Lead-Lag Live

Matt Stoller on U.S. Monopolies, Political Dynamics of Corporate Power, and Antitrust Enforcement Challenges

• Michael A. Gayed, CFA

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What if the American economy's foundation was built on small businesses rather than colossal corporations? Discover how we shifted from a decentralized landscape in the 1970s to today's monopolistic giants with our guest, Matt Stoller, an eminent public intellectual and author on monopolies and finance. Stoller reveals the philosophical shift that prioritized consumerism over citizenship, leading to a relaxation in antitrust laws and a landscape dominated by corporate mega-powers. Learn how this transition has created an economy riddled with extraction and bottlenecks, and how recent administrations are hinting at potential reforms to address these seismic changes.

We also delve deep into the political arena, examining how corporate power shapes the strategies of key political figures like Donald Trump and Kamala Harris. Trump’s evolution towards a traditional Republican stance is contrasted with Harris's nuanced and often contradictory relationship with corporate power and Silicon Valley. Gain insight into Harris’s mixed record as California's Attorney General and the potential influences from powerful entities like Wall Street and labor unions that could sway future policies. This chapter is a compelling look at the intricate dance between politics and corporate dominance.

On the global stage, Stoller tackles the complexities of antitrust enforcement, revealing the partisan divides that complicate the legislative process in the U.S. and similar challenges worldwide. Hear about the prolonged antitrust cases, such as the ongoing investigation into Google's monopoly, and the urgent need for more efficient enforcement. We also unpack the murky waters of pharmaceutical pricing, highlighting the significant role of pharmacy benefit managers in drug distribution and costs. This episode is a must-listen for those keen on understanding the systemic issues plaguing major industries and the emerging reform movements aimed at dismantling monopolistic control.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Speaker 1:

My name is Michael Guyatt, publisher of the Lead Lag Report. Joining me for the rough hour is Mr Matt Stoller. Matt, like I mentioned before us starting here, you've really crushed it on Substack and certainly have a phenomenal book as well. But introduce yourself to the audience Now. Who are you, what's your background, what have you done throughout your career and why are you focusing so much on monopolies?

Speaker 2:

Yeah, so my name is Matt Stoller. I'm a public intellectual, which is a bullshit job term. It means that I write stuff online and kind of a journalist. So I write for a newsletter called Big, which is where I write about monopolies, I write about the politics of finance, and then I also am the director of research at a think tank called the American Economic Liberties Project. Typically, I'm known as kind of part of a group of reformers that are trying to address weak enforcement of our antitrust laws, and so that's against large technology firms, but firms across the economy and healthcare and other sectors. Is that a good? So that's what I do, and you can find me at the bignewslettercom or you can find me on Twitter, and there we go.

Speaker 1:

So I love this quote when you describe what is big. You started with Woodrow Wilson. America was created to break every kind of monopoly and to set men free upon a footing of equality, upon a footing of opportunity to match their brains and their energies. We have come a long way from Woodrow Wilson's quote here. I want to hear your thoughts on how do we get to a point where it seems like almost every single industry is either an oligopoly or outright monopoly? What happened over time?

Speaker 2:

Yeah, it's a great question. So in the 1970s the US was a pretty decentralized country. It was just. It was really. There were big companies, but it was mostly a small business nation a lot of small banks, a lot of small retailers, small farms. And that was not an accident. That was a consequence of our choices as a society. We were like we're a nation of citizens and we want power to be held at a local level, close to the citizen.

Speaker 2:

But then there was a change in that philosophy and this change happened because of some very effective, really good writers and thinkers on the right and the left who argued that that philosophy was foolish and what we need is not to think of ourselves as citizens but to think of ourselves as consumers. And to think of ourselves as consumers meant that our concern should not be decentralizing power or controlling commerce at a local level through small, medium-sized businesses, through making, selling things like that. It actually we should only be concerned about low consumer prices and it doesn't matter if there is consolidation. Consolidation is actually generally good because big businesses are run by smart people and we like smart people, we want them to run things, we like experts. And so what happened is that philosophical change was instrumentalized through the rise of certain kinds of economists. And those economists you could call it neoliberalism or whatever you want to, however you want to talk about it. But in both parties policymakers started saying you know what, let's allow consolidation as long as there are the big guys promise low prices. So this would be everyday. Low prices would be the slogan of Walmart. So there were laws that were constraining the growth of these kinds of discounters in the 70s, because these discounters had caused really serious problems, and those laws were relaxed or eliminated, and so Walmart was a relatively small store in 1970. By 1980, it had a billion dollars in sales. By 1985, sam Walton was the richest man in the country. And then in the 1990s and 2000s, this new pro-monopoly framework, which was instrumentalized by the relaxation of antitrust laws. Basically I mean regulation too.

