by R. Passov
A few weeks back, I flew to Los Angeles for my 40th business school reunion. I went knowing it was going to be a hopeless affair. I was the odd man out forty years ago and remain so. I had stumbled into business school not out of some ambition to make a fortune on Wall Street, something I knew next to nothing about, but rather because I had stumbled onto a thin set of classes whereby one could get credit for just taking finals. I successfully employed that ruse across six years of undergraduate struggles to land a B.A. A significant number of those finals were taken in courses that constituted the first year of my MBA program. I completed my undergraduate studies on a Friday and started business school the following Monday.
I had no business being in business school. I lacked a rudimentary understanding of the business world. My only two significant sources of work experience were selling drugs and working in liquor stores.
I attacked business like a polished rube. I hit the books, blazing through my classes as though on an academic quest to Mt Olympus. While I went the extra mile solving differential equations to map product penetration rates, many of my classmates were at beer busts or “networking forever down Columbus Avenue.”
…I’ve seen them in commercials sailin’ boats and plain’ ball, Pourin’ beer for one another cryin’, “Why not have it all?” Now I saw the ghostly progress as the wind around me blew, Till I felt the urge to purchase a BMW
All the salad bars were empty, all the Quiche Lorraine was gone. I heard the yuppies crying as they vanished in the dawn. Calling brand names to each other, as they faded from my view. They’ll be networking forever down Columbus Avenue
—”Yuppies in the Sky”, Peter, Paul and Mary
So, why did I go to that reunion? I went because it’s rare to have the opportunity to follow the routes of so many lives across forty years. I also went because my cohorts and I swum in the currents of the Reagan revolution. We left B-school at the zenith of Regan’s influence. When the ‘Chicago Boys’, those now well-known, hard-charging, un-forgiving right-of-center academics were making much of the western world into a capitalistic democracy, where the ‘free market’ knows best.
The Chicago school of thought reached into every regulatory bureau, such that (grossly oversimplifying) any merger or market encroachment could be justified simply on the basis of a snapshot showing lower prices for consumers.
To a degree, I understood the need for change and why at that moment in time less regulation and more animal spirits were the order of the day. My sentiments had grown from years of trying to park a four-door, Ford Grenada on the streets of San Francisco. How I would wonder, as that car rocked around like a waterbed during a pillow fight, was such a monstrous piece of garbage ever created?
Yes, we needed change and Regan brought it. He kept Paul Volcker at the helm of our central bank (many forget he was an appointee of President Carter.) The fed funds rate peaked at 20%, pushing the prime rate, a benchmark used in setting home equity lines and credit card rates, to over 21% and pushed peak 30 year mortgage rates to over 18% (the yield curve back then, much like today, had inverted such that interest rates on long term borrowings were lower than rates on short term borrowings.)
The independence of the Central Bank, lost when Arthur Burns, Fed Chairman during the Nixon administration, succumbed to browbeating by enacting ‘wage-price’ controls, was restored. The forty years that followed, marked by a general decline in long-term interest rates, produced a tide that lifted any boat bought on leverage, leaving many, including a good deal of my fellow classmates, undeservedly well-off.
Regan was right about the loss of American competitiveness. But he was wrong to inflict the cure on 
the backs of the average American. The US economy needed a restructuring but the relentless focus on cost-cutting, put on the backs of US workers. has come close to destroying the core of our democracy.
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In 2017 I found myself teaching graduate students in a program at UC Berkeley. Somehow I stumbled upon a long treatise published in the 2017 edition of the Yale Law Review, entitled Amazon’s Antitrust Paradox(1). The author, Lina Kahn, was then a 28-year-old researcher at an obscure think tank. I was completely captured after the first paragraph:
Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead.
Back in 2017 many were struggling over the fact that Amazon had a staggering market valuation and yet extraordinarily meager profitability. Some knew exactly what was happening, most didn’t. So Lina spelled it out: The only way to understand Amazon’s market capitalization was to recognize it was taking advantage of an archaic regulatory architecture, one where the primary measure of anticompetitive practices was based on a snapshot of the price to the consumer. Under that limited lens, since prices everywhere were falling, Amazon could hardly be anticompetitive. The real truth, as Kahn’s piece makes so clear, is that in 2017 Amazon was a giant warehouse of pricing power.
I made Kahn’s article assigned reading. Since my students were engineers of various sorts, almost all 
looking forward to employment at Meta, Google, Amazon and their likes, I’m almost certain that not a single one got passed the first page. Still, I forced the class through a long series of analysis, sussing out the merits of Kahn’s arguments. Toward the end, a few grudgingly acknowledged that some were ‘interesting.’
As the pandemic was ending, I was contacted by a dean from the business school whose reunion I was to attend and invited to meet at the Harvard Club in New York. Flattered by the invitation, I accepted. The evening began on a pleasant note. My host regaled me with tales of having worked in a recent presidential administration and how his experience negotiating policy issues at the highest levels was so helpful to students.
Soon enough, we got around to business. Would I be interested in teaching at my alma mater? My classes at Berkeley were going well and my alma matter had similar ambitions with respect to subject matter. At this point in the conversation my interlocutor decided to share his opinions on Lina Kahn. “She’s off base,” he said, “and likely to lose case after case. She’s got it wrong.”
I decided to have some fun. “I can see that,” I said and then went on to spout the tenants of the Chicago school just as they’d been laid down by Milton Friedman: The primary measure of harm should be found in the end price to the consumer. With modest attention to preventing undue barriers to entry, profits attract competition and therefore, most markets are ‘self-correcting.’
Yes, that’s it, my host said.
But I had one more thing to say: Those ideas, I said, were the result of folks who never imagined the marginal cost of a good going to zero and staying there. Anyone who thought that we are not due a regulatory overhaul was just plain wrong. The smiles were done.
Of course many inside Amazon, along with a few shrewd fund managers, while arguing against any effort at regulatory change, let alone enforcement, fully understand the game. Since 2017, the cost of Amazon Prime has risen by, on average, 4.4% per year. At first this seems only slightly higher than inflation. However, the price increase in 2022 alone was 17% – during a year when inflation was virtually zero. And in 2023, just after a 17% price increase, Amazon introduced commercials into their prime video service. My guesstimate is that this amounts to more like a 100% price increase. Lina Kahn was right!
Where am I going here? Back to that B-school reunion where I spent two days listening to lucky boomers telling me how smart they are and, from time to time, how Biden is on the wrong track by unleashing the FTC along with his other efforts to increase regulations.
Some said he’s out of touch. “Out of touch,” I said, then asked how many had heard of Lina Kahn before her appointment, at the ripe old age of 32, to head the FTC. No one could say they knew of her.
None had heard of her yet somehow Biden picked her to head the FTC. He reached into obscurity, found a brilliant young woman and with courage and foresight, not only made her the head of the FTC, he gave her a mandate. Putting the Biden administration on par with another president who, though himself not a radical leftist, recognized the need to overhaul outmoded (or non-existent) regulations in the face of the industrial age: Theodore Roosevelt.
I was shocked to find Lina Kahn appointed to head the FTC. Yes, Biden is old (and, as some say, walks like a toddler with a full diaper) but so what. In that appointment, he showed he knows how to find the right people for the right challenge.
“Some say Biden’s high-profile warrior – who’s gone after Kroger, Amazon, and Nvidia – has redefined the US antitrust landscape” The Guardian, March 9, 2024
1 Khan, Lina M. (January 2017). “Amazon’s Antitrust Paradox”. Yale Law Journal. 126 (3): 710–805.