(Bloomberg Opinion) — Brian Deese is director of the National Economic Council at the White House, essentially the chief economic adviser to President Joe Biden. Previously he was the global head of sustainable investing at BlackRock, and he was President Barack Obama’s senior adviser for climate and energy policy. Barry Ritholtz spoke to Deese for the Masters in Business podcast; below is an edited transcript of their discussion.
Barry Ritholtz: You are the 13th director of the National Economic Council. I think most people are more familiar with the Council of Economic Advisers. Tell us a little bit about this group, what it does and how it differs from the CEA.
Brian Deese: So the National Economic Council was created by executive order in the early 1990s with the goal of having a White House entity that could coordinate economic policy on behalf of the president. If you go back and you read the executive order that was created in the early 1990s, it holds pretty true today. So what does that mean? Number one, have an effective way to coordinate and aggregate the views of all of the key economic policy principals — the secretary of the Treasury, the chair of the Council of Economic Advisers, our Commerce secretary, our Labor secretary and down the line. Create a common table around which we can debate and discuss and provide the president clear policy recommendations and clear economic advice, and at the same time have a coordinated way to take the direction from the president. The Council of Economic Advisers is designed as mostly an internal think tank of economists and experts, many of whom come out of academia and spend one or two years at the council and provide an analytical base and economic base to think through issues. The National Economic Council is really designed to coordinate bringing those views to the table, but also connecting them to the legislative and political realities that we’re operating in to try to get the best outcomes possible in service of the president’s goals.
BR: Your boss just signed an executive order to “promote competition in the American economy.” We’ve kind of become used to the sort of one-pager photo ops for executive orders, but that was not what this was. It’s a 7,000-word, 72-bullet-point document and it’s a very serious policy initiative.
BD: It’s based on a kind of very simple but important intuition, which is that having fair and open competition is a fundamental ingredient of a healthy capitalist economy. It’s what actually drives better outcomes, lower prices, higher wages, more innovation, more economic growth. And so the core goal of this executive order is to reset across the entire executive branch a focus on where and in what ways can we encourage healthy competition in service of achieving those outcomes. What we’ve seen across time is that our economy has gotten less competitive. We have a larger number of our industries that are now more concentrated than they were 20 or 30 years ago.
We’ve seen the rate of new business formation, particularly small-business formation, fall by almost 50% since the 1970s. And if you look across industries, whether it’s meatpacking or in broadband internet, consumers’ choices have been constrained. And we haven’t seen the kind of follow-through benefit that at least has been argued by folks who say more consolidation will actually generate lower prices for consumers. In fact, if you aggregate up the impact of consolidation to an American household in terms of prices and wages and other attendant costs, the best estimates are that it’s costing about $5,000 a year. So the goal of this executive order is to say, “How can we start to get at that?” And fundamentally, this is not about being pro-business or any type of business; this is about being pro-competition.
BR: That’s a shocking number. The lack of competition caused by industry consolidation and concentration costs the average American family $5,000 a year. That’s a giant number.
BD: Embedded in that is a big opportunity, because if we can actually break down some of those barriers and we can encourage better competition, what that means is that we have a way of actually boosting economic outcomes for the typical family in a significant way. That sounds pretty esoteric, but you break it down into very practical things. Something like hearing aids: Today, you need to get a prescription. You can’t buy hearing aids over the counter. There’s almost 50 million people in the country who have some form of hearing loss. And that requirement operates as, economists would say, a barrier to entry. What that means is that it just costs a lot more. It’s also a hassle. One of the things that this executive order directs is to implement a rule to allow hearing aids to be bought over the counter. That’s going to make it easier for those 50 million people to get hearing aids more cheaply, but we also hope it’ll spur innovation by reducing that barrier to entry. Now, new companies, new market entrants can come in and innovate in providing hearing aid products at a lower price point. If you think about how that $5,000 aggregates, that’s one very practical example, but hits a lot of people in their daily life.
