Read the commentary.

Commentary: Maurice E. Stucke

MONEY, IS THAT WHAT I WANT?

COMPETITION POLICY & THE ROLE OF

BEHAVIORAL ECONOMICS

In addition to the Working Paper Series, the American Antitrust Institute offers its Senior Fellows and other invitees the opportunity to present their views about important issues facing antitrust policy and antitrust enforcement. Persons interested in responding to these Commentaries should contact directly the author.

COMMENTARY Author: Maurice E. Stucke, AAI Senior Fellow & Associate Professor, University of Tennessee College of Law

Contact Information: [email protected]

2 Money, Is That What I Want? [11-Jun-09

MONEY, IS THAT WHAT I WANT? COMPETITION POLICY & THE ROLE OF BEHAVIORAL

ECONOMICS

Maurice E. Stucke*

INTRODUCTION

Until the recent financial crisis, competition was assumed to be “a self-

initiating process,” which, when left mostly alone by government

regulators, will allocate resources efficiently toward users who value them

the most.1 Market participants were assumed to be rational, which under

neoclassical economic theory parlance entailed profit-maximizers pursuing

their economic self-interest with perfect knowledge and willpower.

This economic orthodoxy is now under attack. As FTC Commissioner

J. Thomas Rosch recently said, “One thing is clear to me: the orthodox and

unvarnished Chicago School of economic theory is on life support, if it is

not dead.”2 He added, “in the real world – as opposed to the worlds of

political and economic theory – markets are not perfect; that imperfect

markets do not always correct themselves; and that business people do not

always behave rationally.”3 Likewise in shelving the Bush administration’s

highly-criticized Section 2 Report, Christine Varney, the new head of the

U.S. Department of Justice’s Antitrust Division, rebuked the report’s * Associate Professor, University of Tennessee College of Law; Senior Fellow,

American Antitrust Institute. The author wishes to thank <insert> for their helpful comments, and the University of Tennessee College of Law and the W. Allen Separk Faculty Endowment for the summer research grant.

1 UNILATERAL CONDUCT WORKING GROUP, INT’L COMPETITION NETWORK, REPORT ON THE OBJECTIVES OF UNILATERAL CONDUCT LAWS, ASSESSMENT OF DOMINANCE/SUBSTANTIAL MARKET POWER, AND STATE-CREATED MONOPOLIES 29 (2007), http://www.internationalcompetitionnetwork.org/media/library/unilateral_conduct/Objectives%20of%20Unilateral%20Conduct%20May%2007.pdf.

2 J. Thomas Rosch, Commissioner, Federal Trade Commission, Implications of the Financial Meltdown for the FTC, New York Bar Association Annual Dinner, New York, NY, Jan. 29, 2009, available at http://ftc.gov/speeches/rosch/090129financialcrisisnybarspeech.pdf.

3 Rosch, Implications of the Financial Meltdown, supra note, at 5.

11-Jun-09] Money, Is That What I Want? 3

underlying assumption that monopoly markets are generally self-correcting:

“The recent developments in the marketplace should make it clear that we

can no longer rely upon the marketplace alone to ensure that competition

and consumers will be protected.”4 In a speech that same day, the new

AAG noted how the Chicago School ideologies have failed:

Americans have seen firms given room to run with the idea that markets “self-police,” and that enforcement authorities should wait for the markets to “self-correct.” It is clear to anyone who picks up a newspaper or watches the evening news that the country has been waiting for this “self-correction,” spurred innovation, and enhanced consumer welfare. But these developments have not occurred. Instead, we now see numerous markets distorted. We are also seeing some firms fail and take American consumers with them. It appears that a combination of factors, including ineffective government regulation, ill-considered deregulatory measures, and inadequate antitrust oversight contributed to the current condition.5

So what are the financial crisis’s implications for competition policy?

Both AAG Varney and Commissioner Rosch have called for a recalibration

of economic and legal analyses and theories. This article addresses how

behavioral economics can assist competition authorities in this undertaking.

Behavioral economics is a hot area in legal and economic scholarship, but

neither the U.S. competition authorities nor community, until recently, have

embraced it.6 I discuss elsewhere how behavioral economics can inform

4 Press Release, U.S. Department of Justice, Justice Department Withdraws Report On

Antitrust Monopoly Law: Antitrust Division to Apply More Rigorous Standard With Focus on the Impact of Exclusionary Conduct on Consumers, May 11, 2009, http://www.usdoj.gov/atr/public/press_releases/2009/245710.htm.

5 Christine A. Varney, Assistant Attorney General, Antitrust Div., U.S. Dep’t of Justice, Vigorous Antitrust Enforcement in This Challenging Era, Remarks as prepared for the Center for American Progress 4-5 (May 11, 2009).

6 But there are several promising signs. At its past annual meeting, the American Antitrust Institute’s keynote speaker and panelists discussed the applicability of behavioral economics to competition policy. Audio available at http://www.antitrustinstitute.org/Archives/2008conferenceaudio.ashx. The AAI’s transition report also recommends the empirical analysis to further this new antitrust


merger analysis,7 cartel prosecutions,8 and monopolization cases.9 This

article first addresses one key assumption of the Chicago School’s neo-

classical economic theories – namely that individuals singularly pursue their

economic self-interest and secondly, how this assumption relates to the

Chicago School’s fundamental goal of competition policy, namely

maximizing output to its efficient level. As it is beyond this article’s scope

to examine whether firms (which are a collection of individuals) act as

rational profit-maximizers, this article focuses on the consumer.

Part I first outlines the Chicago School’s economic theories that have

dominated competition policy over the past thirty years. Part II discusses

the implications of the current financial crisis on the consumer, national and

global levels. Part III addresses how the financial crisis has prompted U.S.

policymakers to reexamine the assumptions and goals underlying the

current Chicago School theories. It outlines how the behavioral economics

literature shows that contrary to a key Chicago School assumption, many

individuals are not predisposed toward pursuing their self-interest in

maximizing profits. The Chicago School’s assumption of self-interest is

empirically unsupported and can lead to suboptimal outcomes. Because the

Chicago School’s assumptions of self-interest are not descriptive, Part IV

addresses whether they are normative, i.e., should competition policy

realism. AMERICAN ANTITRUST INSTITUTE, THE NEXT ANTITRUST AGENDA: THE AMERICAN ANTITRUST INSTITUTE’S TRANSITION REPORT ON COMPETITION POLICY TO THE 44TH PRESIDENT 26 (cartels), 172 (mergers), 185, 200-01, 272-75 (media industries) (2008). The FTC in April 2007 sponsored a conference on behavioral economics with respect to consumer protection issues. http://www.ftc.gov/be/consumerbehavior/index.shtml.

7 See Maurice E. Stucke, Behavioral Economists at the Gate: Antitrust in the Twenty-First Century, 38 LOYOLA UNIVERSITY CHICAGO L.J. 513 (2007); New Antitrust Realism, GCP (Global Competition Policy) MAGAZINE, Jan. 2009, available at http://ssrn.com/abstract=1323815.

8 Maurice E. Stucke, Morality and Antitrust, 2006 COLUMBIA BUSINESS L. REV. 443 (2006)

9 Maurice E. Stucke, Should the Government Prosecute Monopolies?, 2009 UNIVERSITY OF ILLINOIS LAW REV. 497.


promote wealth maximization and self-interest? Part V discusses the policy

risks in assuming that individuals pursue their economic self-interest and

why maximizing output is not always beneficial.

I. STATE OF COMPETITION POLICY BEFORE 2007 Antitrust ideologies in the United States generally have a 30- to 40-year

lifespan. Since the late 1970s, the Chicago School’s neo-classical economic

theories have dominated U.S. competition policy. Its ideologies shared

some characteristics of the United States’ two earlier boom periods (the

late-19th century Gilded Age and the Roaring Twenties), namely: (i)

conservative politics, (ii) normative support for reduced government; (iii)

poor climate for labor; (iv) tax reduction; (v) concentration of wealth, (vi)

increased debt and speculation; and (vii) speculative implosions and stock

market crashes.10

Competition in its perfect form, under neo-classical economic theory, is

where “buyers and sellers are so numerous and well informed that each can

act as a price-taker, able to buy or sell any desired quantity without

affecting the market price.”11 A perfect market assumes transparent prices,

highly elastic demand curves, easy entry and exit, and informed profit-

maximizing producers and consumers. Price will equal marginal cost, and

market forces will produce the efficient level of outputs with the most

efficient techniques, using the minimum quantity of inputs.

Although few, if any, markets are characterized by perfect competition,

under the Chicago School’s assumptions, most markets are competitive,

mergers and vertical arrangements often create efficiencies, and market

forces will likely redress any attempt to exercise market power. The

government operates outside the free market, and must justify the necessity

10 Phillips, supra note , at 71. 11 JOHN BLACK, A DICTIONARY OF ECONOMICS 348 (1997); William J.

Kolasky, What Is Competition? A Comparison of U.S. and European Perspectives, 49 ANTITRUST BULL. 29, 31 (2004).


of its intervening and displacing competition. The Chicago School

emphasizes removing or minimizing governmental regulations on the free

market. Any suggestion to improve or manage competition smacks of

socialism and industrial policy. Antitrust law “does not authorize the

government (or any private party) to seek to ‘improve’ competition.

Instead, antitrust enforcement seeks to deter or eliminate anticompetitive

restraints.”12 Government intervention is limited to clear and sustained

instances of market failure, namely efforts to curtail output: “only explicit

price fixing and very larger horizontal mergers (mergers to monopoly) [are]

worthy of serious concern.”13 Even then, the government must proceed

cautiously. Spontaneous free market forces eventually defeat, through

expansion or de novo entry, this temporary exercise of market power

(increasing price above, and reducing output below, competitive levels).

The concern is that unlike market-created impediments, market forces

may not readily overcome government-imposed impediments to

competition. The greater concern of governmental intervention lies with the

risk of false positives, which can chill procompetitive market behavior and

which market forces cannot readily redress, than false negatives, which

entry or expansion eventually corrects. Coinciding with the Reagan

administration’s view of governmental institutions as a necessary evil, this

free market ideology underscores how government interference likely

causes greater harm, in inhibiting the market’s efficient allocation of scarce

resources, than good. Consequently, the adherents to this ideology have a

greater concern of false positives than false negatives, and are content to

prosecuting mainly price-fixing and other egregious cartel behavior.

12 AMC REPORT, supra note , at 3. 13 Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L. REV.

925, 933 (1979) [hereinafter Posner, Chicago School]; see also 2007 ICN REPORT, supra note , at 29; Frank H. Easterbrook, Workable Antitrust Policy, 84 MICH. L. REV. 1696, 1701 (1986).


The Chicago School beliefs burned brightest during the George W.

Bush administration. Antitrust officials at the DOJ often raised concerns

about false positives, rarely about false negatives.14 The antitrust

authorities sought to limit antitrust enforcement against monopolistic

abuses.15 They criticized foreign competition authorities for the

prosecutions of monopolistic abuses.16 They repeated stock phrases here

and abroad about turning one’s back on the successful competitor once it

prevails.17 They advocated an antitrust hierarchy that emphasized cartel

prosecutions and deemphasized merger prosecutions and section 2

prosecutions.18

II. FINANCIAL CRISIS: “I’M MAD AS HELL, AND I’M NOT GOING TO TAKE THIS ANYMORE.”

In the Bush administration’s few remaining months, the U.S. economy

collapsed. The Administration that so loudly proclaimed its anti-regulatory

beliefs was expending hundreds of billions of dollars to prop up banks,

insurance companies, and auto-makers, among others.

The character Howard Beale’s famous tirade in the 1976 movie

Network resonates today.19 People are angry over the financial crisis.20 In

one survey, feelings of anger were more prevalent among college graduates

14 See Stucke, Should the Government Prosecute Monopolies, supra note , at 531. 15 See Stucke, Should the Government Prosecute Monopolies, supra note , at 500-01;

Rosch, Financial Meltdown, supra note , at 3-4. 16 See Stucke, Should the Government Prosecute Monopolies, supra note , at 501. 17 The line oft-quoted is Judge Learned Hand’s "The successful competitor, having

been urged to compete, must not be turned upon when he wins." United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945) (L. Hand, J.). It is ironic the Bush administration, which never challenged any monopolistic conduct during its eight years, quoted this decision, in which an active DOJ successfully challenged monopolistic conduct under section 2.

18 See Stucke, Should the Government Prosecute Monopolies, supra note , at 500-01. 19 American Rhetoric: Movie Speech "Network" (1976),

http://www.americanrhetoric.com/MovieSpeeches/moviespeechnetwork2.html. 20 Jeffrey M. Jones, Majority of Americans Angry About Financial Crisis, Most expect

their own finances to be harmed in the long term, Gallup, Oct. 2, 2008, available at http://www.gallup.com/poll/110914/Majority-Americans-Angry-About-Financial-Crisis.aspx.


(63% felt anger over the recent events in the financial world) and upper-

income households (annual incomes of $60,000 or more) (62% of

respondents).21 When asked who had a major effect on the current financial

crisis, 90% of Americans surveyed in November-December 2008 identified

mortgage companies, followed by lending institutions (88%), federal

government (86%), oil companies (81%), and credit card companies

(76%).22

Corporate scandals and executives’ spendthrift ways have increased the

anger. Public respect for business leaders in one March 2009 survey “is all

but non-existent.”23 Well over 60% of the surveyed US residents (as well

as residents of 5 European countries) described the recent behavior of

business leaders as unethical.24

Coupled with anger is a loss of trust. The 10th edition of the Edelman

Trust Barometer, a survey of almost 4500 “opinion leaders” across 20

countries, reflected this loss of trust.25 Sixty-two percent said they trusted

companies less in 2009 than in 2008. In the United States and Japan, more

than 75% had lost faith in business in the past year. Only 38% (down 20

percentage points from 2008 and the lowest since the poll began) said they

trusted business; only 36% trusted the banking sector (down from 68% in

2008).

Many Americans have reason to be mad. Before the market crisis and

21 Jeffrey M. Jones, Majority of Americans Angry About Financial Crisis, Most expect

their own finances to be harmed in the long term, Gallup, Oct. 2, 2008, available at http://www.gallup.com/poll/110914/Majority-Americans-Angry-About-Financial-Crisis.aspx.

22 Snapshots, USA Today, Jan. 26, 2009, http://www.issans.com/News.aspx?newsId=03

23 Richard Milne, How Business Turned Into the Bogeyman, Fin. Times, Apr. 14, 2009, at 6.

24 Richard Milne, How Business Turned Into the Bogeyman, Fin. Times, Apr. 14, 2009, at 6.

25 Andrew Edgecliffe-Johnson, Davos Confronted by Peak of Distrust, FIN. TIMES, Jan. 27, 2009, at 14.


ensuing unprecedented taxpayer bailout, some market fundamentalists had a

“You’re-on-Your-Own” philosophy.26 Markets unimpeded by

governmental social policies yield greater efficiencies, and the weak and

strong benefit as output and productivity increase. But Americans now

awake from this ideological slumber with little to show for it. The dividend

from our economic growth over the past 30 years was not reinvested in

infrastructure (such as education27 or energy independence) or improving

the safety net (such as healthcare).28 Americans awaken to find their

economy broken on several levels.

First, on the consumer level, even before the US economy collapsed,

many were being left further behind. The conventional wisdom is that as

productivity increases, living standards improve. Although worker

productivity increased during the recent Bush administration, most workers

did not share in the benefits: the inflation-adjusted median family income

increased only 0.4 percent between 2000 and 2007.29 Americans are also

squeezed with higher health care costs.30 In the three economic recoveries

since 1983, the Economic Policy Institute has identified a growing gap

between productivity and compensation.31 The average U.S. college

26 Mishel et al. supra note , at 15; JARED BERNSTEIN, ALL TOGETHER NOW COMMON

SENSE FOR A FAIR ECONOMY (2006). 27 Stacey Childress & David Thomas, The US Needs to Raise Its Educational Sights,

Fin. Times, Apr. 27, 2009, at 9; Ethan Pollack, Economic Snapshot: Our Failing Grade on Maintaining School Facilities, Economic Policy Institute (Sept. 3, 2008).

28 Steven Greenhouse, Will the Safety Net Catch the Economy’s Casualties?, N.Y. Times, Nov. 16, 2008 (Week in Review), at 3.

29 John Schmitt & Hye Jin Rho, The Reagan Question: Are You Better Off Now than You Were Eight Years Ago 4 (Center for Economic and Policy Research Sept. 2008).

30 Between 1979 and 2006, employer-provided health care coverage declined from 69% to 55%, as did employer-provided pension coverage (dropping 7.8 percentage points to 42.8%). Mishel et al. supra note , at 8. Moreover, workers and employers are further squeezed as health care premiums increased 115% between 1999 and 2007 (compared to 29% and 24% increases in workers earnings and wages respectively). Id. at 13.

31 Mishel et al., supra note , at Table 3.1 (noting difference between productivity growth and growth of median hourly compensation for periods 1983-89 (-1.3%), 1992-2000 (-1.7%), and 2002-07 (-2.2%)).


graduate’s earnings have not kept up with gains in productivity in recent

years.32

Many U.S. workers approaching retirement age have little in their

401(k) retirement accounts.33 The value of their most significant asset, their

homes, has dwindled.34 Also Americans have less equity in their homes:

home equity as a percentage of real estate value has declined from 80% in

the mid-1950s to 53.8% in 2008, with total mortgage debt accounting for

46.2% as a share of real estate value.35 In one California community 60

miles east of San Francisco, nearly 90% of homeowners are underwater --

that is they owe more on their mortgages than what their houses were

worth.36 Across the United States, nearly a quarter of all mortgaged homes

were estimated in 2008 to be at or near underwater.37 Foreclosures,

unemployment,38 and the number of Americans living in poverty are

increasing.39

32 See Frank S. Levy & Peter Temin, Inequality and Institutions in 20th Century

America (MIT Dep’t of Econ., Working Paper No. 07-17, 2007), http://ssrn.com/abstract=984330 (presenting a comprehensive view of the income distribution by contrasting conditions in postwar years); see also Krishna Guha & Alex Barker, US Graduates Are Not Immune to Income Inequality, FIN. TIMES (London), June 5, 2007 (discussing Mr. Levy’s and Mr. Temin’s research); David Frum, The Vanishing Republican Voter, N.Y. Times (Sunday Mag.), Sept. 7, 2008, at 51 (incomes of college graduates, adjusted for inflation, dropped 5 percent between 2000 and 2004) .

33 In 2006 (before the stock market crash), the average balance for workers in their 50s with between 20 and 30 years of contributions was $192,000. Hannah Glover, US Experience Shows System Is No Panacea, FIN. TIMES, Oct. 6, 2008, at 20.

34 Jack Healy, November Home Sales Fell Faster Than Expected, N.Y. TIMES, Dec. 23, 2008, at http://www.nytimes.com/2008/12/24/business/economy/24housing.html?8au&emc=au.

35 Amy Schoenfeld, Equity vs. Debt, N.Y. Times, July 7, 2008, at http://nytimes.com/interactive/2008/07/20/business/20debt-trap.html

36 David Streitfeld, A Town Drowns in Debt as Home Values Plunge, N.Y. Times, Nov. 11, 2008 (discussing Mountain House, California).

37 David Streitfeld, A Town Drowns in Debt as Home Values Plunge, N.Y. Times, Nov. 11, 2008 (discussing Mountain House, California).

