Category Archives: Economics

In the News: Antitrust Hearings

Young Voices’ Casey Givens quotes me on the antitrust hearings in an otherwise-excellent Washington Times op-ed:

Rep. Cicilline was perhaps the worst offender on the former point. As the Competitive Enterprise Institute’s Ryan Young points out, the congressman claimed that “Amazon controls 70 percent of ‘online marketplaces,’” when in fact that is, “equivalent to about 4 or 5 percent of retail sales.” The congressman also made some questionable claims about Google’s market share, conflating its search engine with all searches on the internet.

Read the whole thing here.

In the News – Canadian Tariffs

Thomas Howell, Jr. from The Washington Times quotes me in a story about President Trump’s reinstatement of 10 percent aluminum tariffs against Canada:

“The timing is just terrible. The USMCA trade agreement is barely a month old, the economy is fresh off the worst quarter in American history, and here comes a tax increase on something everyone uses. It makes no sense politically, let alone economically,” said Ryan Young, a senior fellow at the Competitive Enterprise Institute.

On the Radio – GDP and Economic Recovery

Earlier this week I appeared on Paul Molloy’s radio down in Florida. We talked about the second-quarter GDP crash, why it was 9.5 percent or 7 percent instead of 32.9 percent, why it was still the worst in U.S. history, and how people can get out of it while staying safe from COVID-19.

The 15-minute-ish segment is online and starts at about 10:40 into this hour-long block.

On the Radio – COVID-19 and Economic Recovery

Tomorrow morning (August 9), I’ll be on the Bab Zadek show from 8:00-9:00 PT (that’s 10-12 CT and 11-12 ET) for the whole hour. It airs on most of the West Coast, and live online here.

Aluminum Tariff Increase is #NeverNeeded, Should Be Repealed Instead

This is a press statement originally posted at cei.org.

President Trump’s decision to re-impose 10 percent aluminum tariffs against Canada is misguided policy for four reasons, according to CEI senior fellow Ryan Young:

“One, other countries nearly always retaliate against tariffs. A Canadian official has already said Ottawa ‘will react very similarly to the last (time they imposed) tariffs,’ which was in 2018. Trump’s reinstated tariffs will cause double harm to consumers and businesses in both countries.

“Two, the timing is awful. The U.S. economy has just experienced its worst decline in recorded history, including the Great Depression. Unemployment is in double digits. President Trump should not make matters worse by increasing taxes on U.S. consumers and businesses, and raising tensions with America’s largest trading partner.

“Three, aluminum-using industries from beverages to autos to electronics will have higher costs. That means higher prices for consumers, who will then have less money to spend on other goods. Moreover, much of the aluminum industry itself does not want the tariffs, saying so less than two months ago in an open letter to U.S. Trade Representative Robert Lighthizer.

“Four, the point of the new USMCA trade agreement, which came into effect on July 1, was to reduce trade barriers. It succeeded for barely a month. CEI’s decision to oppose the agreement is so far being vindicated, though we would rather be proven wrong.

“It is time for Congress to reclaim the tariff-making authority it delegated to the President. He is clearly incapable of using them responsibly—even during the COVID-19 pandemic. Rather than raising taxes and tensions at the worst possible time, the administration should lower trade barriers and continue to pursue regulatory relief.”

Resources

CEI’s #NeverNeeded website, neverneeded.cei.org.

Ryan Young, “Repeal #NeverNeeded Trade Barriers: Tariff Relief Would Aid Virus Response, Economic Recovery, and Long-Term Resiliency

Iain Murray and Ryan Young, “Traders of the Lost Ark: Rediscovering a Moral and Economic Case for Free Trade

2020 Second Quarter GDP Decline Is Worst in U.S. History—But Not 32.9 Percent

The good news is that the second quarter’s GDP numbers aren’t nearly as scary as the more dramatic headlines are saying. The economy has not shrunk by a third. The bad news is that yes, we really have just experienced the worst crash in U.S. history. And it’s not over yet. This post gives some context, and some ideas for how to aid the recovery for both the virus and the economy.

Several newspapers are reporting a 32.9 percent decline in GDP. This is a projection. It is not what has actually happened. If the economy were to continue shrinking for an entire year at the rate it did last quarter, GDP will have shrunk by 32.9 percent.

While normalcy might be years away, that steep of a decline is unlikely to happen. 9.5 percent and 7 percent are more accurate numbers for what has happened to the economy. Here is why.

GDP numbers are often seasonally adjusted. For example, an outsized amount of spending happens during the holidays, while other parts of the year are slower. So, GDP figures are often compared to what they looked like at the same time the previous year. That is what seasonal adjustment is, a way to compare apples to apples. For example, 2020’s second quarter GDP is 9.5 smaller than 2019’s second quarter. It is the worst decline in U.S. history, and barely begins to explain the pain that people all over the world are experiencing due to COVID-19. But it is not a 32.9 percent decline.

The non-seasonally adjusted number is a 7 percent decline. That is the change from one quarter to the next. That number also provides useful context. Lockdowns began late in the first quarter, so while the economy took a 5 percent dent then, it makes sense that the second quarter would be even worse, since the full three months were under lockdown. But since the dip had already started, it makes sense that the quarter-to-quarter number is a couple of percentage points gentler than the seasonally adjusted number.

For a fuller explanation, I refer readers to an excellent article by University of Central Arkansas economist (and my former grad school classmate) Jeremy Horpedahl, who has a gift for understanding and explaining statistics.