Speaker 2:

You had a technological revolution that was kind of put on top of this political revolution, and that technological revolution was the rise of these large technology firms who were born native to a political, a legal environment where monopolization was essentially legal. And so what happened is, you know, a whole bunch of companies just kind of consolidated in every part of the economy, from retail to media, to defense, to technology economy, from retail to media to defense, to technology. And if you didn't want to consolidate, if you just wanted to make your goods or services and you know, make some money, train your workers, whatever it is, then you would get eliminated right. Either your ability to distribute your products would be foreclosed by larger competitors, you would be given a buyout opportunity that was too good to pass up, or usually some combination. So make you an offer. You can't refuse kind of thing. And so that's what happened kind of all over the economy.

Speaker 2:

And that's why we're living in a society right now where you see just increasing amounts of extraction. And this extraction is really obvious in the form of things Like, if you go anywhere now you like put on your when you pay for things, they ask you for a tip, right, not just restaurants, but all over the place, and it's like nickel and diming you in emotionally fraught ways, cause it's like, do I give a tip to like the locksmith? I mean I'm not trying to insult the guy, but like it's a locksmith. It's just weird All of these weird administrative junk fees that we're seeing everywhere. These are kind of just signposts of the bottlenecks, the toll booths we have to go through for everything Because they can now annoy you into submission because you really have nowhere else to go.

Speaker 2:

That's what a consolidated economy looks like. Now I'm not even getting into healthcare, which is like you go to a doctor's office and you don't know what kind of bills you're going to get, and you know it's just. All of these things are just increasingly annoying and difficult, but that's so. That's what happened and I can talk about some of the things that I think you know. There's been this reform movement that's emerged the last five to 10 years, concurrent with Trump and Biden, that's trying to alter this. It can talk about that if you want, but that's the answer to your question.

Speaker 1:

How much of this is more just sort of the general aspect of the Pareto principle right, the 80-20 rule, that in general you end up having a select number of variables being explanatory of the bulk of the solution. I mean, certainly you can make it easier for monopolies to become monopolies, but is there some inevitability that tends to happen anyway?

Speaker 2:

No, there isn't. I really reject that because we're not talking about anything really technological in its core right, we're talking about legal structures. So, for example, you could say that Google search has natural economies of scale. It does Search requires large amounts of data. There are reasons why you would probably have just a small number of search engines, but there's no reason why you would have to choose to have Google own, say, search and also YouTube, to choose to have Google own, say, search and also YouTube. That's just a legal decision to allow Google in 2005 to buy YouTube. It's just a choice, right? There's no technological reason, like right now, if you try to search Reddit with a non-Google search engine, you can't. Why? Because Google has a contract with Reddit where they pay them money to exclude rivals. That's not a technology element, that's just a legal choice.

Speaker 2:

And if you step back more broadly, the internet itself is a huge economy. That's the biggest network we've ever seen in human history and no one owns it. And that's because we made a choice in the 60s and 70s and 80s when developing the internet that no one would own it, that it would be a set of protocols and standards, and you could do that in any industry the huge amounts of data that Google owns and controls to create its search engine, owns and controls to create its search engine. That data doesn't have to be owned and controlled solely by Google. They could give access to that data to anybody that wants to create a rival search engine. Right, that's a political choice we could make.

Speaker 2:

We make choices about copyright and AI all the time, and I'm just using that. But you could look at like there are any number of other ways to understand this problem. Like, for example, we just assume, oh, you want to use some sort of mapping service or location service, and there's lots of different ways to do that, and you know, what people don't think about is that the government just runs the GPS system. Right, it's just a government service and the government doesn't. You know, it just allows anybody to have access to it. That's another choice that we could make. I'm not saying that the government should be running everything, but what I'm saying is there are lots and lots and lots and lots and lots and lots of thoughts, of legal choices we make about how to deploy the scientific and engineering expertise that we have in our society, and we've made lots of different choices throughout history to allow more people to use that knowledge or to allow fewer people to use that collective knowledge. And that's so. We just are making choices.