38 Krishna Guha & Sarah O’Connor, US Jobless Total at Highest in 25 Years, Fin. Times, May 9/10, at 1.

39 The number of Americans living in poverty increased from about 31.6 million in 2000 to 37.3 million in 2007 (12.5 percent poverty rate). Schmitt & Rho, supra note , at 4.


Faith in a supposedly efficient stock market has diminished as many lost

a large chunk of their stock portfolio. As the Washington Post reported,

Wall Street in 2008 “rang out its worst year since the Great Depression

yesterday, leaving shareholders $6.9 trillion the poorer.”40 The Dow Jones

industrial average and the broader S&P index declined 34 percent and 38

percent, respectively, “their deepest losses since the 1930s.”41 The Nasdaq

composite index declined 41 percent, “its worst year since the exchange

was created in 1971.”42

Many Americans are angry about the growing disparity between the

wealthy and everyone else.43 In the 1970s, for example, the United States

was the richest country with the most educated population, but income

inequality was no higher than in most other rich countries.44 That changed

dramatically over the next 40 years. Today, approximately 30% of U.S.

households have a net worth below $10,000; approximately one in six

households (and even a higher percentage of 29.4% for African-American

households) have a zero or negative net worth.45 In contrast, U.S. CEOs in

major companies did extremely well for most of the Bush era: in 1965,

CEOs earned on average 24 times more than the average worker; by 2007

40 Renae Merle, Wall Street's Final '08 Toll: $6.9 Trillion Wiped Out, Wash. Post, Jan.

1, 2009, at A1, http://www.washingtonpost.com/wp-dyn/content/article/2008/12/31/AR2008123101083.html.

41 Merle, supra note , (Wall Street's Final '08 Toll) at A1. 42 Merle, supra note , (Wall Street's Final '08 Toll) at A1. 43 John Thornhill, Poll Shows Wide Dislike Of Wealth Gap, Fin. Times, May 18 2008,

at http://www.ft.com/cms/s/0/86c4edea-250f-11dd-a14a-000077b07658.html?nclick_check=1; David Frum, The Vanishing Republican Voter, N.Y. Times (Sunday Mag.), Sept. 7, 2008, at 50. This displeasure over the wealth disparity exists in the EU as well. John Thornhill et al., Accent on égalité, Fin. Times, June 9, 2008, at 7.

44 Thomas Lemieux, For Equality, Education matters, Science, Sept. 26, 2008, at 1779.

45 Mishel et al. supra note , at 11; Edward Luce, Stuck in the Middle, Fin. Times, Oct. 29, 2008, at 9.


they earned 275 more than the average worker.46

As the Economic Policy Institute recently reported, “Data on income

concentration going back to 1913 show that the top 1% of wage earners

now hold 23% of total income, the highest inequality level in any year on

record, bar one: 1928.”47 Washington, D.C., in fact, had in 2007 the highest

income disparity of any state or territory in the United States48 and was

among the 10 states and territories with the highest poverty rate.49

Although the disparity between the rich and poor has widened globally,

observed the OECD, “nowhere has this trend been so stark as in the United

States.”50 Despite its high employment rate, the United States has the third

highest poverty rate and third highest income gap between the rich and poor

among OECD nations (trailing Mexico and Turkey on both measures).51

The United States with 47% of the world’s billionaires, by far, exceeded the

number in other countries.52 And yet, the United States ranks among the

46 Mishel et al. supra note , at 9. 47 Lawrence Mishel, Jared Bernstein & Heidi Shierholz, The State of Working America

2008/2009 3 (ILR Press 2009). 48 The Gini coefficient for D.C. in 2007 was .542, compared to the national average of

.467. (The Gini index indicates how much income distribution differs from a proportionate distribution (e.g., 20% of the population holding 20% of the income), and varies from 0 (perfect equality) to 1 perfect inequality (one person controls all the wealth). U.S. Census Bureau, Income Earnings, and Poverty: Data from the 2007 American Community Survey 9-10 (Aug. 2008).

49 U.S. Census Bureau, Income Earnings, and Poverty: Data from the 2007 American Community Survey 21 (Aug. 2008). 16.4% of D.C. residents were in poverty, compared to 13% of Americans overall. The other 9 states and territories were West Virginia, Puerto Rico, Kentucky, Arkansas, Mississippi, Alabama, Louisiana, Texas, and New Mexico.

50 OECD, Country Note: United States in GROWING UNEQUAL?: INCOME DISTRIBUTION AND POVERTY IN OECD COUNTRIES (2008), at http://www.oecd.org/dataoecd/47/2/41528678.pdf. Interestingly, the income divide between 1948 and 2007 trended upward during Republican administrations and downward during Democratic administrations. LARRY M. BARTELS, UNEQUAL DEMOCRACY: THE POLITICAL ECONOMY OF THE NEW GILDED AGE UNEQUAL DEMOCRACY (2008).

51 OECD, Are We Growing Unequal? 2-3 (Oct. 2008), http://www.oecd.org/dataoecd/48/56/41494435.pdf.

52 Global wealth survey: the data in full, Fin. Times, Apr. 20, 2008, http://www.ft.com/cms/s/0/791b3f24-0f06-11dd-9646-0000779fd2ac.html.


bottom of OECD nations for earnings mobility between generations:

“Taking the analysis of persistence of income poverty and mobility of

earnings between generations together suggests that more unequal countries

are prone to developing an ‘underclass’ who are poor themselves for long

periods and so are their children.”53 In other words, contrary to the Horatio

Alger belief, the poor in the United States are likely to produce the next

generation of poor. It is ironic that today’s wealth disparity is estimated to

exceed the levels of the era of robber barons when the Sherman Act was

promulgated.54

Not surprisingly, when asked in 2008 “Are you better off than you were

five years ago?”, only 41% of middle-class Americans said yes, “the worst

result since pollsters started asking the question half a century ago.”55 One

study found of 25 indicators of economic well-being and performance in the

United States, 23 are worse in 2007/2008 than in 2000.56

Second, the United States’ economy is broken on a national level. The

United States’ GDP has dramatically shifted from a manufacturing to a

53 OECD, Are We Growing Unequal? 7 (Oct. 2008); see also Mishel et al, supra note ,

at 5 (exec. summary). 54 Peter H. Lindert, When Did Inequality Rise in Britain and America?, 9 J. INCOME

DISTRIBUTION 11, 13 (2000). Senator Sherman identified this inequality of condition, of wealth, and opportunity as the greatest threat to disturbing social order: This inequality “has grown within a single generation out of the concentration of capital into vast combinations to control production and trade and to break down competition.” 21 CONG. REC. 2455, 2460 (1890) (statement of Sen. Sherman), reprinted in 1 THE LEGISLATIVE HISTORY OF THE FEDERAL ANTITRUST LAWS AND RELATED STATUTES 113, 122 (Earl W. Kintner ed., 1978).

55 David Frum, The Vanishing Republican Voter, N.Y. Times (Sunday Mag.), Sept. 7, 2008, at 50.

56 Schmitt & Rho, supra note 29, at 5.

18 24 25 26 35 42 53 59 87

469

Spain Japan Canada Hong Kong

United Kingdom

China India Germany Russia United States

Billionaires by nationality and country of residence, selected countries, 2007


financial services economy.57 As Ron Chernow recently wrote, “Behind the

razzle-dazzle of trading desks and the esoteric finance lay the inescapable

fact that these [Wall Street] firms had shed their original reason for being:

providing capital to American business.”58 Whether the economy should be

rebalanced between manufacturing and financial services is discussed in

both the UK and US.59 Today many sprawling financial institutions,

deemed too big to fail, are requiring government rescue. The independent

news site ProPublica identified as of May 2009 $671.4 billion having been

announced and/or distributed between 12 programs to 587 recipients.60 The

United States’ investments in some major banks actually exceed the banks’

current market capitalization (such as the U.S.’s $52 billion stake in

Citigroup, which had a $17.2 billion market capitalization as of January 21,

2009).61 Overall, the United States’ efforts to stabilize the financial system,

according to an IMF estimate, could cost U.S. taxpayers $1,900 billion over

the next five years or $6,200 per person.62

Finally, the global economy is imperiled. The United States, the

“importer of last resort,” as Lawrence Summers commented last year, “is no

longer in a position to be a net source of demand for the rest of the world.”63

The regulatory framework is broken. In 1890, when the Sherman Act was

57 For the implications of this shift, see KEVIN PHILLIPS, BAD MONEY: RECKLESS

FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM (2008). 58 Ron Chernow, The Lost Tycoons, N.Y. TIMES, Sept. 28, 2008, at 12 (Week-in-

Review). 59 See Peter Marsh, Make and Mend, Fin. Times, Feb. 9, 2009, at 5; Dean Calbreath,

Reviving Industrial Jobs Could Boost U.S., San Diego Union-Tribune, May 3, 2009, http://www3.signonsandiego.com/stories/2009/may/03/1b3dean194416-reviving-industrial-jobs-could-boost/?uniontrib; Phillips, supra note .

60 http://bailout.propublica.org/programs/index 61 The Rapidly Shrinking Banking Industry, Fin. Times, Jan. 22, 2009, at 3. 62 Krishna Guha, US Taxpayers Face Bill of $1,900bn, Fears IMF, Fin. Times, Apr.

30, 2009, at 3. The US officials, according to article, challenged the methodologies in the analysis, and the magnitude of the costs depends on the future path of the economy and markets, which remain uncertain.

63 Lawrence Summers, The Global Consensus on Trade Is Unravelling, Fin. Times, Aug. 25, 2008, at 9.


enacted, there was concern about the inability of individual state

governments to address the concentrated power of trusts and monopolies

and growing wealth disparity. The state governments simply could not

catch up with the growing interstate economy, spurred in part by the

technological innovations in railroad transportation. Now a century later,

national governments cannot catch up with the growing global economy,

and address unilaterally global competition policy issues. Risks in

subprime mortgage lending in Arizona not only affect consumers in New

York, but investors across the globe. “In hindsight [] lax macroeconomic

and regulatory policies may have allowed the global economy to exceed its

‘speed limit’ and may have contributed to a buildup in imbalances across

financial, housing, and commodity markets,” wrote the IMF recently. “At

the same time, market flaws, together with policy shortcomings, have

prevented equilibrating mechanisms from operating effectively and allowed

market stresses to build.”64 Thus the greater challenge is to expand and

coordinate cross-border legal institutions to better regulate the global

economy. This is not to say nations should seek to thwart globalization.

Instead, better legal institutions must be devised to regulate global business

activity to ensure that it benefits societies.

Today’s financial crisis is not necessarily the punishment of the sins of

the U.S.’s earlier competition policies. Other factors, such as the growth of

the unregulated shadow banking system, are often cited.65 Moreover, as

Paul Krugman observed from other countries’ recessions, “bad things can

64 IMF, WORLD ECONOMIC OUTLOOK (WEO): FINANCIAL STRESS, DOWNTURNS, AND

RECOVERIES (Oct. 2008), at http://www.imf.org/external/pubs/ft/weo/2008/02/pdf/exesum.pdf.

65 PAUL KRUGMAN, THE RETURN OF DEPRESSION ECONOMICS & THE CRISIS OF 2008 158-62 (2009); Phillips, supra note , at 107-12; Alan S. Blinder, Six Errors on the Path to the Financial Crisis, N.Y. Times, Jan. 25, 2009.


happen to good economies.”66 Many countries’ economies contracted

during the current financial crisis. One can not blame Germany’s projected

six percent contraction (“one of the worst-performing large economies”67 in

2009) and Ireland’s projected 14 percent contraction between 2008 and

2010 (which would be “the largest decline in activity of any industrialized

country since the 1930s”68) solely to their or the United States’ competition

or regulatory policies. Even good conservatively-managed banks, for

example, were susceptible to the self-fulfilling panics in 1931, 1907 and

1873.69

Nonetheless, today’s market failure did not arise from a significant

exogenous event, such as an invasion or terrorist attack. Instead, the global

financial crisis, said the OECD Secretary-General, “was created by the

system itself; by the system which we created; and by a toxic combination

of unethical behavior by companies and a faulty regulation and supervision

of their activities.”70

III. THE FINANCIAL CRISIS’S SILVER LINING. Although Part II depicts a bleak picture, it does necessarily portend the

U.S.’s decline. The economy will rebound. But recognizing the perils

arising from the Chicago School’s orthodoxy, policymakers are re-

examining such fundamental issues as the efficiency of markets, and the

role of legal, social, and ethical norms in a market economy. The Chicago

School ideology that private market forces left alone will allocate goods and

services efficiently has been discredited. This is not to say, as F.A. Hayek

66 KRUGMAN, supra note, at 19. 67 Bertrand Benoit, German Economy to Shrink 6% This Year, Fin. Times, Apr. 30,

2009, at 2; see also Bertrand Benoit & Chris Bryant, German Woes Spark Talk of Weimar, Fin. Times, Apr. 29, 2009, at 3.

68 John Murray Brown, Ireland Warned of ‘Dramatic’ Slowdown, Fin. Times, Apr. 30, 2009, at 2.

69 Krugman, supra note , at 96-97, 154-57. 70 Gurria, supra note .


discussed during WWII, that a centrally-planned economy is the remedy.

Rather the concern is that former policymakers veered too close to one

extreme, namely laissez-faire dogma. Policymakers now must chart a new

course between the shoals of laissez-faire and socialist fundamentalism.

If as a result of the financial crash, basic economic tenets of a market

economy are reexamined, it makes sense for the FTC and DOJ authorities to

reevaluate the goals of and assumptions underlying competition policy.

Antitrust cannot operate in a vacuum, with its focus on outdated,

empirically questionable assumptions (a world of rational profit-

maximizers) and questionable goals (maximizing output under a static price

equilibrium model).

This re-examination requires more than conceding that market

participants lack perfect knowledge or will-power or that low interest rates

can fuel speculation. Such introspection hopefully will cast our attention to

greater concerns about the many left behind. Competition policy focused

solely on maximizing output is meaningless if only a few benefit.

Utilitarian welfare economics is agnostic about distributional effects from

the exercise of market power.71 But under social contract theory,

individuals may consent ex ante to a competition policy if the gains and

losses are distributed somewhat evenly. If the income gap widens,

however, then those left behind have less incentive to perpetuate the

prevailing competition policies. The financial crisis starkly reflects the

symptoms of a greater cultural and moral crisis, where war, poverty,

sickness, and indifference degraded human dignity. Peter Sutherland,

chairman of BP and Goldman Sachs International, in a recent interview,

71 Eleanor M. Fox, Economic Development, Poverty And Antitrust: The Other Path,

13 SW. J. L. & TRADE AM. 211, 219-20 (2007) (proponents of this perspective on aggregate efficiency or wealth do not answer the deontological questions of power and how opportunity is distributed).


compared the social safety net support in Denmark to the Anglo-Saxon

economies. In reflecting on the financial crisis, he noted “I do think we

need to reflect on a certain culture of excess.”72

A. Role of Behavioral Economics Unlike the Chicago School’s theories which were deductively derived

from the model of perfect competition,73 behavioral economics at its core is

empirical. The behavioral economics literature first identifies normative

assumptions underlying the prevalent economic theories; second,

empirically tests these assumptions and considers alternative explanations;

and third, uses the anomalies to create new theories that are further

empirically tested.74 Using facts and methods from other social sciences,

the literature over the past few decades tested the limits on neoclassical

economic theory’s assumptions concerning individuals’ rationality,

willpower, and self-interest.75

Behavioral economists note that individuals do not always act in the

ways neoclassical economic theory predicts. Actual behavior —

characterized as bounded rationality — may vary. Individuals may react

72 Harry Eyres, “I’m not really a businessman at all,” Fin. Times, Jan. 3 & 4, 2009, at

3. 73 As Posner admitted, “It is a curiosity, and a source of regret, that to this day [1979]

very few of [one of the Chicago School’s founders Aaron] Director’s ideas have been subjected to systematic empirical examination.” Posner, Chicago School, supra note , at 931 n.13.

74 Colin F. Camerer & George Loewenstein, Behavioral Economics: Past, Present, Future, in BEHAVIORAL ECONOMICS, supra note 75, at 7.

75 For interesting surveys of the many areas of behavioral economics research, see GEORGE A. AKERLOF & ROBERT J. SHILLER, ANIMAL SPIRITS (Princeton Univ. Press 2009); DAN ARIELY, PREDICTABLY IRRATIONAL: THE HIDDEN FORCES THAT SHAPE OUR DECISIONS (2008); RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS (2008); ADVANCES IN BEHAVIORAL ECONOMICS (Colin F. Camerer et al. 2004); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1487 (1998); Robert A. Prentice, Chicago Man, K-T Man, and the Future of Behavioral Law and Economics, 56 VAND. L. REV. 1663 (2003). For a broader survey of literature attacking the conventional economic theories, see ERIC D. BEINHOCKER, THE ORIGIN OF WEALTH: THE RADICAL REMAKING OF ECONOMICS AND WHAT IT MEANS FOR BUSINESS AND SOCIETY (2007).


differently depending on how the choice is phrased or elect suboptimal

outcomes based on certain heuristics. Neither the state nor private

economic agents are endowed with perfect knowledge, but adopt a

“satisficing and adaptive behavior.”76 Individuals can be far more

charitable and fair than the rational profit-maximizer.

B. Chicago School’s Assumption of Self-Interest Neoclassical economic theory has a dim view on humanity – individuals

singularly pursue their economic self-interest. The Chicago School

assumes that market participants, who consist of profit-maximizers pursuing

their economic self-interest, with perfect knowledge and willpower, will

generally promote allocative and productive efficiencies. Their neo-

classical economic theories are premised on Adam Smith’s famous

statement: “It is not from the benevolence of the butcher, the brewer, or the

baker, that we can expect our dinner, but from their regard to their own

interest. We address ourselves not to their humanity, but to their self-love,

and never talk to them of our own necessities, but of their advantage.”77

Many Chicago School adherents assume that individuals have a stable

universal preference of wealth maximization and other personal material

goals. For Robert Bork and others, the profit-maximization assumption was

“crucial” to the Chicago School’s theories.78 The Chicago School’s theory

offered “powerful simplifications,” such as “rationality, profit

maximization, the downward sloping demand curve.”79 So if humans are

rational maximizers of their self-interest (namely wealth), they should

uniformly respond to changes in exogenous financial incentives and

76 François Moreau, The Role of the State in Evolutionary Economics, 28 CAMBRIDGE

J. ECON. 847, 851 (2004). 77 Adam Smith, Wealth of Nations 78 ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 119

(1978). 79 Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L. REV.

925, 931 (1979).


disincentives in a way that can be measured and predicted. Today “[a]lmost

all economic models assume that all people are exclusively pursuing their

material self-interest and do not care about ‘social’ goals per se.”80 Thus,

“the average human being is about 95 percent selfish in the narrow sense of

the term.”81 As George Stigler wrote, when “self-interest and ethical values

with wide verbal allegiance are in conflict, much of the time, most of the

time in fact, self-interest theory . . . will win.”82 Karl Marx and Friedrich

Engels agreed.83

C. Behavioral Economics Conception of Strong Reciprocity. The Chicago School’s assumption of self-interested human behavior has

several flaws. First, if its assumption were true, then human behavior

should be easy to predict. A state planner arguably could model any

scenario using the hypothetical profit-maximizer, and centrally plan the

same outcome. No compelling reason exists to favor free competition

without any government involvement over a centrally-planned economy. It

is precisely because of the complexity and unpredictability of the

80 Richard A. Posner, The Value of Wealth: A Comment on Dworkin & Kronman, 9 J.

LEGAL STUD. 243, 247 (1980) (“Partly because there is no common currency in which to compare happiness, sharing, and protection of rights, it is unclear how to make the necessary trade-offs among these things in the design of a social system. Wealth maximization makes the trade-offs automatically.”). For criticisms of this notion that wealth maximization does not suffer the same infirmities of measurement as utilitarianism, see Jules L. Coleman, Efficiency, Utility and Wealth Maximization, 8 HOFSTRA L. REV. 509, 521 (1980); Jeanne L. Schroeder, The Midas Touch: The Lethal Effect of Wealth Maximization, 1999 WIS. L. REV. 687, 754–60.

