Senator Mike Lee joins the “Jawboners”

Senator Mike Lee’s libertarian phase is officially over. It didn’t even last a full term in Washington. Twice in the last month Lee has joined regulatory hard-liner Amy Klobuchar of Minnesota (lifetime American Conservative Union rating of 6%) in jaw-boning American companies over mergers. “Jawboning” is the use of veiled threats by government officials to get their way without the messiness of legislation or official regulatory action. These threats usually come in the form of letters to private companies or press releases parading horribles, or (usually) both.

Senator Mike Lee joins the “Jawboners”
by Gordon Jones

On Tuesday the 24th of November, Lee and Klobuchar unloaded on Pfizer Corporation for its intention to merge with Allergan, an Irish drug company. “The mounting consolidation taking place in the health care industry is of concern to every American,” said Lee, and Klobuchar added “I have fought tirelessly to promote competition in the health sector and … we must be certain that … the elimination of a competitor will neither increase drug prices for consumers nor reduce incentives to research and develop life-saving drugs.”

The irony here is that “consolidation … in the health care industry” has been driven by policies “tirelessly” advocated by Klobuchar, prominently the ObamaCare legislation of which she was (and remains) an enthusiastic supporter. Specifically, the Pfizer-Allergan merger is driven by tax policies preventing the repatriation of foreign earnings. As a result of the merger, Pfizer will have significantly more money to “research and develop life-saving drugs.” Klobuchar continues to support the very high marginal corporate tax rates that drive American companies overseas.

A month ago the two launched a fusillade against the contemplated merger of Rite Aid and Walgreens drug stores. Lee said that members of his subcommittee on Antitrust Competition Policy and Consumer Rights “hope that the antitrust agencies will closely scrutinize the merger of Walgreens and Rite aid, the second and third largest drug store chains.” At the time, I wrote Lee that regulatory agencies need no urging to meddle in the business decisions of private companies. One would think that our self-professed Constitutionalist would understand that that document provides no warrant for second-guessing business decisions.

This preoccupation with bigness goes back to the muck-raking days of Ida Tarbell and Sinclair Lewis, and echoes New Dealers Adolf Berle and Gardiner Means. Bureaucrats at the Federal Trade Commission and the Antitrust Division of the Justice Department concentrate on the size of corporations and their “market share” within their industry. Thus their concern over the merger of the “second and third largest drug store chains.” G. Warren Nutter, at the University of Virginia and the American Enterprise Institute definitively (for conservatives and libertarians) exploded the Berle-Means thesis by noting (among other factors) that there are often (always) channels outside the narrowly defined industry in question that can and will provide the same service if the concentration produces “price gouging.”

Not that such price gouging has ever occurred (outside the fevered imaginations of bureaucrats whose jobs depend on finding it – and their posse among congressional Democrats – and some Republicans, apparently). And Milton Friedman usefully pointed out that the only monopolies that persist over time are those supported by government action – like the Post Office and milk marketing cartels.

In the case of drug retailers, Nutter and Friedman (and perhaps the old Mike Lee) would explain that even if there were only one drug store chain in the entire U.S., there are multiple alternatives for the purchase of drugs. I get mine at my local supermarket, and the Internet is a growing source for drugs (as Walgreens and Rite Aid have already recognized). The many “mom and pop” outlets still in existence (think Jolley Pharmacies here locally) will continue to act as a check on the feared behemoth of Rite Aid/Walgreens, as will that other bête noire of the Klobuchars of the world, Wal-Mart and its 5,200 outlets, all retailing drugs.

Mike Lee used to understand these things. Or claimed to. But that was before he threw in as an outrider for Amy Klobuchar. Let’s hope it is a temporary aberration.


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