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These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers

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Jesse Eisinger and Justin Elliott report in ProPublica:

IF THE GOVERNMENT ENDS UP approving the $85 billion AT&T-Time Warner merger, credit won’t necessarily belong to the executives, bankers, lawyers, and lobbyists pushing for the deal. More likely, it will be due to the professors.

A serial acquirer, AT&T must persuade the government to allow every major deal. Again and again, the company has relied on economists from America’s top universities to make its case before the Justice Department or the Federal Trade Commission. Moonlighting for a consulting firm named Compass Lexecon, they represented AT&T when it bought Centennial, DirecTV, and Leap Wireless; and when it tried unsuccessfully to absorb T-Mobile. And now AT&T and Time Warner have hired three top Compass Lexecon economists to counter criticism that the giant deal would harm consumers and concentrate too much media power in one company.

Today, “in front of the government, in many cases the most important advocate is the economist and lawyers come second,” said James Denvir, an antitrust lawyer at Boies, Schiller.

Economists who specialize in antitrust — affiliated with Chicago, Harvard, Princeton, the University of California, Berkeley, and other prestigious universities — reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers. But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose. Corporate lawyers hire them from Compass Lexecon and half a dozen other firms to sway the government by documenting that a merger won’t be “anti-competitive”: in other words, that it won’t raise retail prices, stifle innovation, or restrict product offerings. Their optimistic forecasts, though, often turn out to be wrong, and the mergers they champion may be hurting the economy.

Some of the professors earn more than top partners at major law firms. Dennis Carlton, a self-effacing economist at the University of Chicago’s Booth School of Business and one of Compass Lexecon’s experts on the AT&T-Time Warner merger, charges at least $1,350 an hour. In his career, he has made about $100 million, including equity stakes and non-compete payments, ProPublica estimates. Carlton has written reports or testified in favor of dozens of mergers, including those between AT&T-SBC Communications and Comcast-Time Warner, and three airline deals: United-Continental, Southwest-Airtran, and American-US Airways.

American industry is more highly concentrated than at any time since the gilded age. Need a pharmacy? Americans have two main choices. A plane ticket? Four major airlines. They have four choices to buy cell phone service. Soon one company will sell more than a quarter of the quaffs of beer around the world.

Mergers peaked last year at $2 trillion in the U.S. The top 50 companies in a majority of American industries gained share between 1997 and 2012, and “competition may be decreasing in many economic sectors,” President Obama’s Council of Economic Advisers warned in April.

While the impact of this wave of mergers is much debated, prominent economists such as Lawrence Summers and Joseph Stiglitz suggest that it is one important reason why, even as corporate profits hit records, economic growth is slow, wages are stagnant, business formation is halting, and productivity is lagging. “Only the monopoly-power story can convincingly account” for high business profits and low corporate investment, Summers wrote earlier this year.

In addition, politicians such as U.S. Senator Elizabeth Warren have criticized big mergers for giving a handful of companies too much clout. President-elect Trump said in October that his administration would not approve the AT&T-Time Warner merger “because it’s too much concentration of power in the hands of too few.”

During the campaign, Trump didn’t signal what his broader approach to mergers would be. But the early signs are that his administration will weaken antitrust enforcement and strengthen the hand of economists. He selected Joshua Wright, an economist and professor at George Mason’s Antonin Scalia Law School, to lead his transition on antitrust matters. Wright, himself a former consultant for Boston-based Charles River Associates, regularly celebrates mergers in speeches and articles and has supported increasing the influence of economists in assessing monopoly power. “Mergers between competitors do not often lead to market power but do often generate significant benefits for consumers,” he wrote in The New York Times this week.

A late Obama administration push to scrutinize major deals notwithstanding, the government over the past several decades has pulled back on merger enforcement. In part, this shift reflects the influence of Carlton and other economists. Today, lawyers still write the briefs, make the arguments and conduct the trials, but the core arguments are over economists’ models of what will happen if the merger goes ahead.