Speaker 1:

So you said legal choices that we make, but in reality it's policymakers, not the voters, and that, I think, kind of maybe dovetails a little bit into the book Goliath the war, 100-year war between monopoly power and democracy. It seems and you're obviously much more entrenched into this than I am it seems almost impossible to disentangle the incentives between the big corporate monopolies, the policymakers themselves and then even having voters be aware of what's going on on the back end, as well as the legal frameworks. To your point, I mean, it seems like the voter has no clue. And even if they had a clue, they couldn't really affect much change anyway, I'm not a cynic.

Speaker 2:

I mean I know that there's this just pervasive pessimism, but you know, in 2016, trump made an anti-monopoly case. I mean, he attacked foreign dumping and American companies for offshoring stuff. Remember that carrier thing where there was a video of carrier consultants saying we're going to offshore the factory and it went viral because all the employees were mad. And then Trump talked about it and Obama made fun of them and Trump attacked. He went after Ford, he went after Apple, he went after Nabisco, he went after all these different companies. He went after Amazon for monopolization and not paying taxes. And he made arguments about market power all the time. He attacked the AT&T Time Warner merger. He said that NBC and Comcast that merger shouldn't have gone through until 2010 because that's too much control of the media by a small number of people. And you know, I think there's like a problem.

Speaker 2:

The narrative here that I'm telling is a little bit weird, right? Because I'm a Democrat, I didn't vote for Trump. I'm not a Trump supporter, listened to what he said and voters responded to it. Now Biden similarly. I mean, biden didn't make these kinds of arguments publicly because he had a different framework, but he executed on them and I think voters have a lot of power. I mean voters can make choices. Now, the interesting thing is, today Trump isn't making these arguments at all. I mean he's really like totally given up on the anti-monopoly frame and it'll be an interesting question where Kamala Harris is on it.

Speaker 2:

But I think I mean, generally speaking, you know, voters have a lot of power and and it's true that that sort of the, the, the establishment per se, and, you know, big money interests have some ability to influence people. But I've talked to, you know, I talked to a lot of voters and they believe in. You know, oftentimes they believe in bad ideas and vote for them, or they believe in good ideas and vote for them, and you know they're getting I don't want to say they're totally getting what they want, but I am not one of these people who is, who thinks, who wants to infantilize voters and say, oh, you're oppressed, right? We have the honor of living in a democracy. Our politicians are doing, we hire them and they largely do the things that we want them to do, and then we often get mad at them because they do these things, things. But it's like you talk to someone.

Speaker 2:

I talk to people who are being, you know, dealt like monopolies are screwing them all the time, and a lot of times they're you know they're like we want someone to do something about this, but a lot of times they're not. A lot of times they're afraid of challenging power, and I think that policymakers being afraid of challenging power is really just reflecting their constituents and their voters, and so I'm not willing to let voters off the hook. I think voters need to grow up and make important choices, and I think that they are starting to do that. I'm not going to say I'm not going to give up on democracy. I just don't think that's a wise choice or an honest one.

Speaker 1:

So, since you mentioned that point about Trump you had a whole post on that on Substack why has Trump stopped attacking big business? Because, you're right, I hadn't really thought of it before, but I remember the rhetoric when he was first running and clearly you don't see it today. Do you think that's? Is that purposeful, or is it more just a function of he's latching onto the immigration dynamic and doing what he always does, which is just keep hammering the thing that everyone is talking about in the media?

Speaker 2:

I think it's because Steve Bannon isn't there. I mean, I don't know, because I'm not a Republican, I don't, that's not my world. I'm a Democrat and I'm pretty tied into the Democratic establishment. I'm just, I have a lot of friends on the on the right. I have a lot of friends on the right. I respect a lot of people on the right, but that's my view is like Steve Bannon, say what you will about him, he understood populism and he was a strategist and he's in jail right now and so Trump.

Speaker 2:

Trump has kind of an instinctive ability to disdain the establishment. But it was I think it was Bannon who was kind of. You know he's reading a lot of stuff from, say, like Elizabeth Warren and anti-monopolist, and kind of translating it into into Trump isms, and that he's not there now is basically running a normie Republican campaign. I mean, he doesn't look like a normie Republican because he's Donald Trump. But you know the the Kamala Harris is an ultra liberal and you know, liberal, liberal, liberal, far left, radical, it's like so boring and like it. You know he's just not taking. He's lost his ability to disrupt the news flow because he doesn't, he doesn't seem to be able to. He wants to be on the side of the establishment. Now he's running like a like, kind of like a Republican incumbent. It's really weird. It's weird to see Donald Trump try to act like Bob Dole or something like that.

