Interview with George Stigler

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REASON: What's your view of the antitrust revisionism going on now-that the antitrust laws should be a lot more modestly applied?

STIGLER: Well, I've learned. The government had gotten, more and more into watching all kinds of details like, "You have exclusive dealerships in selling bikes. Why, what right do you have to have that?" They were worrying about lots of details that I don't think were important, and in fact they're not even monopolistic. But now there's more and more an awareness that the real antitrust afflictions are horizontal combinations, or are mergers with monopolistic content.

REASON: Are Americans protected by public utility regulation?

STIGLER: When I did studies of this, the indications seemed to be not. In fact, there was a question whether the utility commissions were raising rates or holding them down.

REASON: A private monopoly unregulated by government would charge the same or lower prices for electric power?

STIGLER: That's right. We made studies for the 1910s and '20s. That's when the regulation really came in-there were still a lot of states that didn't have it. And what we did was to compare states and see whether, when you allow for costs of generation and things like that, the rate differences were appreciable. Well the differences weren't so large. We found that regulation, if it did anything, lowered the rate not for residences but for industrial users.

Now there's been a change in the last 10 or 15 years, partly due to fuel prices changing and partly due to the fact that in inflation, a new trend had taken place in electrical utilities. And a lot of the public utility commissions are dragging their feet and have been holding down rates. But studies indicate that these regulations which temporarily hold rates down have made investment unattractive. So the total cost of electricity is going to be substantially higher 10 years from now than it would be in the absence of regulation.

It's exactly the same as rent control. In the short run, clearly, if you had an apartment that was nice and well-built in Manhattan, you're better off with rent control-for 10 years you're going to have lower rents. But then you've got to ask the question: Who in their right mind is going to invest in that town? Housing in the long run in New York is going to be more expensive, since there's no such thing as a free brick and mortar construction.

REASON: Are you saying that without regulation, the electricity market was a competitive market like rental housing?

STIGLER: No. The utility field was partly monopolized by the states, you know, by exclusive franchises. But that's not the point. If I were a monopolist, I would maybe make more by charging enough to get a two percent higher rate of return than I would in the absence of regulation, or maybe I'd charge five percent more on prices. So that's a cost that you have, a social cost, of unregulated monopoly. But it's not at all clear that that cost will be anywhere near as large as the cost of an inefficient or very short-sighted regulatory system. It is quite possible that the "extortionate, self-seeking" monopolist would find it much more remunerative to have a big business and rapid innovation and cut prices, like the computer industry did for a long time. The computer industry is pretty competitive now, but even in the first 10 years of IBM's dynasty, the record of progress was incredible. That was self-interest- that wasn't benevolence.

REASON: So monopoly can be efficient?

STIGLER: Monopoly should be efficient. It isn't quite as efficient in taking account of the concerns of the consumer, but it's got to be efficient in production and innovation or it isn't making as much money as it should. The idea that the monopolist sits back and just clips coupons is nonsense. He's got all kinds of competitive pressures.

REASON: Then why this American preoccupation with antitrust legislation?

STIGLER: So far as I can tell, it's a public-interest law. If you propose an antitrust law, the only people who should be opposed to it are those who hope to become monopolists, and that's a very small set of any society. So it's a sort of public-interest law in the same sense in which I think having private property, enforcement of contracts, and suppression of crime are public-interest phenomena.

REASON: But the law has been used, for instance in the Alcoa decision, simply to hit against firms that were efficient and lowered prices to consumers but in doing so had out-competed a lot of rivals in the market that were consequently upset. STIGLER: Well, you're simplifying the Alcoa case. The Alcoa case was partly that there had been suppression of international competition by joining in international cartels.

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