On the Radio: Antitrust

On Sunday morning from 8-9 AM PT, I’ll be on the Bob Zadek Show talking antitrust regulation. He has a promo article with a link to listen live here. See also Wayne Crews’ and my antitrust paper.

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Antitrust Basics: Think Long Term, Not Just Short Term

This is the seventh entry in the “Antitrust Basics” series. See below for previous posts.

Moore’s Law states that computing power doubles every year and a half or so. An antitrust case against IBM, by contrast, lasted for 13 years, never reached a decision, and was eventually dropped because the original issue had long become obsolete. Markets are ongoing-long-term processes but antitrust cases are often short-term reactions to temporary situations—even if they sometimes last so long as to outlive the problem they seek to address.

Today’s Neo-Brandeisians and right-wing populists calling for an antitrust revival are not the only analysts prone to short-termism. Robert Bork, famous for his antitrust skepticism, writes on p. 311 of his 1978 book “The Antitrust Paradox”:

Antitrust is valuable because in some cases it can achieve results more rapidly than can market forces. We need not suffer losses while waiting for the market to erode cartels and monopolistic mergers.

Bork’s statement focuses on short-term results while ignoring long-term underlying processes, and has several other problems besides. How do regulators and judges know which cases are causing consumer harm and which are not? How do they ensure cases are chosen on the merits and not for politically-motivated reasons?

Cases also often take years to resolve. Assuming regulators do identify a valid case, how would they, and the judges who hear the case, know if market activity could address the problem by the time the case is decided? Do the benefits of regulatory action exceed the court and enforcement costs? Are the affected companies in a position to capture the regulators?

More to the point, does the short-term benefit come at a greater long-term cost? An enforcement action now could have an unforeseen deterrent effect on future mergers, contracts, and innovations, including in unrelated industries. The consumer harm from these could well exceed the short-term benefits of a short-term improvement on market outcomes—assuming that regulators are consistently capable of such a feat.

In the 1969-1982 IBM case, regulators eventually gave up, however belatedly. But this is not guaranteed to happen in every case. And who knows what consumer-benefiting innovations IBM could have developed with the time and resources it ended up devoting to defending itself in this case?

As the Justice Department and Federal Trade Commission conduct their investigations into Facebook, Google, Amazon, and Apple, they should keep their limited abilities to answer such questions in mind—as well as their bosses’ short-term focus, which rarely extends beyond the next election cycle.

For more, see Wayne Crews’ and my paper, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.” Further resources are at antitrust.cei.org.

Previous blog posts in the Antitrust Basics series:

U.S.-China Trade War and the 2020 Election

I just saw this now, but I was quoted in an August 13 U.S. News & World Report article on China tariffs:

“The administration has been saying otherwise, but it is good to see that they do not believe their own words,” Ryan Young, a senior fellow at the libertarian Competitive Enterprise Institute, said in a statement Tuesday. “Several rounds of China tariffs have so far failed to encourage the Chinese government to make needed reforms. Beijing has instead consistently retaliated with its own trade barriers, hurting the U.S. economy as well as its own.”

Read the whole thing here.

China Tariff Retaliation Shows Failure of Trump Policy

This is a CEI press release. The original is posted here.

On news that China plans to raise tariffs on Sep. 1 and Dec. 15, respectively, in retaliation for President Trump’s recent increase, Competitive Enterprise Institute senior fellow expert Ryan Young said failure of the tariff policy was predictable.

“Tariffs have once again failed to get China to make needed reforms, instead responding to Trump administration tariffs with retaliation. The administration should change course and re-engage the World Trade Organization dispute resolution process and rejoin the Trans-Pacific Partnership. China has already been lowering trade barriers against other countries and could do so with the U.S.

“Ultimately, Congress needs to reclaim the tariff-making authority it gave away to the president back in the 1960s and 1970s. In the meantime, economic adviser Peter Navarro should take Brett Favre’s advice to a referee and take two weeks off, then quit.”