BR: Part of this executive order is the formation of the president’s council on competitiveness, beginning with the council membership. It’s the secretary of Treasury, the secretary of defense, the attorney general, chair of the Federal Trade Commission, chair of the Consumer Financial Protection Board, Federal Communications Commission, Agriculture, Commerce, on and on. Why so broad a membership? What’s the thinking behind that?
BD: What we have done is we’ve run a process of going out to agencies and understanding from the agencies where their authority exists in terms of competition, policy or antitrust, and how they think it could be better deployed in service of encouraging competition that’ll be good for consumers and families. Oftentimes this conversation starts and centers around the core antitrust statutes and the core antitrust enforcement agencies, the Department of Justice and the FTC. Their role is critical and they operate independently when it comes to enforcement matters. But, in fact, the actual tools and authorities are much broader.
What we realized in putting this executive work together is that the actual coordination across these different parts of our government is really important for two reasons. One, because it’s important for the agencies to understand how, when they are taking action to encourage competition in a particular segment of the market, how does that fit into a broader economic strategy to encourage competition in the railroad industry or in the shipping industry? And the second is to make sure that we are effectively coordinating and not getting at cross-purposes. So if one agency is moving out in a certain way, how to make sure that it’s consistent and that businesses and other stakeholders that are actually having to operate within these rules of the road have as clear as possible guidance from the executive branch on what our policies and what our intentions are.
BR: You’re also the chairperson of the new council. How big of a job is this going to be relative to your role as director of the National Economic Council? How large of a priority is this, and what do you hope to accomplish with it?
BD: Our focus on this council and my role in trying to lead and coordinate that will be a big piece of business. But we’re really excited about being out of the gate early and aggressively here. What you’re going to see hopefully is that for a lot of end recipients, typical families, businesses, this is going to be a real welcome opportunity, because whether you’re a small family farmer who has been struggling under the sense that costs keep going up, and your choices are going down, because you keep seeing consolidation in a market, or you’re just somebody who is looking for the best job possible and realizing that there are restrictions on moving from job to job that you didn’t even know existed. These are the kinds of things that can help people in their daily lives. But if we’re going to get to helping at that end point, we really gotta be organized and coordinated as a federal government.
BR: Your White House colleague Tim Wu, along with a bunch of others, published a large research paper back in November, right after the election, and their analysis identified that pretty much since the Microsoft antitrust case in the 1990s, the U.S. has kind of given up on antitrust enforcement. And the result has been huge industry consolidation, reduction of competition, increased pricing power and higher costs to consumers. What happened to antitrust enforcement in the United States?
BD: If you look at the arc of competition policy in antitrust enforcement in the U.S., you do see ebbs and flows going back as far as the passage of the Sherman Antitrust Act in the 1890s. That was a reaction to both the political corruption but also the sort of behavior of monopolies in the Gilded Age and laid the groundwork for, of course, President Teddy Roosevelt becoming famous in trust-busting, and the activities in the early 1900s. Then you saw another acceleration in the 1930s on the back end of the First World War, and then coming out of the Second World War with FDR reflecting that as well. You then saw a different approach that emerged in the 1970s and a new school of thought that was very narrowing of the view of competition policy.
That led to a multi-decade approach of limiting enforcement of antitrust, and a view that, kind of all things equal, letting consolidation occur would generate economic benefits. Therefore at the margin, we should be sort of accommodating of consolidation unless it was radically clear that it was bad for consumers or bad for prices. We’ve seen the implications of that. To your point, we’ve seen over the last couple of decades, the number of annual mergers has increased by five- or sixfold. And we have seen in 75% of industries, the measure of industry consolidation has increased significantly over the last 20 years. We haven’t seen the attendant benefit in terms of lower prices or more innovation in the economy. Over the last five years or so, there’s been a growing body of economic research to try to identify the harms that have come from this consolidation. So certainly the executive order here and the actions and the work that is embedded here is really building on that framework and building on the findings that have come out over that.
BR: Tim Wu describes how eventually these information systems, they become consolidated, they become closed and less and less competitive until some disruptive innovation comes along. And my sense is this council is trying to encourage less of that concentration and more of the disruptive innovation.
BD: One of the key objectives of this council is to try to get toward how we can encourage that type of innovation. Some of the things we’re talking about here are really about getting rid of regulations that stand in the way of that kind of innovation. One of the examples that’s in the executive order is around the alcohol market. You’ve got some incumbent rules on bottle size and bottle labeling that when you really unpack them and say, “Why is it that to operate in a market, you have to meet certain bottle-size requirements?” Because maybe you’ve got an idea to bring a product to market that just looks different, and that’s going to be your branding edge. Well, when you unpack and look at the reason why those regulations exist, some of them are because they’re just protecting incumbents. [It’s] similar to a number of these occupational licensing requirements to do all manner of jobs. Having licensing requirements for jobs where there are safety or other things involved obviously make a lot of sense, but in a lot of cases, when you unpack it, rules like that have been put in place to favor incumbents and make it harder for new entrants to get into the market. We think there’s real opportunity both to be disruptive in terms of the economic side, but also disruptive in terms of some of the embedded political realities of this.
BR: There has been a deeply embedded sort of laissez-faire doctrine at both the Department of Justice and the FTC. Obviously Lina Khan and Merrick Garland represent a break from that philosophy. But how do you turn around two decades of — I was going to say lax enforcement, but it’s really a skepticism about antitrust law. How do you reverse that?
BD: I think you start by doing what we did in the executive order, which is to articulate that it is the policy of the executive branch to vigorously enforce our antitrust laws. And more than that to enforce them in the context of an economic policy that views increasing competition as a key way of improving lives and economic outcomes for the American people.
One important step is to articulate clearly the policy of the government. The second, I do want to be clear, is that the actual enforcement, appropriately and necessarily, operates independently — independently of the Department of Justice and the FTC — but I think getting high-quality personnel that will do that effectively is an important step. Ultimately the antitrust doctrine gets developed in the context of the judicial branch and challenges to decisions. We’ve seen that obviously over the course of decades as well, so there are also some places where we may need to change the law. We may need to clarify or strengthen the antitrust authorities. There’s bipartisan work in Congress that’s going on on that front right now, particularly as it relates to the tech industry. That’s something that we are engaged on as well, but we feel quite good about the fact that even within the existing authorities that we have across the federal government, we can make a lot of progress.
BR: I recall a couple of years ago a bunch of reports surfaced about various tech companies — Google, Apple, Facebook — that had these anti-poaching agreements. They wouldn’t hire each other’s senior personnel, obviously illegal and restrictive convenants amongst them, but less obvious are some of the basic restrictive contracts: non-competes, non-disclosures, other onerous clauses that are common in Silicon Valley but have spread out to the rest of the country. What can this council do to allow greater competition for those sort of employees who want to switch jobs?
BD: This is an incredibly important issue. Our labor market will work more effectively when workers are competing for jobs, but also employers are competing for workers. And when we have fewer frictions and better matching between workers and the jobs that they will be most successful in, we get better outcomes overall. This executive order and the work for the council, we’re going to go at three of those. The first is what you refer to as non-compete agreements. Today about 1 in 3 employers require that an employee will sign a non-compete agreement. So you’re talking about 60 million people in the workforce. And it’s not just, as you say, in Silicon Valley, and it’s not just in those circumstances where there’s an obvious or clear competitive reason why you need it. Clearly non-competes operate as a legitimate tool, but when you get to 60 million people and 1 of 3 employers, this goes much broader — construction workers, hotel workers, restaurant and hospitality, fast food, and also low-wage jobs, entry-level jobs, not just more senior jobs where you have access to more sensitive information. The executive order is for a pretty basic principle that if you’re operating in those sectors and someone offers you a better job, you should be able to take it. And if your existing employer wants you to stay, they should compete for your talent. So the order is directing the FTC to look at either modifying or banning non-compete clauses.
The second is about the licenses required to operate in a job. About 30% of jobs in the U.S. also require a license. That spans the horizon, obviously. You need a pilot’s license to operate an aircraft, but you also need a license to be an accountant, an interior decorator, a hairdresser, and importantly, 1 in 3 today need that. That was 5% in the 1950s. This order goes at saying, in those cases where unnecessary licensing is actually reducing mobility, that we should put limits or restrictions on them. At one point I would highlight some people really need to be mobile. It’s part of how our economy works. Take military families, for example. You have to move every couple of years in order to do your job. Well, if one member of a partnership is in the military and moving, the other person works in a job where state by state, you have different licensing requirements. Every time they move, that could be three, six months of friction in terms of getting into the labor market and finding a job.
The last thing we’re focused on here is about wage data. One of the things that is true today is that employers can share detailed wage data between employers without having to share it to employees. If employers can share wage data without sharing it to employees, then it makes it easier for them to either explicitly collude or just implicitly reduce competition and not have to compete as vigorously on wages. You could end up putting downward pressure on wages. So in all three of those areas, we think we can make some progress by either eliminating or restricting non-competes, licensing, wage data sharing. That’s our real focus in the labor market.
BR: Increasing mobility would be great if states had reciprocity on various licensing. But a lot of these non-competes and a lot of these employee contracts are governed by state law. What is the authority for the FTC or the federal government to come in and say, “Hey, this very weak permissive state statute, allowing these restrictive employee agreements, is going to be bypassed by the federal government.” From whence does that authority come?
BD: In a lot of these cases these are employer contracts, or they are employer agreements. And even in cases where states have authorities, the employers are making contracts where there is a federal nexus, and that extends to FTC authorities to limit or ban anti-competitive practices. So the FTC does have pretty broad authority in these areas, even in cases where a state rule or a state requirement comes into play. We’re going to do what we can at the federal level. One of the things we will be doing is reaching out and engaging with state and municipal actors as well. Where the ultimate authority actually is not a federal authority, we also have a certain ability to convene and use the bully pulpit to encourage action.
BR: Many people may not be aware that the United States has a much higher real estate transaction commission than many other countries. The prior administration had cut a bit of a sweetheart deal with the National Association of Realtors. This administration put the NAR on notice that that deal was off the table, and you want to do something about how they’re maintaining high real estate prices.
BD: It’s a very similar dynamic, but again, operating in a different industry, can we bring more transparency? And can we also bring more competition into a market with the goal of trying to ultimately identify what’s good for the end consumer? The real question at issue here is whether the sort of structure of commissions is going to advance competition, encourage more competition with better outcomes for consumers. If you have high commissions and uniform commissions, is that the result of a competitive outcome, or is that the result of lack of competition? Ultimately the Department of Justice will independently navigate that consistent with our enforcement role.
BR: One of the things that I was shocked by in the executive order, and surprised to learn, very often landlords of rental buildings or even condos sell exclusive rights to the building to a cable company, meaning no competition between fiber optic, cable, satellite for customers. I had no idea this existed. I can’t imagine it’s legal. It has to be anti-competitive and make things so much more expensive for consumers.
BD: It goes to a broader issue, which is: How do we actually achieve the goal of affordable high-speed internet access for all Americans? Part of getting there is actually not only creating access — 30% of people in rural America live in a jurisdiction where there isn’t even access to high-speed internet — but also creating competition where the fiber has been laid and the access is there, but it’s unaffordable, and unaffordable in part because there isn’t sufficient competition. A really strikingly high share of Americans live in jurisdictions where there is only one reliable broadband provider. Many people live in circumstances where they are themselves restricted to only accessing one internet provider.
It’s not as well-known, but in some cases you have these landlord/provider agreements, where just by dint of deciding to live in a particular building, you do then lose access to a competitive market for broadband services. The opportunity here is to say, If we can create more competition, this is a place where ultimately consumers will end up with more options. And that can drive lower prices and better outcomes as well.
