in the success of any particular firm, was better-positioned to make Pareto decisions.  Unfortunately, this is completely false.  The government is not impartial, nor is it uninterested in economic outcomes.  The government itself is subsidized by economic activity, and draws its existence, and the existence of its regulatory bureaucracies, from taxes levied on individuals and corporations.  It also grants subsidies, grants, and charters, and otherwise enacts regulation that tilts the playing field in favor of specific firms.  The elected officials who make Pareto decisions on our behalf are participating in feedback loops that keep them in office, and their first duty, therefore, is to see to their own continuation in office.  Those corporate and personal contributions that promote their elections are often the interests best served by their legislative efforts.  Moreover, the very concept of Pareto efficiency is foreign to the standard Keynesian approach of levying taxes in order to promote government spending.  Any time you promote the welfare of individual A by increasingly taxing individual B, you have not promoted Pareto efficiency because B is now worse off than he was before.  And yet this is the entirety of how Keynesianism promotes the general welfare.  Pareto efficiency is simply not, and never has been, a legitimate aspect of Keynesian policy.  Because Keynesianism cannot even meet its own raison d’etre, it cannot justify its existence in those terms.  Therefore the only justification it has is to increase the power and size of government…not a justification that sits well with liberty-loving Americans, but one that is perhaps acceptable to progressives who demand full employment from their government.

So the Keynesian math simply doesn’t work as advertised.  But additional problems remain.  One adjunct failing of Keynesianism is the failure of government to act properly during expansionary periods.  The theory requires governments to reduce spending, lower the deficit and offer tax breaks when the economy is in expansion, but this part of the toolkit is often entirely ignored.  This may be considered a failure of implementation, rather than an intrinsic problem with the theory, but it points to a sociological problem engendered by the regulatory mindset:  people are conditioned by the government to accept its activity on their behalf, as long as the government can be seen as “doing something” to benefit the economy.  This is one reason why American citizens happily bought into FDR’s (and Nixon’s) disastrous attempts to stimulate the economy, and why Obamamania continues to this day despite the abject failure of his stimulus programs:  results are simply not as important as perceptions.  In its extremity, this mindset promotes the entitlement mentality of the welfare and corporate states, and can be seen to be a significant contributor to the rent-seeking activity in Washington that has so badly eroded the middle class.  The remaining Keynesian problem is that which is most obvious to constitutionalists, libertarians, and conservatives:  the fact that the government must grow in order to spend, and must regulate individual economic participation in order to stimulate.  As was the case during the Depression, this government activity necessarily restricts individual liberty.  In the simplest of all expressions, it can be argued that the quantity of individual liberty distributed across the citizenry is inversely proportional to the size and scope of government.  Certainly it’s the case that economic regulation prevents individuals from effectively using freedom of choice and from expressing their values in their economic activity.  When we consider that Jefferson wrote of “the pursuit of Happiness” in order to connote “the pursuit of commerce in accordance with personal values,” Keynesianism starts to run afoul of Constitutional considerations.  To resort to Friedman:

One of the great mistakes is to judge policies and programs by their intentions rather than their results.  We all know a famous road that is paved with good intentions.  The people who go around talking about their soft heart …, but unfortunately, it very often extends to their head as well, because the fact is that the programs that are labeled as being for the poor, for the needy, almost always have effects exactly the opposite of those which their well-intentioned sponsors intend them to have.