Related reports:

Adrian Tchaikovsky – Children of Ruin

Adrian Tchaikovsky – Children of Ruin

A big part of the process of modernity is widening one’s circle of concern. People have always looked out for themselves and their family. As trade grew, people’s circle widened from the tribe to include one’s trading partners, whether in a farm-and-village dynamic or including long distance traders. As the scale widened, people had to be more accepting of people who dressed differently, spoke different languages, and worshipped different gods. The process is not over. In the last 70 years or so, the circle of concern has grown to address racism, homophobia, transgender rights, and more. The proper size of one’s circle of concern is at the heart of today’s debates over issues such as LGBT rights, trade, and immigration. Animal rights activists are even trying to expand the circle of concern to other species.

What does the circle of concern have to do with a science fiction novel? A lot. In Children of Time, the first book in this series, a botched attempt at seeding an alien planet with Earth life leads to an advanced civilization of spiders and ants, instead of the intended apes (a literal barrel of monkeys burns up while entering the atmosphere). The nanovirus-enhanced intelligent spiders and humans eventually become allies, widening their circles of concern to include two very different sentient species.

This book is the sequel; I do not know if further volumes are planned in the series. It introduces a race of nanovirus-enhanced octopi as well as an alien life form that is something like a slime mold. Where the first volume was evolution-themed, this volume is about psychology and consciousness. It is more interested in exploring and understanding how different species think, feel, and communicate. It as though Tchaikovsky is expanding Adam Smith’s circle of concern as broadly as he possibly can, and seeing what happens.

Tchaikovsky’s spiders communicate through vibration and touch, and are unable to hear human speech. Both spiders and humans come up with all kinds of translators and ways to understand each other, and though their friendships are sincere, some differences are too vast for them to comprehend. Also of interest is the spiders’ own gender disparity, in which males are discriminated against and discounted as inferior, mirroring our own species’ issues. The spiders have even been making progress in recent generations, with male spiders advancing to prominent scientific research positions, though workplace politics are touchy.

The stars of this book are nanovirus enhanced octopi, who ancient humans seeded on one of two habitable planets in a different star system than the spider planet from the first book. Tchakivsky researched the subject, and the octopi in his book are impulsive, emotional, factional, and quick to change their minds as their emotions explore different sides of an issue. Not being able to use speech like humans or vibrations like spiders, octopi instead communicate by changing colors. Different feelings are automatically expressed in different colorations, which they are unable to hide. They almost literally wear their emotions on their sleeve, and their intellectual deliberations are plainly visible.

Also putting in a turn is an alien life form with a collective consciousness, kind of like an intelligent slime mold or a bacteria with a long collective memory and the ability to interface with and control other organisms. This lets Tchaikovsky explore a whole other form of consciousness, of which we don’t have any examples on Earth.

The plot throws these very different consciousnesses together and lets them try to sort out who is on who’s side, how to overcome communication barriers, and try to come to some kind of understanding. The extent to which they can succeed requires a circle of concern rather greater than most people on Earth have today.

Gabriel García Márquez– One Hundred Years of Solitude

Gabriel García Márquez– One Hundred Years of Solitude

The story of the fictional town of Macondo and seven generations of its founders, the Buendias family. Their ups and downs, passions, quarrels, affairs, fights, triumphs, divisions, and failures are an extended metaphor for Colombian history. The occasional mystic elements Márquez integrates into the story, always told in a straight, matter-of-fact style, became known as magical realism, which became a movement in Latin American literature far larger than this 1967 novel.

It is worth noting that Márquez had a soft spot for dictators, especially Cuba’s Castro regime. Even after the idealism of the Cuban revolution died down and the regime’s human rights abuses became common knowledge, Márquez chose to remain a friend and ally of the regime. As with other figures such as Wagner, considerable artistic merit is sometimes colored by the artist’s questionable judgment or moral sense. In art, as in life, few things are purely good or evil.

Antitrust Basics: Corruption and Rent-Seeking

This is the sixth entry in the “Antitrust Basics” series. See below for previous posts.