Speaker 1:

Let's talk about Kamala, because I don't know how many people closely have followed her own views when it comes to corporate power. Again, you put a great post on this as well. What would Kamala Harris do about corporate power? What's your sense of her sort of philosophical view, if she has one, around monopolies, corporate power and, more importantly, around the role of the president in dealing with that?

Speaker 2:

So the best way that I somebody I don't know, I don't know her, I've followed her career. I somebody this is a senior labor labor told me that he doesn't think that she has a philosophy. He thinks she has a set of attitudes and the attitudes are, you know, some good instincts, some bad instincts. But she also has a set of friends in California and those friends push her to do very sort of corporatist things. So if you look at her campaign, it would be her brother-in-law and close advisor is a guy named Tony West who's the general counsel of Uber. One of her advisors is. Another one of her advisors, karen dunn. She's actually a google lawyer, I believe she also did she helped prep jeff bezos for his testimony to the um, to the to congress. She's also a qualcomm lawyer, um, so that's that's you know one. She's eric holder, who was also an you know worked, was attorney general under obama and worked for uber big law guy. He's vetting her vp pics. Um, there's a you know, I kind of her her um niece worked for, I believe, uh, facebook and slack, I think also uber, I don't know. There's just all of these uber lawyers around her, which is just weird, and I'm not saying she doesn't have any good people around her or anything. I'm just saying, like, her network is composed of this, uh, this group of sort of silicon valley obama crat type, and so I don't know what she's going to do. I mean, this is a different political party than it was under obama. It's moved in a much more populist direction, but, um, but that's, that's kind of where she is.

Speaker 2:

I'm going to go into some of the things that she did, which which is, I think, more illustrative, like as as California AG, she was pretty good on healthcare consolidation, so she she investigated Sutter Health, which is a big hospital in California, and then her successor brought case. She did some things on health insurance mergers, some good stuff on pharmaceutical prices and patents, and that was, I think, very kind of staff driven, but as a politician, she didn't stop it. She allowed it to go forward, she talked about it, so that's good. On the other hand, she did some really bad things from my perspective, in terms of allowing for during the financial crisis, allowing for foreclosures. Financial crisis, allowing for foreclosures, mass foreclosures, instead of trying to really address the, the large banks and um signed a kind of a fake settlement of where they there were these fake fines, and now she's bragging about that settlement, which is like I think it's pretty, pretty gross. But you know, there there are some reasons that you could say I just did some things here or there for a few homeowners, but it it largely was a continuation of the Obama framework on the financial crisis, which was a bad framework.

Speaker 2:

And then on big tech, her track record is mostly mixed to bad. So as California AG, she didn't do anything while these companies became immensely powerful. Do anything while these companies became immensely powerful. She's a few things where she did look at some privacy, elements of, say, meta, but in general has been, I would say, more of a friend to big tech than not.

Speaker 2:

And then on the campaign, what's happening now is Wall Street and Silicon Valley people and crypto people are telling her hey, you should really reverse the Biden administration framework on trade and antitrust. And the campaign has mostly given signals that they're willing to do that. Whether they're doing that to raise money or whether they're doing that because they are willing to change the policy, whether it's whether it's both policy, whether it's both, I'm not totally sure. I mean at the same time, she is close with some unions who like this populist stuff, so it's kind of a mixed bag. I, however, am generally a pessimist on Harris. I don't expect it to be a fight within the Democratic Party and I don't think she's going to be on the side of populists. But I could be wrong.

Speaker 1:

I've been wrong before and I'm not definitively saying that, but I am not encouraged by what I've seen so far, there's a comment from the YouTube side I'm going to show here. I think you might be discounting the PayPal mafia influence on the Trump campaign. I don't know. I'm not quite sure exactly what that's referring to. I don't know if you have any thoughts on that.

Speaker 2:

Yeah, no, I can describe that. So the PayPal mafia is a group of very it's a very powerful network in Silicon Valley. So it's a group of people that worked at PayPal. So this would be like Elon Musk and Peter Thiel ran PayPal, but then there was all sorts of other people who started, you know, who became billionaires. Reid Hoffman, I think, was one of them. He was a founder of LinkedIn. There's just a lot of, I think, yeah, there's a lot of venture capitalists. It's a powerful network and they have split.

Speaker 2:

There are Democrats and the Republicans in it, but a bunch of the Republicans have gotten behind JD Vance and uh and Trump and they you know it's weird, because they are very into crypto, they're, they're, they're kind of into um, like military tech, and they have some links with big tech, but they also dislike Google, like Peter Thiel hates Google, for example, and I think Elon Musk sometimes talks about breaking up Amazon or breaking up Google. These are not Now, I don't know if they're sincere, I don't. I don't think Musk is. I think he says things to make himself more money, but I don't. You know, I don't know, but it's.