81 Robert H. Frank et al., Does Studying Economics Inhibit Cooperation?, 7 J. OF ECON. PERSPECTIVES 159, 159 (1993), quoting GORDON TULLOCK, THE VOTE MOTIVE (1976).

82 George Stigler, Economics or Ethics?, in TANNER LECTURES ON HUMAN VALUES (S. McMurrin ed., 1981).

83 Karl Marx & Friedrich Engels, Manifesto of the Communist Party, in BASIC WRITINGS ON POLITICS & PHILOSOPHY 9 (Lewis S. Feuer ed. 1959), arguing that the bourgeoisie:

has pitilessly torn asunder the motley feudal ties that bound man to his “natural superiors,” and has left no other bond between man and man than naked self-interest, than callous “cash payment.” It has drowned the most heavenly ecstasies of religious fervor, of chivalrous enthusiasm, of Philistine sentimentalism, in the icy water of egotistical calculation.


competitive process, the diversity of human knowledge, and the variety of

conditions intrinsic to or affecting markets, such as ethical and cultural

norms, technology, production, and service norms, that necessitate against a

centrally-planned economy. An inverse relationship exists between the two

concepts: The greater the infirmities of the assumptions underlying perfect

competition, the less practical a centrally-planned economy becomes.

Second, the empirical evidence does not support the Chicago School’s

simplistic assumption of self-interested behavior. Instead, human

motivation is more nuanced and complex. Even before the advent of

behavioral economics, the assumption that all individuals pursue their self-

interest was suspect. Homogeneity in motivation inheres in vices rather

than virtues. As C.S. Lewis observed, “How monotonously alike all the

great tyrants and conquerors have been: how gloriously different are the

saints.”84 So too the Roman historian Cornelius Tacitus described his

gloomy task in presenting “in succession the merciless biddings of a tyrant,

incessant prosecutions, faithless friendships, the ruin of innocence, the same

causes issuing in the same results, and [being] everywhere confronted by a

wearisome monotony in my subject matter.”85 So “how all alike are

hateful, restless, wild; see how they despise one another, and only pretend

to an unreal self-seeking love.”86 Thus there are many unique ways to live a

virtuous life; such diversity enriches our world. The tyrants’ narrow self-

interests only deaden it.

Individuals aspire toward benevolence in accordance with religious or

social norms of fairness even though such behavior deviates from the tenets

84 C.S. LEWIS, MERE CHRISTIANITY 226 (1952). For beautifully written account of the

diversity of several saints’ lives, and their lives’ impact on one Jesuit priest, see JAMES MARTIN, MY LIFE WITH THE SAINTS (2006).

85 Tacitus, supra note , at 139. 86 SAINT FRANCIS DE SALES, INTRODUCTION TO THE DEVOUT LIFE 34 (Vantage

Spiritual Classics 2002).


of wealth maximization. Although Adam Smith is cited for the proposition

of self-interest, he personally rejected this assumption: “How selfish soever

man may be supposed, there are evidently some principles in his nature

which interest him in the fortune of others and render their happiness

necessary to him though he derives nothing from it except the pleasure of

seeing it.”87

There is nothing innate about selfish behavior. The recent behavioral

experiments, as Samuel Bowles summarizes, show “that substantial

fractions of most populations adhere to moral rules, willingly give to others,

and punish those who offend standards of appropriate behavior, even at a

cost to themselves and with no expectation of material reward.”88 Such

evidence of “strong reciprocity” in human behavior entails “a predisposition

to cooperate with others and to punish those who violate the norms of

cooperation, at personal cost, even when it is implausible to expect that

these costs will be repaid either by others or at a later date.”89 Rather than

driven by pecuniary self-interest, individuals may act contrary to their self

interest for reason of praise as well as “shame, guilt, empathy, or sensitivity

to social sanction.”90

In contrast to neoclassical economic theory which predicts free riding

when individuals are confronted with a public good,91 many test subjects in

87 ADAM SMITH, THE THEORY OF MORAL SENTIMENTS, part I, section 1, line 1 (1759). 88 Bowles, supra note, at 1606.(Science) 89 Herbert Gintis et al., Explaining Altruistic Behavior in Humans, 24 EVOLUTION &

HUM. BEHAV. 153, 154 (2003). These authors argue that “the evolutionary success of our species and the moral sentiments that have led people to value freedom, equality, and representative government are predicated upon strong reciprocity and related motivations that go beyond inclusive fitness and reciprocal altruism.” Id.

90 See Samuel Bowles & Herbert Gintis, Origins of Human Cooperation, in GENETIC AND CULTURAL EVOLUTION OF COOPERATION 429, 432–33 (Peter Hammerstein ed., 2003).

91 Given the expectation under neoclassical economic theory that individuals invariably pursue their economic self-interest, it follows that consumers will free-ride whenever confronted with public goods. After all when they conflict, economic self-interest presumably trumps personal sacrifice. Thus the Supreme Court assumes in Leegin


public goods experiments free ride rarely (or not to the extent predicted

under the Chicago School’s economic theories): “[P]eople have a tendency

to cooperate until experience shows that those with whom they’re

interacting are taking advantage of them.”92 Test subjects exhibit a much

higher rate of cooperation than predicted under neo-classical economic

theory, especially when the subjects are given the option of personally

incurring a cost to punish free-riders.93

One common behavioral economics experiment of such “strong

reciprocity” is the Ultimatum Game.94 In this game, one person is given

some money, and must offer another person some portion thereof. If the

other person accepts the offer, both get to keep the money. If the other

person rejects the offered amount, neither gets any money. Contrary to neo-

classical economic theory, which assumes one predicted response (offer the

nominal amount), most receivers in those games forego wealth to punish

unfair offers, and offerors generally offer more than the nominal profit-

maximizing amount.95 Even in a variation of the Ultimatum game where

that whenever free-riding can occur, it likely does. Thus competition authorities will be more favorably disposed to vertical price restraints, such as resale price maintenance, because the prospect of free-riding is much greater.

92 RICHARD H. THALER, THE WINNER’S CURSE: PARADOXES AND ANOMALIES OF ECONOMIC LIFE 14 (1992).

93 Gintis et al., Moral Sentiments, supra note , at 15. 94 Actual studies in more than twenty countries show the contrary: the majority of

individuals offer significantly more than the nominal amount (ordinarily forty to fifty percent of total amount available) and recipients typically (about half the time) reject nominal positive amounts (less than twenty percent of the total amount available). Fehr & Gächter, supra note , at 512; Camerer & Loewenstein, supra note , at 27; Thaler, The Winner’s Curse, supra note , at 21–35; Jolls et al., supra note , at 1489–93; Werner Guth, Rolf Schmittberger & Bernard Schwarze, An Experimental Analysis of Ultimatum Bargaining, 3 J. ECON. BEHAV. & ORG. 367, 371–74, 375 tbls. 4 & 5 (1982); Daniel Kahneman, Jack L. Knetsch & Richard H. Thaler, Fairness and the Assumptions of Economics, 59 J. BUS. S285, S291 tbl.2 (1986).

95 Stucke, Behavioral, supra note , at 530.


the receivers must accept any offer, 76% of the subjects divide the money

evenly.96

Evidence of strong reciprocity and conditional cooperation is also found

in other behavioral experiments. In one Prisoner’s Dilemma game, for

example, test subjects A and B each possess £10, which they can either

keep or transfer to the other person.97 Upon transfer, the recipient gets

triple the amount. So if A and B decide to keep their money, each earns

£10; if both decide to transfer, each earns £30. If one transfers her money,

but the other does not, then the sharer loses out. She gets nothing, while the

recipient gets £20.

(A, B payoffs) B Shares B Keeps

A Shares £30, £30 0, £20

A Keeps £20, 0 £10, £10

Neoclassical economic theory predicts that both players pursuing their

economic self-interest should not cooperate; they instead will keep their

£10. Instead many test subjects cooperate in such situations.98

Not everyone of course is charitable and trusting. In most behavioral

economic experiments, certain individuals behave selfishly.99 But the

outcome can depend on the rules of the game and mechanisms to punish

such selfishness. Depending how the game is structured, selfish individuals

at times cooperate. Thus, when selfish individuals interact with charitable

strongly-reciprocal individuals the outcome can vary depending on

institutional measures to punish unfair behavior.

96 Daniel Kahneman et al., Fairness as a Constraint on Profit Seeking: Entitlements in

the Market, 76 AMERICAN ECONOMIC REV. 728, <insert> (1986). 97 Fehr & Fischbacher, Strong Reciprocity, supra note , at 165. 98 Fehr & Fischbacher, Strong Reciprocity, supra note , at 165. 99 Ernst Fehr & Urs Fischbacher, The Economics of Strong Reciprocity, in Moral

Sentiments & Material Interests, supra note , at 155.


Under neo-classical economic theory of self-interest, the punishment

mechanism if it involves costs to the punisher should not alter the outcome.

Because punishment is costly for the punisher (which the punisher does not

recoup through cooperation), profit-maximizers would not punish.

Recognizing this, profit-maximizers will not contribute to public goods

games. Thus, with or without costly punishment mechanisms, the predicted

response under neo-classical economic theory in these public goods games

is zero contributions.

But just as individuals forego profits to punish unfair offers in the

Ultimatum Games, so too individuals in the behavioral economics

experiments incur costs to punish free-riding.100 In fact the punishment

mechanism has a positive effect in deterring free-riding, and in repeat

games contributions steadily increase until nearly all test subjects contribute

100% of their endowment.101 In the last few periods, the actual rate of

punishment is low.102

The behavioral economics experiments’ outcome also depends upon

each person’s perception of the other person as sharing or selfish.

Cooperative individuals in some of these trust and public goods

experiments will act selfishly if they feel they are being taken advantaged of

and there is no penalty provision to punish the selfish. If both believe the

other will share, both will share. If both believe the other is selfish, neither

will share. Even persons prone to sharing will not share if they believe that

the other will defect. Thus, the suboptimal equilibrium (defect, defect)

arises.103

If the game’s rules are changed so that the selfish players must decide

100 Fehr & Fischbacher, supra note , at 169. 101 Fehr & Fischbacher, supra note , at 169-70. 102 Fehr & Fischbacher, supra note , at 170. 103 Fehr & Fischbacher, Strong Reciprocity, supra note , at 167.


first, the equilibrium shifts. If the first-mover knows that her partner is by

nature cooperative, the selfish player will opt for cooperation as the payoff

is greater.

Neoclassical economic theory predicts that financial incentives should

motivate and penalties should deter behavior. But the behavioral economics

literature shows that individuals may act from an intrinsic motivation,

independent of any financial reward or penalty. At times financial

incentives may have the opposite effect. Thus, if law firm associates are

disgruntled in working longer hours, reward them with higher bonuses. But

if the law firm associates are running a 5k road race for a local charity, can

one induce the associates to run harder by offering a monetary prize?

At times, a combination of financial reward and appealing to ethical

norms are complements. But in most behavioral experiments, financial

rewards in displacing social or ethical norms may decrease (rather than

increase) motivation or the likelihood of the desired results.104 Individuals

are not singularly motivated by maximizing profits. Individuals may aspire

toward benevolence in accordance with some moral, ethical, or social norm

of fairness even though such behavior deviates from the tenets of wealth

maximization. Indeed, mixing financial norms into ethical or social settings

may be counterproductive.

Professor Dan Ariely, for example, did a series of experiments when

social norms clashed with market norms. Participants were divided into

three groups and each group performed the same mundane task. In the first

study, those who were not compensated, but were asked to undertake the

task as a favor, outperformed the two groups who received financial

104 Samuel Bowles, Policies Designed for Self-interested Citizens May Undermine

“The Moral Sentiments”: Evidence from Economic Experiments, SCIENCE, June 20, 2008, at 1605-6.


compensation for the task ($5 for one group and 50 cents for the other).105

In the second study, the two groups did not receive cash but a gift of

comparable value (a Snickers bar for the 50-cents group and a box of

Godiva chocolate for the $5 group). The two groups performed as hard as

the social-norm group.106 In the third study, the gifts were monetized to the

subjects – a “50-cent Snickers bar” or a “$5-box of Godiva chocolates -- the

two groups offered financial incentives again devoted less effort than the

social-norm group.107

Likewise Uri Gneezy and Aldo Rustichini conducted a study with high

school test subjects who collected donations for a public purpose in Israel’s

annually publicized “donation days.”108 One group of high schoolers was

given a pep talk of the importance of these donations. A second group, in

addition to the pep talk, was promised 1% of the amount collected (to be

paid from an independent source). A third group was promised an even

greater financial incentive (10% of the amount collected). Under

neoclassical economic theory, the third group, motivated by the greater

financial incentive, should collect the most donations. Instead, the groups

promised the 1% and 10% shares collected a lower average amount

($153.67 and $219.33, respectively) than the group not financially

compensated but given only the pep talk ($238.60).109 Similarly more

lawyers volunteered to donate their services for free to needy retirees than

when they were offered a relatively small amount ($30 per hour).110

105 Ariely, supra note, at 69-71. 106 Ariely, supra note, at 72-73. 107 Ariely, supra note, at 73. 108 Uri Gneezy & Aldo Rustichini, Incentives, Punishment, and Behavior, in

ADVANCES IN BEHAVIORAL ECONOMICS 572, 573 (Camerer ed., 2004). 109 Id. at 578–80. 110 Ariely, supra note, at 71.


Voluntary blood donations in Britain declined sharply when a policy of

paying donors was instituted alongside the voluntary sector.111

Other behavioral experiments show the flipside -- how appealing to an

ethical norm can deter unwanted behavior. In one experiment, MIT

students were divided into three groups. The control group, which could

not cheat, solved on average 3 problems; the second group, which could

cheat as they self-reported the number of right answers, reported solving on

average 5.5 problems. The third group, like the second group could cheat,

but they signed at the beginning of the test “I understand that this study falls

under the MIT honor system.” (MIT, in fact, does not even have an honor

code.) The third group self-reported on average 3 problems, the same

number as the control group which could not cheat.112 Likewise in another

experiment, one group before being administered a test was asked to write

down as many of the Ten Commandments as they could. That group

although it could cheat did not (compared to the group that was asked to

recite beforehand 10 books they read in high school).113

At times, highlighting an ethical norm may be more effective than a

financial penalty in deterring behavior. One study involving citizens

preparing their income tax statements attempted to determine the effect of

sanction threats and to compare them with appeals to conscience.114 For the

“sanction-treated” group, the emphasis was on the severity of possible jail

sentences and the likelihood that tax violators would be apprehended. The

“conscience” group was exposed to questions “accentuating moral reasons

for compliance with tax law.”115 The conscience appeal, overall, had a

111 Gintis et al., Moral Sentiments, supra note , at 20. 112 Ariely, supra note , at 212-13. 113 Ariely, supra note , at 207-08. 114 Richard D. Schwartz & Sonya Orleans, On Legal Sanctions, 34 U. CHI. L. REV.

274, 283–99 (1967). 115 Id. at 286–87.


stronger effect on income reported than did the threat of sanctions. The

study’s results gave some evidence that although the threat of punishment

can increase compliance (particularly among the wealthiest respondents),

appeals to conscience (particularly among the college-educated

respondents) can be a more effective instrument than sanction threat for

securing compliance.116

At times, a voluntary, community-regulated system of restraints may be

more effective than a financial penalty: the monetary penalty “may be

perceived as being unkind or hostile action (especially if the fine is imposed

by agents who have an antagonistic relationship with group members).”117

Professors Gneezy and Rustichini also considered whether financial

disincentives curb the unwanted behavior.118 Their study examined what

impact, if any, a monetary fine had on curbing undesired behavior (namely

parents who picked up their children late from certain private day-care

centers). These private day-care centers originally had no rule governing

parents who picked up their children after 4:00 P.M.; generally, a teacher

had to wait with the tardy parent’s child. A fine on tardiness was thereafter

introduced in some of the day-care centers, which, under rational choice

theory, should decrease the incidences of tardiness. Instead, the average

number of late-arriving parents increased for these day-care centers.

Moreover, after the fine was canceled, the average number of late-arriving

parents did not return to the pre-fine levels. For the control group, on the

other hand, where no fine was imposed, there was no significant shift of

late-arriving parents during this period, and fewer parents reported late in

these day-care centers than in the day-care centers with the fine. So why did

116 Id. at 299. See also Greenfield, supra note 10, at 615–17 (noting that perceptions of

fairness and justice may in certain situations play a greater role in motivating behavior than incentives or penalties).

117 Gintis et al., Moral Sentiments, supra note , at 20. 118 581–86


the monetary penalty increase the undesired behavior? Perhaps, as the

authors conclude, parents before were intrinsically motivated to pick up

their children on time. The introduction of the fine monetized that lateness

into an additional service, offered at a relatively low price.

D. Contrary To Neo-Classical Theory Which Assumes That Self-Interested Behavior Is Innate, Competition Policies, Like Other Governmental

Policies, Can Affect Human Behavior. Just as the Chicago School errs in assuming selfish behavior, it is also

erroneous to assume that individuals are always charitable. As Subpart C

discusses, human behavior can depend on many factors. The way questions

or experiments are framed, for example, may impact individual behavior –

“using market terminology (‘exchange’) to describe an experiment reduces

fair-minded behavior.”119 One important factor in the Prisoner’s Dilemma

game, for example, is how the game is framed. Test subjects are more

likely to cooperate if the game is framed in positive-sum “cooperation”

terms than in “competitive” terms.120

At times, priming individuals about money can lead to selfish and less

desirable behavior. Some empirical studies find students majoring in

economics are more motivated by self-interest than others, although other

studies show the contrary.121

119 Samuel Bowles, Policies Designed for Self-interested Citizens May Undermine

“The Moral Sentiments”: Evidence from Economic Experiments, Science, June 20, 2008, at 1606.

120 Fehr & Fischbacher, Strong Reciprocity, supra note , at 165. 121 See, e.g., Anthony M. Yezer et al., Does Studying Economics Discourage

Cooperation? Watch What We Do, Not What We Say or How We Play, 10 J. ECON. PERSPECTIVES 177, 180-81 (1996) (in experiment of leaving “lost” letters with $10 in cash in classrooms, higher rate of return (56%) for 32 letters left in upper-economics classes than 32 letters left in upper-level classes in other disciplines (31%)); T.D. Stanley & Ume Tran, Economics Students Need Not Be Greedy: Fairness and the Ultimatum Game, 27 J. OF SOCIO-ECONOMICS 657, 660 (1998) (in Ultimatum Game conducted at small liberal arts college, with about 1000 undergraduate students, found that the 7 economic majors were less motivated by self-interest than the 9 other students in their experiment).


One series of experiments involved nonconscious reminders of the

concept of money such as descrambling four of the five words (e.g., “high a

salary desk playing”) into a sensible phrase (e.g., “a high-paying salary”).

