With health care reform still in doubt, House speaker Nancy Pelosi of California is already planning the next step: ending the health insurance industry’s decades-old exemption from antitrust law.
According to Politico, the move is part of Pelosi’s “new two-track strategy to tackle things that won’t be included in a more sweeping bill — if Congress ever passes one — while giving her members something politically popular to vote on.” That’s always a good reason to pass legislation, isn’t it?
Antitrust has a long tradition in the United States. When railroads opened up the West, farmers protested against what they perceived to be unfair rates. The Interstate Commerce Act of 1887 addressed their concerns, creating a government commission with the power to set maximum, “reasonable” prices. When John Rockefeller’s Standard Oil seemed to grow immune from the laws of supply and demand, Congress reacted with the 1890 Sherman Act. It was claimed then, as it is claimed today, that the market, if left to its own devices, creates monopolies with the power to hold people in an iron grip of high prices for flawed products or services.
In truth, the supposed failures of the free market which prompted the aforementioned legislation were failures of government intervention. Railroads only penetrated into the West when subsidized, for the potential profits to be gained from connecting the industrial East with faraway California did not warrant the costs of investment. During the 1860s, with the aid of government land grants, some railroad companies were allowed to “break free” from the competitive bounds which had until then prevailed. This arrangements attracted the worst of companies and produced poorly constructed railways, never intended to carry traffic but built to acquire land. As Alan Greenspan noted in “Antitrust,” published in Capitalism: The Unknown Ideal (1966), “The western railroads were true monopolies in the textbook sense of the word.”
They could, and did, behave with an aura of arbitrary power. But that power was not derived from a free market. It stemmed from government subsidies and government restrictions.
Yet when the railroads began to attract enough traffic to sustain a profitable business, the monopolies were quickly wiped out, unable to withstand competition.
The history of Standard Oil shows a similar story. At the time the Sherman Act was passed, the whole of the petroleum industry amounted to less than 1 percent of the United States’ GDP. “It was not the absolute size of the trusts,” notes Greenspan, “but their dominance within their own industries that gave rise to apprehension.” Rockefeller’s empire, in fact, held so much as 80 percent of refining capacity but this made economic sense. Oil was at the time a fairly new industry and a fairly small one with that. The trusts were efficient because the market could hardly sustain more than a single, large company. When demand for oil increased, there came room for a greater number of businesses involved in it.
Greenspan further notes that in a free economy, “It takes extraordinary skill to hold more than 50 percent of a large industry’s market.” It demands exceptional productive ability, unfailing corporate management and an ongoing effort to improve one’s products.
The rare company which is able to retain its share of the market year after year and decade after decade does so by means to productive efficiency — and deserves praise, not condemnation.
He sums up his argument by claiming that “the entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance.” In fact, it’s worse.
Antitrust law is so vague that enforcement of it is necessarily arbitrary. As Alan Derrett Neale notes in The Antitrust Laws of the United States of America: A Study of Competition Enforced by Law (1960), “The courts in the United States have been engaged ever since 1890 in deciding case by case exactly what the law proscribes. No broad definition can really unlock the meaning of the statute.” Supreme Court Justice Robert H. Jackson (1892–1954), a New Deal Democrat, agreed. “It is impossible for a lawyer to determine what business conduct will be pronounced lawful by the Courts,” he declared. “This situation is embarrassing to businessmen wishing to obey the law and to Government officials attempting to enforce it.”
As it is, every business is potentially criminal. When it charges prices that are deemed “too high”, it supposedly has the “intent to monopolize” whereas prices regarded as “too low” can be cause for prosecution for “unfair competition” and the “restraint of trade” which is, in fact, the only, remotely objective standard which the Sherman Act provides. Lastly, if a company maintains prices that are exactly the same as its competitors’, it is guilty of “conspiracy”.
That insane laws as these represent the greatest injustice ever perpetrated against private business in the United States may be evident from the Judge Billings Learned Hand’s (1872-1961) ruling in the case United States v. Aluminum Company of America of 1945. In his opinion for the US Court of Appeals for the Second Circuit, Judge Hand noted:
It was not inevitable that [ALCOA] should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.
Read that last part carefully and the full meaning of antitrust law becomes perfectly clear: to punish successful companies — for being successful.
This is the sort of grotesque nonsense that the McCarran–Ferguson Act of 1945 shields health insurers from (although they are subject to state law which is part of the reason why health insurance is so expensive in the United States). Yet this is the sort of grotesque nonsense that Speaker Pelosi insists that they abide to. The rationale? The “free market” isn’t working, so the insurance business must fall victim to the very regulation that intends to ensure “fair” competition.