Monopoly Power vs Democracy – Matt Stoller

Yves here. Please enjoy a lively and wide-ranging discussion between Matt Stoller and theAnalysis.new’s Tara Baroncelli. The point of departure is Matt’s current policy focus, monopoly power, but Matt has long been interested in the way power is exercised in our economy and society.

Matt remarks that this degree of concentrated economic power is a historical anomaly. It’s hard to curb some of the drivers. One is contracts, particularly so-called contracts of adhesion, where users, usually consumer, have no ability to negotiate and in some cases even understand the agreement. Think of credit card contracts. They are necessary for many people, for instance, if you want to rent a car or buy an airline ticket. Yet even Alan Greenspan said he couldn’t understand a credit card contract and they were shorter in his day than now. How can someone possibly be deemed to have entered into an agreement on the basis of good faith and fair dealing when even experts can’t make sense of them?

Even worse is the exploitation of technology. Software means you don’t own anything, you’ve simply signed up for yet to be known future expenses if you want to maintain something resembling what you thought you were getting. I very much resent being forced into upgrades when the applications I use are fine as they are, and upgrades force me to abandon perfectly good programs and peripherals where the never versions are less good and cost money. The same goes for the security pretext.

And while I am using the simple model of a laptop user, other tech consumers are much more locked in. Readers have discussed long form that businesses that use cloud storage have effectively lost control of their data and can’t divorce their host.

Stoller also has some entertaining observations about the EU and crypto.

By Talia Baroncelli. Originally published at theAnalysis.news

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Talia Baroncelli

Hi. I’m Talia Batonshelli, and this is theAnalysis.news. I’ll shortly be joined by Matt Stoller to speak about monopoly power and its impact on the political sphere. Please don’t forget to go to our website, theAnalysis.news, to donate and subscribe to our newsletter. I’ll be back in a second.

I’m joined now by Matt Stoller. He’s the research director at the American Economic Liberties Project and the author of the book Goliath: The 100-Year War Between Monopoly Power and Democracy. He’s also the author of the SubStack Big. Matt, thanks so much for joining me.

Matt Stoller

Hey, thanks for having me.

Talia Baroncelli

So I wanted to start off with a bigger-picture question. Why is it so important to focus on monopoly power? Why does the concentration of economic power in the hands of the few actually lead to the economy not functioning properly and also a concentration of political power?

Matt Stoller

Yeah, so I think there are a lot of ways to answer that question. I think the important one to understand is that what we face right now in our society is a lot of conservatives and liberals who disagree about the right way to run a society. I think everybody is feeling the downstream effects of tremendous corporate consolidation. So over the last 20 years, 75% of industries have gotten more concentrated, largely through mergers. But this isn’t everything from search engines, which we know with Google. There’s Google, and that’s it. But it’s also small markets, airlines, pharmaceuticals, and so on and so forth. It’s also small markets like mail sorting software or ultimate fighting championships. You could probably point at something and be like, that thing is probably monopoly, some insulation material, or something.

The problem with consolidation writ large, the problem with this monopolization across the economy, is that in every market where you have one or two firms in control of that market, you got one or two entities setting the terms, the prices, and the wages for that market. Effectively you have a private government and an authoritarian government in mail sorting software. That may not be a big deal to have mail sorting software, but the prices in terms of if you’re an engineer or you use the mail; it’s not that big a deal. Maybe it’s not that big a deal if the flight from your city to another city is you have to go through a third city to get there, and it could be a big deal if that’s cut entirely.

When you add all of this up, when you add up the monopolization in every market that people are now dealing with, you start to see that maybe we’re not living in a democratic society. Maybe, yeah, sure, we are voting. Sure, there’s political liberty to sort of say what you want, but all of the institutions, the private institutions that mediate how we live our lives, are increasingly controlled by one or two entities and are increasingly authoritarian. So that’s the political threat. Then the consequences of that are all the things that liberals and conservatives don’t like. There’s income inequality, asset inequality, and regional inequality as capital pools into a few cities and is drawn out everywhere else.

Censorship, as you have a small number of entities controlling the flow of information, addiction, and corruption– most of the things that people don’t like about the way society is being run now, this feeling that there are these distant masters that control stuff, that’s a function of monopolization, which is a function of public policy choices that we’ve made over the last 20 to 40 years to facilitate that kind of consolidation.

Talia Baroncelli

What would an alternative actually be? Could we potentially have publicly run companies that could then compete with private companies, or is that just something that’s unattainable?