One other point must be addressed before we move on from our discussion of the Great Depression:  the existence of business cycles.  Some pro-regulation people flatly deny that the business cycle takes place, and place the blame for economic downturns squarely on corporate downsizing and other labor-unfriendly practices.  Their reasoning rarely extends  beyond a disdain for stochastic cycles as cycles.  If they can’t detect a regular periodicity in a changing equilibrium, they won’t refer to the changes as a cycle.  This of course disregards the vast number of natural cycles that are stochastic.  A very simple natural example is the body’s temperature cycle.  Over the course of a full day, the body’s core temperature varies in a fairly regular way (and there are larger, monthly cycles to consider as well).  But the simplicity of this cycle depends on the absence of external perturbations.  The amount and intensity of exercise, the presence of dietary factors such as capsaicin that impact the body’s temperature regulation, the ambient temperature, deprivation of sleep, illness-induced fever, and hormonal cycles all push and pull on body temperature in ways that may be individually predictable, but which are in sum rather chaotic.  The result is that what would ordinarily be a simple sine wave becomes a fuzzy-edged, somewhat randomized curve whose peaks and troughs need not necessarily bear the same periodic relationship to each other over any stretch of time.

So it is with many other cycles in nature.  As the number of perturbations increases, the amount of harmonic distortion to the wave increases.  With a great number of independent actors involved, the wave can become unrecognizable, especially if the environment is so rapidly-changing that each “zero crossing” represents not a turn to a previously-established equilibrium but the establishment of a new, slightly different one.  This is the nature of complex systems, and why equilibria evolve over time.  This basic process is why species and ecosystems change, why ecologies self-regulate, and why even robust systems can collapse completely if impacted by severe-enough shocks.  Internal regulatory mechanisms strive to keep the system on equilibrium, but they necessarily respond to changing environmental conditions, with the result that the equilibrium itself is not constant.  This no doubt strains the definition of “equilibrium” for many incredulous readers, but the fact remains that complex systems are simply never static, and “equilibrium” should not be taken to mean a fixed state of affairs.  An equilibrium is a relatively fixed state of affairs.  And if this flexibility did not exist, no kind of evolution could occur.

Shown here is a graph of the unemployment rate in the United States over a 50-year period, from 1910 to 1960.  Opponents of the business cycle will claim that there is no evident periodicity and therefore no real cycle.  Anybody with objective eyes and a modicum of pattern-recognition, however, can recognize that there are, on average, two peaks and two troughs every decade, and that the magnitude of each pair of peaks bears a discernible relationship.  The period of the Great Depression represents a substantial perturbation to the magnitude of the peaks, but not to the periodicity of the cycle.  Clearly, albeit with some chaos, the business cycle runs through roughly two recessions and expansions every decade.  

(Source:  http://en.wikipedia.org/wiki/Business_cycle#/media/File:Businesscycle_figure3.jpg, cited in the Wiki on Business Cycle.  Data compiled by Rochecon.)

It has been argued that mathematical analysis has utterly failed to demonstrate the existence of real business cycles, but this argument is either specious or outdated.  Spectral analysis has in fact confirmed the existence of what are termed “Kondratiev waves,” after their theorist, a Soviet economist (who was later executed by firing squad after serving several years in a gulag for writing literature that didn’t quite paint capitalism in the evil light demanded by Stalinist economics).  These waves typically last 50 – 60 years.  Another Soviet economist, Korotayev, determined that there are harmonic waves superimposed on these, the “Kuznet waves,” at a rate of three Kuznets to one Kondratiev.  More recently, Elliott Wave theory has demonstrated that there is a characteristic fractal aspect to market fluctuations.  These are not directly related to unemployment figures but are indicators of the health of the economy, and because they are somewhat predictable, given a rigorous-enough mathematical analysis, they suggest that economic activity is less random than it appears.  The same can be said for the Hindenburg Omen, which is a predictive indicator that can provide warning of impending stock market crashes.  The Omen is a sociological phenomenon rather than a strictly mathematical one, but it does have the virtue of being directly relatable to the business cycle, thereby tying market analysis (a la Elliott) to unemployment.  

Note also that some perturbations lie outside the trend line.  The Volcker Recession which took place in 1980 was definitely the result of monetary policy, but rather than being a standard element of an ongoing policy set, it was imposed in response to an acute economic reality, the inflationary spike of late-stage Stagflation.  Although the resulting unemployment surge was steep, it was also short-lived, resulting in a very narrow peak, with employment quickly returning to a predictable height on the slope traced by the business cycle.