Speaker 2:

There are splits in Silicon Valley and the PayPal mafia. Some of them have gotten behind, particularly Vance, and I think they believe that, well, they really hated what Biden was doing on a couple of different things. Where they are on Harris is not totally clear to me. But yeah, I mean I think that's a totally legitimate point. Maybe they think that, maybe they want an end to antitrust. Maybe they want antitrust used against their opponents. I mean, if Google gets broken up, they'll probably do pretty well because they can invest in rivals or something like that. I don't know, but I think you're right to not. You know, I think it's important not to overlook the funding and cultural power of those guys.

Speaker 1:

When I look at stock market performance generally, when you have a Democrat as president, the tech sector has the most outperformance. When you have a Republican in office, the tech sector is more like other sectors, so you tend to not have that sort of outsized return, which maybe it's random, but it makes me think that.

Speaker 2:

Right, we were saying under Republicans you don't have an outsized return of tech.

Speaker 1:

Historically when you look at the administrations and tech performance relative to other sectors. Right.

Speaker 2:

Go, please. Well, I mean, I just recalled Trump. There's this image of him and it says him holding a piece of paper that says MAGA and it says I think Meta, amazon, google and Apple, and it's the $1 trillion club. They all hit a trillion dollars in market cap under Trump. And he was bragging about that even though he did bring some antitrust cases against Google and Facebook and talked a big game. So I don't know that. Maybe there was outperformances, yeah, in the past.

Speaker 1:

But I guess I guess where I'm going with that. That point is is there is there a historical sense that Democrats have been more friendly towards tech oligopolies and monopolies than Republicans outside of Trump?

Speaker 2:

No, there there's a misconception that that is the case, but in general, the big tech has a lot more friends and allies on the Republican side than on the Democratic side. Early 2000s there were big fights between the telecom industry, which was Republican aligned, and Google, which was kind of emerging, and the Republican aligned. Like lobbyists at AT&T spread a lot of rumors among Republican staff about Google, how Google was Democratic and whatnot. And a lot of the employees of the tech firms give to Democrats, to Democrats. But if you look at the actual policies and if you look at actual votes, it is 100% the Republicans, who are hostile to more aggressive antitrust enforcement, who are hostile to. You know, whenever you try to do something like prevent big tech from using trade agreements to expand their power, it's the Republicans who are hostile to that. It's the Republicans who are reluctant to impose new rules and it's the Democrats who are kind of split and a lot of the Democrats are not necessarily like. The Democrats are in a struggle. I think the Republicans are in a struggle too, but the way I think the best way to understand it is that in 2022, there were a series of antitrust bills that were put forward and the main problem was the Republicans just didn't want to vote for these bills. Some Republicans did, but most of them didn't want to vote for these bills. Some Republicans did, but most of them didn't. And some Democrats didn't want to vote for it, but most of them did.

Speaker 2:

Now there was one bill that did manage to make it into law Ultimately.

Speaker 2:

Chuck Schumer didn't want to put them up for a vote, because Chuck Schumer is corrupt and takes money from big tech, and so does Mitch McConnell.

Speaker 2:

Mitch McConnell and Chuck Schumer collaborated together to prevent a vote, but they did allow one bill to get a vote and in that bill that made some technical improvements to antitrust law, 80% of Democrats voted for it and 20% voted against it, and 80% of Republicans voted against it and 20% voted for it. It and 20% voted for it. So that's not to say and the lobbying on it was big tech. So that's not to say that all Republicans are for big tech and all Democrats are against big tech, because that's not the case. There are some really aggressive Republicans who are populist and want to bring in, want to address big tech. Trump was the president who brought the first case antitrust, federal antitrust case against Google and Facebook. But it is to say in general that the fight against big tech is more supported by the Democratic world than the Republican world, and I think it's puzzling because I think Republican voters are more sympathetic to the fight against big tech. But that is what is going on in DC.

Speaker 1:

We're obviously talking from a very US-centric perspective, but I am curious how closely you've looked at international monopoly oligopoly dynamics. Is it as pervasive? Obviously different laws, different cultures. Talk about that for a bit.

Speaker 2:

Yeah, it is just as pervasive. It's the same fight all over the world. I mean, maybe with some exception, china, with the exception of China, but yeah, 100% these trends are global, the ideas are global. There are global conferences of antitrust enforcers. The US helped set up antitrust agencies all over the world in the 1990s, also in the 1960s Two different it's in Europe in the 1960s, then all over the world in the 1990s.