These complex mathematical formulations carry weight with the government because they purport to be objective. But a ProPublica examination of several marquee deals found that economists sometimes salt away inconvenient data in footnotes and suppress negative findings, stretching the standards of intellectual honesty to promote their clients’ interests.

Earlier this year, a top Justice Department official criticized Compass Lexecon for using “junk science.” ProPublica sent a detailed series of questions to Compass Lexecon for this story. The firm declined to comment on the record.

Even some academic specialists worry that the research companies buy is slanted. “This is not the scientific method,” said Orley Ashenfelter, a Princeton economist known for analyzing the effects of mergers. Referring to one Compass study of an appliance industry deal, he said, “The answer is known in advance, either because you created what the client wanted or the client selected you as the most favorable from whatever group was considered.”

In contrast to their scholarship, the economists’ paid work for corporations rests almost entirely out of the public eye. Even other academics cannot see what they produce on behalf of clients. Their algorithms are shared only with government economists, many of whom have backgrounds in academia and private consulting, and hope to return there. At least seven professors on Compass’s payroll, including Carlton, have served as the top antitrust economist at the Department of Justice. Charles River Associates boasts at least three.

“There are few government functions outside the CIA that are so secretive as the merger review process,” said Seth Bloom, the former general counsel of the Senate Antitrust Subcommittee.

ONE EVENING IN 1977, University of Chicago law professor Richard Posner hosted a colleague from the economics department and a young law student named Andrew Rosenfield at his apartment in Hyde Park. The leading scholar of the “Law and Economics” movement, Posner wanted to apply rigorous math and economics concepts to the real world. “Why not see if there are some consulting opportunities?” he mused. The three of them agreed to form a firm, throwing in $700 for a third each. They called it “Lexecon,” combining the Latin for law with “econ.”

The trio then shopped their services to a dozen law firms, which all turned them down. “If you had to value the firm at the end of the tour, you’d have to say it was zero,” said Rosenfield.

They went back to their academic work. Not too long after, AT&T called Posner to ask if he could consult on its antitrust defense. The government was trying to break up Ma Bell. Posner agreed. So began a long and mutually beneficial relationship between AT&T and Lexecon.

Soon after its founding, Lexecon hired one of Chicago’s most promising young economists: Dennis Carlton. He had grown up in Brighton, Mass., earning degrees from a trifecta of elite local institutions: Boston Latin High School, Harvard, and MIT, where he would later endow a chair. He played basketball in his spare time. “Backaches have temporarily sidelined me from embarking on my second career as a basketball player in the NBA,” he joked in a 40th reunion report to his Harvard classmates in 2012. (After a short interview with ProPublica, Carlton subsequently declined comment, citing client confidentiality.)

Ronald Reagan appointed Posner to the federal bench in 1981. Posner left Lexecon. “Andy and I were young,” Carlton said. “Gee, we wondered: Is the firm going to survive? Not only did it survive, but it did very well.”

Lexecon capitalized on the Eighties merger explosion. M&A was rising to cultural prominence as the domain of swashbucklers. Corporate raiders enlisted renegade lawyers and brash investment bankers to take on stalwart names of American industry.

Behind the scenes, the less-flamboyant economists gained influence. From the time antitrust laws began to be passed, in the late 19th century, until the 1970s, courts and the government had presumed a merger was bad for customers if it resulted in high concentration, measured at thresholds much lower than the market shares for the dominant companies in many sectors today.

Led by University of Chicago theorists, a new group of scholars argued that this approach was overly simplistic. Even if a company dominated its industry, it might lower prices or create offsetting efficiencies, allowing customers more choice or higher quality products. In 1982, William Baxter, Reagan’s first head of the Justice Department antitrust division, codified the requirement that the government use economic models and principles to forecast the effect of mergers.