Matt Stoller

Yeah, of course. There are lots of ways of structuring markets. So there’s this sort of sense on the Left that, well, we’re for markets or against markets, but that’s not a coherent way to think about the problem. No one has a problem with a farmer’s market. You go to a farmer’s market, it’s fine. People have problems with derivatives markets where you’re exchanging very fancy securities. There is a political difference between a slave market and a farmer’s market. Even though they both use the word market, they’re very different institutions. That’s because markets are public institutions that we set up through the rules that we write through politics.

So to answer your question, the monopolization that we have in our economy is unusual today. We didn’t have this in the 1970s, and we didn’t have it in the 1770s. There are hundreds of years of public utility regulation and anti-monopoly rules that we kind of threw out the window in the early ’80s and allowed this kind of consolidation to emerge, and there are lots of ways.

What’s exciting is that for the last five years or so, there’s been a lot of pushback, and we’re starting to change public policy to actually address consolidation. There are a lot of ways to do that. You can do it by just facilitating more competition. It doesn’t necessarily matter if the owner of the competitive firm is the government or not. There are well-run government firms, and there are badly-run government firms. It’s the same thing for the private sector or not. It’s just the question of is there consolidated power so you can allow for new entry. There are ways to make sure that that happens.

If an institution is an infrastructure, if it’s a core part of some sort of social input, like if it’s electricity, a water system, or maybe a search engine, or a social network, or an operating system, you can regulate it and put in certain pricing rules about what you can charge, who you can discriminate against. These rules have been in everything from railroads to telegraph systems to stage coaches going back hundreds of years. So we’ve done this before. The way to govern our society is through these rules, and we forgot about them for 30-40 years, and the massive monopolization, the distant masters controlling us, is the result. As we rediscover this language, yeah, we’re going to put controls on essentially like distant masters, and those controls are going to be anti-monopoly rules, regulatory choices, and so on and so forth.

Talia Baroncelli

Well, what actually happened in the past few decades? In the ’30s, ’40s, and ’50s, we had very effective antitrust laws, and they were widely enforced. Then I guess in the ’70s, with Chicago School economics being so popular, there was this push for deregulating markets and for not enforcing antitrust law. Maybe you can explain what happened in the ’70s. Why was that such a bad decade for regulation?

Matt Stoller

Yeah, if you’ve ever thought, if any of your audience members have ever thought, “oh, that’s economics, or that’s finance, that’s too difficult. I don’t know anything about that. I have strong views about this thing over here, but that stuff I don’t know about that. I’m a little bit reluctant to weigh in on that.” That’s sentiment. The idea that a citizen shouldn’t be able to weigh in on our commerce– how we trade with one another. That is what happened. This sense that a very fundamental aspect of the human experience, which is how we relate to one another through commerce, what we buy and sell from each other, ideas we trade with each other, and how we grow food and sell it to one another and process it. These are very political questions that have embedded power systems in them.

In the 1970s, collectively, we as a society decided that these were not political, that these were technical questions best left to experts, aka economists, the scientists of the economy, economists. That was a tremendous change in political power. This was not a right-wing thing. The Chicago School was conservative, but the left wing, at the time, there were a lot of socialists who agreed. They thought, “well, of course, we need the scientists to be running things. The scientists should run things, and then we should make things equal. The scientists should run things but make them equal.” But of course, we shouldn’t, we the rabble shouldn’t have any role in the economy.

Those two movements– it was sort of the Left saying, “let the scientists run things,” and the Right saying, “let the business people run things.” They’re both essentially elitist views. It crushed this anti-monopoly populist sentiment that normal people know what’s best for them. The transition in the ’70s was from the citizen to the consumer. So we stopped thinking of ourselves as citizens who make things, who trade with one another, who are participants in communities, and we started to think about ourselves as consumers. We said the whole point of this corporate stuff that’s going on is to serve consumers better with lower prices, and that’s all we’re going to think about. Not power, not rivalry, not citizens, and not society, but are we getting low prices in the short term? Low consumer prices in the short term.

Guess what that delivers? It delivers Walmart, whose slogan is ‘Everyday Low Prices’. The philosophy that I talked about where they just said all of these areas of law, we’re not going to enforce them to prevent concentrations of power. This kind of like Madisonian checks and balances that we did with the government the way we did that in the private sector through competition. We’re no longer going to do it that way. Instead, we’re going to go to the scientists, and we’re going to say make it efficient. Not just but efficient through price theory, and that’s for consumers.

Talia Baroncelli

But that’s also the consumer welfare standard. Right?

Matt Stoller

Yeah, you roll it forward 40 years, and that’s what you got. You got Google which is free. You got Amazon which is low prices. You got Facebook which is free. For economists, they look at this, and they see a beautiful world where everything is cheap and made in China, and all of these web institutions are– the most powerful ones in the world, are free, and this, to them, is nirvana.

