President Biden has inaugurated a new era of American antitrust. His agenda reworks obsolete and discredited 20th-century economic theories to target 21st-century businesses (particularly in the tech sector). Led by his appointees, the Federal Trade Commission (FTC) and Department of Justice’s (DOJ) Antitrust Division have replaced traditional antitrust tests — which prioritize sound economics, competition, efficiency, and consumer welfare — with vague and subjectivepresumptions against big business and mergers per se. This misunderstanding of economics is already stifling an airline merger which could benefit consumers and enhance competition.
Unsurprisingly, given its economic incoherence, this new antitrust philosophy commonly has many internal contradictions. These are starkly apparent as its adherents attempt to impose it on markets. Consider the DOJ’s suit to halt JetBlue Airways’ acquisition of Spirit Airlines, a case in which U.S. District Judge William Young ruled for the government last week. Nixing the merger of JetBlue and Spirit (the sixth and seventh largest U.S. airlines, respectively) quashes a nascent competitive threat to the so-called “big four” airlines (American, Delta, Southwest, and United), which control roughly 80 percent of the market. The DOJ is, in effect, beating back insurgents from the borderlands of the big four’s market share.
As the agency itself has noted, the discount ticket prices JetBlue (a “uniquely disruptive…airline”) and Spirit (another “unique” competitor) offer have benefitted air travelers greatly. However, to compete more aggressively with the big four, the upstarts need more heft. The merged airlines would have enjoyed only 9 percent market share, per a March 2023 JetBlue blogpost, “compared to about 16-24% for each of the four largest airlines.” But even that 9 percent, JetBlue said, would be sufficient to create a “compelling national challenger.”
The airlines quickly appealed the judge’s ruling. If this effort fails, Spirit’s future seems uncertain. Its business has flagged since 2020, and following the judge’s ruling, its stock value cratered. “[T]he best case scenario for Spirit is a Chapter 11 filing followed by a liquidation,” state analysts from TD Cowen. Although JPMorgan Chase analysts declined to predict“an immediate [Spirit] chapter 11 filing,” they could not “reasonably identify a viable return to profitability any time soon.”
Spirit says it intends to remain in business. But should analysts’ warnings materialize, the potential competitive and consumer benefits the DOJ has touted will likely vanish along with Spirit. As put succinctly by Melius Research analyst Conor Cunningham, a liquidation “seems like the opposite outcome Judge Young” — and the DOJ — “wanted.”
Once again, Washington’s overeager technocrats have proved their utter epistemic incompetence. The central planner’s central problem, articulated most famously by Austrian-born economist Friedrich Hayek, is that he cannot possibly gather (much less make use of) the vast information needed to plan an economy effectively. Arguing the same point two centuries earlier, Adam Smith condemned any “statesman, who should attempt to direct private people in what manner they ought to employ their capitals.” This statesman would, Smith argued, “assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever.”
It should surprise nobody that Biden’s antitrusters, perennially blind to their actions’ economic consequences, have mired themselves in contradiction. Convinced of their own rectitude and wisdom, central planners too often fall back to the “this time it will be different” fallacy (a cousin to the “real socialism has never been tried” fallacy). If they ever realize why their policies fail, they do so in hindsight — and usually once they have discovered a newer and shinier theory to justify further economic interventions. This newer and shinier theory is the magic solution that will be different, they tell voters.
And so, the cycle repeats; for industrial policy is a flat circle.
Nobody can slip the constraints Hayek’s knowledge problem imposes. No single person, no council or senate whatever — and certainly no DOJ antitrust lawyer.
