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The Disney-Fox Deal Sails Through

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The Editorial Board
, New York Times
The Disney-Fox Deal Sails Through

The Department of Justice spent nearly two years investigating AT&T’s acquisition of Time Warner and bringing an ultimately unsuccessful lawsuit against the deal that involved two companies not directly in competition with one another. So it was stunning when the department announced on Wednesday — just six months after the deal was announced — that it had approved Disney’s $71 billion purchase of the entertainment assets of 21st Century Fox, one of Disney’s top rivals.

The approval of the Disney-Fox transaction took about half the time that regulators usually need to evaluate deals of this size. And the Justice Department’s Antitrust Division attached only one requirement — that the companies divest 22 regional sports networks. Government officials appear unconcerned that the combined Disney-Fox will account for about half of the box office revenue nationally this year and about 30 percent of scripted TV programming, according to the Writers Guild of America West, a Hollywood labor union.

The Trump administration has denied that politics plays a role in its antitrust enforcement decisions. But it’s hard not to be skeptical of the possible motivations behind the Justice Department’s approach to these deals.

After all, President Donald Trump and his aides have publicly criticized the AT&T-Time Warner deal — the president said last November that it’s “not good for the country.” And he regularly lambastes CNN, the news network owned by Time Warner.

But he’s all praise when it comes to 21st Century Fox and its executive chairman, Rupert Murdoch. In December, the White House press secretary, Sarah Huckabee Sanders, told reporters that the president congratulated Murdoch on the impending Disney deal. In addition, Trump praises Fox News and its hosts every chance he gets — and they regularly return the favor. While Disney will not acquire Fox News or the Fox network and stations as part of this deal, the acquisition will make the Murdoch family the largest individual shareholders in Disney, increasing their wealth by billions of dollars.

The Justice Department’s antitrust chief, Makan Delrahim, will surely argue that the president’s feelings about CNN and Fox News have no bearing on his decisions. But it is mystifying why Delrahim took such a hard line against AT&T-Time Warner, which legal experts argued would be a difficult case to bring because of the nature of the merger, while going so easy on Disney-Fox.

By acquiring Time Warner, AT&T was seeking to buy a supplier — a classic vertical integration move that is hard to challenge because it involves businesses in different parts of an industry. In recent decades, judges have typically concluded that such combinations generate efficiency gains that more than offset any harm they might cause to consumers. That’s why regulators have tended to approve these deals as long as the merging companies agree not to take unfair advantage of their market power.

By comparison, antitrust regulators and judges are usually much more dubious of horizontal deals like Disney-Fox. In these cases, it’s much easier to show that the combined company would have the power to raise prices and limit choices. In the movie business, for example, Disney already wields considerable clout — its studios accounted for more than a third of box office sales in the first five months of the year. The additional 15 percent share of box office sales that the company will gain through this deal no doubt will increase Disney’s clout when it negotiates with movie-theater chains. For instance, the company might be able to demand top billing for its movies and a bigger share of revenue than smaller studios get. According to a handful of theater owners who talked to The Wall Street Journal last year, Disney has already engaged in such tactics, forcing them to accept more onerous terms if they wanted to show its blockbuster “Star Wars: The Last Jedi.”

Delrahim told The New York Times in the fall, “All enforcement decisions will be based on the facts and the law. Not on politics.” It is becoming harder and harder to believe that.

Put the Next Recession on Your Card

Every three months, a select group of Federal Reserve officials gets together to guess where the federal funds rate is headed. That’s the interest rate banks charge one another for overnight loans. It’s important because it’s an economic cue ball, creating a knock-on effect for other interest rates.

The Fed forecasters’ median prediction is that the federal funds rate is headed to 3.4 percent by the end of 2020 from the current 1.9 percent. This means you’ll be paying more to get a mortgage, a new-car loan or to carry a balance on your credit card. How much more? Possibly enough to absorb whatever extra income you might be enjoying from lower tax rates or higher wages.