Talia Baroncelli

Yeah, and right now, we’re living in this sort of existential crisis where climate change is a huge deal, and a lot of companies are hiding behind ESG [Environmental, Social, and Governance] policies to pretend they’re actually doing something for the climate. So I was wondering how antitrust law can actually be useful there. If we’re breaking up monopolies, how can we, at the same time, make these companies more receptive to adhering to the demands of a climate change movement?

Matt Stoller

Well, I’m not a specialist in energy, but I think one of the things that antitrust and anti-monopoly rules can do is they can prevent the status quo. The goal is basically to prevent the status quo from restraining new entrants into markets. Basically, if you have a new way of doing things, the person who runs the old way of doing things is going to try to stop them. They’re going to try to stop them through lots of different techniques. They might try to buy them out. They might try to go to the person’s potential customers and say, “you’re also a customer of mine, and I’ll screw you over.” They might try to sue them by using sham lawsuits. There are lots of techniques and tactics, but the basic idea is the king doesn’t want a rival.

I think we have a society where oil and gas are the dominant way that we run our energy systems. The utilities are– and coal as well– the utilities are very comfortable with that. If you try to bring in new ways of generating energy, then that can be pretty threatening to the entrenched incumbents.

Part of what we’re trying to do is to attack the ability of those entrenched incumbents to prevent new entrants into the market and to prevent new ways of doing things that are more efficient, that emit less carbon or no carbon. That’s kind of part of it. I don’t think that you can rely on antitrust or anti-monopoly rules to address all of it. You also just have to have the government say we’re going to get rid of carbon emissions if that’s what you want to do. But certainly, the way that we have set up our political economy, the incumbents are going to be really resistant to having new ways of doing things. Just like how Google is going to be really resistant to new ways of searching for things that they don’t control, the coal industry or whoever is going to be really resistant to ways of generating energy that is not the things that they sell.

Talia Baroncelli

Yeah, and I guess another issue is how do you actually regulate certain industries when these regulatory bodies are captured by the industries they’re trying to regulate?

Matt Stoller

This is a good point because the idea of capture is actually a Chicago School idea. George Stigler [American Economist] came up with the idea to discredit the idea of regulation. He said regulators work for the industries that they regulate, therefore, don’t regulate because it’s just a way of facilitating more barriers to entry. He actually originally used electric utilities and showed that in regulated systems, the prices are higher than in systems that were not as regulated. Now, as it turns out, it was not true. It was wrong. It really was an attack on the idea of regulation itself. I think the notion of capture is like it’s not– I don’t think it makes sense.

I do think what happened is that the Left and the people who believe in the public interest lost their moral imagination. They didn’t for– the ’60s, ’70s, ’80s, and ’90s if you were like, “I want to help the public interest. I care about justice,” you would do things like civil rights law or environmental law or various other sorts of social questions. The idea that you might want to go into regulating electric utilities as a focal point of justice would be crazy. Why would you want to do that? The same thing is true for telecom. If you meet someone and they say, “yeah, I’m a telecommunications lawyer,” you wouldn’t necessarily think, “oh, this person really cares about social justice.” But, in fact, all the money and power in the world is in corporate America.

One of the things that are exciting is to see that people are starting to learn the language of business, the language of commerce, the language of regulation, the language of business law, and see that it’s this fundamental way of doing democracy. And that’s what I think is exciting. So it’s like the regulators in all of these areas, they’re outgunned, but also they haven’t seen young people coming in and learning this area and wanting to do that stuff for a long time. I think that’s changing. I think what you’re finding is there’s more interest in the moral choices that we’re making in all of these regulatory bodies.

Talia Baroncelli

Right, and there’s also a lot of, I guess, enthusiasm right now to actually do something, given the landscape, especially after Donald Trump and Big Tech being able to pry on people’s data on Google or Facebook and using their data. Basically, treating people as products, using their data, using it for marketing and for surveillance capitalism. I think we’re living in a context right now where in the U.S., we actually have trust in certain regulators. So perhaps there’s not complete regulatory capture, and we have trust in regulators such as Lina Khan [Chairperson of the Federal Trade Commission] at the FTC or Jonathan Kanter as the attorney at the antitrust division. So maybe you could talk about the division of labor between what Lina Khan is trying to actually do and what Jonathan Kanter is trying to do with his cases.