Lexecon seized the opportunity. “We were not just going to talk about economic theory but show with data that what we were saying could be justified,” Carlton said. By the late 1980s, the top four Lexecon officers were each making $1.5 million a year, according to a Wall Street Journal article.


ANY MERGER OVER a certain dollar size — currently, $78 million — requires government approval. The government passes most mergers without question. On rare occasions, it requests more data from the merging parties. Then the companies often hire consulting firms to produce economic analyses supporting the deal. (Sometimes the government hires its own outside academic.) Even less frequently, the government concludes it can’t approve the merger as proposed. In such cases, the government typically settles with the two companies, requiring some concession, such as sale of a division or product line. Just a handful of times a year, the government will sue to block a merger. Recently, the Obama administration has filed several major suits to block mergers, as companies in already concentrated industries propose bigger and bigger deals. According to a tally from the law firm Dechert, the government challenged a record seven mergers last year out of a total of 10,250.

Recent research supports the classic view that large mergers, by reducing competition, hurt consumers. The 2008 merger between Miller and Coors spurred “an abrupt increase” in beer prices, an academic analysis found this year. . .

Continue reading. There’s a lot more.

The process is broken, Congress is too corrupt to act, and the US is being looted.

Written by LeisureGuy

25 September 2017 at 5:06 pm

How Airline Execs and Politicians Have Made Flying Even More Miserable

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Justin Elliott reports in ProPublica:

Three years ago, the Obama administration unleashed its might on behalf of beleaguered American air travelers, filing suit to block a mega-merger between American Airlines and US Airways. The Justice Department laid out a case that went well beyond one merger.

“Increasing consolidation among large airlines has hurt passengers,” the lawsuit said. “The major airlines have copied each other in raising fares, imposing new fees on travelers, reducing or eliminating service on a number of city pairs, and downgrading amenities.”

The Obama administration itself had helped create that reality by approving two previous mergers in the industry, which had seen nine major players shrink to five in a decade. In the lawsuit, the government was effectively admitting it had been wrong. It was now making a stand.

Then a mere three months later, the government stunned observers by backing down.

It announced a settlement that allowed American and US Airways to form the world’s largest airline in exchange for modest concessions that fell far short of addressing the concerns outlined in the lawsuit.

The Justice Department’s abrupt reversal came after the airlines tapped former Obama administration officials and other well-connected Democrats to launch an intense lobbying campaign, the full extent of which has never been reported.

They used their pull in the administration, including at the White House, and with a high-level friend at the Justice Department, going over the heads of staff prosecutors. And just days after the suit was announced, the airlines turned to Chicago Mayor Rahm Emanuel, Obama’s first White House chief of staff, to help push back against the Justice Department.

Some lawyers and officials who worked on the American-US Airways case now say they were “appalled” by the decision to settle, as one put it.

“It was a gross miscarriage of justice that that case was dropped and an outrage and an example of how our system should not work,” said Tom Horne, the former state attorney general of Arizona, one of seven states that were co-plaintiffs with the federal government.

As a candidate in 2007, President Obama pledged to “reinvigorate antitrust enforcement,” calling that the “American way to make capitalism work for consumers.” Hillary Clinton has recently made similar promises.

But the reversal in the American-US Airways case was part of what antitrust observers see as a string of disappointing decisions by the Obama administration.

“I hoped they would be much more aggressive and much more concerned about increasing concentration and ongoing predatory conduct,” said Thomas Horton, a former Justice Department antitrust attorney now at University of South Dakota law school. “Too often they really took the business side.”

Obama’s antitrust enforcers have been somewhat more aggressive than the Bush administration in challenging mergers. But that has come in the face of a record-breakingwave of often audacious deals. Nor has the Obama administration brought any major cases challenging companies that abuse their monopoly power. It approved three major airline mergers, for example, leaving four companies in control of more than 80 percent of the market.

In the American-US Airways case, Emanuel emerged as one of the deal’s biggest champions. He was in regular contact with the CEOs and lobbyists for both airlines.