The upshot is that although we cannot readily discern the business cycle by reading graphs, there is mathematical support for the existence of the business cycle as a stochastic process.  We just have to take into account the fact that the environment is constantly changing—in number and skill and ambition of participants, in technological makeup, in the participation of other national economies with various motivations and impacts, in the availability of resources, including human capital—and therefore the equilibrium point is always a moving target.

(Source:  Wikimedia Commons, as linked in multiple articles, including the Great Depression Wiki; data compiled from four sources, as noted on the Commons page.)

So it seems fairly evident that the New Deal was not the panacea its proponents claimed; at the very least, its impact has been quite controversial, and there is no doubt that at least some of its programs did more harm than good.  But is the New Deal a good case study in regulation?  What other examples can we examine in order to arrive at a legitimate opinion? 

One of the most important (and most difficult to prove) claims of liberals is that regulation is necessary in order to prevent monopolies from arising.  They cite such monopolies as AT&T and Standard Oil as examples of corporations grown amok.  Standard was a favorite target of Progressive Teddy Roosevelt, and he remains the gold Standard of progressivism in the eyes of many modern liberals.  However, the truth is that Standard was never a monopoly.  There were always at least 100 domestic producers competing with John Rockefeller’s company, and always at least 300 or more producers operating abroad.  Why, then, is it regarded as a “monopoly?”  It actually was a “trust” in the classic sense, and Roosevelt’s action is more accurately characterized as “trust-busting;” the conflation of “trust” with “monopoly” is actually a bit of progressive revisionism.  Rockefeller is correctly accused of price fixing and hostile acquisition of competitors.  What is missing from these accusations, however, is the rationale for those activities.  Rockefeller wanted to standardize oil grades and refinery products.  (Hence, obviously, the name of the company.)  He also wanted to keep prices low, in order to promote affordability among the masses.  His initial entry into the field was lamp oil, and by making it available at a low price, he made nighttime illumination possible across the United States.  This extended the workday, promoted industrialization, and extended leisure time for all families, rich and poor.  The quality of this illumination was also vastly superior to that provided by the whale oil currently in use, and vastly safer to use indoors.  This entry into the market, then, was a pivotal force in modernizing the United States and its economy. 

Rockefeller’s takeovers of other companies were also rooted in his desire to standardize products and keep prices low.  More to the point, he rarely “put out of business” his competitors, unless their operations were so poorly run as to be unsalvageable; frequently, he made them parts of his own organization and kept on the labor forces (provided they met his standards for efficiency).  He never acquired any company that was willing to adhere to the quality standards he proposed.  He only was hostile to those who refused to meet those standards, or who refused to keep prices affordable (or later, to those who took advantage of his branding to sell inferior oil products in his name).   His “price fixing” wasn’t an attempt to gouge the public, but an attempt to keep the public well-lit and under power.   He is often regarded as a paragon of greed, being essentially the first insanely wealthy industrialist in the New World, but he was actually driven by a higher power.  He always donated at least 10% of his net earnings to private charities…after donating at least 10% of his gross to his church and its affiliated charitable organizations.  He created endowments and founded the University of Chicago.  He was certainly acquisitive; but he was certainly not selfish.  Roosevelt targeted his company—from which he’d retired in 1897–not because of any specific malfeasance, but because it was a politically-convenient target.  When the trust was finally busted, several Baby Standards, most notably Standard of New Jersey, retained the original banner, but the organization was fragmented into many regional firms.  (Ironically, this process about doubled Rockefeller’s wealth, making him the world’s richest man.  This is one example of how regulation can actually backfire, by creating rewards—and therefore incentives—where none previously existed.)  Later, as World War I ground on and on and on, Standard of New Jersey made possible the Allied offensive that finally resulted in armistice, the Hundred Days’ Offensive.  Had the company not existed, and not had such a degree of integration and long reach, the Offensive would not have been possible.  As would later be the case in WWII, the availability of petroleum became the decisive factor.  (And from that point on, petroleum availability became the United States’ #1 foreign policy priority.)  In The Prize, Daniel Yergin discusses the entire history of the petrochemical industry, from circa 1860 through about 2008.  Chapter 9, “The Blood of Victory:  World War I” talks about the new role this industry played in the Great War.  A section subtitled “The Taxi Armada” details how Parisian taxicab drivers were paid—by the meter—to rush thousands of French troops to the German front line, which was encroaching dangerously on Paris from the northeast (the right flank just 40 miles from the city).  On September 6, 1914, what is recognized as the first motorized column in history began a series of long relays between Paris and the front. 