In contrast to the control group, those participants primed with money were

more independent in their work, but less likely to seek help from others, less

willing to spend time helping others, and stingier when asked to donate to a

worthy cause.122 Those primed with money in get-acquainted conversations

put more physical distance between themselves than participants not primed

with money.123 In contrast to the two groups primed with control condition

(poster showing a seascape or flower garden), participants primed with

money (their desk faced a poster showing a photo of various denominations

of money) chose more individually-focused leisure experiences and

preferred to work alone rather than with a peer on a task.124 In another

experiment, the participants played the board game Monopoly. After seven

minutes, the game was cleared leaving the participants with one of three

different amounts of Monopoly play money: $4,000 (high-money

condition); $200 (low-money condition) and no money (control condition).

For the high- and low-money participants, their play money remained in

view for the rest of the experiment. Each participant in the high-money

group was asked to imagine a future with abundant finances. Those in the

low-money group were asked to imagine a future with strained finances.

Those in the control group (which received no money at the end) were

asked about their plans for tomorrow. Then an accident was staged: one of

the confederates to the experiment (who did not know the participant’s

priming condition) spilled 27 pencils before the participant. Participants in

122 Kathleen D. Vohs et al., The Psychological Consequences of Money, SCIENCE, Nov.

17, 2006, at 1154 – 1156; see also Benedict Carey, Just Thinking About Money Can Turn the Mind Stingy, N.Y. Times, Nov. 21, 2006, at F6.

123 Vohs et al., supra note , at 1156. 124 Vohs et al., supra note , at 1156.


the high-money condition on average gathered fewer pencils than the low-

money participants, which gathered fewer pencils than the control group.125

These behavioral experiments have several implications. First, self-

interest, rather than support, at times can undermine a market economy.

Granted self-interested individuals engage in commerce to promote their

satisfaction. It is not out of benevolence that I spend money on auto repairs.

But an economy, as Amartya Sen recently wrote, “needs other values and

commitments such as mutual trust and confidence to work efficiently.”126

For example, suppose a prospective employer offers you a contract that

meticulously details all its specific requirements, and identifies all the

penalties for every conceivable transgression or deficient work

performance. Would you want to work there? The behavioral economic

experiments show how communicating such penalties to employees may

actually backfire as they signal distrust and thus engender a lower level of

productivity from the employees.127 My administrative law professor

would quote Grant Gilmore: “Law reflects, but in no sense determines the

moral worth of a society. . . . The better the society, the less law there will

be. In Heaven, there will be no law, and the lion will lie down with the

lamb. . . . In Hell, there will be nothing but law, and due process will be

meticulously observed.”128

Second, instead of appealing to self-interest, employers may appeal to

the concept of fairness, which some neo-classical economists consider too

subjective. Individuals, as these behavioral experiments show, generally

care about treating others, and being treated, fairly. For example,

125 Vohs et al., supra note , at 1155. 126 Amartya Sen, Adam Smith’s Market Never Stood Alone, Fin. Times, March 11,

2009, at 9. 127 Bowles, supra note, at 1608. (science) 128 GRANT GILMORE, THE AGES OF AMERICAN LAW 110-11 (Yale Univ. Press 1977).


employers may not reduce wages during times of deflation since workers

would perceive this as unfair, and retaliate by working less hard.129

Third, a social policy that promotes the perception that our fellow

citizens engage in self-interested behavior may be self-defeating. As

Professors Fehr and Fischbacher conclude from their studies, the problem is

not so much inherent selfishness, but the perception of how widespread

such selfishness exists: “if people believe that cheating on taxes,

corruption, or abuses of the welfare state are widespread, they themselves

are more likely to cheat on taxes, take bribes, or abuse welfare state

institutions.”130 As one example, in 1995 the Minnesota Department of

Revenue experimented with four measures to test their effectiveness in

increasing its state residents’ voluntary compliance with the state individual

income tax. One measure was mailing letters to taxpayers with information

messages on the importance of voluntary compliance.131 The state agency

sent to about 20,000 taxpayers Letter 1, which made a rational argument for

paying taxes.132 Letter 2 appealed to a social norm about tax compliance.133

129 Gintis et al., Moral Sentiments, supra note , at 32. 130 Fehr & Fischbacher, Strong Reciprocity, supra note , at 167. 131 Stephen Coleman, The Minnesota Income Tax Compliance Experiment State Tax

Results, Minnesota Dep’t of Revenue, Apr. 1996, available at http://www.taxes.state.mn.us/legal_policy/research_reports/content/complnce.pdf.

132 Coleman, supra note, at INSERT (“your income tax dollars are spent on services that we Minnesotans depend on. Over 30 percent of state taxes go to support education. Another 18 percent is spent on health care and support for the elderly and the needy. Local governments get about 12 percent of the state tax money, supporting services in your community such as law enforcement, parks, libraries and snow removal. . . . So when taxpayers do not pay what they owe, the entire community suffers.”).

133 Coleman, supra note, at 5-6. The letter said, According to a recent public opinion survey, many Minnesotans believe other people routinely cheat on their taxes. This is not true, however. Audits by the Internal Revenue Service show that people who file tax returns report correctly and pay voluntarily 93 percent of the income taxes they owe. According to a recent public opinion survey, many Minnesotans believe other people routinely cheat on their taxes. This is not true, however. Audits by the Internal Revenue Service show that people who file tax returns report correctly and pay voluntarily 93 percent of the income taxes they owe. Most taxpayers file their returns accurately and on time. Although some taxpayers owe money because of minor


Letter 1 did not affect compliance, while Letter 2 had a “moderately

significant effect on the entire sample and a stronger effect within a large

subgroup of taxpayers.”134

A study of more than 5,000 business (mostly MBA) and nonbusiness

graduate students at 32 colleges and universities in the United States and

Canada during the 2002–2003 and 2003–2004 academic years found that

graduate business students cheat more than their nonbusiness-student peers.

The study’s authors found that the students’ perception of their peers’

behavior had the largest effect.135

Thus the behavioral economic experiments’ larger implication is in

preventing society’s perception of civic duties as unraveling; once the

conditional cooperators perceive others as acting selfishly, they too will act

selfishly. Any social policy (including any competition policy) should

discourage the assumption that most people act selfishly, but emphasize that

others are cooperating in their civic duties.

IV. SHOULD COMPETITION POLICY PROMOTE WEALTH MAXIMIZATION & SELF-INTEREST?

As Part III addresses, many individuals are not predisposed toward

pursuing their self-interest in maximizing profits. Thus the Chicago

School’s assumptions are not descriptive. Given that legal institutions can

affect human behavior, this Part addresses whether competition policy

should promote wealth maximization and self-interest?

errors, a small number of taxpayers who deliberately cheat owe the bulk of unpaid taxes.

134 Coleman, supra note, at 18. The average refund, for example, was lower for the Letter 2 group ($108) than control group ($120) and Letter 1 group ($153). To measure the impact of the alternate compliance strategies on voluntary compliance, the state agency looked at changes from 1993 to 1994 in reported income and taxes paid by groups of taxpayers subject to the different strategies. These changes were compared with changes in a control group of taxpayers who were not affected by the experiment.

135 Donald L. McCabe et al., Academic Dishonesty in Graduate Business Programs: Prevalence, Causes, and Proposed Action, 5 ACADEMY OF MANAGEMENT LEARNING & EDUCATION 294–305 (2006), at ftp://ftp.cba.uri.edu/Classes/Beauvais/MBA540/Readings/McCabe_2006.pdf.


A. How Self-Interest Is Aligned with the Chicago School’s Goal of Competition Policy.

As John Kenneth Galbraith once said, “The modern conservative is

engaged in one of man's oldest exercises in moral philosophy; that is, the

search for a superior moral justification for selfishness.”136 In effect, greed

and selfishness are repackaged as virtues: society should encourage self-

interested behavior, which drives the market toward a more efficient

outcome. Moreover, the government need not intervene as such greed in

the form of arbitrage prevents or quickly cures most market failures. Thus

one presupposition of neoclassical economic theory is that the “natural laws

of the market are in essence good . . . and necessarily work for the good,

whatever may be true of the morality of individuals.”137

With the Chicago School’s premise of humans as self-interested profit-

maximizers, the goal of competition policy becomes economic and singular,

namely to maximize consumer welfare by lowering price and maximizing

output.138 In increasing output, companies can achieve economies of scale,

which lowers their marginal cost. Competition leads to lower prices, which

increases output, which as productive efficiencies accrue further reduces

price, which further increases output, et cetera. Once-considered luxury

goods (such as DVD players, cell phones) are available to a greater

percentage of consumers. Consumers benefit with greater choice of lower-

priced goods and services. Labor is needed to increase productivity,

thereby reducing unemployment.139 All benefit thereby. “Production and

136 MICHAEL JACKMAN, CROWN'S BOOK OF POLITICAL QUOTATIONS: OVER 2500

LIVELY QUOTES FROM PLATO TO REAGAN 31 (1982). 137 Joseph Cardinal Ratzinger, Market Economy and Ethics (1985),

http://www.acton.org/publications/occasionalpapers/publicat_occasionalpapers_ratzinger.php?view=print.

138 National Collegiate Athletic Ass'n v. Board of Regents of University of Oklahoma, 468 U.S. 85, 107 (1984) (NCAA), quoting Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979).

139 Galbraith, Affluent Society, supra note , at 102.


consumption together form the backbone of the economy,” observed the

OECD.140

The Chicago School’s goal of competition policy is straightforward --

maximize output to its efficient level, while using the antitrust laws

sparingly on horizontal output restraints.141 “The core question in antitrust

is output,” wrote Judge Easterbrook. “Unless a contract reduces output in

some market, to the detriment of consumers, there is no antitrust

problem.”142 Increases in output are presumed pro-competitive.143

Restrictions on output are suspect.144

B. Self-Interested Profit-maximization Does Not Promote Happiness. But a market composed of self-interested profit-maximizers -- free of all

legal, social and ethical institutions – does not necessarily produce the best

outcome. Unbridled capitalism, as Professors Akerlof and Shiller write,

“does not automatically produce what people really need; it produces what

they think they need, and are willing to pay for.”145 It can maximize output

of snake oil or products that eventually wipe out the economy.

140 Strange & Bayley, supra note , at 81. 141 Sanderson v. Culligan Intern. Co., 415 F.3d 620, 623 (7th Cir. 2005) (“Antitrust law

condemns practices that drive up prices by curtailing output.”) (Easterbrook, J.); see also National Collegiate Athletic Ass'n v. Board of Regents of University of Oklahoma, 468 U.S. 85, 107-8 (1984) (“[r]estrictions on price and output are the paradigmatic examples of restraints of trade that the Sherman Act was intended to prohibit”).

142 Chicago Professional Sports Ltd. Partnership v. National Basketball Ass'n, 95 F.3d 593, 597 (7th Cir. 1996).

143 National Collegiate Athletic Ass'n v. Board of Regents of University of Oklahoma, 468 U.S. 85, 103 (1984) (“Broadcast Music squarely holds that a joint selling arrangement may be so efficient that it will increase sellers' aggregate output and thus be procompetitive.”) (quoting Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 18-23 (1979)).

144 Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 19-20 (1979) (per se illegal rule applies when “the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output”); see also U.S. Gypsum Co. v. Indiana Gas Co., Inc., 350 F.3d 623, 627 (7th Cir. 2003) (antitrust laws designed to encourage productive efficiencies, higher output, and lower prices) (Easterbrook, J.).

145 GEORGE A. AKERLOF & ROBERT J. SHILLER, ANIMAL SPIRITS 26 (Princeton Univ. Press 2009).


Interestingly, none of the mainstream religions promote self-interested

profit maximization as a virtue. Children as part of schooling, volunteer

activities, and other forms of socialization are taught empathy and treating

others as one would like to be treated. So if self-interested behavior is

desirable or intrinsic, it makes little sense for children to internalize norms

of cooperation and empathy, only to reject these norms in adulthood.

Ultimately, capitalism without an ethical core cannot sustain itself. As the

chief rabbi of Britain said,

[w]hen everything that matters can be bought and sold, when commitments can be broken because they are no longer to our advantage, when shopping becomes salvation and advertising slogans become our litany, when our worth is measured by how much we earn and spend, then the market is destroying the very virtues on which in the long run it depends.146 But some may respond that humans for centuries have desired wealth,

so wealth maximization is a proper normative goal. Who after all wouldn’t

want to be wealthy? Although happiness is complex, the economic

literature supports the age-old wisdom that self-interest and wealth

maximization do not lead to greater happiness. Once their countries’ gross

domestic product (GDP) per capita exceeds a moderate level of income

($12,000), societies do not get happier as they get richer: “large increases

in income for a given country over time are not associated with increases in

average subjective well-being.”147 Thus, living standards in the U.S. more

than doubled between 1945 and 2000, but Americans are no happier.148 On

the personal level, once an individual’s basic needs are met, income has a

146 JONATHAN SACKS, TO HEAL A FRACTURED WORLD: THE ETHICS OF

RESPONSIBILITY (2005). 147 Daniel Kahneman et al., Would You Be Happier If You Were Richer? A Focusing

Illusion, SCIENCE, June 30, 2006, at 1909; see also DANIEL NETTLE, HAPPINESS 15, 72-73 (Oxford Univ. Press 2005).

148 Layard, supra note, at 29-30.


weak effect on happiness.149

Although poverty is increasing in the United States, most Americans,

noted the OECD, enjoy a standard of living that allows them to spend a

significant share of their income on goods and services other than food,

shelter, clothing, or other basics.150 Since the Sherman Act, average family

income (adjusted for inflation) increased threefold.151 The percentage of

total expenditures on discretionary items more than doubled since 1901

(with most of the increases between 1901 and 1984).152 In 1901, the

average U.S. family devoted 79.8 percent of its spending for food, clothing,

and housing. By 2002–03, allocations on necessities had been reduced, for

U.S. families, to 50.1 percent.153

Although expenses for healthcare doubled,154 the increase in

discretionary income has enabled American to consume more discretionary

goods and services. Unlike the Kramdens in the 1950s television show, The

Honeymooners, automobiles,155 television sets,156 washer and dryers,157 and

149 Elizabeth Dunn et al., Spending Money on Others Promotes Happiness, Science,

March 21, 2008, at 1687. 150 Strange & Bayley, supra note , at 79. 151 In 1901 the average U.S. family’s income was $750. In 2002–03, this family’s real

income, expressed in 1901 dollars, would have increased threefold, to $2,282. U.S. Bureau of Labor Statistics, U.S. Department of Labor, 100 Years of U.S. Consumer Spending Data for the Nation, New York City, and Boston (2006) (online version), available at http://www.bls.gov/opub/uscs/reflections.pdf [hereinafter BLS Report].

152 In 2002–03, the average U.S. family could allocate 49.9 percent ($20,333) of total expenditures for a variety of discretionary consumer goods and services, while the average family in 1901 could allocate only 20.2 percent, or $155, for discretionary spending. BLS Report, supra note , at 69.

153 BLS Report, supra note , at 66. In 1901, U.S. households allotted 42.5 percent of their expenditures for food; by 2002–03, food’s share of spending had dropped to just 13.2 percent. Id. By the 21st century, however, the average U.S. family allocated just 58.1 percent of food spending for food eaten at home and 41.9 percent for food eaten away from home.

154 In 1901, the average New York City family allotted 2.1 percent of spending for healthcare, while the average Boston family allotted 2.6 percent. By 2002–03, these shares had shifted to 4.4 percent and 4.8 percent, respectively. BLS Report, supra note , at 70.

155 In 1934–36, 44.4 percent of U.S. households owned an automobile, while the percentages were significantly less in New York City and in Boston—14.8 and 14.1, respectively—where well-developed public transportation was available. By the 21st


telephones are no longer considered in the U.S. as luxury items.158 As a

recent government report concluded from these findings:

Perhaps as revealing as the shift in consumer expenditure shares over the past 100 years is the wide variety of consumer items that had not been invented during the early decades of the 20th century but are commonplace today. In the 21st century, households throughout the country have purchased computers, televisions, iPods, DVD players, vacation homes, boats, planes, and recreational vehicles. They have sent their children to summer camps; contributed to retirement and pension funds; attended theatrical and musical performances and sporting events; joined health, country, and yacht clubs; and taken domestic and foreign vacation excursions. These items, which were unknown and undreamt of a century ago, are tangible proof that U.S. households today enjoy a higher standard of living.159

Consequently, since many American’s basic needs are met, further

increases in income and consumption will likely have a weak effect on their

happiness.

century, there was at least one vehicle in 88 percent of U.S. households, with the average family owning 2.0. In New York City, the average household owned 1.4 vehicles; in Boston, 1.6. BLS Report, supra note , at 69.

156 The percentage of U.S. homes with a television sets went from 9% in 1950 to 87.1% in 1960, to 98% in 1978. http://www.tvhistory.tv/Annual_TV_Households_50-78.J bbPG

157 The percent of housing units with clothes washers ranged from 57 percent for the lowest income level (less than $15,000); 72% ($15,000-$29,999); 82% ($30,000-$49,999); 89% ($50,000-$74,999); and 94% percent for the highest income level ($75,000 or more). For clothes dryers, the percent of households is 45 percent for the lowest income level and 92 percent for the highest income level. Having both a washer and dryer is related to the type of housing unit the respondent lives in. The highest percentage having both is in single-family, detached homes, with 91 percent. The lowest percentage is in large apartment buildings (5 or more rental units) where only 19 percent have both a washer and a dryer. Energy Information Administration, U.S. Dep’t of Energy, The Effect of Income on Appliances in U.S. Households, available at http://www.eia.doe.gov/emeu/recs/appliances/appliances.html

158 Some appliances are common in the home regardless of income level, such as refrigerators (99.9% of households), cooking appliances (which includes the standard oven with stove-top burners, separate stove and ovens, and toaster ovens) (99.7%), and color televisions (98.9%). Energy Information Administration; 2001 Residential Energy Consumption Survey.

159 BLS Report, supra note , at 70.


C. Why Do So Many Individuals Whose Basic Needs Are Met Continually Yearn To Earn More And Consume More Goods And Services?

Although this article focuses on bounded self-interest, individuals also

have bounded knowledge and willpower. Individuals consistently predict

incorrectly about the impact of future life events on their happiness.160 The

economic happiness literature finds that “increases in income have mostly a

transitory effect on individuals’ reported life satisfaction.”161 Winners of

large amounts of money in lotteries, for example, only have a temporary

boost in happiness.162 Many individuals no doubt desire more goods and

services, but once they obtain these trappings, they become preoccupied

with obtaining other goods and services.163

Despite the awareness that accumulations of wealth (or the goods and

services purchased) in the long run do not lead to happiness, many

individuals find it difficult to jump off what Richard Layard called, the

“hedonic treadmill.”164 Numerous studies have shown strong effects of

relative rather than absolute wealth on satisfaction.165 One’s total income is

less important than relative income, namely earning slightly more than 160 Nettle, supra note, at 15, 72-73. 161 Daniel Kahneman et al., Would You Be Happier If You Were Richer? A Focusing

Illusion, Science, June 30, 2006, at 1909. 162 Nettle, supra note, at 75. Even people with acquired disabilities or health problems

show considerable, but always not complete, adaptation to happiness. Nettle, supra note , at 83.

163 Nettle, supra note, at 15; Daniel Kahneman et al., Would You Be Happier If You Were Richer? A Focusing Illusion, Science, June 30, 2006, at 1909-10.