Matt Stoller

Yeah, I think there’s a basic narrative here that we have to overcome, which is a narrative of nihilism that our governing systems are fundamentally broken, which is a common thing, and we can’t regulate, we can’t do anything. That is not the way– when we had a more egalitarian society, that’s not the way that we thought about the world. We live in a democracy, and we have the honor of living in a democracy, and we have the honor of making these systems deliver for the public. If they’re not delivering for the public, then it is our responsibility to make them deliver for the public through our governing institutions, not through activism or holding signs, but through learning the law and learning the mechanisms to actually govern and working through institutions to do that. That’s when stuff worked. That’s what we did. It was messy, and there were lots of problems, but that’s welcome to self-government. Welcome to being a human being.

So what we have with the Federal Trade Commission and the antitrust division is a good example of how you actually get in there and start to turn things around. Basically, there are two agencies in government that handle antitrust. There are lots of agencies in government at the state, local level, and federal levels that handle regulation and deal with markets. Antitrust law is a specific sort of tip of the spear for certain corporations. It’s kind of like economy-wide. They don’t set prices, and they don’t regulate airlines, but they bring antitrust laws and make sure that markets are competitive in general.

There are two agencies that deal with that. One of them is the Federal Trade Commission, and the other is the Antitrust Division which is a part of the Department of Justice. We have two really good populist enforcers, one of which is Lina Khan, who’s the Chair of the Federal Trade Commission, and the other one is Jonathan Kanter, who’s the head of the Antitrust Division. Both of them are starting to challenge more mergers. They’re starting to bring conduct cases against standard tactics that would have been anti-competitive in the ’70s, but today people are shrugging and saying whatever, and now they’re trying to bring that kind of law back. They are trying to address problems like private equity, which is this kind of financial force. All of the money in the world is controlled by these big funds, and then they buy companies and lay people off and merge them together into monopolies. It’s this whole sort of scam at the center of the economy, and antitrust law can touch that. So Kanter and Kahn are both trying to get at it. They’re bringing cases, and they’re being heard by the courts, and they’re making changes in the policy decision really in the guts of the government. The kind of places that you or I wouldn’t necessarily notice. I noticed it, but that’s because it’s what I do.

Everybody thinks there are conspiracies about how things work, and it’s kind of true. They’re more open and boring than people assume, but they’re kind of like working the levers on behalf of the public. It’s kind of like a slow turnaround, but now there are a bunch of antitrust suits against Google, there are antitrust suits against pesticide makers, against people who are firms that make locks for doors. There are investigations of Amazon, Apple’s App Store, and lots of sort of different areas.

Look, these things are going to take a while because the courts– you don’t turn around a giant ship instantly, but they’re starting to do the turnaround, and we’re starting to see impacts.

Talia Baroncelli

Right, and do you think that with the midterms, with any of those political changes in the makeup of Congress, if we’ll actually see more antitrust laws being implemented or will Congress actually act and pass any new laws in this [inaudible 00:21:59]?

Matt Stoller

I don’t know. The answer is yes. I just don’t know when. So it could be this week, it could be in a year. I think in five years, we will have different antitrust laws. I just don’t know when. I mean, the House Republican leadership is very hostile to new antitrust legislation, most of it. In the next two years, it looks kind of not that promising, but their own caucus, so Republican voters and then Republican members of Congress, some of them want antitrust legislation. So you have this weird dynamic. Then the Senate is controlled by Democrats. The Democrats are pretty good on strengthening antitrust. However, Chuck Schumer [Majority Leader of the United States Senate] doesn’t want to. He hates antitrust, so he won’t bring them to a vote.

Then there are lots of states which are adhering to antitrust bills. We’re in the early stages, and I think we’re going to have wholesale reorganization of antitrust law. It takes time. This is a big country, and you have to generate some level of consensus that the way we’ve been running business is causing significant problems, and we should run our business systems in a different way. I think we’ve done a pretty good job of convincing people that the way that we run our business systems is a problem, that there’s been too much consolidation, and now we’re in this process of explaining and debating how to deal with that. We haven’t quite settled on some sort of consensus on what to do, but I think we’re getting there.

Talia Baroncelli

Okay, can you also talk about the effect of monopolies on inflation? Because I think after the CARES Act [Coronavirus Aid, Relief, and Economic Security Act], we saw this massive upward transfer of wealth, and there are different narratives as to what actually led to inflation. So some people would say that people were just flush with money, and they had all this extra money to spend that drove inflation, and so the fault is on government spending as opposed to potentially looking at how firms collude and drive prices up or even price stakes.

Matt Stoller

Yeah, so this is a good question. The CARES Act, for people that don’t know, was the bill that Congress passed right when the pandemic hit to try to deal with the fact that we were experiencing an economic collapse. So this was the checks that people got, increased unemployment loans to small businesses, and then a bailout for Wall Street. Those were paid in some [inaudible 00:24:34]. That was basically the package.