Once night had fallen, each taxi was crammed with soldiers—under the personal watch of General Gallieni, who noted, with a mixture of amusement and understatement, “Well, at least it’s not commonplace.”  Then the overloaded vehicles, their meter flags down, began to set off in convoys of twenty-five to fifty toward the battlefield—“this forerunner of the future motorized column,” as one historian later wrote, driving as only Parisian taxicab drivers can, speeding and passing and repassing each other, their headlamps darting points of light along the dark roads. 

Thousands and thousands of troops were rushed to the critical point on the front by Gallieni’s taxicabs.  They made the difference.  The French line was strengthened, and the troops fought all along it with new vigor beginning with the dawn on September 8.  On September 9, the Germans fell back and began to retreat.  “Things are going badly, the battles east of Paris will not be decided in our favor,” [German Commander-in-Chief Helmuth von] Moltke wrote to his wife as the German armies reeled.  “Our campaign is a cruel disillusion…The war which began with such good hopes will in the end go against us.” 

The taxicab drivers, hungry and tired after two days with no sleep, returned to Paris, where they were besieged by the curious and were paid their fares.  They had helped save Paris.  They had also demonstrated, under General Gallieni’s improvisational tutelage, what motorized transport would mean in the future.  Later, a grateful city rechristened the broad roadway that traverses the Esplanade des Invalides as the Avenue du Marechal Gallieni.

This maneuver saved Paris, but it also arguably led directly to the years-long stalemate that followed, trench warfare, the so-called “primacy of defense.”  Under those torturous conditions, the internal combustion engine proved itself again, this time in aircraft.  Those same conditions also provoked an innovation that is today regarded as synonymous with warfare:  the armored vehicle.   From the section “Internal Combustion at War”:

The tank was first used, prematurely, in 1916 at the Battle of the Somme.  It played a more important role in November 1917, at Cambrai.  But it had its most decisive impact on August 8, 1918, at the Battle of Amiens, when a swarm of 456 tanks broke through the German line, resulting in what General Erich Ludendorff, who was deputy to Supreme Commander Paul von Hindenburg, later called the “black day of the German Army in the history of the war.”  The “primacy of defense” was over.  When the German High Command declared in October 1918 that victory was no longer possible, the first reason it gave was the introduction of the tank.

Another reason was the extent to which the car and truck (the lorry, as the British call it) had succeeded in mechanizing transport.  While the Germans had held the advantage when it came to railway transport, the Allies were to gain the upper hand insofar as cars and trucks were concerned.  The British Expeditionary Force that went to France in August 1914 had just 827 motor cars—747 of them requisitioned—and a mere 15 motorcycles.  By the last months of the war, British Army vehicles included 56,000 trucks, 23,000 motorcars, and 34,000 motorcycles and botor bicycles.  In addition, the United States, which entered the war in April 1917, brought another 50,000 gasoline-driven vehicles to France.  All these vehicles provided the mobility to move troops and supplies swiftly from one point to another as the need arose—a capability that proved critical in many battles.  It was rightly said after the war that the victory of the Allies over Germany was in some ways the victory of the truck over the locomotive.

