Epstein: "The United States of Cartels"

The United States of Cartels
Richard A. Epstein
Defining Ideas
May 29, 2012

As the economies of both the United States and the European Union sputter along, political leaders continue to put forward the false choice between austerity and growth, without attending to the serious structural issues that have long plagued both of these major economies. In a previous DI column, I urged that the liberalization of labor markets was one key element of overall economic reform. Labor markets also play a critical role in understanding yet another overdue structural reform that deals with the distribution of power in both the U.S. and the EU: the need for dismantling long-standing cartel arrangements that cripple innovation and competition.

One distinctive feature of both the United States and the European Union is that they operate under a two-tier government structure. The U.S. federal system assigns responsibilities to both the federal government and the individual states. The EU does much the same thing. There are, of course, vast differences between the two systems. Most conspicuously, in the United States, no state has an independent voice in foreign affairs, as those issues are all controlled from the center. The European Union is far looser, given the long-standing national differences on foreign relations and military affairs among its member states. Accordingly, those issues remain safely beyond the control of the European Commission, which—operating out of Brussels—nonetheless exerts extensive control over economic operations within the EU.

For all their differences, one striking similarity between the U.S. and the EU is the dangerous transformation in the relationship between the overarching government entity and its member states. To start with the United States, the original constitutional design had two key elements, which were associated with the power to regulate commerce. Recall that the commerce power, now under litigation in connection with the health-care mandate of the Patient Protection and Affordable Care Act, allows Congress to regulate commerce “with foreign nations, among the several states, and with the Indian tribes.”

Richard A. Epstein