“The combination of American Airlines and US Airways creates a better network than either carrier could build on its own,” Emanuel wrote in an October 2013 letter to the Justice Department that other mayors signed onto. “American’s substantial operations throughout the central United States provide critical coverage where US Airways is underdeveloped.”

The letter was an uncanny echo of the airlines’ arguments – for good reason: It was actually written by an American Airlines lobbyist, emails obtained by ProPublica show.

The day after sending the missive, as government lawyers were racing to prepare for trial, Emanuel lunched with the CEOs of American and US Airways at a suite in the St. Regis hotel in Washington. The next stop on his schedule: the White House, for meetings with President Obama and Chief of Staff Denis McDonough. Later that day, Emanuel met with Secretary of Transportation Anthony Foxx, whose agency also had a hand in reviewing the merger. (The White House and Department of Transportation declined to comment on the meetings.)

Meanwhile, the airlines dispatched another valuable asset: An adviser on the deal, Jim Millstein, was both a former high-level Obama administration official at Treasury and a friend of Deputy Attorney General James Cole, the No. 2 at the Justice Department.

Millstein said Cole told him that the government was open to settling the case – a position at odds with the Justice Department’s public stance. The two spoke about the case on social occasions, such as “after finishing a round of golf,” Millstein said in an interview.

The five meetings and phone calls between Millstein and Cole – all within two months in late 2013 – shocked Justice Department staff attorneys who worked on the case, with one describing them as a sign of “raw pressure and political influence.” Cole declined to comment in detail, but said in a statement that “nothing inappropriate occurred.”

As Millstein and Emanuel pressed the administration, the airlines spent $13 million on a phalanx of super-lobbyists, including Heather and Tony Podesta, to marshal support in Washington, records show. Another Democratic lobbyist, Hilary Rosen, also reached out to the White House.

There’s no direct evidence that the lobbying worked. The Justice Department denies the pressure affected its decision-making and the White House said it was not involved. “DOJ enforcement decisions are made independently,” a White House spokesperson said in a statement. “The White House does not play a role in those decisions.”

But the abrupt move to settle was met with a backlash among the team building the case, according to interviews with four lawyers and officials who worked on the case. . .

Continue reading.

Things have gone badly wrong.

Written by LeisureGuy

25 September 2017 at 4:57 pm

The Theory and Practice of Civic Engagement, by Eric Liu

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James Fallows writes in the Atlantic:

If you happen to be in Redlands, California, on Thursday evening, September 21, I suggest you go by the headquarters of the tech company Esri to hear a talk by my friend Eric Liu, on the practical possibilities for civic engagement in our politically troubled age.

If you don’t happen to be in Redlands, I recommend getting Eric’s book, You Are More Powerful Than You Think. It addresses a central question of this politically troubled age: what, exactly, citizens who are unhappy with national politics can do, other than write a check or await the next chance to vote.

This is a question I wrestled with immediately after last year’s election, in this Atlantic article, and in a commencement speech a few months later. But Eric, author of several previous books about the theory and practice of citizenship (including The Gardens of Democracy and A Chinaman’s Chance) and head of the Citizen University network, based in Seattle, has devoted his useful and enlightening new book to just this topic, in the age of Trump. He described some of its principles in a NYT interview with David Bornstein a few months ago. Essentially his topic is how to bridge the gap between thinking, “something should be done,” and actually taking steps to doing that something, on your own and with others. This also is the ongoing theme of Citizen University, which emphasizes that citizenship is a job in addition to being a status.

I’ll leave the details, of which there are many, to Eric — on the podium in Redlands or in the pages of his book. The high-concept part of his argument flows from these three axioms:

  • Power creates monopolies, and is winner-take-all. → You must change the game.
  • Power creates a story of why it’s legitimate. → You must change the story.
  • Power is assumed to be finite and zero-sum. → You must change the equation.