Rent-seeking is economics jargon for chasing after unfair special favors from government. Businesses and individuals have a large menu of rent-seeking options to choose from, and antitrust regulations are one of the items. Licensing regulations and other restrictions can make it harder for startups to enter a market, favoring incumbent businesses. Bailouts, such as General Motors and several large financial firms have received in recent years, are another form of rent-seeking. Cash subsidies, such as many green energy producers receive, are rent-seeking examples. Special financing, as through agencies like the Export-Import Bank or the Overseas Private Investment Bank, enable rent-seeking by Boeing and many farm and construction equipment manufacturers such as John Deere and General Electric.

All told, it is a minor miracle that corporate welfare is only about a $100 billion problem. Standard economic theory predicts that it should be much larger. Competitive Enterprise Institute founder Fred Smith and I wrote a paper arguing that virtue is an important limiting factor, though incomplete. Antitrust regulation provides another temptation to seek unfair rents, and would not improve the business world’s moral climate.

Neo-Brandeisians and other progressives rightfully oppose rent-seeking, but err when they propose increased antitrust policies as a solution.Tim Wu, a prominent neo-Brandeisian analyst, correctly points out how numerous companies game government policies to reduce competition, but then goes on to advocate for more government power as the solution. Even now, in a relatively restrained antitrust environment, roughly 95 percent of antitrust lawsuits are brought privately by competitors, not by the Justice Department or Federal Trade Commission. Repealing antitrust regulation would not eliminate rent-seeking—there are many other avenues rent-seekers can take—but it would reduce it.

Neo-Brandeisians advocating antitrust regulation as a way to promote virtue have a common misunderstanding of how governments work in practice. Government employees do not operate with only the public interest in mind. They are human beings, with the same incentives, flaws, and self-interested tendencies as other human beings.

Agency employees want to increase their budgets and power, and often enjoy the publicity that accompanies big cases. Regulators are also vulnerable to what is known as a Baptist-and-bootlegger dynamic. In Clemson University economist Bruce Yandle’s classic example, a moralizing Baptist and a profit-seeking bootlegger will both favor a law requiring liquor stores to close on Sundays, though for different reasons. A morally-motivated Baptist does not want people drinking on Sundays and a bootlegger would gain a lucrative monopoly every Sunday. They may find themselves strange bedfellows, and bootleggers may even hide themselves in Baptist clothing.

Applying this dynamic to antitrust regulation, a true-believing “Baptist” in Congress or at the Justice Department or the FTC would be inclined to listen seriously to the entreaties of corporate “bootleggers” who can come up with virtuous-sounding reasons for why regulators should give their businesses special favorable treatment.

Oracle, one of Microsoft’s rivals, ran its own independent Microsoft investigation during that company’s antitrust case, for what it alleged were Baptist-style reasons. “All we did is try to take information that was hidden and bring it to light,” said Oracle CEO Larry Ellison. “I don’t think that was arrogance. I think it was a public service.” Former Sen. Orrin Hatch (R-UT), who counted Oracle among his constituents, was one of the loudest anti-Microsoft voices in Congress. Around that time, he also received $17,500 donations from executives at Netscape, AOL, and Sun Microsystems.

Perhaps heeding Hatch’s admonition that, “If you want to get involved in business, you should get involved in politics,” Microsoft expanded its presence in Washington from a small outpost at a Bethesda, Maryland, sales office to a large downtown Washington office with a full-time staff, plus multiple outside lobbyists. Microsoft quickly went from a virtual non-entity in Washington to the 10th largest corporate soft money campaign donor by the 1997-1998 election cycle. Sen. Hatch’s campaign was among the beneficiaries.

The lines between Baptist and bootlegger can be blurry, and some actors play both parts. But such ethical dynamics are an integral part of antitrust regulation in practice.

The best way to reduce rent-seeking and regulatory capture is to have a system of government with few rents that can be sought, and fewer regulations that can be captured. Neo-Brandeisians, just like the rest of us, have to deal with the government we have, rather than an idealized abstraction. A more aggressive antitrust policy would increase rent-seeking, and should not be put forward as a solution to the problem.

For more, see Wayne Crews’ and my paper, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.” Further resources are at antitrust.cei.org.

Previous blog posts in the Antitrust Basics series: