President Obama is taking a harsher stance on antitrust and monopoly than President Bush did. According to a New York Times story, the president will “take a more active approach than his predecessor in scrutinizing deals that could hurt consumers.”

Hurting consumers presumably involves restricting output and raising prices, as antitrust theory goes. Preventing that sounds heroic, like being the champion of the people, but the reality is that antitrust actions have a much better record of protecting inefficient companies at the expense of more efficient competitors and consumers. It is a fact that most antitrust actions have been brought about not on behalf of customers but, rather, on behalf of competitors. Many businesses support antitrust laws because they serve to cripple and break up their more effective competitors. The Microsoft antitrust case was concocted in a secret meeting between competitor Netscape, their state’s Senator and justice department representatives. It wasn’t about customers, but about using political power to deal with competition. The late Yale Brozen from the University of Chicago concluded that antitrust was almost always anticompetitive.

Think for yourself what your boss would say to you if you worked for an auto manufacture and said “I’ve got a great idea. Let’s use predatory pricing and drive our competitors out of business. We will sell each car at a loss and lose billions of dollars a year, but in 5 or 10 years we could capture the entire market and then charge double the price we charge now to make up for the losses.” Before your boss signed your pink slip, he would probably remind you that, once you raised the prices, the door would be open for competitors again and the losses would never be made up.

All of this is not to say that monopolies or cartels don’t or haven’t existed. Of course they have, but if you look at the record, those that have remained for any length of time are either government operated or private organizations that are protected from competition by the government. AT&T was the sole long distance provider for many decades, not because it had any special technological advantage or operational efficiency. It was only because all competitors were excluded by law. You will find that to be the general case for any monopoly or cartel.

You will also find that the sectors of the economy that are in the worst shape are those dominated by government cartels. The banking system is one of the largest cartels, with the United States system dominated by the Federal Reserve Bank. The financial meltdown, not surprisingly, rests on the manipulations by the cartel of the money supply and interest rates. The educational monopoly is failing the millions of students growing up in America. The science monopoly is producing dangerous and damaging politically motivated pseudo-science. And on and on.

The whole antitrust-monopoly industry, a multi billion dollar a year lawyer enrichment program, is based on entirely false premises. The idea that anti-competitive behavior consists in doing things that make it difficult for your competitors is an absurdity. That is what competition is. You become more efficient to get more customers. That includes economies of scale. The very things that bring prices down and increase production in a free market economy are precisely those things that are considered anti-competitive. The government should actually be congratulating those businesses that have low unit costs and efficient processes, and thus are able to offer customers lower prices.

Economist Dominick Armentano conducted a study of the most famous antitrust cases and published the work in the book “Antitrust and Monopoly: Anatomy of a Policy Failure. It details the cases and highlights the lack of evidence of consumer injury. The conclusion was that the entire antitrust system has worked “to lessen business competition, and lessen the efficiency and productivity associated with the free market process.”

In his book “How Capitalism Saved America”, Professor Thomas DiLorenzo described the state of the sectors that were the most subject to early 1900’s antitrust hysteria: “Those industries targeted as “monopolies” grew seven times faster than the rate of the economy as a whole.” Prices decreased significantly faster than in the rest of the economy. States legislation was actually passed to suppress “unhealthy competition”, by which they meant low prices.

The late 1800’s and early 1900’s was the heyday of anti-monopoly sentiment. Big businesses were definitely formidable organizations. Standard oil controlled 88% of the infant oil industry in 1890. By the time the Supreme Court reaffirmed the ruling that Standard Oil was a monopoly in 1911, its market share had dropped to 64%. By 1911, there were 147 oil companies. Costs were continuously declining and prices dropped to a fraction of what they were a couple of decades earlier. Output was increasing, not just for Standard, but for most of growing number of producers. The core justifications for antitrust were false.

The epitome of antitrust irrationality was the 58,000 page Alcoa decision. It concluded that Alcoa’s skill, foresight and industry were exclusionary. It forestalled competition by stimulating demand and then supplying it. Judge Learned Hand opined that “…we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connection and the elite of personnel.” Quite obviously, if they faced each opportunity with new capacity, they were not restricting supply in the least. Others could not compete because Alcoa was so efficient and prices were so low. To antitrust lawyers and judges, up always seems to be down. Very smart people can say and do very dumb things.

Obama has apparently surrounded himself with very smart people. Unfortunately for the citizens of the United States, the smarter they are, the more arrogant the approach seems to be, and the dumber the things they do. Larry Summers, chief economic advisor to the president, intends to use “behavioral economics” in antitrust cases, the use of psychology to determine how “real people” should act. This opens new avenues of attack, and will possibly add billions of dollars to the tabs of taxpayers and to the customers who have to pay for the defense and the increased prices due to crippled competitiveness of the top producers.

I am sure Mr. Summers and his bureaucratic colleagues are sincere, and may even think they are doing the right thing. Being smart and powerful, however, doesn’t make you right, and it doesn’t make sense out of nonsense.