One upshot of this victory was the perpetual placement of foreign petroleum reserves at the top of the United States’ foreign policy priority list.  This is why it’s nonsensical to “blame Bush” or “blame the Republicans” for military intervention in destabilized oil-rich regions in the Middle East; as President Obama has recently demonstrated, it’s not a matter of political party or even of ideology.  The security of our nation, and the survival of many of its people, depend utterly on ensuring that the oil will continue to flow.  Most of us aren’t privy to the particulars of foreign policy, which is one major reason why foreign policy tends to be decided outside the realm of the democratic process.  Once a new President has ascended to the Oval Office and read the intelligence brief, campaign promises and party platforms become secondary.

But what’s the significance of all this to our current discussion?  Only this:  that the large, multinational oil producers made it all possible.  Standard had already been “busted” and fragmented into many “Baby Standards;” Royal Dutch Shell was facing controversy of its own, not least over the loyalty of its leadership.  (Some Shell plants were definitely producing toluol, a key component of TNT, for Germans companies undoubtedly sympathetic to the German war effort.  This was not an insurmountable problem, though.  In January 1915, the entire Rotterdam plant was surreptitiously dismantled and shipped, piece-by-piece, to Britain, where it was put back into operation, thereafter delivering 80% of the British military’s TNT.)  The Ottoman Empire advanced on Persian oil fields and threatened Britain’s interests there, and some regions changed hands more than once; in 1915, a five-month interruption in flow resulted from damage to the pipeline to Abadan.  More secure supplies were required, and these were provided by Standard of New Jersey and Royal Dutch Shell.

The grave shortages of 1917 gave a strong push to official efforts in Britain to develop a coherent national petroleum policy.  A variety of committees and offices, including a Petroleum Executive, were established to coordinate oil policy—both to contribute to better prosecution of the war and to try to enhance Britain’s oil position in the postwar years.  Similarly, the French government established a Comite General du Petrole, modeled on Britain’s Petroleum Executive and headed by a Senator, Henry G. Berenger, to respond to the growing crisis.  But it was recognized in both countries that the only real solution to the crisis was to be found in the United States.  Shipping—tankers—held the key to the supply situation.

What have been described as “desperate” telegrams were dispatched from London to America, declaring that the Royal Navy would be immobilized, putting the “fleet out of action,” unless the United States government made more tonnage available.  “The Germans are succeeding,” the American ambassador in London despairingly wrote in July 1917.  “They have lately sunk so many fuel oil ships, that this country may very soon be in a perilous condition—even the Grand Fleet may not have enough fuel….It is a very grave danger.”  By the autumn of 1917, Britain was exceedingly short of supplies.  “Oil is probably more important at this moment than anything else,” Walter Long, the Secretary of State for the Colonies, warned the House of Commons in October.  “You may have men, munitions and money, but if you do not have oil, which is today the greatest motive power that you use, all your other advantages would be of comparatively little value.”  In that same month, pleasure driving in Britain was summarily and completely banned. 

France’s oil position was also degenerating rapidly in the face of Germany’s unrestricted submarine campaign.  In December 1917, Senator Berenger warned Prime Minster Georges Clemenceau that the country would run out of oil by March 1918—just when the next spring offensive was set to begin.  Supplies were so low that France could sustain no more than three days of heavy German attacks, such as those experienced at Verdun, where massive convoys of trucks had been needed to rush reserves to the front and hold off the German assault.  On December 15, 1917, Clemenceau urgenly appealed to President Wilson that an additional hundred thousand tons of tanker capacity be made immediately available.

But more than ad hoc solutions were needed.  The oil crisis was already forcing the United States and its European Allies into much tighter integration of supply activities.  An Inter-Allied Petroleum Conference was established in February 1918 to pool, coordinate and control all oil supplies and tanker shipping.  Its members were the United States, Britain, France and Italy.  It proved effective at distributing the available supplies among the Allied nations and their military forces.  By the very nature of their domination of the international oil trade, however, Standard Oil of New Jersey and Royal Dutch / Shell really made the system work—though they continually argued about who was making the larger contribution.  That joint system—along with the introduction of convoys as an antidote to the German U-boats—solved the Allies’ oil supply problems for the rest of the war.