So one of the things that a consolidated economy does is it reduces the amount of spare capacity that we have. When you have five companies in a market, and each of them has a bunch of factories, you have a certain amount of capacity in the market. If they consolidate into, say, two companies, those companies, what they want to do is lower output and raise prices. That’s generally what monopolies often do. They’ll take factories, and they’ll shut them down, or they’ll take factories, and they’ll offshore them to China. That’s been the other sort of strategy.

Now, you can see this with railroads, for example. We only have, I think, seven class-one railroads. We used to have dozens of class-one railroads. They have been shutting down routes. They’ve been laying off workers for a long time. We saw this with the strike. But this has been a problem, or this has been a dynamic where the railroads are like, “we want to be more profitable, so we’re going to take capacity offline.” It’s true for the shipping industry. It’s true for a lot of different industries, semiconductors.

Now, what happens when you get rid of slack? Well, you’re not ready for a shock to the system. All of a sudden, if you have an economy full of bottlenecks, which is what a monopoly is, it’s basically a bottleneck; then when you have a shock to the system, the shock is going to be accelerated by the bottlenecks that people have. The monopolist, when they see, “oh, my gosh, everyone needs what I have,” all of a sudden, “I’m going to raise my prices a lot; that’s what I get to do.” Versus if there’s a competitive market where you have a number of firms that are selling something, they’ll raise their prices because there’s a lot of demand, but not as much. Then they’ll also invest in more capacity so that they can meet the demand. That’s what you didn’t really see when COVID hit, all of a sudden, there was all this pricing power that consolidated firms had, and so they exploited it. You also had a lot less slack in the economy, so you couldn’t just produce more because those factories had been shuttered.

Then the CARES Act, because it had a bailout for Wall Street, it did facilitate a lot more mergers, and so there was more consolidation as a result of the policy of the CARES Act to address COVID. I think what it did is it didn’t just, I think, accelerated inflation. Inflation happened because of COVID. You shut the economy down, and you turn it back on, you’re just going to have problems. When we demobilized from World War I or from World War II, you had significant inflation, and that’s just because everything was out of whack and transitioning back to a peacetime economy. You’re going to have– pricing signals are going to go kerflooey, and that’s a little bit of what happened with COVID. The reason it got much worse than it had to be is because we had that consolidated economy. I think that answers the question.

Talia Baroncelli

Yeah, it does. Also, looking at the Fed, are you supportive of such large increases in interest rates, or do you think that they’ve been vastly ineffective?

Matt Stoller

I’m kind of unusual for a progressive. In that, I do think that the Fed should be tightening monetary conditions. There’s this view that goes back– you can see it– like we’ve had zero. So the Federal Reserve, I look at it, there’s something called the Cantillon effect. The Cantillon effect comes from this 18th-century economist who basically said that the closer you are– the king controls monetary policy. Essentially, the king controls the gold in an economy. If there’s a gold mine that’s discovered, the people that are closer to the gold mine or that are friends with the king are going to get access to the gold first. They’re going to be able to use that money to buy up assets before that gold gets to everyone else. Then eventually, when it gets to everyone else, there’ll be inflation and whatnot. But essentially, it was an argument about monetary policy, and it was saying the closer you are to the institutional creators of money, the more power you have. That can be changed. You can build institutions that move money to everyone equally, but the idea is money is not neutral. We had that. We had a lot of facilities to allow more small business lending and lending to ordinary people. Those are kind of atrophied.

So today, the Federal Reserve, which would be, I guess, the gold mine right in the center of the economy, when it prints money, the people that get it first are on Wall Street. So a lot of liberals or lefties think, well, the Fed should kind of keep interest rates low because this will help ordinary people. But in fact, when the Fed keeps interest rates low, they’re not keeping interest rates low for you or me. I mean, I don’t know if you’ve noticed, but it’s not like my credit card interest rates have gone down since the Fed lowered rates in 2010.

Talia Baroncelli

I’m in Germany, so it’s a totally different regulatory space.

Matt Stoller

Right, well, I can just say that they haven’t. The credit card interest rates, interest rates on Wall Street were 0%, and the credit card interest rates were 20%. Credit cards were a result of market power, not the Fed lowering or raising it. The point is that Wall Street gets a certain number of interest rates. Wall Street has an interest rate, and then ordinary people have an interest rate. I think we shouldn’t confuse the two of them.

Now, the problem with low-interest rates for Wall Street when the Fed keeps interest rates low is that Wall Street takes that money and then uses it to engage in mergers and shut down factories and stuff like that. It doesn’t reach the real economy. It doesn’t reach ordinary people. What’s happened since the Fed started raising interest rates is you’ve seen a lot of the scams that Wall Street has been pursuing have fallen apart.