164 Layard, supra note, at 48. 165 Nettle, supra note, at 73; Layard, supra note, at 41-43. Similarly, humans rarely

choose things in absolute terms, but their relative advantage to other things. Ariely, supra note , at 2. As Professor Ariely discusses, by adding a third more expensive choice, for example, the marketer can steer consumers to a more expensive 2nd choice. In one behavioral economics study, 100 students at MIT’s Sloan School of Management were offered three choices for the Economist magazine: (i) Internet-only subscription for $59 (16 students); (ii) print-only subscriptions for $125 (0 students); and (iii) print-and-Internet subscriptions for $125 (84 students). When the “decoy” second choice (print-only subscriptions) was removed and only the first and third options were presented, the students did not react similarly. Instead 68 students opted for Internet-only subscription for $59 (up from 16 students) and only 32 students chose print-and-Internet subscriptions for $125 (down from 84 students). Id. at 5-6.


one’s peers, neighbors, friends, or as H.L. Mencken observed, one’s wife’s

sister’s husband.166

Under this zero-sum outlook, we compete by invariably comparing

ourselves to our peers’ wealth.167 Thus we often purchases gadgets, not

because of their inherent utility, but “because others have bought them or

they’re in most people’s houses.”168 With the globalization of the media,

one can envy not only the neighbor’s new car, but the person on the HGTV

cable channel purchasing a seaside villa in the latest popular resort island.

This hedonic treadmill has confounded consumers for centuries. John

Maynard Keynes, for example, assumed that as a result of increased

productivity and living standards, people in such developed countries would

work for only 15 hours per week. He identified two classes of needs—

“those needs which are absolute in the sense that we feel them whatever the

situation of our fellow human beings may be, and those which are relative

in the sense that we feel them only if their satisfaction lifts us above, makes

us feel superior to, our fellows.”169 He predicted that as the economy

developed, its society would deemphasize the importance of the relative

wants:

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession -as distinguished from the love of money as a means to the

166 Daniel Kahneman et al., Would You Be Happier If You Were Richer? A Focusing

Illusion, Science, June 30, 2006, at 1909. 167 Ariely, supra note , at 17-18. 168 Lucius Annaeus Seneca, Letter CXXIII, in LETTERS FROM A STOIC 227 (Penguin

Robin Campbell trans. 2004). 169 John Maynard Keynes, Economic Possibilities for our Grandchildren, in ESSAYS IN

PERSUASION 358-373 (1963).


enjoyments and realities of life -will be recognised for what it is, a somewhat disgusting morbidity, one of those semicriminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.170

So why aren’t many Americans, Europeans and Asians working a 20-

hour work week? While accurately predicting the rise in productivity and

living standards, Keynes “underestimated the appeal of materialism.”171

Under this zero-sum warfare, one person’s successes represent another’s

defeat. In fearing being left further behind their peers; individuals need to

earn more to spend more on things they are told they need. Of course, such

desires can never be satiated: individuals instead will adapt to their current

lifestyle, and envy those on the higher rung: “However much you possess

there’s someone else who has more, and you’ll be fancying yourself to be

short of things you need to the exact extent to which you lag behind

him.”172 As Plutarch similarly observed, prisoners “envy those who have

been freed, who envy those with citizen status, who in turn envy rich

people, who envy province commanders, who envy kings, who – because

they almost aspire to making thunder and lightning – envy the gods.”173

If the poor aspire to be wealthy, and the wealthy aspire to be king, it

logically follows that the tyrant who possesses unparallel power and fortune

170 John Maynard Keynes, Economic Possibilities for our Grandchildren, in Essays in

Persuasion 358-373 (1963). 171 Jonathan Guthrie, Bad Books and Long Lunches Will Not Make Us Whole, Fin.

Times, Apr. 30, 2009, at 9 (quoting Prof. Alan Manning). 172 Lucius Annaeus Seneca, Letter CIV, in LETTERS FROM A STOIC 186 (Penguin Robin

Campbell trans. 2004). 173 Plutarch, On Contentment, in ESSAYS 222 (Ian Kidd ed., Robin H. Waterfield trans.,

Penguin 1992).


should be the happiest. But as the tyrant Dionysius demonstrated with his

experiment on one of his flatterers Damocles, tyrants cannot be happy.174

“There is a sickness that infects all tyrants, they cannot trust their

friends.”175 How can they when they believe their friends are capable of the

same vices? For if the minds of tyrants could be laid bare, “there would be

seen gashes and wounds; for, as the body is lacerated by scourging, so is the

spirit by brutality, by lust, and by evil thoughts.”176 Thus, one key factor in

predicting happiness in a country is the proportion of its citizens who say

that other people can be trusted.177

Consequently, individuals suffer from a “focusing illusion” in pursuing

happiness, namely “Nothing in life matters quite as much as you think it

does while you are thinking about it.”178 One example of this came from a

recent experiment, which reaffirmed “[t]here is more happiness in giving

than in receiving.”179 First the study’s authors found from a nationally

representative survey that personal spending was unrelated to happiness, but

spending more of one’s income on others predicted greater happiness.180

Higher prosocial spending (e.g., gifts for others and donations to charity)

was associated with significantly greater happiness.181 The study’s authors

next did a before- and after field study of employees who received a profit-

sharing bonus. They found that “employees who devoted more of their

bonus to prosocial spending experienced greater happiness after receiving

the bonus, and the manner in which they spent that bonus was a more

174 MARCUS TULLIUS CICERO, ON THE GOOD LIFE 84-85 (Michael Grant trans. 1971). 175 Aeschylus, Prometheus Bound, in THREE GREEK PLAYS 105 (Edith Hamilton trans.

1965) 176 CORNELIUS TACITUS, THE ANNALS VI.6-9 170 (Modern Library Classics 2003). 177 Layard, supra note, at 68-69. 178 Daniel Kahneman & Richard H. Thaler, Utility Maximization & Experienced

Utility, 20 J. ECON. PERSPECTIVES 221, (2006). 179 Acts of the Apostles 20:36, New Jerusalem Bible (1990). 180 Dunn et al., supra note, at 1687. 181 Dunn et al., supra note, at 1687.


important predictor of their happiness than the size of the bonus itself.”182

In a third experiment, participants rated their happiness in the morning and

were then told to spend the money in the envelope (either $5 or $20) by 5

p.m. that day. The participants were divided into two groups: the first

group was told to spend the money on themselves; the second group was

told to spend the money on someone else or give it to a charity. After 5

p.m. the participants were asked about their happiness. While the amount

of money received ($5 or $20) did not has a significant effect on happiness,

participants in the prosocial spending group reported greater post-windfall

happiness than did participants in the personal spending group.183

So if giving leads to greater happiness, the study’s authors ask, why

don’t we spend a little less on ourselves and donate a little more? People

predict poorly. The authors found that 63% of university students (69/109)

predicted personal spending would make them happier than prosocial

spending, and that $20 would make them happier than $5.184

Besides focusing illusion, individuals also suffer from loss aversion and

the fear of losing. In one recent experiment, for example, neuroscientists

and economists combined brain imaging techniques and behavioral

economics research to better understand individuals’ tendency to overbid.185

Specifically, they examined whether the fear of losing the social

competition inherent in an auction game, in part, causes people to pay too

much. In particular, at the beginning of each auction round, the loss-frame

group was given a sum of $15 dollars; they were told that if they won the

auction for that round, they would get the payoff from the auction and get to

keep the $15 dollars (but they would have to give the $15 back if they lost).

182 Dunn et al., supra note, at 1688. 183 Dunn et al., supra note, at 1688. 184 Dunn et al., supra note, at 1688. 185 Mauricio R. Delgado et al., Understanding Overbidding Using the Neural Circuitry

of Reward to Design Economic Auctions, SCIENCE, Sept. 26, 2998, at 1849.


The bonus-frame group was told that if they won the round they would get

at the end of the round a bonus of $15. This framing should not make any

difference for a rational profit-maximizer: the winner of each round gets an

extra $15, the loser gets nothing. Nonetheless those in the loss-treatment

group outbid those in the bonus-treatment group, which outbid the baseline

group. (This might prove an interesting experiment for anyone running

their school fundraising charity. Project on the wall each family’s name in

a picture of a donated “brick.” Every time the family loses an auction, their

name becomes fainter. Those that win any auction item get to have their

donated brick used in the school.)

D. So If Wealth-Maximization And Self-Interested Behavior Do Not Yield Greater Personal Happiness, What Does?

For Aristotle, among others, it was a virtuous life.186 One can never

succumb to ennui by living in accord with nature and “viewing all the

variety, the majesty, the sublimity in things around us.”187

This is confirmed in the happiness economic literature. In examining

happiness in fifty countries in up to four years, one study identified six

factors that can explain 80% of the variation in happiness: divorce rate,

unemployment rate, level of trust, membership in non-religious

organizations, quality of government and fraction believing in God.188 On

an individual level, the primary sources of happiness are family 186 Aristotle, for example, viewed rationality to be the exercise of reason, which was in

accord with living a virtuous life. ARISTOTLE, NICOMACHEAN ETHICS, BOOK ONE (Martin Oswald trans., 1962). Thus, for Aristotle, rationality extended beyond best-means-to-idiosyncratic-end determinations, but reflected deliberations on the end (happiness), and the means to attain that end (virtuous life). Behavior motivated by wealth maximization was neither rational, in accord with a virtuous life, nor likely to lead to happiness, but rather an appetite devoid of rationality. Id. at 60–65. See also Seneca, Letter XXVII, supra note , at 73 (“A good character is the only guarantee of everlasting, carefree happiness.”); JOHN MILTON, PARADISE LOST, book xi, lines 530–34 (Merritt Y. Hughes ed., 1935) (There is . . . if thou well observe/The rule of Not too much, by temperance taught/In what thou eat’st and drink’st, seeking from thence/Due nourishment, not gluttonous delight,/Till many years over thy head return.”).

187 Seneca, Letter LXXVIII, supra note , at 139. 188 Layard, supra note, at 71.


relationships, employment, community and friends, health, self-control or

autonomy, personal ethical and moral values and the quality of the

environment.189 One’s financial situation in contrast has a weak effect on

happiness.190 Personal control -- the ability to control one’s life or achieve

a spiritual indifference191 -- according to a British life satisfaction study, is a

much better predictor of happiness than income.192 Individuals with a

positive-sum outlook — looking beyond themselves and their own self-

interest – generally are healthier and happier: thus, for example, people

who practice religion, belong to community organizations, do voluntary

work, and have rich social connections are healthier and happier than those

who do not.193

In accord with these happiness studies, the most satisfying jobs are not

those that pay the highest salaries or reward the pursuit of self-interest.

Instead, they are mostly professions, “especially those involving caring for,

teaching, and protecting others and creative pursuits.”194 Heading the list

are members of the clergy (87.3% very satisfied), followed by physical

therapists (78.1% very satisfied) and firefighters (80.1% very satisfied).

Likewise the two occupations with the happiest people are the clergy

(67.2% very happy) and firefighters (57.2% very happy). Sophocles

similarly observed that the noblest work is when a person helps others with

189 Layard, supra note , at 62-73; Nettle, supra note , at 85, 87. 190 Layard, supra note , at 64. 191 As St. Ignatius of Loyola described this spiritual indifference, “we must above all

endeavour to establish in ourselves a complete indifference towards all created things, though the use of them may not be otherwise forbidden; not giving, as far as depends on us, any preference to health over sickness, riches over poverty, honour over humiliation, a long life over a short. But we must desire and choose definitively in every thing what will lead us to the end of our creation.” ST. IGNATIUS OF LOYOLA, MANRESA OR THE SPIRITUAL EXERCISES OF ST. IGNATIUS 22 (Burns & Oates 1881).

192 Nettle, supra note , at 73. 193 Nettle, supra note , at 156-57. 194 Tom W. Smith, Job Satisfaction in the United States, NORC/University of Chicago

(Apr. 17, 2007), http://www-news.uchicago.edu/releases/07/pdf/070417.jobs.pdf.


all her gifts and native strength.195

Closer to home, many lawyers have left financially lucrative positions

for more satisfying positions. When asked in one 2008 survey “If you

could change one aspect of your job as a lawyer, which one of the following

would it be?”196 only 2% identified higher salaries/compensation. Instead

the surveyed lawyers’ top two choices were (i) decreased job stress (31%)

and (ii) less hours at work or more personal time (30%).

Consequently, self-interested behavior in the pursuit of wealth

maximization is irrational. Instead, rationality is the use of reason to

improve our community (and thereby ourselves), namely to create a “moral

purpose.”

IV. RISKS OF COMPETITION POLICIES THAT ASSUME SELF-INTERESTED BEHAVIOR

As Parts II and III address, the Chicago School’s assumption of self-

interested behavior is neither descriptive nor normatively desirable. Wealth

maximization and self-interest do not create a happier or better society.

As policymakers are reevaluating their economic theories, so too U.S.

consumers during this financial crisis are reevaluating their economic

behavior. On the hedonic treadmill for so long, many consumers today are

weary. In the past, Americans were predisposed to consuming and

spending. With the financial crisis, U.S. consumers have curtailed spending

and increased personal savings.197 In one 2008 survey, 84% of those

surveyed (90% female, 79% male) were inclined “to buy less stuff” and

90% were considering opting for a simpler life.198

195 Sophocles, Oedipus the King, in THE THREE THEBAN PLAYS 176 (Robert Fagles

trans. 1984). 196 Robert Half Legal, Lawyers Seek Less Stress on The Job (Oct. 7, 2008),

http://www.roberthalflegal.com. 197 Jonathan Birchall & Jenny Wiggins, Retail Suppliers Chase the Value in a Shift to

Thrift, Fin. Times, May 7, 2009, at 13; Jack Healy, Consumers in U.S. Increase Savings While Spending Less, N.Y. Times, Feb. 3, 2009.

198 BrainReserve Survey Details America's “Culture of Recession,” Marketwire, Sept.


According to a 2009 national survey by the Pew Research Center's

Social & Demographic Trends project, Americans are winnowing the

household appliances that are considered indispensible. Whereas between

1996 and 2006, the share of adults who considered a microwave a necessity

climbed from 32% to 68%, now only 47% view a microwave as a necessity.

Only 52% said a television set is a necessity (down 12 percentage points

from 2006 and the smallest share since this question was first asked over 35

years ago). Compared to those surveyed in 2006, fewer Americans in 2009

found many items as necessities: car (-3% to 88%); clothes dryer (-17% to

66%); home computer (-1% to 50%); cable or satellite television (-10% to

23%); and dishwasher (-14% to 21%).199

Perhaps the financial crisis has suspended the super-size era, with super-

sized homes, meals, cars, parents, and children. There exists the temptation

during a recession teetering on a depression for policymakers to devise

ways to exhort consumer to return on the hedonic treadmill, and make up

for the lost output. This is especially true after U.S. industrial output in

September 2008 experienced its biggest decline in 34 years.200 No doubt

marketers will renew their advertising assault to invigorate spending. But

to what extent should government policy contribute to this endeavor? This

Part identifies several risks arising from a social policy promoting self-

interested behavior and consumption for its own sake.

A. A Competition Policy That Focuses On Maximizing Output Quickens The Hedonic Treadmill, And Leads Us Further Afield From Happiness. As Part III discusses, the importance of wealth is not absolute (say

10, 2008, http://www.marketwire.com/press-release/Faith-Popcorn%27S-Brainreserve-898522.html.

199 Rich Morin & Paul Taylor, Luxury or Necessity? The Public Makes a U-Turn, Pew Research Center, Apr. 23, 2009, at http://pewsocialtrends.org/pubs/733/luxury-necessity-recession-era-reevaluations.

200 Daniel Pimlott & James Politi, Output Falls at Fastest Rate in 34 Years, Fin. Times, Oct. 17, 2008, at 5.


possessing a million dollars), but how much more one has relative to one’s

peers. Under this zero-sum outlook, every time others acquire more, I have

less. So I need to acquire more in this consumption race. There is no finish

line and no ultimate winner. Besides death, there can be no satisfactory

resting spot. If output must continually increase, the desire for additional

goods and services must remain ungratified. The benchmarks for

consumption must continually exceed the current possessions.201 As Coco

Chanel said, “Luxury is a necessity that begins where necessity ends.”

Although American consumers have been on this hedonic treadmill for

many years, the pace over the past thirty years quickened. Consumption

and debt have increased; personal savings have decreased. Despite

increases in real income per head (adjusted for inflation) has nearly doubled

since 1972, the percentage of Americans who say they are satisfied with

their financial situation has fallen.202

But the love of money, like the love of power and fame, can never be

satiated. Any social policy that prizes wealth maximization will continually

torment us, as someone will always be richer. Thus, a social policy that

primes consumers to pursue their economic self-interest makes their lives

harder. In this arms race scenario, the overall level of happiness stagnates.

Moreover, in this lonely pursuit of self-interest, we begin sacrificing

other aspects of our life that actually promote happiness. As lawyers at

large law firms experience, it is generally not the first 2000 billable hours

that affect the social life, but the incremental hours thereafter where the

significant personal sacrifices occur. American men and women whose

family income is equal to, or above, $100,000, for example, spend more

time at work and their commute203 than those with lower family incomes.

201 Bauman, supra note , at 169. 202 Layard, supra note, at 42. 203 Daniel Kahneman et al., Would You Be Happier If You Were Richer? A Focusing


Among wealthy industrialized countries, U.S. workers worked the longest

hours -- 1,966 hours per capita in 1997 versus 1,883 hours in 1980, an

increase of nearly 4%. The United States’ trend was contrary to a world-

wide trend in industrialized countries that saw the number of work hours

remain steady or decline. (In Norway and Sweden hours worked in 1997

were, respectively 1,399 and 1,552 per year.)204

If social policies prime citizens of the importance of money and self-

interest, then it should be unsurprising if more citizens behave selfishly.

Such social policies may promote personally-destructive behavior that

increases misery. As part of the introspection arising from the financial

crisis, Richard Layard noted that such a zero-sum mentality is often

counterproductive and does not generally produce a happy workplace.205 A

consumer utopia does not concern itself about caring about others: instead

the “privatized utopias of the cowboys and cowgirls of the consumerist era

show instead vastly expanded ‘free space’ (free for my self, of course)—a

kind of empty space of which the liquid-modern consumer, bent on solo

performances and solo performances only, never has enough.”206

B. To Further Maximize Output, The Economic System Must Encourage Citizens To Increase Consumption.

If maximizing output is the goal of competition policy, consumers must

acquire more: more automobiles to drive to second (or third) home with

more appliances, electronics, and other goods. As the OECD observed,

“We live in a ‘productivist’ society, where growth and economic activity

Illusion, Science, June 30, 2006, at 1910.

204 International Labor Organization, Americans work longest hours among industrialized countries, Japanese second longest. Europeans work less Time, but register faster productivity gains New ILO statistical volume highlights labour trends worldwide, ILO/99/29, Sept. 5, 1999, http://www.ilo.org/global/About_the_ILO/Media_and_public_information/Press_releases/lang--en/WCMS_071326/index.htm.

205 Richard Layard, Now Is the Time for a Less Selfish Capitalism, Fin. Times, March 12, 2009, at 15.

206 Bauman, supra note, at 54.


have long been the central focus of the activities we undertake as

individuals and communities.”207 To continually increase output we live in

continuous cycle of creating and satisfying new wants: “The higher level of

production has, merely, a higher level of want creation necessitating a

higher level of want satisfaction.”208 It matters little as to the choice of

outputs (be they novelty snow globes or hiking shoes), or whether and by

what means these wants were created.