Speaker 2:

Antitrust enforcers look to the US or did look to the US for best practices. So you know, google's a global monopoly, facebook's a global monopoly, microsoft's a global monopoly. These are so 100% same fight, same problems, slightly different cultures and languages, but no difference and intellectually the same arguments and ideas. Canada just strengthened its antitrust laws. Australia has strengthened its antitrust laws. The Europeans-ish they're more talk than action. Changes in Japan, changes in South Korea, changes in India, nigeria just find meta in India, nigeria, just find meta. It's not there really are. I mean it is a US-centric fight, but it is a global fight and really you don't have to like. You see the same political trends all over the world, the rise of populism for the same reasons. This is not a US, this is not just a US story.

Speaker 1:

The comeback I often hear from people that say uh, or that are cynical about the idea of strengthening anti-trust laws is that we don't need more laws, we need just better enforcement of the existing laws. Um, is there a degree of truth to that when it comes to monopolies?

Speaker 2:

well, I mean, I don't. I don't distinguish between when I say you know, I know I'm not. I'm not arguing for stronger, for a specific technical change or whatever. I'm just saying you need whether you do it through more enforcement, better judges, stronger statute, I don't care. Or just regulate other rules, whatever look at it, I'm like I don't want. You know, I don't call it scalpel surgery, you call it heart surgery. Like who cares whether it's done with a new statute or with a better interpretation of the existing statute or whatever? Like as long as it gets done, it gets done right a change in policy so that there's less concentration and centralization of power in the hands of private, unregulated monopolies. And then you know, often what you'll see is that there's a conjoined government monopoly alliance, and you could do that in lots of different ways. It doesn't just have to be through. You know antitrust cases which take a long time and judges really don't like them. I'm totally fine with passing a law that just broke up Google by statute. That would be, I think, a good thing to do To allow, to ban TikTok or to divest TikTok. That is a fine way to do things. So I'm not. However you want to do it. I'm cool with it, right.

Speaker 2:

But to give you a sense of why antitrust law is very annoying, they started investigating Google in 2019. Actually, the first investigations of Google started in 2008, 9, 10. And then the FTC decided not to bring cases because, essentially, the Google bribed enough people and citizens weren't paying attention. And then in 2019, there's an investigation that was largely pushed by Bill Barr in the Trump administration, and the Trump administration finally brought the case in late 2020. And then it just went to trial this year, right, or was it? Yeah, I think it was this year. So it's 2024, it comes to trial.

Speaker 2:

The judge hasn't even made up his mind about whether Google is a monopoly. If he does say that it's a monopoly, then there's going to be a remedy phase. All right, what do we do about the monopoly? And it'll get appealed, and so we could see this case taking until 2026, 2025, 2027 before it's resolved, and that is no way to organize the law. That's crazy to say, all right, we have a problem in 2019. We might not even solve it until 2026. So I agree with people that say that you need to have better enforcement, you need to have more enforcement, you need to have faster enforcement, and I don't care how we do it.

Speaker 1:

Actually, I think that point is actually really interesting 2019 getting resolved in 2026, 2027. Okay, well, now with AI making everything even more exponential, it seems like there's going to be this incredible mismatch between everything going on with technology and then the laws themselves, more so than we've ever seen between everything going on with technology and then the laws themselves, more so than we've ever seen.

Speaker 2:

I don't, I mean, I don't know, I'm, I'm a sort of a. I mean like I don't mean to be argumentative, but, um, well, I do mean to be argumentative. Uh, come on, I don't think it's that hard. I, I, you know people talk about oh ai, oh my gosh. It's like oh, oh, you, it's not that hard. Just force Google to sell YouTube. Like that's not that hard. Force Google to, you know, split up Google and Gmail.

Speaker 2:

Like, yeah, there's some like hard questions around AI. What do you do about NVIDIA and their software mode? I mean, okay, but there's a lot of easy questions, and this idea that, oh, we're just as all so complicated and hard is a way of saying that there are no easy questions. But there are. There's a ton of them, and one of that's one of the nice things about not having addressed market power for 50 years or 40 years. There's a lot of low hanging fruit, and so I'm not I know any people who's who's.