The Fed is picking our pockets because, to prevent the economy from overheating, it is legally required to keep inflation in check by raising rates. But the task has been made more urgent by the Republicans’ $1.5 trillion tax giveaway to the wealthy and corporations, which effectively threw gasoline onto a very hot barbecue.

“It makes the Fed’s job more difficult all around because what you’re getting is a stimulus at the very wrong moment,” a noted former Federal Reserve chairman, Ben Bernanke, said in a recent appearance at the American Enterprise Institute. Economists at the Fed would never have chosen such a policy. But in the GOP, tax cuts aren’t so much science as they are theology, even if the faithful have to be sacrificed.

Trump supporters who benefited the least from the Republican tax cut — wage workers, farmers and anyone else not in the top 10 percent of earners — will now have to pay the bulk of the bill to mitigate the damage it caused to the economy.

You can see this in credit card debt, which has crested at $1 trillion, now at an average interest rate of about 16.8 percent. Credit card interest rates are tied to the prime rate, which is tied to — you guessed it — the federal funds rate. Chase, for instance, adds from 11.74 percent to 20.49 percent to the prime rate, creating a maximum credit card rate of 29.99 percent. For those consumers who carry a balance (about a third don’t), and a card that automatically adjusts (not all do), the difference can mean hundreds of dollars in extra interest costs annually. In one 2016 study, the credit reporting company TransUnion said rising rates affect 92 million consumers, 9.3 million of them severely.

And now rates are now rising at time when household debt reached a record $13.21 trillion in the first quarter. Household debt service payments as a percentage of disposable income hit 5.9 percent in the first quarter, according to the Federal Reserve, a figure not reached since just before the Great Recession. Average credit card debt per borrower is about $5,700 and growing at a rate of 4.7 percent while wages are growing at about 3 percent. That can’t continue forever.

There’s an anomaly in an economy that is supposedly running flat out: Many families still haven’t recovered the wealth they lost in the financial collapse. A sobering analysis by Deutsche Bank concludes that more families than ever have zero or negative wealth, excluding their homes. (Homeownership has fallen to 64.2 percent of households, from a peak of 69 percent in 2004.) Despite high stock prices and record home prices, household net worth since 2007 has decreased for all income groups — except the top 10 percent. Net worth for the richest Americans is up an average of 27 percent. For the middle class, what remains of it, wealth has decreased 20 percent to 30 percent in real terms — their share of the pie has shrunk.

Similarly, a recent St. Louis Fed study of generational wealth concluded that the very families whose wealth should be growing are falling behind. “We believe many families in the youngest cohort we studied here — respondents born in the 1980s — are at substantial risk of accumulating less wealth over their life spans than the members of previous generations,” the report said.

That’s an astonishing conclusion in an economy that, as President Donald Trump insists, has never been better. Certainly, it’s never been better for the wealthiest 10 percent of families, who now own about 75 percent of the nation’s total household wealth, as opposed to less than 35 percent in the 1970s. Or for the nation’s richest 0.1 percent, who now own as much wealth as the bottom 90 percent, according to Deutsche Bank. For the other 90 percent, the ability to build wealth rests on the ability to save, which they can’t do if interest rates are rising and eating into their earnings. The personal savings rate, at 2.8 percent, is heading in the wrong direction.

Raising rates now, perversely, gives the Fed a monetary tool with which they would be able to fight the next recession — by cutting those rates. And that may come sooner than expected. By 2020, when Bernanke believes any stimulative effect of the tax cuts will have run its course, we will be facing what he called a Wile E. Coyote economy, after that overeager cartoon character.

The overstimulated American economy will run off the cliff on its own momentum, Bernanke fears. That will leave the nation with an enormous federal deficit and not much fiscal room to maneuver. Having been essentially made to pay for the tax cuts for the richest Americans, the rest of the nation will be staring down the abyss, too.

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