High-speed internet today is like electricity was a hundred years ago. It is the power by which you interact with the 21st-century economy. And if you don’t have access to high-speed internet, you really can’t be a full participant in the nation’s economy today. And we need to make sure that everybody has that access. Some of that is about building out more fiber and building out more actual access, but encouraging healthy competition in this sector is a big part of it as well.
BR: Something else I found in the executive order that I never heard of, and kind of blew my mind: pay-for-delay. Big Pharma paying generic drug companies to not make cheaper generics. How on earth could that be allowed?
BD: There is a legitimate issue here about the upfront investment needed to innovate and identify the innovations that go into prescription drugs and making sure that companies can recoup those, but there’s a lot of elements of how that market operates that go well beyond that, and actually end up just driving up the prices for consumers. One of them is one of the strategies that manufacturers have used in the past: If you were the brand-name drug manufacturer, you encouraged generic manufacturers to stay out of the market by providing them incentive payments.
There’s two negative impacts to the economy. One is less innovation but the other is higher prices for end consumers. And we see in the evidence of these pay-for-delay schemes that it produces both of those outcomes — less innovation and higher prices. That’s the kind of thing that we want to work to try to reduce or eliminate, and also just encourage more competition in the market for generics as well. Another element that the executive order directs is for the FDA to work with states to allow them to import prescription drugs from Canada consistent with safety standards. This is something that a number of states have expressed an interest in doing because it would create more competition and lower prices for consumers in their states. And the federal government has been operated traditionally as a barrier to that. And we want to change that.
BR: It’s always seemed weird to me that U.S. consumers are the ones subsidizing drugs for the rest of the world. It’s not just Canada, but it’s throughout Europe and the U.K. Americans pay a much higher price for the same exact drug, including those made by American drug companies.
BD: If you’re a U.S. consumer, you are likely to pay 2 1/2 times as much for the same prescription drugs than your international counterpart. Obviously this varies from country to country, but on average, that’s the reality. And we think that there’s a lot that could be done. Common-sense things that could be done — banning a pay-for-delay arrangement that reduces innovation, drives the prices, letting states import safely from Canada. There’s also some steps we’re going to need to work with Congress to do as well, though. One of the things that we’re working on is to try to finally give Medicare the ability to negotiate as the largest bulk purchaser of prescription drugs in the market. Give Medicare the ability to use that market position to actually negotiate for lower prices, which would not only reduce prices for the end participants in Medicare, but also it would have a downward pressure on prices across the industry, because Medicare is sort of the benchmark rate in in many cases.
It’s the kind of thing that so many Americans know and understand and actually feel in their daily lives. And they know that it just doesn’t make a lot of sense. Why is it that we’re paying so much? But at the same time, it’s hard to pinpoint, well, how can we fix that? This is about government eliminating rules, eliminating regulations that just don’t make a lot of sense, using market power to actually bargain for better prices. These are the kinds of things that we think make a lot of sense and kind of make intuitive sense to the American people as well.
BR: Let’s talk about everybody’s favorite segment, Big Tech. I read NYU professor Scott Galloway’s book “The Four,” and the basic premise is the biggest companies in technology have become very large, very powerful. They buy up nascent competitors before they’re even out of the womb and they just have incredible market power. What can be done about this concentrated strength of these giant trillion-dollar technology companies?
BD: Our technology sector and our tech companies are a reflection of the unparalleled innovation of the American economy, and have generated a lot of the innovation that Americans across the board, you and I, benefit from on a daily basis. At the same time, there are really significant problems with concentration and with anti-competitive behavior in the tech sector. And that’s what we’re really trying to focus on in this executive order and across the board. This conversation can often drive to the sort of inchoate — there’s just something inherently wrong with Big Tech. We’re trying to break that down and say, “Let’s try to identify those areas where we have real questions about dominant tech platforms and where they may be undermining competition or reducing competition.” That’s our focus. For example, the executive orders encourage the FTC to adopt new rules on how tech platforms can gather and collect data and use that data in places like retail marketplaces on their own platforms. That’s a more concrete example, but one that I think that a lot of end consumers have observed or have interacted with in their daily life.