Speaker 2:

I think the argument that it's all so complicated and all so hard and everything moves so fast and the government is so slow, I think that's all a myth. I think that's all talking points that are just designed to make people feel like there's nothing they can do. The truth is, this isn't that hard. This is not a like. We've done it before. We've broken up big companies in the past. We could do it again. This is America. We should be able to control our society. We've always done that. We've always done it that way and it's just like we've spun up in our minds that like everything is so hard and difficult and there's nothing we can do, and it's like I mean that's like crazy. It's crazy to think that way.

Speaker 2:

This is the country that did. You know? We went to the moon, right, and I don't mean to be like cliched about it, but like this country has done great things, built great things. It's not that hard. I mean it's yeah, doing great things is hard, but just addressing some of these problems like whatever, let's just do it. Let's just have a judge issue an order instead of being all like like I watched this Google case and one of the reasons it's taking so long is because the judge's guy named Amit Mehta and he's an anxious ladder climbing liberal that doesn't know business and wants to get it all right, and it's very annoying and it's very anxious and it's just like if you have idiots like that making these decisions, then, yeah, everything's going to look really complicated. If you just have people who are, who are normal and are not afraid of power to make decisions, it's not that hard.

Speaker 1:

All right. Well, let's talk about how sectors of industry where it might be harder. So you put a piece out inside the mafia of pharma pricing. My mind automatically goes to tech when I think about monopolies, but clearly in healthcare space you can see it in the pricing side. Let's talk about that, because I think this is where you can argue. Maybe it's not as simple as just doing what you just said, right?

Speaker 2:

So you want me to just talk about healthcare, is that?

Speaker 1:

Yeah Well, healthcare in general just sort of explain the dynamics of the mafia component and why that's so challenging to stop.

Speaker 2:

Right? Most people think so. This is about pharmaceuticals, right, because healthcare is about 20% of our economy. Pharmaceuticals, that's about $700, $800 billion a year, which is not 20% of our economy. What's our economy? It's $25 trillion, something like that. So that's it's about $4 or $5 trillion. Pharmaceuticals it's about $700 billion. So it's a chunk of it, but it's not the majority.

Speaker 2:

Most of healthcare is hospitals, which is its own monopoly problem, but pharmaceuticals are. You can divide it into sort of two different problems. There's the pharmaceutical companies, which have patents for branded medication and charge a lot of money and what they do very much oversimplifying, but what they do is they try to discover drugs, they get patents on them and then they charge a lot of money for those drugs. They also, of late, have played a lot of games to try to extend those patents illegally, but we'll put that aside. The other problem and this is the one that I think is harder for people to grab is that there are six firms that control the pricing and distribution of these drugs. I wrote about the ones that control the pricing. They're called pharmacy benefit managers. The other ones that control the distribution are called the wholesalers. But the pharmacy benefit managers are the ones who work for your health insurance company or actually are owned by your health insurance company. There are three major ones Optum, caremark and Express Scripts, and each one of them is owned by United Health Group, cigna and Right and what they do is they arrange.

Speaker 2:

They're like the payment network or the payment mechanism for, um, uh, for pharmacies and patients. So a doctor prescribes you a certain drug, uh, he goes to the pharmacy. That goes to the pharmacy. The pharmacy then dispenses it and you do a copay to the pharmacy. That pharmacy then gets reimbursed. The agent that handles the money is the PBM. They're a middleman and they were originally just kind of a claims processor, almost like a credit card Not a credit card, but almost like a credit card and they would just work for health insurance companies to just manage that, because you got lots of new drugs and somebody needs to keep track of it all, lots of pharmacies.

Speaker 2:

So they built networks of pharmacies and they built networks of drugs and if you were a health insurance company, you could just go to a PBM and say, all right, I'm a health insurance company, I want to cover this number of people in a union or a company or whatever. Give me a network of pharmacies they can use and give me a network of drugs that they can get access to. And there we go. Well, that's how they originally started in the 60s and 70s, but then over time, they have developed through changes in law. They now have the ability to negotiate with pharmacies and negotiate with drug makers, and they've also consolidated and become part of health insurance companies. So imagine if Visa and MasterCard could control all the prices that you pay.

Speaker 2:

That's effectively what's happened with PBMs, and so PBMs three PBMs in particular are just extracting huge amounts of money by they all they have they own now, they own their own specialty, they own their own pharmacies to mail order pharmacies. So cbs owns a big pbm, they're a big pharmacy, but but you know, optum also has an optum. Uh, you know pharmacy, mail order pharmacies. And so what they do is they take patients and they say, all right, if you you know you might say like a doctor might prescribe you X drug, they will say, all right, well, instead of getting drug X, we want you to buy, get drug Y, which might be higher cost, but we have a special deal with the drug maker of Drug Y where they give us special kickbacks, and so you have to go to Drug Y and you pay a lot more. Or the government, through Medicare Part D, pays a lot more medication at prices that are not just a little bit higher but 200, 300, 400 times the price as you can get it just kind of over the counter at, say, costco, and this is. Americans pay about $90 billion through co-pays, co-insurance, so that's $700 billion. Most of it is paid indirectly through government, medicare Part D, so taxpayer money, or through commercial health insurance plans. But now increasingly people pay more of it over the counter. All of that is managed. All of that payment flow is managed by PBM.