In a society focused on maximizing output, the economy no longer

necessarily advances the individuals’ welfare. Instead, we are enlisted to

consume more, and along the way, “we become ourselves commodities on

the consumer and labor markets.”209 At times consumption becomes a

patriot duty. President Bush, for example, in his first lengthy national

address after the 9-11 attacks, encouraged citizens to continue consuming:

“I ask your continued participation and confidence in the American

economy."210 So if the economy continually needs to increase output to

achieve society’s greater policy objectives, then the individuals’ behavior

must conform to that goal: “the secret of all successful ‘socialization’ is

making the individuals wish to do what the system needs them to do for it to

reproduce itself.”211 A consumerism ethic is thereby ingrained, namely “the

fallaciousness of resting satisfied.”212

In visiting Greece recently, my children were aghast of some of ancient

Sparta’s social policies. Unlike ancient Athens, for example, Sparta

devoted its energies not on literature, art, philosophy, or architecture but on

207 TRACEY STRANGE & ANNE BAYLEY, OECD INSIGHTS: SUSTAINABLE

DEVELOPMENT 79 (2008). 208 Galbraith, The Affluent Society, supra note, at 129. 209 Bauman, supra note , at 58. 210 Pres. George H.W. Bush, Address to the Nation, September 20, 2001, available at

http://newsaic.com/res92001.html. 211 Bauman, supra note , at 149. 212 Bauman, supra note , at 148.


perfecting its militaristic strength. Accordingly, the father would bring his

newborn child to the eldest men of his tribe. If the baby was considered

“puny and deformed,” they threw the baby into the Apothetae “the place of

rejection” by Mount Taygetus. While it may seem barbaric today, the

individual behavior conformed to then prevailing societal goal: Spartan

society considered it better for the child and the state for the child to die if

poorly endowed for health or strength, values which their militaristic

society prized.213

So if the societal norm is the pursuit of economic self-interest and

economic goal is increasing output, then what does society do with those

who no longer conform to this norm or goal? There are at least 8

implications.

1. Impediments On Output Are Struck Down. At times, while at the DOJ, I found myself passionately pursuing

investigations to protect the marginal consumer of snack cakes, white bread,

and premium-tier shampoo (which was priced below salon shampoos and

above mid-tier and value-brand shampoos). Too often in these cases I

debated at length with the defense counsel over facts, which in retrospect, I

question mattered much at all. My colleagues at the FTC were seeking to

protect the marginal consumer of smokeless tobacco214 and super-premium

ice cream. We never really questioned the conventional wisdom that

increases in output were presumptively good. Output is sacrosanct:

213 Plutarch on Sparta 27 (trans. Richard J.A. Talbert 1988). 214 In FTC v. Swedish Match, Judge Hogan juxtaposed the government’s efforts to

block a merger in the chewing tobacco industry on the theory that prices would likely increase post-merger, with the government’s attempt to stem the consumption of tobacco by increasing the prices through taxes, regulating advertising, and decreasing the amount of retail shelf-space devoted to this product. 131 F. Supp. 2d 151, 153 n.1 (D.D.C. 2000). The court appreciated the FTC’s explanation that consumption would not likely decline post-merger, but that consumers would only pay more. Thus, the court saw no health benefits in permitting the acquisition, and ultimately on antitrust principles, preliminarily enjoined the transaction. Id.


antitrust policy seeks to promote productive efficiencies, reduce marginal

cost (and price), and thereby offer more products to more people. Indeed

productivity (comparing the amount of goods and services produced with

the inputs that were used in production) has increased for many industries215

Thus competition policy goes beyond targeting socially undesirable

behavior, such as price-fixing cartels or rent-seeking legislation. As

Galbraith observed, “any step to discourage borrowing or buying will be

automatically opposed by the machinery for consumer-demand creation.”216

As one example, the FTC successfully challenged under the antitrust laws

Detroit-area auto dealers, who agreed to restrict their showroom hours,

including closing on Saturdays. There was no evidence, however, that the

Saturday closing actually caused an increase in retail prices of cars in the

Detroit area, or that the hours reductions increased dealers' gross margins.217

If maximizing output is prized, other values -- to the extent they conflict

– are sacrificed. Religious norms are one of the few counterbalances today

against the pursuit of self-interest and wealth maximization. A 2008 survey

of senior clergy of the seven largest Protestant denominations found the

clergy broadly supportive of the government’s role in addressing social

problems and an important voice against self-interest:

• 78% agreed that the federal government should do more to solve social problems, such as unemployment, poverty and poor housing, and more than 40% strongly agree.

• 67% of the clergy agreed that government should guarantee health insurance for all citizens, even if it means raising taxes.

215 Productivity, according to BLS, steadily increased for wholesale trade, retail trade,

publishing industries (except internet), wired telecommunications carriers, general merchandise stores, motor vehicle manufacturing, electric power generation, transmission and distribution; computer and electronic product manufacturing, and declined in mining in 2005 and 2006. For several industries, like grocery stores, productivity between 1987 and 2006 declined and increased.

216 Galbraith, supra note , at 170. 217 In re Detroit Auto Dealers Ass'n, Inc., 955 F.2d 457, 471 n.13 (6th Cir. 1992).


• 69% said that more environmental protection is needed, even if it raises prices or costs jobs.

• More than 80% said they publicly expressed their views about hunger and poverty often in the last year, and three‐quarters said they addressed marriage and family issues often.218

The U.S. for many years had state Sunday Blue laws that restricted

labor and certain commercial activity on the Sabbath. These state laws have

since fallen on the wayside – especially since individuals can consume 24

hours daily on cable shopping channels or the Internet. Sundays (and all the

major religious holidays, including increasingly Christmas Day) have

become ordinary days to labor and consume. But this repeal has attendant

effects besides promoting consumption and increased output. States where

Sunday Blue Laws were repealed experienced a 15 percent decline in

attendance among weekly churchgoers and a nearly 25 percent drop in

donations.219 “I’m surprised [religious conservatives] haven't picked up on

this,” commented one coauthor of this study. “Just like people switch cars

when gas goes up, this is a change in the price of going to church; you've

got an opportunity cost, you can do something else instead, and that has

changed behavior.’”220 Reducing church attendance has other negative

effects. Robert Putnam noted that “Faith communities in which people

218 Public Religion Research, Broadest‐Ever Survey Gives In‐Depth Portrait Of

Mainline Clergy (March 6, 2009) (survey of clergy of United Methodist Church, Evangelical Lutheran Church in America, American Baptist Churches USA, Presbyterian Church USA, Episcopal Church, United Church of Christ, and Christian Church (Disciples of Christ)), at http://www.publicreligion.org/objects/uploads/fck/file/Clergy%20Report/CVS%20press%20release%20%2003-06-09%20Final.pdf.

219 Jonathan Gruber & Daniel M. Hungerman, The Church vs. The Mall: What Happens when Religion Faces Increased Secular Competition?, 123 QUARTERLY J. OF ECON. 831-862 (2008).

220 Justin Ewers, Blue Laws: Easing Up on Sunday Liquor Sales, U.S. News & World Report, July 8, 2008, at http://www.usnews.com/articles/news/national/2008/07/08/easing-up-on-sunday-liquor-sales.html. The article also quotes David Laband, author of BLUE LAWS: THE HISTORY, ECONOMICS, AND POLITICS OF SUNDAY-CLOSING LAWS, “All of these repeal efforts are related to economics now," says. "There's no vestige of a religious component anymore.” Id.


worship together are arguably the single most important repository of social

capital in America.”221 The economists Alan Gerber, Jonathan Gruber, and

Daniel M. Hungerman in their 2008 study found the repeal of the state

Sunday Blue laws not only dropped church attendance but led to a 1% drop

in overall voter turnout (which affected more Democratic than Republican

vote shares). This finding confirmed the earlier economic literature

correlating church attendance with voter turnout.222 In addition the authors

noted the other evidence correlating church attendance to (i) lower levels of

criminal activity; (ii) lower rates of substance abuse; (iii) better health status

and outcomes; (iv) improved self-reported measures of well-being; and (v)

greater marital stability.223

2. To Induce Individuals To Consumers More On Products, Privacy

May Be Sacrificed. To spur demand for increased output, advertisers of goods and services

may increasingly resort to deceptive practices, thus necessitating greater

statutory prohibitions on such deceptive practices (such as State UDAP

laws, the FTC Act, and Lanham Act). For non-deceptive advertising,

companies presumably have employed the optimal marketing techniques to

increase sales. To further increase output for their existing goods,

marketing will become more invasive and individually targeted. Marketers

must identify those particular consumers most susceptible to the sales pitch,

and target them with a personalized message to induce them to consume.

There is no coordinated approach to privacy protection today in the

United States. Different federal and state laws protect different information 221 ROBERT D. PUTNAM, BOWLING ALONE: THE COLLAPSE AND REVIVAL OF

AMERICAN COMMUNITY 66 (2000). 222 Alan Gerber et al., Does Church Attendance Cause People To Vote? Using Blue

Laws' Repeal To Estimate The Effect Of Religiosity On Voter Turnout, NBER Working Paper 14303 (Sept. 2008), at http://www.nber.org/papers/w14303.pdf.

223 Gerber et al., supra note , at 3-4 (collecting studies).


in different industries to different degrees. Although the FTC of late has

taken an increased interest in behavioral marketing, the current state and

federal laws do not represent a significant barrier to this more intrusive

marketing.

Vast amounts of data are collected daily on consumer purchasing

behavior to better target them with advertising. One data collecting

company, Acxiom, reportedly has consumer data on more than 195 million

Americans, and employs, according to its website, “a household-level

segmentation system that clusters U.S. households into one of 70 segments

within 21 life stage groups based on specific consumer behavior and

demographic characteristics. . . . [including] access to critical information

such as which competitors they shop, product usage, media preferences,

attitudes toward advertising, interests and expenditures – both nationally

and at a local market level.”224 Credit rating agency Equifax, for example,

advertises “’advanced profiling techniques’ to identify people who show a

‘statistical propensity to acquire new credit’ within 90 days.”225

Neuromarketing, which studies consumers’ brain activity to advertising

messages, will also increase. As one neuromarketing firm that studied

consumer responses to online and offline coupons stated, “companies now

know the critical differences in subconscious responses across the

categories that determine behavior, so they can make the most fully-

informed strategic marketing decisions when it comes to couponing."226

Every age group will be enlisted to consume. Discretionary spending

by U.S. children aged 3 to 11 is “expected to grow from $18 billion in 2005

224 http://www.acxiom.com/124617/PersonicX_Brochure.pdf 225 Brad Stone, Banks Mine Data and Woo Troubled Borrowers, N.Y. Times, Oct. 22,

2008. 226 Helen Leggatt, Neuro-Marketing Firm Measures Consumer Response To Coupons,

BizReport, Apr. 28, 2009, http://www.bizreport.com/2009/04/neuro-marketing_firm_measures_consumer_response_to_coupons.html.


to over $21 billion by 2010, while families will spend over $140 billion on

consumer goods for their kids by 2010.”227 Thus, children will be

increasingly targeted with individualized advertising messages to consume

the targeted product.

3. Maximizing Output Requires More Makeovers.

As Thomas Merton observed over sixty years ago, “We live in a society

whose whole policy is to excite every nerve of the human body and keep it

at the highest pitch of artificial tension, to strain every human desire to the

limit and to create as many new desires and synthetic passions as possible,

in order to cater to them with the products of our factories and printing

presses and movie studios and all the rest.”228 Besides product placements

and stealth advertising, the media’s substantive content has propagated

purchasing, consuming, and disposing. Television programs showcase

bigger homes with more things. The more television people watch, the

more they overestimate others’ affluence, and the more they spend.229

But there comes a point when the consumer has a sufficient number of

toasters, blenders, television sets, etc. Thus to further increase output,

consumers must be encouraged to makeover – to continually reinvent their

homes, lifestyles, and physical appearances to comport with the latest trend.

It is no longer replacing red linen sofas with white leather sofas, or thin ties

with wider ties. Everything, including our physical appearances, is subject

to makeovers. New physical appearances can accompany new wardrobes,

cars, homes, and consumer goods. Although the majority of Botox

consumers are women between 35 and 50, according to a study by the

227 Strange & Bayley, supra note , at 79. 228 THOMAS MERTON, THE SEVEN STOREY MOUNTAIN 148 (1998). 229 Layard, supra note , at 89.


American Society for Aesthetic Plastic Surgery,230 patients between 19 and

34 now account for 14 percent of Botox users nationwide.231 Hair dyes are

marketed to project a new and better image. L'Oréal modified its slogan

“Because I'm worth it” to “Because you're worth it” after concerns that the

original appeared too money-oriented and self-centred.232 But as one

company executive stated, “At the end of the day, we make people feel

good, we build up their confidence.”233 The company is currently designing

products to offer African consumers “something they may not have thought

they needed, such as an oscillating mascara wand.”234

If consumers are expected to act in their self-interest, then they are

expected -- when given the choice -- to invest in themselves. Thus since

consumers today have the choice of remaking their physical appearance,

any shortcomings in their appearance represents a choice (and failing) by

those consumers.

The injection of neo-classical economic theories of self-interest into the

genetics and bioethics communities has additional implications. The United

States has a private market in sperm, ova and IVF services. Rene Almeling,

for example, noted the differences between the supply side in the egg

market (appealing more to altruistic norms, yet higher price for donor eggs,

230 Colin Stewart, Are Botox injections really dropping? -- Data show women turning

away, but Allergan and Orange County doctors don't see it, OC Register, Feb. 28, 2008, at http://www.ocregister.com/money/botox-plastic-percent-1989339-survey-injections

231 Courtney Perkes, The young face of Botox: Young women in their 20s turn to shots to prevent wrinkles from forming, Orange County Register, July 1, 2008, at http://www.ocregister.com/articles/botox-says-neal-2080995-young-really.

232 Angelique Chrisafis, You're worth it - if white. L'Oréal guilty of racism: Cosmetic giant fined for recruitment campaign in Paris, The Guardian, July 7, 2007, at http://www.guardian.co.uk/world/2007/jul/07/france.angeliquechrisafis; Karen McVeigh, Carl Mortished and Neelam Verjee, Because they're worth it: High-tech cosmetics giant L’Oréal is making eyes at Body Shop, The Times, Feb. 24, 2006, at http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article734423.ece.

233 Nicola Mawson, L’Oréal sets its sights on the African woman, Business Day, April 30, 2009, http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A990169.

234 Nicola Mawson, L’Oréal sets its sights on the African woman, Business Day, April 30, 2009, http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A990169.


$4200) and sperm market (appealing to profit norm, and lower price for

donor sample, $50-$100 per sample).235 On the demand side, however,

both sperm and donor institutions (given the sunk costs in screening donors)

use donor profiles as their primary marketing tools. Donors (and their

physical, intellectual, physical, and social attributes) are differentiated

premium brands. Highly-educated egg donors command higher fees.236

Individuals who are short (below 5’8 or 5’9”) or overweight are not

marketable, and thus are rejected as donors.237 Donors must have

marketable genetic traits. Clicking in one donor manager’s mind during the

sperm bank’s screening process were the questions, “Are they blond? Are

they blue-eyed? Are they tall? Are they Jewish?238 So [I’m] not just

looking at the [sperm] counts and the [health] history, but also can we sell

this donor?”239

America does not yet market human embryos. But children can become

the next differentiated branded good, with a premium for enhanced clones

in terms of intelligence, desired skin, hair and eye color, height and other

physical traits supporting athletic abilities. Embryos (or children of natural

childbirth) that lack these genetic traits have lesser commercial value. If

parents pursue their economic self-interest, then they will be blamed for not

235 Rene Almeling, Selling Genes, Selling Gender: Egg Agencies, Sperm Banks, and

the Medical Market in Genetic Material, 72 AMERICAN SOCIOLOGICAL REV. 319, 320, 325 (June 2007).

236 Almeling, supra note, at 333. Sperm banks also face interesting issues of scale. As one sperm bank CEO observed, if it collects many sperm samples (say 10,000 vials) from only a few donors (say 10), it faces the risk that one donor may later become unmarketable (due to genetic or medical issues that later surface). Also the clients may feel that that donor’s sperm is insufficiently distinct (too many half-brothers or -sisters from that sperm running around). On the other hand too many donors (say 10,000) with too few samples (10 vials per donor) is economically inefficient, given the bank’s sunk cost in testing, screening, and marketing donors. So the sperm bank needs to find “that sweet spot.” Id. at 334.

237 Almeling, supra note, at 326. 238 Jewish donors, for example, are in high demand by Jewish clients. Almeling, supra

note, at 327. 239 Almeling, supra note, at 326.


having invested in purchasing a better brand of embryo to enable their child

to compete in the global marketplace. The beauty and individuality of each

child will be lost in this commercial marketplace.240 Similarly private-label

or value-brand cloned embryos without these desired features perhaps one

day can be used for later harvesting of their organs for the premium-branded

embryos.241 As Professor Annas notes, “[t]reating infertility by using the

new reproductive technologies has become a multibillion dollar business

that is itself dominated not by the medical ideology of the best interests of

patients and their children, but by the market ideology of profit

maximization under the guise of reproductive liberty.”242

Thus in the world of self-interested profit-maximizers, given the ability

to continually remake oneself, one only has oneself to blame if unattractive,

poor, or sick. The government is not responsible for one’s poverty, since it

operates outside the marketplace. If one fails in the marketplace, it is

because someone more deserving won.

4. Attitudes Towards Those Not Conforming to Norm of Self-interested Behavior Change. If maximizing output is the competition policy goal, and wealth-

maximization the means, it follows that there is a “contempt for all interests

which do not contribute obviously to economic activity.”243 Consumers that

jump off the hedonic treadmill are failures. Those with mental illnesses, or

who are infirm or too feeble to work, must depend on whatever fragile

support systems exist.244 As Galbraith wrote, “the competitive model had

no place for individuals who, as the result of age, infirmity, industrial injury

240 Annas, supra note , at 4.

241. For a haunting fictional development of this theme, see KAZUO ISHIGURO, NEVER LET ME GO (2005).

242 Annas, supra note, at 21. 243 R.H. TAWNEY, THE ACQUISITIVE SOCIETY 46 (Dover 2004). 244 J. Pierre Loebel, Completed Suicide in Late Life, Psychiatric Services, March 2005,

at 260 (discussing why the rate of completed suicide among older persons is the highest of any age group in the United States).


or congenital incompetence, had only a low or negligible marginal

productivity.”245

If rationality is defined as self-interested profit-maximization, then an

ethical life of charity and community interest becomes anachronistic. The

religious clergy, despite leading the pack in terms of happiness and job

satisfaction, become marginalized.

