Milton Friedman’s return to UK economic policy?

An open consultation titled ‘Competition regime: Competition and Markets Authority (CMA) – government’s strategic priorities’ was published today with the goal to seek views on the government’s proposed new strategic steer that will outline the priorities for the CMA during this parliament. Nothing overly exciting, until one looks at the first Annex and its first line that says:

The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” – Milton Friedman

Moreover, the consultation goes on and makes claims like: ‘Throughout history, free and open markets have consistently shown themselves to be far more balanced and effective than anything government can deliver.’

Why is this important? Because according to the document, the steer’s purpose it to provide ‘a clear statement of how the government sees competition fitting with its wider objectives for the economy’ and that the ‘Steer gives a clear mandate to help government design policy interventions and, when necessary, actively challenge any government rules and regulations if they consider they are negatively affecting competition’.

Friedman’s famous quote was said in an interview in the context of the importance of trading despite government limitations on trade, and referring to the mutual benefits of private markets over government coercion. Friedman used his statement to draw attention to situations where natural law overwrites black letter law. A government recognising the importance of Friedman’s quote is already laudable. The question is was the choice of the quote a deliberate hint or only a random coincidence?


The farce of antitrust penalties in the financial sector

It has been on the news this week that the Hungarian competition authority (GVH) imposed a record fine on 11 banks that coordinated their actions to dissuade mortgage borrowers from participating in a scheme aimed at lowering the financial burden on home-owners with foreign-currency loans. Details of the case aside, this case made me realise just how farcical it is to impose these hefty fines in an industry, where governments find it acceptable that only gains are privatised and losses are socialised. Read more of this post

Behavioural biases in regulation

Something has puzzled me for a long time. Why are regulators so willing to apply achievements in behavioural economics to public policy in such a one-sided way? In the UK, there is a Behavioural Insights Team, whose mission statement is “to apply insights from academic research in behavioural economics and psychology to public policy and services”. Yet, to my best efforts (although I may not have looked thoroughly enough) I could not find anything else than how consumers are behavioural agents, which has to be taken into account when designing policies. Nowhere was there any discussion that regulators may also be characterised by the same behavioural biases. Read more of this post

Can academics inform public policy?

I have recently been invited to present my ongoing work on measuring the impact of competition policy at a conference that was primarily aimed at and was run by public and private sector practitioners. The debate brought to surface the old question of what role academics can play in informing the public sector. Read more of this post

Land hoarding – really?

Various news sources mentioned yesterday that one of Britains political parties believes that the way to boost the housing market is by more regulation. According to these sources building companies ‘sit on the land’ waiting for it to accumulate in value instead of building on these land and selling them on. And the proposed solution? Just allow local governments to penalise ‘land hoarders’ for not using the land they own.

Mere intuition would tell me that there is something fundamentally wrong with this argument. Read more of this post

Dangerous performance measures

A recent review of police performance in the UK found that Kent police has been chasing the cases that produced easy numbers which is by no means equal to cases that are actually high priority. The most surprising part of the story is the public disbelief that surrounds this announcement. Read more of this post

Errors in competition policy

When I meet someone who works for competition authorities I often try to get them to answer two questions: (1) which standard of harm they follow as a principle: consumer welfare or total welfare, and (2) when it comes to making inevitable errors, which one would they be less willing to succumb to: type 1 or type 2?

Read more of this post

Are American lawyers more honest than their European counterparts?

Surely it is by no means powerful or conclusive evidence but I came across a very interesting finding, which suggests that in representing mergers in European Commission cases US law firms seem to be more genuine about efficiency defence claims than their EU counterparts. Read more of this post

What if Courts calculated probabilities?

The standard of proof applied in civil litigation in the UK is ‘the balance of probabilities’, which means that in order to win the case, the claimant needs to show that her case is more likely than not to be true. Take the example of damage claims. The amount of damages is governed by the ‘but for’ principle, the claimant is entitled to be placed in the position he would have been in but for the breach. For this it is inevitable to show what would have happened – on the balance of probabilities – absent the defendant’s behaviour. In the vast majority of these cases courts would apply a very simple comparator based method: what happened to those in a similar position who were not affected by the defendants conduct? Then the difference between the outcome observed for the plaintiff and this counterfactual is used as a basis for damages. But what if courts used more formal statistical methods? Read more of this post

Assessing Competition Policy: Methodologies, Gaps and Agenda for Future Research

Research on the evaluation of competition enforcement has probably never been more timely than today. Competition authorities run on scarce resources and are under serious pressure to make as big an impact on anticompetitive practices as possible. A recent paper by Davies and Ormosi surveys the relevant literature in order to (i) assess the fitness for purpose of the main quantitative methodologies employed, and (ii) identify the main undeveloped areas and unanswered questions for future research. Read more of this post