Speaker 2:

These three PBMs and these three PBMs are Fortune 50 companies and they are manipulating the price of drugs, all uh of drugs all the time, causing huge uh cost overruns and um, and they don't do anything that's particularly useful. They're just a claims processor. So it's like the pharmaceutical companies. They're price gouging, they're doing lots of bad things, but they are at some level. They do have scientists working on drugs. The other guys they don't even move drugs around. They're just like literally pricing agents and they are extracting, I don't know, probably $50 to $100 billion, maybe $200 billion a year of excess pricing from pharmaceuticals and I should say it's hard to explain what they do. But one of the arguments they make, believe it or not, is that they actually hold they say that they hold down pharmaceutical prices.

Speaker 2:

The best example we have of what actually of how they operate is in Kentucky, where last year or two years ago the legislature just got rid of their PBMs and said, through Medicaid, we are just going to work through our own middleman and we're going to get rid of their PBMs and said through Medicaid, we are just going to work through our own middleman and we're going to get rid of these big commercial ones and we're not going to use them anymore. And they saved about 20% on drug costs, which is a huge amount of money. It's a huge amount of money and that's just Medicaid in Kentucky. So there are monopolization problems all over the economy.

Speaker 2:

There's a kind of a mafia. I call them a mafia because they really are. When you talk to people who deal with them they act like a mafia, except they just use legal tools. But fortunately, I think there's a huge amount of policy activity at a state level, in Congress and among enforcers to and in the courts to kind of roll back the power of these PBMs and I suspect that within the next five to 10 years the current model of PBMs is just going to disappear because there's just policymakers are acting. You know they've heard from their constituents and they don't like it like it.

Speaker 1:

Let's talk about for the remaining few minutes here, the sub stack, the types of content that you put out there, what people get if they are subscribed. I see your emails continuously. I've actually recommended your sub stack through the lead lag report as well in the network but talk about that for a little bit Sure.

Speaker 2:

So I try to write about the politics of monopoly and finance. So this is a mix of businessy stuff so like this if you can see on the screen right now pipes and sort of storage units there's a merger going on there and I just kind of discussed those. But I've discussed monopolies everything from monopolies in big tech to cheerleading this is a big cheerleading monopoly to FICO scores cheerleading this is a big cheerleading monopoly to FICO scorers and I really get into the nitty gritty of how these monopolies work, what contracts they use. So that's kind of one bucket. The other bucket is kind of more political. So that's not elections, because other people do that kind of stuff.

Speaker 2:

But what are the policymakers doing about this? And then, what are the fights among policymakers and elected officials vis-a-vis monopoly power? So some of the other stories that you've put up are like what is Trump saying about big business? What does Kamala Harris think about big business? How does JD Vance think about big business? These are, I think they all have track records. I think they all have track records.

Speaker 2:

Really nobody, I think, out there is focused on what these people are doing vis-a-vis big business. I think voters are really interested, they really care about this stuff, but the political news is largely about culture war, I think, culture war stuff. And so I try to avoid that and I really try to argue not argue, but I try to sort of like observe. What are the policymakers doing? What is the government doing? What's the stuff that you're not really hearing through the media about what government is doing? Because government does a lot of stuff. Some of it's bad, a lot of it's good and we don't really hear about it. And I wanted people to know. You know not you should like your government or not, but they work for you. This is your government. So what is it doing? Because I don't think you can have a coherent political view unless you actually know what your government is doing. You know pro or con, right.

Speaker 1:

So there we go, everybody. Please make sure you check out the bignewslettercom Matt Silver's sub-sack. Hopefully everybody enjoyed this conversation. Appreciate those that watched this live, those that are listening to the edited version, and please make sure you share the word around Lead Lag Live. Hopefully I'll see you all in the next episode. Thank you, matt, appreciate it. Thanks for having me Appreciate it. Cheers everybody. Thanks for having me appreciate it. Cheers everybody, thank you.

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Michael A. Gayed, CFA

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