While a You’re-on-Your-Own Society may view the clergy and

environmentalists as eccentric but harmless, its attitude toward the poor

hardens. As Galbraith noted, increasing “aggregate output leaves a self-

perpetuating margin of poverty at the very base of the income period.”246 It

is how society views poverty and wealth, and its actions regarding both, that

distinguishes it. For Pericles’s Athens, wealth was employed “more for use

than for show,” and Athens placed “the real disgrace of poverty not in

owning to the fact but in declining the struggle against it.”247 In the spirit of

the 1960s, Pope John XXIII struck the same theme: “the economic

prosperity of any people is to be assessed not so much from the sum total of

goods and wealth possessed as from the distribution of goods according to

norms of justice, so that everyone in the community can develop and perfect

himself. For this, after all, is the end toward which all economic activity of

a community is by nature ordered.”248 Similarly Robert F. Kennedy in 1968

said,

But even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction - purpose and dignity - that afflicts us all. Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - 245 JOHN KENNETH GALBRAITH, THE AFFLUENT SOCIETY 35 (1998). 246 John Kenneth Galbraith, The Affluent Society 79 (1997). 247 THE LANDMARK THUCYDIDES: A COMPREHENSIVE GUIDE TO THE PELOPONNESIAN

WAR 113 (Robert B. Strassler ed., 1996). 248 Pope John XXIII, supra note , at 96.


if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.249

But in a You’re-on-Your-Own society of self-interested maximizers,

helping the poor makes sense only if one financially benefits thereby. The

belief that all classes of citizens should benefit equitably from the increase

in national wealth is marginalized. Rather than a positive-sum concern of

reciprocity, a competition policy that emphasizes self-interest, individual

autonomy and consumption will prime consumers with those values. As

discussed supra, such priming even for those inclined toward strong

reciprocity and conditional cooperation can affect negative perceptions

toward the poor.250 Moreover, under a zero-sum mentality, the

improvement of the poor represents the loss of power and prestige from the

middle class. Rather than minimize the extravagance of wealth, a You’re-

on-Your-Own social policy advertises ostentatious displays of wealth as

249 Remarks of Robert F. Kennedy at the University of Kansas, March 18, 1968, at

http://www.jfklibrary.org/Historical+Resources/Archives/Reference+Desk/Speeches/RFK/RFKSpeech68Mar18UKansas.htm.

250 Fehr & Fischbacher, Strong Reciprocity, supra note , at 168.


symbols of success, much like the ritual of summer law associates dining at

the law partner’s extravagant home. If you don’t end up in a similar home

driving a comparable car, then somehow you fell short along the way.

A You’re-on-Your-Own society assumes that all pursue their self-

interest. Thus, the poor are to blame for their state. They seek to maximize

their self-interest by shirking work and not contributing to productivity.

Instead, they seek taxpayer handouts, which represent less consumption by

the wealthier. Thus the attitude toward the poor is not the failure of

society’s safety net but instead either the poor’s selfishness (or the

repercussions of some individual character defect in not offering society a

service that commands a salary above the poverty level). If the homeless do

not contribute to greater productivity, why should others in a You’re-on-

Your-Own society aid them? In conveying this zero-sum message,

President Ronald Reagan, for example, over five years,

told the story of the “Chicago welfare queen” who had 80 names, 30 addresses, 12 Social Security cards, and collected benefits for “four nonexisting deceased husbands,” bilking the government out of “over $150,000.” The real welfare recipient to whom Reagan referred was actually convicted for using two different aliases to collect $8,000. Reagan continued to use his version of the story even after the press pointed out the actual facts of the case to him.251

Income inequality and the poverty, as Galbraith discusses, simply ceases to

preoccupy the consumers’ mind.252

5. To Expand Output, the Debt Economy Must Grow. As Galbraith also accurately predicted, “every increase in consumption

will bring a further increase – possibly a more than proportional one – in

consumer debt.”253 Consumer indebtedness has increased significantly. If

251 The Mendacity Index: Which president told the biggest whoppers? You decide,

Washington Monthly, Sept. 2003, at . 252 Galbraith, Affluent Society, supra note , at 69-73. 253 Galbraith, Affluent Society, supra note, at 146.


consumers acted rationally toward debt and spending, this would be

unremarkable. A few people may default in predicting incorrectly, but

many consumers pursuing their self-interest would choose the optimal

amount of debt. Moreover, debt used to acquire an appreciating asset (such

as a home mortgage) can serve a disciplinary effect with respect to

discretionary income.

But as the behavioral experiments show, consumers act contrary to the

rational profit-maximizing counterpart and suffer heuristics with respect

short-term and long-term spending and saving.254 Plus consumers are

willing to spend more if they have a credit card.255

Not surprisingly, the credit card industry has increased the output of

debt. Today there are more than four credit cards for every man, woman

and child in the United States.256 The percentage of Americans across age

categories who have a credit card and who carry a balance (and incur

financing charges and interest payments) has increased.257 For example,

between 1970 and 2004, the percentage of Americans under the age of 20

with a credit card increased from only 2% to 37%, and the percentage of

those carrying a balance on their credit card increased from 27% to 61%.

For all U.S. families, between 1970 and 2004, the percentage with a credit

card increased from 16% to 71%, and the percentage of those carrying a

balance on their credit card increased from 37% to 56%.

Americans are deeper in debt.258 The percentage of household

254 Thaler, Winner’s Curse, supra note , at 107-121. 255 Akerlof & Shiller, supra note , at 128; Thaler & Sunstein, supra note , at 143. 256 Akerlof & Shiller, supra note , at 128. 257 Board of Governors of the Federal Reserve System, Report to the Congress on

Practices of the Consumer Credit Industry in Soliciting and Extending Credit and Their Effects on Consumer Debt and Insolvency 9 (June 2006) [hereinafter 2006 Credit Study].

258 Board of Governors of the Federal Reserve System, Monetary Policy Report to the Congress 9 (Feb. 2008), at http://www.federalreserve.gov/boarddocs/hh/2008/february/fullreport.pdf.


disposable income spent on debt service has increased.259

Credit card debt reached $963 billion in January 2009, “an increase of 25

percent in the past decade, according to the Federal Reserve.”260 US

consumers pay approximately $15 billion a year in penalty fees,261 and the

“average outstanding credit card debt for households that have a card was

$10,679 at the end of 2008.”262 Between 1997 and 2007, household debt

increased from 66% of US GDP to 100%.263

In 2005, for the first time since the Great Depression, there was a

259 http://research.stlouisfed.org/fred2/series/TDSP. 260 Michael McAuliffe, Credit Card Debt Poses Risks For Consumers As President

Calls For Reform, The Republican, April 27, 2009, http://www.masslive.com/news/index.ssf/2009/04/credit_card_debt_poses_risks_f.html?category=Business.

261 Michael McAuliffe, Credit Card Debt Poses Risks For Consumers As President Calls For Reform, The Republican, April 27, 2009, http://www.masslive.com/news/index.ssf/2009/04/credit_card_debt_poses_risks_f.html?category=Business.

262 Marcy Gordon, House Passes Credit Card Bill That Helps Consumers, Associated Press, May 1, 2009, at http://www.washingtonpost.com/wp-dyn/content/article/2009/04/30/AR2009043000311.html?sub=AR&sid=ST200904300332.

263 Martin Wolf, Why Dealing With the Huge Debt Overhang Is So Difficult, Fin. Times, Jan. 28, 2009, at 11.


negative personal savings rate in the U.S.264 The average personal savings

rate between 1959 and 1984 trended upward, but has declined thereafter.265

As Galbraith observed, “All crises have involved debt that, in one

fashion or another, has become dangerously out of scale in relation to the

underlying means of payment.”266 During Alan Greenspan’s tenure as

Federal Reserve chair, public and private debt in the United States

quadrupled between 1987 and 2006 from $10.5 to $43 trillion.267 While

stable between 1952 and 1984, the percentage of total credit market debt as

264 Associated Press, U.S. Savings Rate Hits Lowest Level Since 1933: Consumers

Depleting Savings To Buy Cars, Other Big-Ticket Items, Jan. 30, 2006, at http://www.msnbc.msn.com/id/11098797/.

265 The personal savings rate averaged 8.1% between 1959 to 1964, 8.5% (1965-69), 9.9% (1970-74); 9.3% (1975-79) and 10.4% (1980-84). Thereafter, it steadily declined: from 7.7% (1985-89) to 6.5% (1990-94) to 3.8% (1995-99) to 2.1% (2000-04) to 1% (2005-Feb. 2009). U.S. Department of Commerce: Bureau of Economic Analysis, Personal Income and Outlays, A Guide to the National Income and Product Accounts of the United States (NIPA) (http://www.bea.gov/national/pdf/nipaguid.pdf).

266 JOHN KENNETH GALBRAITH, A SHORT HISTORY OF FINANCIAL EUPHORIA 20 (1993).

267 KEVIN PHILLIPS, BAD MONEY: RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM 5 (2008).

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a share of U.S. GDP significantly increased thereafter.268 By 2007, public

and private debt was three times greater than that year’s GDP, which

exceeded the prior record set in 1933. The ratio of U.S. public and private

debt to gross domestic product was 358% in the third quarter of 2008, the

highest in US history.269 As the chief investment strategist at Raymond

James & Associates commented

The ‘crack cocaine’ of our generation appears to be debt. We just can’t seem to get enough of it. And, every time it looks like the U.S. consumer may be approaching his maximum tolerance level, somebody figures out how to lever on even more debt using some new and more complex financing. For years, I have watched this levering up process, often noting that it was taking an ever increasing amount of debt to produce a dollar’s worth of GDP growth.”270 Accompanying greater debt are record delinquency rates. The

delinquency rate for the ABA’s consumer loan composite ratio, which

tracks eight closed-end installment loan categories, rose to its highest level

since the ABA began tracking it in the mid-1970's.271 Delinquency rates on

auto loans and home equity levels are at record levels.272 Credit card

268 Phillips, supra note , at 7. 269 Martin Wolf, Why Dealing With the Huge Debt Overhang Is So Difficult, Fin.

Times, Jan. 28, 2009, at 11.

270 Phillips, supra note, at 1 (quoting Jeff Saut, chief investment strategist, Raymond James & Associates, September 2007).

271 Am. Bankers Ass’n, Press Release, Consumer Delinquencies Continue Rising As Recession Intensifies In Fourth Quarter 2008: ABA composite ratio hits new record high (Apr. 2, 2009), at http://www.aba.com/Press+Room/040209DelinquencyBulletin.htm.

272 During the third quarter of 2008, “delinquencies on auto loans and home equity lines of credit have reached their highest levels since record-keeping began in 1980.” Rosch, Meltdown, supra note, at 14, citing Nancy Trejos, Loan Delinquencies Hit Record High Last Year: Job Losses Hurt Consumers' Ability to Pay, Wash. Post, Jan. 8, 2009, at D03, http://www.washingtonpost.com/wp-dyn/content/article/2009/01/07/AR2009010703913.html. In the fourth quarter of 2008, the home equity loan delinquencies increased to 3.03 percent of accounts, a new record; home equity lines of credit delinquencies also reached a new record, to 1.46 percent overall. Am. Bankers Ass’n, Press Release, Consumer Delinquencies Continue Rising As Recession Intensifies In Fourth Quarter 2008: ABA composite ratio hits new record high (Apr. 2,


delinquencies increased from 4.20 percent to 4.52 percent (which remain

near the four year average of 4.47 percent).273

Bankruptcy filings increased an estimated 31% in 2008; Nevada alone

had a 65% increase in filings.274 Moreover, the average family filing for

bankruptcy in 2007 was burdened with more debt than typical bankruptcy

filers in 2001: 21% more in secured debt (e.g., mortgages and car debt) and

44% more in unsecured debt (e.g., credit cards) than 2001 filers.275 The

number of debtor cases, for example, filed in New York City’s Civil Court

tripled between 2000 and 2008; court officials estimate that 350,000 cases

in 2008 will involve debt or credit cards.276

Marketing campaigns in part spurred this increase in debt. For many

years before the financial crisis, Americans were inundated with credit card

offers, advertisements, and perks. Moreover, lenders changed the

perception of debt. For example, while growing up, I would commonly

bring the monthly payment for my parents’ 30-year fixed mortgage to our

neighborhood bank. At the same bank my parents had a Christmas savings

account, and my sister and I had a school savings account. The bank

neither advertised nor promoted to my recollection a second-mortgage,

which had a negative connotation. But as the New York Times chronicled,

banks in the 1980s enlisted advertising staff from packaged goods

companies like General Mills and General Foods to repackage debt into

something socially acceptable and desirable. The banks spent billions

relabeling “second mortgage,” which, commented a former Citicorp

2009), at http://www.aba.com/Press+Room/040209DelinquencyBulletin.htm. 273 Am. Bankers Ass’n, Press Release, Consumer Delinquencies Continue Rising As

Recession Intensifies In Fourth Quarter 2008: ABA composite ratio hits new record high (Apr. 2, 2009), at http://www.aba.com/Press+Room/040209DelinquencyBulletin.htm.

274 Tara Siegel Bernard & Jenny Anderson, Downturn Drags More Consumers Into Bankruptcy, N.Y. Times, Nov. 16, 2008, at 29.

275 Tara Siegel Bernard & Jenny Anderson, Downturn Drags More Consumers Into Bankruptcy, N.Y. Times, Nov. 16, 2008, at 29.

276 Jim Dwyer, In Civil Court, One Nation, Under Debt, N.Y. Times, Oct. 11, 2008.


executive, sounded “like hocking your house” to the “more innocent” equity

access.277 As a consequence, the output of second mortgages increased.

Many consumers “unlocked” the equity from their homes, and the amount

of outstanding home-equity loans increased from $1 billion in the early

1980s to over $1 trillion.278

As of 2008, delinquencies on home equity loans are 45% higher than the

average rate since 1990, and the portion of Americans whose home equity

lines are more than 30 days past due is 55% higher than the average.279

In the current recession, both consumer credit and mortgages

experienced an increase in delinquency rates. “Over the 12 months ending

in June 2008,” reported the Federal Reserve Bank of New York, “bank

credit card 60+ day delinquency rates increased in 60 percent of US

counties covered (1,715 of the 2,837 counties covered) and mortgage 90+

day delinquency rates increased in 74 percent of US counties covered

(2,106 counties). Counties with high mortgage delinquency rates also

tended to have high credit card delinquency rates. That is, counties’ bank

card and mortgage delinquency rates were moderately positively correlated

(correlation coefficient of +0.37).”280

A debt-servicing economy has attendant costs. To entice more

consumers (including those with limited financial means) to acquire greater

debt to consume more goods and services, the incentive to deceive

increases. Federal and state agencies, as a result, must respond to

increasing consumer complaints involving debt. For example, six of the top 277 Louise Story, Home Equity Frenzy Was a Bank Ad Come True, N.Y. Times, Aug.

15, 2008. 278 Louise Story, Home Equity Frenzy Was a Bank Ad Come True, N.Y. Times, Aug.

15, 2008. 279 Louise Story, Home Equity Frenzy Was a Bank Ad Come True, N.Y. Times, Aug.

15, 2008. 280 Federal Reserve Bank of New York, Bank Cards and Mortgage Delinquency Maps

Second Quarter 2008 (Nov. 25, 2008), at http://www.newyorkfed.org/newsevents/news/regional_outreach/2008/an081125.html


twenty consumer complaints to the FTC in 2008 related to the issuance or

collection of debt including (i) identity theft (of which credit card fraud was

the largest component) (26% and top complaint overall), (ii) third-party and

creditor debt collection (9% -- second overall); (iii) credit bureaus,

information furnishers and report users (3% -- 6th overall); (iv) banks and

lenders (2% -- 9th overall); (v) advance-fee loans and credit

protection/repair (1% -- 14th overall); and (vi) credit cards (1% -- 18th

overall).281 Similarly, consumer complaints about debt issuance, collection,

and credit reports and repair are on the top-ten list for many state attorney

general offices.282 There already exists a host of byzantine federal statutes,

such as the Truth in Lending Act generally and HOEPA specifically, to

mandate disclosures to consumers. But these statutory disclosure

provisions were criticized as ineffective in mitigating the predatory lending

and other abuses in the recent financial crisis.

Payday loans have also increased.283 While payday lending is legal and

regulated in 37 states, it is either illegal or not feasible in 13 other states,

given the state law. Payday lending has its own costs. Congress in 2007,

for example, capped the annual interest of payday loans to U.S. military

service members to 36%. Borrowers generally renewed loans several times

before paying them off, a Defense Department study concluded, and the

resulting fees led to an effective annual interest rates of 400% or more. The

281 Fed. Trade Comm’n, FTC Releases List of Top Consumer Complaints in 2008 (Feb.

26, 2009). 282 See, e.g., CONSUMER SENTINEL NETWORK, DATA BOOK FOR JAN.-DEC. 2008 18-68

(Feb. 2009); Health care tops N.C. consumer complaints, Charlotte Business Journal, April 1, 2009, at http://www.bizjournals.com/charlotte/stories/2009/03/30/daily30.html; Washington State Office of the Attorney General, 2008 Top Consumer Complaints, http://www.atg.wa.gov/FileAComplaint/TopComplaints.aspx.

283 Typically a cash advance is made to a consumer in exchange for the consumer’s personal check, or the consumer’s authorization to debit the consumer’s deposit account electronically. In either case, the consumer pays a fee in connection with the advance. On the due date, the consumer may have the option of repaying the obligation or further deferring repayment of the advance.


military officers pushed for the law, saying the loans saddled low-paid

enlisted soldiers with debts that ruined their finances, jeopardized security

clearances and left them unable to deploy to Iraq or other assignments.284

As debt levels increase to fuel more consumption, so too does the risk of

inaccurate reporting of consumers’ credit history. Thus, another byzantine

statutory framework, namely the Fair Credit Reporting Act, seeks to help

ensure that the credit bureaus furnish correct and complete information to

businesses to use when evaluating credit applications.

As consumers take on more debt, there is a greater likelihood that they

will have difficulties repaying the principal and interest and late fees. This

gives rise to abusive debt collection practices, which, in turn, has prompted

statutory responses, such as the Fair Debt Collection Practices Act.

But none of the statutory measures today seek to curtail or limit the

output of debt. Many of the federal statutes, such as TILA, focus instead on

mandatory disclosures, with the assumption that the consumer will

rationally opt for the best outcome.

6. Maximizing Output Has Environmental Costs. If consumers pursue their self-interest, they will seek to minimize the

personal costs for their consumption. To facilitate its competition policy of

maximizing output, the government may not require that all the negative

externalities from production and consumption be internalized in the cost of

the goods and services. Competition policy generally strives to lower price

and increase output, not necessarily ensure that all of the costs from

production and consumption are internalized. These negative externalities

284 The Defense Department report said the average borrower pays $827 on a $339

loan and called the lending predatory. The Report On Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents. It estimates that 13 to 19 percent of military people took out high-interest, short-term loans last year — typically borrowing about $350 a pop at interest rates of 390 percent to 780 percent. The 36% rate cap means lenders can charge no more than $1.38 on a $100 loan for two weeks — an amount lenders say is too low to be profitable.


are left for other laws or regulations, if any. The growing externalities from

consumption, noted the OECD, have made many public goods (such as

clean air, silence, clear space, clean water, splendid views, and wildlife

diversity) “increasingly scarce.”285 As a consequence, nearly “every

transaction of private goods carries an invisible cost, paid by everyone

through degraded public goods.”286

As output for goods and services increases so too does the demand for

energy. For example, since the 1970s, the average home has grown steadily

in size; “it is 53 percent larger [in 2001] than in 1970, although the average

family is 15 percent smaller.”287 More energy is needed to cool and heat

these larger homes and keep all the appliances therein working. Between

1949 and 2007, energy consumption per person increased from 214 million

btu to 337 million btu.288 In fact with the increase in demand for energy, by

August 2008, the value of oil in the ground ($162,000 billion) was worth

more than the combined total value of all equity ($52,300 billion) and debt

markets ($67,000 billion).289

As demand for energy increases (often supplied by carbon fuels), the

environmental externalities increase as well. Between 1949 and 2006, for

example, the amount of CO2 emissions from a residential home increased

from 320.6 million metric tons to 1197.9 million metric tons. To

accommodate the bigger homes, real estate development occurs further

from cities and inner suburbs, and without attention to public transport.