Another one is with respect to mergers. As a matter of policy, we have to focus in particular on the acquisition of competitors and the impact of those in the tech sector, on platforms that then are dominant enough that they can use mergers to just basically to squeeze out competition. We want to create a circumstance where the next generation of great tech companies in the United States come from the innovative capacity of this economy, which is unparalleled, and continue to drive innovation. But we think that these types of reforms are actually necessary to do that so that we don’t end up stifling competition and losing that kind of next generation of innovation.
BR: You mentioned encouraging the FTC to establish rules on surveillance. There are also some rules on accumulation of data. It seems that other countries, like in Europe, or even the state of California have very robust data privacy laws. Does that require separate legislation, or can that be done through this council and through the FTC?
BD: There’s a lot that we can do and a lot that the FTC and the Department of Justice can do and can move on their own. And I anticipate we’ll see that with respect to data. We’ll see that with respect to scrutiny on mergers, and also I think on some more specific behaviors and methods that that we’ve seen emerge in the industry and that we have called out in the executive order, particularly around competing on your own platform. So using the platform dominance to then compete with others on your platform, it’s a place where intuitively you really need to apply scrutiny to activities in that space. At the same time, you are right that both at the state level and at the federal level there’s an active conversation about where additional authority will be necessary. And I mentioned earlier there’s an active, robust conversation going on in the U.S. Congress on that front, bipartisan in nature. So I anticipate that we’re going to see more activity on the legislative front, which reflects the fact that we probably are going to need more authority as well.
BR: It’s kind of an interesting coalition of people criticizing the market power of Big Tech — conservatives are looking at it from one perspective, progressives are looking at it from a very different perspective. Is there a coalition to be had to actually get some legislation passed on this?
BD: We’ve seen bipartisan activity principally over the last couple of weeks. We’ve seen that in the House and we’re encouraged by that work because I think that it is raising appropriately the authorities necessary to go at some of these concerns that we’ve talked about. There’s similar work going on in the Senate. And I anticipate that that will progress. One of the things I’ve found in this job is it’s both not a good idea and very difficult to really predict with accuracy exactly what the U.S. Congress is going to do. But I would say that if you look at the work that’s going on, there’s a lot of thought behind it. It’s a complicated, substantive issue and it’s complicated politically as well, but certainly we are encouraged by it because the president does believe that we really need to focus on these sets of issues. We cannot just allow the status quo to continue.
BR: Net neutrality was undone by the last administration. What are the plans in this administration? Are we going to restore net neutrality so that certain consolidated companies, they might own the pipes and the content, can’t give their own materials preference over the rest of the internet?
BD: The president’s view on this is pretty clear. He believes that net neutrality rules are necessary and appropriate, that the steps that the prior administration took were in the wrong direction, and in the executive order encourages the FCC to restore those rules. The FCC operates independently, but the president’s got a clear view and is encouraging the FCC to take action on that front.
BR: Let’s look back from four years in the future at this council. How will you be able to tell if this council was successful or not?
BD: This is about improving economic outcomes for people, whether that’s in higher wages, lower prices, or the impact of more innovation in their lives and in the communities in which they operate. So at core, if we look back, across the economy, lots of people have been able to improve their economic prospects in practical ways. People will be able to go into a pharmacy and buy hearing aids over the counter: cheaper, more innovative, better outcome. People will have more opportunity to go across the street to the employer that might want to offer them a better job and get employers to compete for their talent, rather than being locked into a non-compete. Prescription drug prices will be lower than they otherwise will be. People will have more options to get high-speed internet, even if they live in an apartment building with a particular landlord.
People will be able to do other things that we haven’t touched on in this conversation, like move financial institutions, shift their data from Bank One to Bank Two without having to go through a complicated process. All of these things just go to very practical frictions in a person’s life. But at the end of the day, success will be, we have made those frictions easier and gone at that $5,000 in the aggregate that is dragging on the typical family’s economic outcomes and started to reverse that. That’s how we think about success. It will require structure and process and focusing on executing across these 72 executive actions. But that’s our North Star.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”