Crypto is a good example. Crypto is just a bunch of crime and bullshit. Since the Fed started to tighten financial conditions, it’s all fallen apart. And that’s a good thing. Private equity firms are having trouble raising money. There are all sorts of Ponzi schemes in the economy that are falling apart. I actually think it’s a good thing that the Fed is tightening financial conditions because I think there was too much easy money. It wasn’t flowing to normal people to borrow things and build factories, not that normal people build factories, but it wasn’t flowing to normal people to take out loans for what they wanted to do. It was flowing to powerful people that were using it for stock buybacks, mergers, acquisitions, executive compensation, and stuff like that. That’s all just a bunch of– that’s not a useful investment.

Talia Baroncelli

There’s also another thing that the Fed has been doing, and I don’t quite understand it, but I guess it’s called normalization. So when you sort of shrink your balance sheet and roll off the assets that you own. How does that affect the housing market? Does that in any way address some of the barriers that people have in trying to buy a house in the U.S., or what is independent of that?

Matt Stoller

The Fed was basically directly lending money to people to buy houses. That is one way to put it. There are complicated ways of talking about it. They were saying, “we’re going to give money to the banks that are lending money to people to buy houses.” They gave trillions of dollars to do that. So what happened? People bought a lot of houses, and housing prices skyrocketed. They went up by 40% during the pandemic, which is crazy. It’s just way too much and makes it unaffordable to buy a house.

What the Fed has done since then is they’ve started saying, “okay, we’re not going to lend money to people to buy houses. In fact, we’re going to start to take some of that money back.” The result is that it’s much more expensive to buy a house if you’re a buyer. Housing prices have started to come down a little bit. There’s still a giant affordability crisis, but the bubble itself in housing has declined a little bit.

Talia Baroncelli

Okay, and maybe we can quickly talk about crypto because I feel like this is the sort of Emperor’s New Clothesmoment where the whole thing is being exposed as something that’s not as innovative as people thought it would be. Yeah, maybe just lay out what SBF [Sam Bankman-Fried] and FTX are. It’s a crypto exchange, but why is this scam and all the frauds that SBF was engaging in with his other company Alameda, why is this such a big deal, and what will this lead to?

Matt Stoller

Well, let’s just start with crypto because I think people like to look at Sam Bankman-Fried and FTX and think that it’s some sort of isolated incident. A lot of people in crypto are like, “oh, that’s not us. That’s just the bad guy of crypto.” We got to start with the premise. Crypto is bullshit. It’s just a series of get-rich-quick schemes, fraud, and money laundering. It’s not a technologically innovative thing.

People hear about this thing called the blockchain. The blockchain is just a different way to have a spreadsheet. That’s all it is. It’s like an Excel spreadsheet, except done in a slightly different way. All cryptocurrency is, is one of these spreadsheets. You put markings in it, and you call it whatever you want to call it– Ethereum or Solana. You just say, “alright, you have five Solana, according to the spreadsheet.” The spreadsheet is called Solana. “I have three Solana, and I’m going to trade with you.” It’s got some attributes of private money, but that’s all it is. It’s just markings in a spreadsheet. It’s valuable insofar as people are willing to buy it. If you and I both think Solana has value, then I guess it has some value temporarily.

It’s very much like in the 1920s, there was a Florida real estate bubble, and people in New York were trading lots of land in Florida. As it turns out, some of these lots of land didn’t exist. They were in cities that didn’t exist. So does that mean that those lots of land have no value? Well, in a sense, yes. But also, as people are trading them, they’re worth what people are paying, even though it’s bullshit. This is a term called the ‘bezzle’ that John Kenneth Galbraith coined, which is fraudulent stuff has value as long as the bubble keeps going, but once the bubble pops, it no longer has value. That’s what crypto is.

Crypto has no use cases except gambling, money laundering, and fraud. You can frame money laundering in a nice way if you want. You can say this lets us move money outside the purview of the authoritarian regimes, or this gives us financial privacy, but it’s just money laundering. So, of course, it attracts criminals. FTX and Sam Bankman-Fried are just criminals that were stealing their customers’ money and using sham transactions to disguise the fact that they were stealing from people who were mostly engaged in an attempt to take advantage of get-rich-quick schemes. It’s kind of hard to be super sympathetic to the people whose money they stole. But that’s what was going on.

There are a whole series of interlinked institutions that are just as fraudulent as FTX, some of which collapsed. Some Ponzi schemes collapsed six months ago, three months ago, or a month ago. More of them are going to collapse in a month or two or three, but it’s all going to collapse because there’s no point. It’s high finance without purpose. Of course, it’s just full of criminals and money launderers, and Sam Bankman-Fried is just one more.

