An effective recipe for crowding out innovation consists of companies taking on massive amounts of leverage coupled with a Federal Government that has a negative bias toward mergers and acquisitions.
We are experiencing this phenomenon now with corporate debt & loans at approximately 56% of GDP (as of Q2, chart below) and a DOJ that is scrutinizing Technology M&A (this extends beyond Alphabet, Amazon, Apple and Facebook, each of which will grow more slowly in our view due to the Federal Government’s negative M&A bias). The DOJ is now reviewing FinTech M&A activity. At best the Federal Government’s negative M&A bias will slow M&A activity due to the FTC/DOJ review process. Further, in many cases the Government’s negative bias will kill M&A deals before they are hatched as companies will be less willing to engage in preliminary discussions. Thus, there is a significant “innovation opportunity cost” that is difficult to precisely quantify.