Today retail mega giant Amazon saw its stock prices plunge dramatically. The company lost around 30 billion dollars in value in just one day. The reason that Amazon stock investors engaged in such a huge sell off is because of a news report by Axios that President Donald Trump is going to “go after” the company.
According to Axios, they spoke to a source close to the president that told them that Trump is “obsessed” with Amazon. The story is that friends of Donald Trump who own businesses are not able to compete with Amazon and have complained to the president about how it is unfair.
Despite Trump’s apparent motivation for going after Amazon being his desire to help his buddies out, this is an issue that I do stand in solidarity with Trump on. I hope that the president takes an axe to the tax and trade loopholes that are the source of much of Amazon’s strength.
Let me explain why the US government should be getting involved in this fight against the unfair practices that are fueling Amazon’s astronomical growth.
Our economic system today is technically Corporatist, but let’s pretend for the sake of argument that our system was functioning as how it was originally designed to function. It would be laissez-fair (or free market) Capitalist.
Capitalism is basically an economic system that involves private owners who control their own means of providing a product or service to the consumer. The demand for their products or services largely determines how they determine their prices. Many other factors are involved, such as capital costs and labor wages, but one of main factors is competition.
Our economic system relies on fair competition in the markets. If multiple companies are providing similar products/services, then their competition for the greatest share of the market is usually good for consumers. It compels the companies to offer consumers a range of choice, from lower prices to the highest quality goods or services – allowing the consumer to choose from the options. But if only one company is offering a particular product without any competitors fighting for customers, that one company can lower the quality of its good and raise prices – which is not good for consumers. So, competition is a very important component of Capitalism.
But from time to time, a company manages to snuff out its competitors. Sometimes the tactics are legal, sometimes not. Sometimes they are ethical, sometimes not. Regardless how they do it, the end result is the same: a monopoly on a product or service is not good for consumers. A monopoly is basically the exclusive control of a market by a single company.
In the late 1800s, a number of monopolies came to power. For example, John D. Rockefeller created a monopoly on oil. In the United States, Rockefeller’s Standard Oil Company controlled 88% of the oil flow in the country. Andrew Carnegie created a monopoly on steel. His corporation, called US Steel, became the largest steel producer in the world. And intermingled with these monopolies was the financing of a banking tycoon named JP Morgan. Morgan was an agent of the European Rothchild banking dynasty.
These men, Rockefeller, Carnegie and Morgan came to be known as “robber barons”. The term can be traced back to medieval Europe when powerful German lords forced anyone sailing along the Rhine River to pay a toll. The lords offered no service in return. They simply robbed the ship owners because they could. And these lords, or barons, became very rich off their practice.
In time, the US government decided that it was in the public interest to break up these monopolies so that smaller comp
anies could try to compete in the markets. So, fair competition laws were passed at both the state and federal level. These laws are called “antitrust” laws. In Europe, these laws are called “competition” laws, which makes more sense. But a “trust” is when a corporation combines a large group of companies or business interests that collectively allow them to control an entire market and establish a monopoly. Antitrust laws are designed to prevent such trusts from being formed.
Some of these laws include the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914. Congress used these laws to step in and break up some of the robber baron monopolies. For example, Rockefeller’s Standard Oil Trust was broken up into 34 smaller companies. You’ve heard of some of them, which include Texaco, Marathon, Chevron, Mobile and Exxon. In 1999, Exxon and Mobile were merged.
Given that ExxonMobile is, today, the largest oil company in the world and these were but 2 of the 34 oil companies that were part of Rockefeller’s Standard Oil Trust, you might begin to fathom how mammoth the original company was.
Now, let’s just forward to today. Amazon, which is owned by billionaire Jeff Bezos, has grown incredibly fast and is stomping through the corporate world cutting down competitors left and right like a farmer hopped up on Red Bull slinging a sickle to cut down stalks of wheat in a field. Amazon’s competitors stand no chance. We are seeing one retail store after another go down in to bankruptcy, including many companies that have been around for over a hundred years.
What is enabling Amazon to wipe out its competition is, in part, their business model in which they take massive, sustained financial losses by undercutting everyone else’s prices until their competitors are gone. Then, with the market cornered, Amazon will dramatically raise its prices and the captive consumers will have little choice.
An example of this practice is Amazon’s convenient, fast and cheap shipping. If you are an Amazon Prime customer, you can get the majority of your products shipped to you within one or two days with no shipping cost. If you’ve ever wondered how Amazon can make a profit like this, the answer is simply that they can’t make a profit off this. Last year alone, Amazon lost 7.2 billion dollars just on their shipping costs.
This is part of the Amazon model. By getting consumers hooked on free shipping and other perks, Amazon is pulling the masses away from their competitors who then go out of business. But we can be assured that the day of reckoning is approaching when Amazon is going to stop giving its product away for free. It reminds me of how crack dealers give out free rocks to people, who get addicted to the cocaine and come back only to find that the cost for their next fix is a lot more than they expected.
Jeff Bezos is also guilty of violating antitrust laws. His company is buying up the competition in such a way as to amass a broad spectrum corporate network that is bringing entire industries to their knees. Bookstores such as Borders, Waldenbooks and Barnes and Noble have not been able to stand up to the power of Amazon. Retail stores are going out of business, such as Radio Shack, Toys R Us, JC Penny, Sears and the list goes on and on.
Amazon is a monopoly and it is time for our representatives in Congress to make use of the antitrust laws on the books that are in place to protect the consumer from modern day robber barons like Jeff Bezos. I’m glad to hear that there are rumblings coming from the White House about Amazon’s unfair practices and I hope that the President takes proper, constitutional action on behalf of consumers and business owners.