Talia Baroncelli

Right. But some people would say that we could potentially regulate it as security by the SEC, the Security Exchange Committee, or as a commodity by the CFTC [Commodity Futures Trading Commission]. In Europe, for example, one of the board members at the ECB [European Central Bank], Fabio Panetta, yesterday, was just saying that we need to regulate crypto internationally but also get rid of energy-intensive crypto. The Europeans seem to be very focused on regulating. I think your opinion is that we should just let it crash and burn, right?

Matt Stoller

Yeah. Look, there’s this annoying coded language where people say, “oh, we need to regulate crypto.” You can regulate crypto by allowing people to gamble and do stupid things, or you can regulate crypto by saying you have to have disclosure regimes and consumer protections and effectively make it not economical to have. So that’s what the Securities and Exchange Commission wants to do, is regulate crypto. If you regulated crypto and make them basically what a coin is, essentially, it’s like a stock, only there’s no point. Imagine if you owned a share of IBM [International Business Machines Corporation], but there was no business there. There’s no business behind it. That’s what it is. If you have to disclose things and have some consumer protection rules in place, then it’s not worth it to have that gambling instrument. It’s costly, and there’s no point behind it. So I think that’s the way to regulate it and get rid of it.

I’ll say that European regulators are generally weak, and it’s more like they’re weak and they’re losers. My experience with the U.S. is that the regulatory scheme, sometimes you have people that are doing really useful things. Gary Gensler [Chairperson, U.S. Securities and Exchange Commission] was doing really useful things at the SEC, but it’s pretty corrupt. We’re sort of upfront about how corrupt it is. In Europe, it’s just a bunch of loser technocrats that are always pretending they’re trying to do something, but they aren’t because Europe is fundamentally, the EU is fundamentally a dysfunctional structure that can’t actually do anything well.

Talia Baroncelli

It lacks democratic channels. One of the issues is that because it’s a supernational entity, it represents so many nation-states, and it’s difficult to harmonize in certain areas.

Matt Stoller

You need consensus among 27 states, and then the bureaucrats who live in Brussels all kind of secretly have contempt for democracy and are all really passive-aggressive and don’t actually like to do anything. This is why they’ve had press releases for ten years about how they’re cracking down on Google. Google seems pretty powerful to me. In the U.S., we’re just like, “yeah, everyone’s paid off by Google,” and in Europe, they’re like, “we’ve been cracking down.” Do you want the passive-aggressive version or not? Personally, I don’t like the passive-aggressive version.

Talia Baroncelli

Yeah, it’s this weird thing of trying to get a consensus without actually really doing anything and having different regulatory frameworks. I do agree that there’s this tendency to just valorize technocratic thinking and to just trust the elites without actually questioning what they’re doing and to have some sort of democratic accountability. We saw this with the Greek bailouts.

Matt Stoller

Yeah, that was a fucking disaster. The other thing is they love to whine about the U.S. The U.S.–

Talia Baroncelli

Well, I love to whine about the U.S. too, but for different reasons.

Matt Stoller

Yeah, but they hate the U.S. for the wrong reasons. There are a lot of criticisms of America that make a lot of sense. But the European bureaucrats dislike the U.S. They whine about the U.S. for the wrong reasons. They are basically mad at the U.S. for giving them free defense and access to American markets. They’re just upset because they don’t want to do anything, and they want someone to blame. It’s very much like they have this childlike frustration with their parents. They look at the U.S. as their parents and they don’t want to admit that they don’t actually spend any money on defense or have the ability to do anything geopolitically.

Talia Baroncelli

They’re barely meeting their 2% commitments to NATO, and yet they want the U.S. to bankroll them and basically give them all the weapons that they need.

Matt Stoller

That’s right. The U.S. just passed a bill to manufacture electric vehicles here. Then Europe is like, “this is discriminating against European companies, and it’s really protectionist, and how dare you. And we’re the bulwark of free trade.” And it’s like, that’s just total bullshit. Europe is super protectionist. To export a car from the U.S. to Europe, it’s a 10% tariff. To export a car from Europe to the U.S., it’s a 2.5% tariff. I’m not a free trader. I don’t care. I’m just sort of like, build your own shit.

Talia Baroncelli

Yeah, exactly. Wasn’t that also a remnant of the whole Washington consensus, this push for deregulation and for privatization? And it’s like, okay, we’re going to ensure that in other countries that maybe are less powerful in the global south, that they won’t be able to implement their own protectionist frameworks or to enforce subsidies because the EU doesn’t want that and the U.S. doesn’t want that. If you look at the EU, they have some of the largest subsidies when it comes to agriculture and other areas. So it is hugely hypocritical that certain countries are expected to not have protectionist measures, and then other countries can go ahead and do this.