285 OECD, Sustainable, supra note , at 87. 286 OECD, Sustainable, supra note , at 87. 287 Louis Uchitelle, Economic View: Living In Denial, Comfortably, In a Big Home,

N.Y. Times, June 10, 2001. Home ownership has also increased. In 1901, 19 percent of Americans owned their home, while in 2002–03, 67 percent of U.S. families did. BLS Report, supra note , at 68. In 1901, the size of the average U.S. family was 4.9 people; by 2002–03, it had been reduced to 2.5 http://www.bls.gov/opub/uscs/reflections.pdf.

288 http://www.eia.doe.gov/emeu/aer/txt/ptb0105.html 289 Krishna Guha, Two Challenges Highlight the Scale of the Bonanza, Fin. Times,

Aug. 11, 2008, at 3.


Wider roads are needed to accommodate the increased traffic and lessen

gridlock. Besides the longer commute’s environmental toll, it affects the

family’s social fabric. More people need to wake up earlier to undertake the

longer commute from their bigger homes, which warehouse their goods.290

Between 1990 and 2000, “the number departing from 12 midnight to 6:29

a.m. rose by nearly 4.8 million people, and increased from 18 percent to 20

percent of the total.”291

If the goal of competition policy is to continually increase output,

society must also continually dispose the increase in waste – namely the

now out-of-fashion goods or goods with built-in obsolescence. As

Professor Bauman observed, “Liquid modernity is a civilization of excess,

redundancy, waste, and waste disposal.”292 Between 1960 and 2007, the

amount of solid waste increased from 2.68 to 4.62 pounds per person.293

Fortunately 33.4% of waste in 2007 was recovered through recycling

leaving 137 million tons discarded in landfills (54% of all municipal solid

waste).294 Residential waste is estimated to comprise between 55 and 65

percent of total MSW waste generation.295

290 The mean travel time, according to the US Census, increased from 21.7 minutes

(1980) to 22.4 minutes (1990) to 25.5 minutes (2000); See Travel Time to Work for the United States: 1990 and 1980 Census, at http://www.census.gov/population/socdemo/journey/ustime.txt; http://www.census.gov/prod/2004pubs/c2kbr-33.pdf; Clara Reschovsky, U.S. Census Bureau, Journey to Work: 2000 Census 2000 Brief 5 (March 2004), http://www.census.gov/prod/2004pubs/c2kbr-33.pdf U.S. Census Bureau (“The proportions of trips in categories below 20 minutes all declined between 1990 and 2000, while the proportions in the categories of 25 minutes or more all increased. The proportion in the category 90 or more minutes nearly doubled, from 1.6 percent to 2.8 percent”).

291 Clara Reschovsky, U.S. Census Bureau, Journey to Work: 2000 Census 2000 Brief 6 (March 2004), http://www.census.gov/prod/2004pubs/c2kbr-33.pdf

292 Bauman, supra note , at 185. 293 EPA, Municipal Solid Waste Generation, Recycling, and Disposal in the United

States: Facts and Figures for 2007, at 9. 294 EPA, Municipal Solid Waste Generation, Recycling, and Disposal in the United

States: Facts and Figures for 2007, at 3. 295 EPA, Municipal Solid Waste Generation, Recycling, and Disposal in the United

States: Facts and Figures for 2007, at 4.


With the increase in waste from the increase in consumption comes the

increase in negative externalities to the environment. “By cutting the

amount of waste we generate back to 1990 levels,” estimated the U.S.

Environmental Protection Agency, “we could reduce greenhouse gas

emissions by 18 million metric tons of carbon equivalent (MMTCE), the

basic unit of measure for greenhouse gases.”296 Recycling is not the only

answer. Preventing waste in the first place reduces, as the EPA found, (i)

emissions from energy consumption;297 (ii) emissions from incinerators, and

thereby reduces greenhouse gas emissions from the combustion of waste;298

and (iii) methane emissions from landfills.299 Waste reduction also allows

more trees to remain standing in the forest, where they can continue to

remove carbon dioxide from the atmosphere and store the carbon, in a

process called “carbon sequestration.”300 The EPA estimates that increasing

our national recycling rate from 30 percent in 2000 to 35 percent would

reduce greenhouse gas emissions by another 10 MMTCE, compared to

landfilling the same material. Together, these levels of waste prevention

and recycling would be comparable to annual emissions from the electricity

consumption of nearly 4.9 million households.

The attendant costs of increased output will only accelerate as

consumption for discretionary goods and services accelerates in developing

countries like China and India. One must ask whether this marketing driven

zeal toward greater private consumption is desirable (especially when

compared to investment in public goods, such as educations, roads, 296 <INSERT> 297 U.S. Environmental Protection Agency, Climate Change and Waste, Reducing

Waste Can Make a Difference 2 (“When people reuse things or when products are made with less material, less energy is needed to extract, transport, and process raw materials and to manufacture products. The payoff? When energy demand decreases, fewer fossil fuels are burned and less carbon dioxide is emitted to the atmosphere.”)

298 U.S. EPA, Climate Change and Waste, Reducing Waste Can Make a Difference 2. 299 U.S. EPA, Climate Change and Waste, Reducing Waste Can Make a Difference 2. 300 U.S. EPA, Climate Change and Waste, Reducing Waste Can Make a Difference 2.


infrastructure, and alternative energy).

7. Disinterest in Public Goods. Self-interest when combined with the negative externalities described

supra form a toxic cocktail, as the incentive to invest in public goods

declines. Under neo-classical economic theory, self-interested citizens have

little incentive to invest in public goods, and will elect to free-ride whenever

possible. Under a self-interested wealth-maximization and zero-sum

mentality, one simply responds, “What is in it for me?” If it does not

maximize profits, fame, or comfort, morality itself is dispensable. Thus

government spending on public goods is seen as inferior to private spending

on oneself. If one is childless or sends one’s children to private schooling,

then one benefits only indirectly from investment in improving the public

school (perhaps higher real estate values). Instead, the push is to divert

spending on such public goods by lowering taxes and thereby increasing

private consumption. The free market is equated with promoting individual

self-interest and increased public spending is equated with marching toward

socialism.301

Attitudes toward taxes also shift. The political rhetoric over the past

thirty years is how lower taxes improves welfare as consumers can consume

more. If consumers pursue their self-interest, then they place greater value

of a whole dollar spend on personal consumption rather than a dollar

invested in a public good, in which they receive only a fraction, if at all.

8. A Zero-Sum Conception Of Competition Can Hinder Societal Progress. If economic profit-maximizers act in their own self-interest, then faced

with a fixed sum, one person’s gain represents another’s loss. Not

surprisingly competition is popularly depicted as zero-sum “warfare.”302

301 Galbraith, Affluent Society, supra note , at 111. 302 Schachar, 870 F.2d at 399. Defendants in a later case cited the dicta that as a

matter of law efforts to disparage a competitor do not harm competition. Alternative


Competition is a “ruthless process,” where firms injure their “rivals-

sometimes fatally.”303 Under this zero-sum mentality firms compete by

slashing costs: the one that discounts the greatest “captures the greatest

sales and inflicts the greatest injury.”304 This mortal combats benefits

consumers: “The deeper the injury to rivals, the greater the potential

benefit. These injuries to rivals are byproducts of vigorous competition, and

the antitrust laws are not balm for rivals' wounds.”305 The winners

monopolize; the losers exit the marketplace or scramble to join other firms.

Because consumers purportedly benefit from this zero-sum battle,

competitors may act unethically and immorally. As one Chicago School

jurist stated, “To require cooperation or friendliness among rivals is to

undercut the intellectual foundation of antitrust law.”306

But society depends upon positive-sum cooperation among its citizens,

and at times among competitors.307 Our species’ survival depends upon

cooperation and our ability to look beyond narrow self-interest. As the

sociologist Zygmunt Bauman writes, “Accepting the precept of loving one’s

neighbor is the birth-act of humanity.”308 All other routines of human

cohabitation, norms and rules are “footnotes to that precept.”309 Over the

past 40 years ago, the Internet and increase in global commerce have

increased and broadened the social relationships. There is a more complex

Electrodes, 2009 WL 250474, at *7. The district court sensibly discounted the dicta, as courts have long recognized that false and misleading statements may provide a basis for antitrust claims. Id.

303 Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d 1325, 1338 (7th Cir.1986) (Easterbrook, J.).

304 Ball Memorial Hospital, 784 F.2d at 1338. 305 Ball Memorial Hospital, 784 F.2d at 1338. 306 Schachar, 870 F.2d at 399 (Easterbrook, J.). 307 Maurice E. Stucke, Better Competition Advocacy, 82 ST. JOHN’S LAW REV. 951,

972-79 (2008). 308 ZYGMUNT BAUMAN, DOES ETHICS HAVE A CHANCE IN A WORLD OF CONSUMERS

32-33 (Harvard Univ. Press 2008). 309 Bauman, supra note , at 33.


interdependence of citizens throughout the world. To evolve, economies

must rely on such complex, large-scale cooperation. As the financial crisis

and global warming show, the accompanying economic and environmental

risks are not isolated to particular regions. Individuals instead take part in

events on a worldwide scale.310

It is unsurprising then that all the larger religions emphasize pro-social

norms — helping’s one’s neighbor, and turning the other cheek.311 The

early Christians, for example, were remarkable in owning everything in

common, selling their goods and possessions and distributing the proceeds

among themselves according to what each one needed, and sharing their

food “gladly and generously.”312

When researchers expanded the Ultimatum Game experiment beyond

university students to fifteen small-scale economies from twelve countries

on four continents, these group members, like the university students,

behaved in a reciprocal manner and did not offer the nominal amount. But

the range of offers varied more amongst members of these small-scale

economies than did the range of offers by university students. The study

found that differences among societies in “market integration” and

“cooperation in production” explained a substantial portion of the

behavioral variation between groups: “The higher the degree of market

integration and the higher the payoffs to cooperation, the greater the level of

cooperation and sharing in experimental games.”313

310 Pope John XXIII, Mater et Magistra, supra note , at 94. 311 Gintis et al., Moral Sentiments, supra note , at 30. 312 New Jerusalem Bible, Acts of Apostles 2:44-47. 313 Herbert Gintis et al., Explaining Altruistic Behavior in Humans, 24 EVOLUTION &

HUM. BEHAV. 153, 154 (2003). The societies were rank-ordered in five categories— “market integration” (how often do people buy and sell, or work for a wage), “cooperation in production” (is production collective or individual), plus “anonymity” (how prevalent are anonymous roles and transactions), “privacy” (how easily can people keep their activities secret), and “complexity” (how much centralized decision-making occurs above the level of the household). Using statistical regression analysis, only the first two


Likewise, in reviewing traits that appear with regularity in studies of

cultures of high-performing and adaptive companies, a senior advisor to

McKinsey & Co. identified ten illustrative performing, cooperating, and

innovating norms.314 These coincide with religious and ethical norms

involving respect and reciprocity (for example, do unto others as you would

have them do unto you), honesty, and trust.

Another implication for viewing competition broadly to include

positive-sum aspects is the positive spillover effects of localized

competition. Under a zero-sum view of competition, one firm’s gain is

another firm’s loss. One concern in developing countries is that “cut throat”

competition leads to firms exiting the market “to the detriment of the sector

and the economy overall.”315 But Michael Porter and others have identified

empirically how competitors mutually gain from localized competition,

such as improving the quality of their labor pool and strengthening their

network of suppliers.316 Such localized competition may spur variety in

products, as competitors strive to differentiate from their rivals’ products, as

well as in production techniques and strategies, which will lead to further

innovation. Under a dynamic evolutionary process, such competition might

have informational benefits, as firms learn from their rivals’ mistakes and

characteristics, market integration and cooperation in production, were significant, and they together accounted for 66 of the variation among societies in mean ultimatum game offers. Id. at 158. Moreover, “the nature and degree of cooperation and punishment in the experiments,” they found, were “generally consistent with economic patterns of everyday life in these societies. In a number of cases, the parallels between experimental game play and the structure of daily life were quite striking.” Id.

314 Beinhocker, supra note , at 370–71. 315 CUTS CENTRE FOR COMPETITION, INV. & ECON. REGULATION, TOWARDS A

HEALTHY COMPETITION CULTURE . . . 28 (2003), http://www.cuts international.org/THC.pdf. 316 See, e.g., Grant Miles et al., Industry Variety and Performance, 14 STRATEGIC MGMT. J. 163, 164 (1993) (collecting studies); Michael E. Porter, Competition and Antitrust: A Productivity-Based Approach, in UNIQUE VALUE: COMPETITION BASED ON INNOVATION: CREATING UNIQUE VALUE FOR ANTITRUST, THE ECONOMY, EDUCATION AND BEYOND 154, 161-65 (Charles D. Weller ed., 2004).


mimic and improve upon their rivals’ successes. One empirical study found

a positive correlation between industry variety and performance.317 In

considering why the entire industry benefits when firms pursue a variety of

competitive strategies, the study’s authors posit that with less variety, there

will be less opportunity for the firms to learn of the changing conditions and

demands and appropriate responses thereto.318

On a macro level, as economist Benjamin Friedman describes,

whenever America was mired in economic stagnation its democratic values

stagnated as well. Hostility toward immigrants, the poor, and other

competing groups, whether by nationality, religion, race, or gender,

increased as these groups were seemingly threatened by others stealing their

fixed, or dwindling, share of the pie. In contrast, during periods of

economic growth, our society slowly progressed from this zero-sum

mentality toward openness, mobility, and democracy.319

Distrust and the naked pursuit of self-interest may not only be

normatively undesirable, but at times lead to sub-optimal economic

outcomes. “Without [these] prosocial emotions, we would all be

sociopaths, and human society would not exist, however strong the

institutions of contract, governmental law enforcement, and reputation.”320

CONCLUSION

Sophocles once said “he drew men as they ought to be, and Euripides as

they were.”321 The assumption of self-interested behavior neither represents

how we actually act or ought to act. The assumption is not descriptive as

individuals still look beyond their self-interest. Nor is it normative as such

317 Miles et al., supra note , at 166–72. The study also found that such variety

decreased as the industry matured and declined. Id. at 172. 318 Miles et al., supra note , at 174. 319 BENJAMIN M. FRIEDMAN, THE MORAL CONSEQUENCES OF ECONOMIC GROWTH 79–

102 (2005). 320 Id. at 433. 321 Aristotle, Poetics, Ch. 25, 1460 33-34.


self-interested behavior does not lead to happiness. Instead it represents an

“economics of excess and waste,” ultimately an “economics of

deception.”322 Given the importance of trust, self-interest does not make

markets more efficient. A competition policy oriented to what R.H.

Tawney termed an Acquisitive Society will not necessarily leave society

better off. Markets work as well, if not better, if individuals have empathy

and cooperate.

This article does not call for socialism or collectivism. Residents of

communist countries were among the unhappiest lot.323 Nor does this

article call for the end of advertising, marketing, debt, or zero-sum

competition. Many law schools are prime examples of zero-sum

competition – one student’s advancement in rank, means another student’s

decline in rank. Nor should output be necessarily curtailed; many

throughout the world still suffer from malnutrition, sickness, inadequate

water supplies and lack many other necessities.

Instead, what is required is a more nuanced and empirical approach to

competition policy. No doubt the government can at times assume the

worst, and ask what would happen if its citizens acted selfishly as neo-

classical economic theory predicts. But even here care is needed. By

assuming its citizens act in a self-interested manner, the government may

craft policies that do not achieve their intended aim or are too costly in

monitoring (given the assumption that consumers will cheat when given the

opportunity). At times, the governmental policy may signal distrust and

produce a suboptimal result. In no event should the government promote

such undesirable self-interested behavior. While “no change of system or

machinery can avert those causes of social malaise which consist in the

egotism, greed, or quarrelsomeness of human nature,” wrote R. H. Tawney, 322 Bauman, supra note , at 171. 323 Layard, supra note, at 32-33.


“what it can do is to create an environment in which those are not the

qualities which are encouraged.”324

Thus a competition policy that assumes that individuals are rational

profit-maximizers that respond favorably to financial incentives may be

misguided. It ignores how moral and social norms may hinder undesirable

conduct and promote desirable behavior more effectively than financial

incentives. Effective social policies are “those that support socially valued

outcomes not only by harnessing selfish motives to socially valued ends,

but also by evoking, cultivating, and empowering public-spirited

motives.”325 In understanding the drivers of behavior (beyond the simple

assumption of profit-maximization), competition policy can better

understand how such informal norms can promote the desired objectives.

Money may be an inefficient mechanism to motivate, noted behavioral

economist Dan Ariely. “Social norms are not only cheaper, but often more

effective as well.”326

A competition policy solely focused on individual pursuit of wealth also

leaves life as meaningless. “For what gives meaning to economic activity,

as to any other activity is, . . . the purpose to which it is directed.”327

Instead of profit motivation, society can align workers’ incentives to

customers through moral and social norms. Thus, soldiers, clergy,

firefighters, police officers, missionaries, teachers, stay-at-home parents,

social workers, community volunteers, and government workers serve a

greater purpose than wealth maximization.

324 Tawney, supra note , at 180. 325 Herbert Gintis et al., Moral Sentiments and Material Interests: Origins, Evidence,

and Consequences, in MORAL SENTIMENTS AND MATERIAL INTERESTS: THE FOUNDATIONS OF COOPERATION IN ECONOMIC LIFE 4 (MIT Press 2005)

326 Ariely, supra note , at 86. 327 R.H. TAWNEY, THE ACQUISITIVE SOCIETY 33 (Dover 2004).


Competition policymakers must also develop better tools to determine

whether its (in)actions are having the desired effect. The economics

professor Simon Kuznets warned of the shortcomings of using his GDP

measure to infer the welfare of a nation; over the past year the Stiglitz-Sen

commission has examined three keys issues: “how to improve standard

GDP; how to incorporate new measures of economic, social, and

environmental sustainability into the data; and how to devise fresh

indicators for assessing quality of life.”328 More tangible signposts than the

abstractions of allocative efficiency or consumer welfare are necessary to

determine whether competition policy aligned with other social policies are

achieving their aims.

Thus, the first order is to re-examine the goals for a competition policy.

The highest economic good is not necessarily increased output. Economic

activity’s proper place should always remain “as the servant, not the master,

of society.”329 Consequently, it is necessary that improved social conditions

for all citizens accompany any economic development. Any goal of

competition policy must also seek to improve the relations among

individuals and promote human dignity.

Once the competition goals are determined, policy makers can employ

behavioral economics in creating default rules and legal standards to

achieve those ends. Rather than rely on financial incentives and

disincentives, policy makers can consider how ethical and social norms can

assist in attaining the desired outcome. By undertaking more empirical

research, competition authorities will better understand the dynamics of

particular markets and how legal, social and ethical norms interact to

influence individual behavior and competition generally.

328 John Thornhill, A Measure Remodelled, Fin. Times, Jan. 28, 2009, at 9. 329 Tawney, supra note, at 183.


Competition policy’s greatest failing has been its failure to understand

better how actual competition works in particular markets in particular

communities at particular time periods and the interplay among private

institutions, government institutions, and informal social, ethical, and moral

norms. FTC Chair William Kovacic, among others, have long called for

more empirically-driven research policies. The current financial crisis can

provided the needed impetus to look beyond the current antitrust

investigations and invest in a better competition policy for future

generations.

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