The relevance of large companies to the war effort is undeniable.  Their relevance in peacetime is just as significant; they employ a great number of people, and the larger and more stable the company, the more stable the employment.  Large corporations circulate a lot of money through the economy, and pay a lot of taxes.  Of course, large companies also pollute, influence the government in unfair ways, hire labor overseas, and some—multinationals—take refuge from legal prosecution in ways that individuals cannot.  These are all reasons progressives cite for the necessity of regulation.  As we have been discovering, these are actually all results of regulation.

One thing that Standard Oil did do that was arguably unethical was to rely on “drawbacks” in order to make use of what were essentially monopolizations of rail transports.  This exploited economies of scale that were not available to its competitors.  However, this was not an uncommon business practice in those days, and was ethically regarded somewhat differently from today.  (The agreement that Rockefeller made with Vanderbilt's railroad was in fact authorized by Congress, although we today would recognize this as precisely the kind of relationship between state and industry that libertarians find so onerous.)  

Whatever your feelings on the taking of profits, most civilizations have never regarded it as unethical.  What many entrepreneurs do regard as unethical, on the other hand, is the taking of rents—unearned profits—especially by way of influencing government policy.  This is something that ethical profit-seekers regard with disdain, although arguably many liberals regard rent-seeking and profit-seeking as the same kind of activity (and therefore look down on both).  Nonetheless, both Adam Smith and Karl Marx—the “authorities”—treated them separately, and modern businessmen do too.  Burton Folsom, Jr., in his book The Myth of the Robber Barons, distinguishes entrepreneurs into two main categories:  “market entrepreneurs,” who were interested in profit and in personal success, and “political entrepreneurs,” who were interested in rents, and who relied on government patronage.  The book is largely concerned with demonstrating that political entrepreneurship, not market entrepreneurship, was the main force building monopolies in the early days of industry, and that this force was aided by government charters and subsidies.  There were indeed Robber Barons, but those are not the ones that come to mind—the Carnegies and Rockefellers and Vanderbilts—because their names are shielded from public perception by their cozy relationship to the state.  The real Robber Barons had names like Robert Fulton, Edward K. Collins, and Samuel Cunard, and they earned that label the new-fashioned way:  by exploiting the coercive power of government for material gain, in the way that we saw Firestone, Goodyear and Goodrich doing so in the discussion of the NRA.

The most recent example of a "monopoly" coming into existence via pure market forces seems to be the Northern Securities Company, the consolidation of railroads under the control of James Hill (owner of the Great Northern Line), along with Rockefeller, J. P. Morgan and others.  (I qualify the word "monopoly" with double quotes because it wasn't a true monopoly, but more of a regional control.)  This arrangement was very quickly trust-busted by Teddy Roosevelt, with the arrangement ending in 1902, splitting the trust back into three separate railroads.  With the exception of natural monopolies in utilities, the American economy seems to have been entirely market-forces-monopoly-free for the century-plus since.  Ironically, however, in 1970 the Supreme Court authorized the creation of the Burlington Northern Railroad, a merger of four railroads, including the modern incarnations of the the Northern Securities lines, demonstrating the monopoly-promoting power of the federal government.

So it can be seen that of the stack of pro-regulation arguments you’re likely to encounter, at least in the context of reining in market forces to prevent monopoly control, many are quite hollow and do not prove their case at all.  We’ll resume in a few moments by examining the few arguments that do hold water, and question whether there’s enough in the bucket to justify carrying it.  But I’ll be charitable at this, the halfway point, and offer you an escape route.  If you cannot conceive of the government’s complicity in this activity—if you’re so “progressive” in your bias that you can’t admit any difference between capitalism and corporatism—you’re not going to like the rest of this essay, and you should instead find some nice Huffington articles with which to reinforce your prejudices.

On to Part 3