Matt Stoller

I agree with that. You also look at the U.S. with the vaccines. The U.S., actually, for the first time, said, “oh, we should share the IP with the rest of the world.” And it was like, where were the bad guys being like, “no, we got to do what Pharma wants.” It was Germany. Germany was the lead in trying to block that and successfully blocked the ability.

Talia Baroncelli

Bill Gates also didn’t want some of–

Matt Stoller

Yeah, but Bill Gates doesn’t get a vote, formally.

Talia Baroncelli

But he was supporting COVAX, and COVAX had a very specific mandate and intention to basically give money to other countries but to not share the technology with them for them to develop their own vaccine.

Matt Stoller

That’s right. I think that’s correct that the general European approach and I think the U.S. approach– the neoliberal approach in the U.S. In the 1990s was really destructive and was basically saying to smaller countries and weaker countries, “do what we want, and we’re going to do what we want and fuck you.” That was sort of the attitude, and it was really destructive. The U.S. is moving away from that framework. It’s still in transition, but Europe is kind of the last holdout.

Talia Baroncelli

The last neoliberals.

Matt Stoller

I think you can see that. What?

Talia Baroncelli

The last neoliberals. They don’t want to give up. It is ironic being here sometimes because they do have this contempt for the U.S. They really support these transatlantic relationships, but they seem to focus on the wrong thing. So, for example, when Joe Biden came to power, they’re like, “oh, now we have this amazing transatlantic relationship again.” They didn’t seem to identify how Trump wasn’t really an anomaly. Just because he was not super supportive of those relationships, he wasn’t this anomaly, the only bad guy. I mean, there are certain trends in American hegemony that was taking place prior to that, and they seem to fixate on the wrong things and amplify it.

Matt Stoller

Yeah, they’re obsessed with manners. That’s what it was.

Talia Baroncelli

Right. Who cares that we have a better transatlantic relationship now? What does that even mean? You can go back to other U.S. administrations and look at the–

Matt Stoller

Well, I mean, I think you can see, like, it’s most obvious when it comes to China. The Germans are basically cool with fascism. They’re cool with fascism again, which happens in Germany. Chinese fascism is totally fine to the German auto industry. They’re a-okay with that. Basically, German politics is don’t disrupt an older German man’s pleasant vacation. If you do that, they will murder an endless number of people to make sure that their vacation is pleasant. That was Angela Merkel’s policy framework. It’s sociopathic. The Germans have been engaged– they got cheap stuff from China, cheap gas from Russia, and free defense from the U.S. They’re just a giant free rider, and they just crushed Greece.

Talia Baroncelli

They basically crushed Greece so that Greece could pay back German and French banks for all the easy money that they received. Then they framed it as this crisis of a sovereign debt crisis.

Matt Stoller

The lazy Greeks.

Talia Baroncelli

Yeah, those lazy Greeks.

Matt Stoller

There was a weird racist component, too, that was hilarious.

Talia Baroncelli

Yeah, Wolfgang Schäuble, who was the Finance Minister at the time, he was just such a freak. He really got off on demonizing the Greeks. It was the weirdest thing to witness at the time.

Matt Stoller

Yeah, I went over to Germany at a certain point, and I think I got into a shouting match with the mayor of some town over it. I was like, “you’re fucking over the Greeks.” He was like, “the German foreign policy is to be seen as the nice country.” And I’m like, “you’re not nice. You’re fucking over the Greeks.” He’s like, “oh, that’s more complicated.” I always get into shouting matches with Germany and always get to the point where I’m like, “you were the Nazis. You’re not the Nazis anymore, but you don’t get credit. You don’t get credit for not being Nazis anymore.” They want credit for, like, “well, we know how to deal with Nazis.” It’s like, no, you don’t.

Talia Baroncelli

No. It’s a huge problem in Germany now because a lot of times, they tend to conflate critique of the Israeli government, like antizionism, as being antisemitic, which is obviously not the case. They don’t seem to realize that they’re funding certain military companies that are involved–

Matt Stoller

The whole Israel thing is– the politics there are kind of hilarious. I don’t want to get into Israel too much, but one of the most successful anti-monopoly movements in the world was in Israel in 2011, which is its own kind of interesting thing.

Talia Baroncelli

Yeah, well, thanks for joining us. It would be great to have you on again, and thanks a lot, Matt.

Matt Stoller

Alright, thanks so much. Talk to you later.

Talia Baroncelli

Take care. Bye.