Knowledge And Decisions

Defending class privileges in the name of the public interest has required constant alarms and misleading statistics. For example, a picture of spreading and pervasive urbanization is projected by using the Census definition of “urban” as any place with 2,500 inhabitants or more. This technique conjures up a “megalopolis” extending “from southern New Hampshire to northern Virginia and from the Atlantic shore to the Appalachian foothills.”⁵⁵ In fact, however, the average density of most of that area is about one house per every twelve acres. A few high density areas like New York and other eastern cities contain most of the people (87 percent) in the supposed “megalopolis,” most of which is covered with greenery rather than concrete.⁵⁶ Zoning law proponents likewise invoke fears of factories and gas stations in residential neighborhoods. But in cities without zoning — notably Houston — no such dire things happen. Middle-class neighborhoods there look like middle-class neighborhoods elsewhere. In lower income neighborhoods, there are sometimes auto repair shops and other such local conveniences — but it is precisely in these neighborhoods with automobile repair shops that zoning is overwhelmingly rejected by the voters.⁵⁷ Apparently the trade-off between convenience and aesthetics is different for those with less money and older cars. Looked at another way, zoning allows some people to impose their values and life-style on others who may not share the values or be able to afford the life-style.

ANTITRUST

Markets may be controlled by private parties as well as by the government, and the antitrust laws are in general aimed at preventing monopoly and related market distortions. However, the major antitrust laws have been passed at widely varying times and represent varying concepts and conflicting goals. The Sherman Antitrust Act of 1890 is the oldest and most important of the federal statutes, carrying the heaviest penalties, which can range up through millions of dollars in civil damages to dissolution of a firm and/or jail for its executives. The Sherman Act forbids anyone to “monopolize, or attempt to monopolize,” or to engage in “restraint of trade.” The Clayton Act of 1914 forbade certain actions incident to monopolistic behavior, such as price discrimination, and the Federal Trade Commission Act of the same year established an organization to monitor and issue orders against a variety of undesired (“unfair”) business practices. The most enigmatic and controversial of the antitrust laws is the Robinson-Patman Act of 1936, ostensibly strengthening the Clayton Act’s ban on price-discrimination, but in practice creating legal risks and uncertainties for firms engaging in vigorous price competition. The 1950 Celler Amendment to the Clayton Act created new legal obstacles to the merger of firms.

The legal problem of reconciling these overlapping statutes is complicated by the overlapping jurisdiction of the Justice Department and the Federal Trade Commission in antitrust cases, and by the full or partial exemption from antitrust laws of some economic activities, including regulated public utilities and labor unions. Moreover, the vague language of the law leaves ample room for judicial and bureaucratic interpretations which have caused some of the leading economic and legal scholars to claim that the antitrust laws have had the opposite effects from their intentions.⁵⁸

Among the central concerns of the antitrust laws are market structures, price fixing, and price discrimination. A monopoly would not accurately transmit costs through its prices because those prices would be set above a level that could persist with competitors. Competitive businesses set prices reflecting costs of production only because they stand to lose too many sales at prices that exceed what is necessary to compensate others for supplying the same product. It is neither greed nor altruism that explains price differences but rather the systemic differences between competitive and noncompetitive markets. Price discrimination is both a symptom of a noncompetitive market and a further distortion of economic knowledge, as it conveys different information about the relative scarcity of the same product to different users — causing them to economize differently, and thus at least one of them wrongly.