He goes on, in practical terms, to illustrate what these mean. The political question of this era (as discussed here) is how the resilient qualities of American civic society match up against the challenges presented by the lurches of Donald Trump. Can the judiciary adhere to pre-2017 standards? How will the Congress fare in its ongoing search for a soul? Will states and cities maintain their policies on the environment, on standards of justice, on treatment of refugees and immigrants? And how, fundamentally, can citizens play a more active and powerful role in the affairs of their nation? These and others are central struggles of our time. And Eric Liu’s book is part of the effort to push the outcome in a positive direction.

Written by LeisureGuy

21 September 2017 at 7:33 pm

Posted in Books, Daily life, Politics

The Cynicism Behind Graham-Cassidy Is Breathtaking

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Kevin Drum notes:

It’s hard to know how to react to the cynicism of the Graham-Cassidy health care bill. For starters, of course, it’s as bad as all the other Republican repeal bills. Tens of millions of the working poor will lose insurance. Pre-existing conditions aren’t protected. Medicaid funding is slashed. Subsidies are slashed.

But apparently that’s not enough. Republican senators (and President Trump, of course) obviously don’t care what’s in the bill. Hell, they’re all but gleeful in their ignorance. Nor is merely repealing Obamacare enough. Graham-Cassidy is very carefully formulated to punish blue states especially harshly. And if even that’s not enough, after 2020 it gives the president the power to arbitrarily punish them even more if he feels like it. I guess this makes it especially appealing to conservatives. Finally, by handing everything over to the states with virtually no guidance, it would create chaos in the health insurance market. The insurance industry, which was practically the only major player to stay neutral on previous bills (doctors, nurses, hospitals, and everyone else opposed them) has finally had enough. Even if it hurts them with Republicans, Graham-Cassidy is a bridge too far:

The two major trade groups for insurers, the Blue Cross Blue Shield Association and America’s Health Insurance Plans, announced their opposition on Wednesday to the Graham-Cassidy bill….“The bill contains provisions that would allow states to waive key consumer protections, as well as undermine safeguards for those with pre-existing medical conditions,’’ said Scott P. Serota, the president and chief executive of the Blue Cross Blue Shield Association.

….America’s Health Insurance Plans was even more pointed. The legislation could hurt patients by “further destabilizing the individual market” and could potentially allow “government-controlled single payer health care to grow,” said Marilyn B. Tavenner, the president and chief executive of the association. Without controls, some states could simply eliminate private insurance, she warned.

Literally nobody in the health insurance industry likes this bill. The chaos and misery it would unleash are practically undebatable. It’s being passed for no reason except that Republicans have screwed up health care so epically that they have only a few days left to pass something, and Graham-Cassidy is something.

If there’s any silver lining at all to this mess, it comes from AHIP’s Marilyn Taverner:  . . .

Continue reading.

Written by LeisureGuy

21 September 2017 at 8:26 am

Trump White House Reportedly Nixed Study Showing Benefits of Refugees

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The GOP seems to detest facts and ignores them whenever possible. Benjamin Hart reports in New York magazine:

Ahead of an October 1 decision on how many refugees to admit into the United States next year, the New York Times reports that the Trump administration nixed a report showing that displaced people are beneficial to the U.S. economy. Commissioned by the White House in an effort to help justify its anti-immigration policy platform, the full document never made its way to President Trump, and officials believe it was suppressed before it got there.

The Times has the details of what the never-published report found:

The internal study, which was completed in late July but never publicly released, found that refugees “contributed an estimated $269.1 billion in revenues to all levels of government” between 2005 and 2014 through the payment of federal, state and local taxes. “Overall, this report estimated that the net fiscal impact of refugees was positive over the 10-year period, at $63 billion.”

But White House officials said those conclusions were illegitimate and politically motivated, and were disproved by the final report issued by the agency, which asserts that the per-capita cost of a refugee is higher than that of an American.

