Bryan Caplan on Antitrust – Econlib

I’ve recently begun exploring Bryan Caplan’s insightful new book, Pro-Market and Pro-Business: Essays on Laissez-faire, and I’ve made my way through the first twelve succinct chapters. I initially expected to uncover a wealth of material to critique, but it turns out I find myself in agreement with nearly all of Caplan’s arguments. There is one chapter on antitrust that left me somewhat unsatisfied, though I likely concur with the underlying policy implications he presents:

Since 2007, Bill Gates has donated an astounding $28 billion, which represents 48% of his net worth. According to Frugal Dad, he’s saved nearly 6 million lives. While I haven’t verified his sources, it sounds like a reasonable estimate.

Back in the ’90s, Gates was not enjoying such favorable press and faced significant legal challenges. The U.S. government sued Microsoft for antitrust violations. In 2000, Alex Tabarrok estimated that the case cost Microsoft shareholders around $140 billion. Ultimately, Microsoft reached a relatively favorable settlement, but it’s likely that Gates would have amassed billions more without the burden of antitrust laws…

If Gates’ philanthropy is as effective as many believe, the implications are staggering: the antitrust case against Microsoft may have resulted in a significant loss of life. Gates saves approximately one life for every $5,000 he spends. If the antitrust case cost him $5 billion, and he typically donates 48%, that could equate to 480,000 lives lost. If he had donated all his wealth, that figure might even reach a million. Just imagine the death toll if the government had succeeded in crippling Microsoft and bankrupting Gates. The mind boggles at the thought.

I’ve made a similar argument in discussions about Gates, but I find some of the conclusions drawn a bit extreme:

One might counter, “By this reasoning, Gates himself is responsible for millions of deaths by not giving away even more.” If you subscribe to consequentialist ethics, that perspective holds water; it seems we are all complicit in the eyes of thinkers like Jeremy Bentham and Peter Singer. However, if we adhere to a more commonsensical distinction between “killing” and “letting die,” Gates remains blameless, while the government bears the guilt.

To me, this interpretation lacks common sense. I lean towards consequentialism but do not equate a failure to donate with murder. Moreover, I reject the notion that the U.S. government is guilty of killing in this scenario.

Antitrust issues intertwine both efficiency and equity considerations. I’m skeptical that the government’s antitrust case against Microsoft enhanced economic efficiency, and I suspect Caplan shares that skepticism. Thus, our policy perspectives may align closely. However, Caplan’s argument implicitly zeroes in on the implications of redistribution rather than efficiency, and that aspect merits further discussion.

The reasoning in this chapter implies that redistributing income from the wealthy to the middle class is detrimental on utilitarian grounds since the affluent generally have a greater propensity to aid the world’s poorest. In Gates’ case, this seems valid. However, public policy should not hinge on the impacts on an individual; rather, we must consider the broader consequences of any redistribution policy. Many affluent individuals expend their wealth on consumption or contribute to high-end universities and progressive foundations.

Using antitrust as a case study for these issues feels somewhat misplaced. A more appropriate approach would be to contemplate the optimal design of tax and transfer programs when making consequentialist arguments that assume transferring vast sums to billionaires would benefit the poorest globally.

If Gates were representative, it might be wise to significantly increase taxes on the middle class and upper middle class while drastically reducing taxes on billionaires. Yet, an even more effective strategy might involve instituting a steeply progressive consumption tax, directing the revenue towards foreign aid programs recently cut by the DOGE coalition. You might argue that redirecting funds to impoverished nations is politically unrealistic since many voters believe charity ought to start at home. While that’s true, a policy of sharply increased taxes on the middle class isn’t particularly popular either.

So, what is politically feasible? One answer is that whatever emerges from Congress this year constitutes the only viable tax policy currently in play. I view this reasoning as overly defeatist. A highly progressive consumption tax on the wealthy may not be an easy sell in Congress, but it’s likely to be more palatable than a regressive income tax. With a progressive consumption tax, Gates remains incentivized to assist the world’s poorest without necessitating concerns for billionaires’ welfare when devising optimal tax and antitrust policies.

Ultimately, I’m uncertain whether Caplan disagrees with these policy ideas. However, in a world where many hold consequentialist views, I worry that suggesting the richest among us should become even wealthier might be unhelpfully provocative. A steeply progressive consumption tax can achieve similar ends without alienating potential proponents of free markets and large enterprises.

Regarding antitrust, my preference would be for it to concentrate solely on efficiency issues—primarily addressing governmental barriers to market entry—while leaving redistribution questions to our tax and transfer systems. If the Microsoft case proved counterproductive, it was because it hindered economic efficiency.