Rather than include the key data, the final draft limited its findings to how much money Department of Health and Human Services spends on an average refugee compared to a U.S. citizen. By that metric, it found that refugees seek government services more often, “reflecting a greater participation of refugees in H.H.S. programs, especially during their first four years.”

Stephen Miller, the Trump team’s preeminent immigration hawk, has been arguing that the U.S. should greatly reduce the number of refugees allowed into the country. The Trump administration already halved President Obama’s refugee quota from about 100,000 to about 50,000 people this year, but Miller wants to go much further in the future. (Even the numbers Obama approved were minuscule, on a per-capita basis, compared to Canada and many European countries.) Whatever quota the Trump administration arrives at will likely be the lowest in decades.

Miller, the 32-year-old former Jeff Sessions aide, has had a hand in most of the president’s big nativist moments. He authored the infamous “American carnage” inauguration speech and other addresses that have portrayed immigrants as “animals” who commit grisly crimes. And, not surprisingly, he appears to be one of the central voices that squashed the report in question; the Times reports that Miller “personally intervened in the discussions on the refugee cap to ensure that only the costs — not any fiscal benefit — of the program were considered, according to two people familiar with the talks.” Never mind that many other studies have also shown that refugees are a benefit, not a drain, to American society. . .

Continue reading.

Written by LeisureGuy

19 September 2017 at 5:25 pm

Religion trends and groupings and political outlook, in good charts

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Written by LeisureGuy

7 September 2017 at 4:55 pm

The U.S. institutes political commissar position: EPA now requires political aide’s sign-off for agency awards, grant applications

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This is exactly how the Soviet system worked. In publications, writers could (presumably) write what they wanted, but all articles went through the political commissar assigned to the group, and the commissar’s word, based purely on political criteria, was final.

We’re already at that point. Wake up, people.

Juliet Eilperin reports in the Washington Post:

The Environmental Protection Agency has taken the unusual step of putting a political operative in charge of vetting the hundreds of millions of dollars in grants the EPA distributes annually, assigning final funding decisions to a former Trump campaign aide with little environmental policy experience.

In this role, John Konkus reviews every award the agency gives out, along with every grant solicitation before it is issued. According to both career and political employees, Konkus has told staff that he is on the lookout for “the double C-word” — climate change — and repeatedly has instructed grant officers to eliminate references to the subject in solicitations.

Konkus, who officially works in the EPA’s public affairs office, has canceled close to $2 million competitively awarded to universities and nonprofit organizations. Although his review has primarily affected Obama administration priorities, it is the heavily Republican state of Alaska that has undergone the most scrutiny so far.

EPA spokeswoman Liz Bowman said that grant decisions “are to ensure funding is in line with the Agency’s mission and policy priorities,” with the number of awards denied amounting to just 1 percent of those made since EPA Administrator Scott Pruitt took office. “We review grants to see if they are providing tangible results to the American people,” she said in an email.

But the agency’s new system has raised concerns among career officials and outside experts, as well as questions among some in Congress that the EPA grant program is being politicized at the expense of their states.

Earlier this summer, on the same day that Sen. Lisa Murkowski of Alaska joined with two other Republicans in voting down a GOP health-care bill, EPA staffers were instructed without any explanation to halt all grants to the regional office that covers Alaska, Washington, Oregon and Idaho. That hold was quickly narrowed just to Alaska and remained in place for nearly two weeks.

The ideological shift is a clear break from the practices of previous Republican and Democratic administrations. It bears the hallmarks not just of Pruitt’s tenure but of President Trump’s, reflecting skepticism of climate science, advocacy groups and academia. . .

Continue reading.

Later in the article:

The Interior Department, which is conducting a review of its grants, last month canceled a $100,000 National Academies of Sciences, Engineering and Medicine study aimed at evaluating the impact of surface mining on nearby communities.

Written by LeisureGuy

4 September 2017 at 5:47 pm

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