It will be another three months before we know for sure, but there is a chance the worst of the economic shock has already happened. People are finding ways to adapt. Today’s hardships will be with us for a while longer, and we need to help each other out. If you can, please do. But our troubles are 9.5 percent bad or 7 percent bad, not 32.9 percent bad.

What should we do to fight the virus and help the economy? Two things come to mind.

The first has nothing to do with public policy. It is simply to be prudent. COVID-19 is on pace to be America’s third-leading cause of death this year. Almost everyone who reads this has someone they care about who is high-risk, whether due to age, occupation, or a health condition. Think of them. Do right by them. The more people do to keep the virus under control, the more it will be under control. Some form of masks and social distancing might be necessary until a vaccine or other proven treatment is widely available. That could take a year or more. But it will happen, and the virus will lose. Until then, people need to be prudent. Not living in a hermetic seal, but prudent.

The second thing has everything to do with public policy. It is regulatory reform. CEI’s #NeverNeeded campaign has spent the last several months crafting as many COVID-related policy reforms as we can and explaining them to policy makers, media, coalition members, and the public.

Regulations against telemedicine should never have been on the books in the first place. A more realistic approval process would get new and proven COVID treatments to the public as quickly as possible. Factories wanting to retool to make personal protective equipment for health care workers should not have to wait 45 to 90 days for permits to come through. If a restaurant wants to deliver food to willing customers, regulations should never have forbidden it. The Centers for Disease Control and Preventions should focus on controlling diseases instead of spending $125 million on an anti-vaping campaign.

Nearly a third of occupations now require some kind of government license. In many states, this includes fields such as barbers and decorators. During normal times, these regulations protect incumbents by keeping competitors out. During times of double-digit unemployment, keeping people out of work on purpose is immoral.

President Trump has roughly doubled tariffs. They now cost the average household more than $2,000 per year. For families where someone just lost a job, that tariff money could help to keep them afloat instead.

Just this week, Congress held a hearing regarding potential antitrust cases against large tech companies. These are the companies that are making contactless deliveries and grocery shopping possible. They keep people informed and in touch with friends and family. They are improving video conferencing and other technologies that make remote work and education possible. And they provide on-demand entertainment to help keep people’s spirits up during a difficult time.

To this point, Congress and the president have mostly dealt with the virus and the economic crash with hasty “flash policy” such as stimulus bills. The next one is being drafted right now. Policy makers at all levels of government have already removed more than 800 #NeverNeeded regulations. President Trump issued an order directing agencies to remove more unneeded rules. But the Code of Federal Regulations alone contains 1.1 million regulatory restrictions and 185,000 pages. There is much more to do. For lots of ideas, see neverneeded.cei.org.

Observations from the Tech Antitrust Hearing

This post collects some observations from yesterday’s lengthy House Judiciary Committee Subcommittee on Antitrust, Commercial, and Administrative Law hearing with the chief executives of Amazon, Apple, Facebook, and Google.

  • The parties had different conversations, as they often do. The Republicans mostly talked about political bias. Democrats mostly talked about concentrated power. Despite the different charges, their verdict was the same: guilty.
  • On net, the hearing likely hurt any future antitrust case. For example, as Mike Masnick pointed out, Rep. David Cicilline (D-RI) demanded that Facebook take down certain content—minutes after Rep. Matt Gaetz (R-FL) demanded that the same content be kept up. Judges tend not to look kindly on such incoherence.
  • The hearing had limited fact-finding value. The CEOs’ answers to questions were often interrupted after just a few seconds. The committee members appeared more interested in getting tough questions on camera than in building a case. Alternatively, since many antitrust cases tend not to survive careful scrutiny, perhaps the members knew a proper dialogue would not be in their interest, and avoided one intentionally. Neither possibility reflects well on the legislators.
  • Republicans have forgotten a basic rule of politics: Never give yourself powers you don’t want the other side to have. Reps. Jim Jordan (R-OH), Matt Gaetz (R-FL), and Greg Steube (R-FL) all argued for the federal government to regulate political speech in their party’s favor. If they succeed, Democrats will almost inevitably use that same power in their party’s favor when they are in power. The GOP’s Trump wing’s shortsightedness is quietly making some of their opponents very happy. As the saying goes, never interrupt your opponent when he is making a mistake.
  • There were no gaffes on the level of an 83-year old Sen. Ted Stevens’ (R-AK) 2006 description of the Internet as “a series of tubes” or Mark Zuckerberg’s “Senator, we run ads” response in 2018 to former Sen. Orrin Hatch (R-UT), then 84, on how Facebook makes money despite not charging its users.
  • In fact, yesterday’s oldest member, 77-year old Rep. Jim Sensenbrenner (R-WI), who is retiring after this term, came off comparatively well. He briefly defended the consumer welfare standard in his opening remarks, stated his belief that current antitrust laws do not need to be changed, then mostly stayed out of the fray.
  • The lack of meme-worthy gaffes does not mean the committee members are well versed in technology. The Committee’s average Democrat is age 57, the average Republican is 52, and frankly, it shows. For example, Rep. Lucy McBath (D-MD), 60, seemed to not know how cookies work. On at least one occasion, an angry Republican confused Twitter and Facebook, requiring Zuckerberg to point out the difference.
  • Members, who typically spend most of their careers in government, apparently know little about how retail works. Amazon came under fire for selling self-branded products at cheaper prices than name-brand equivalents, and placing them prominently in searches. Nearly every grocery store and retail chain in the country does the same thing. House brands with low prices and guaranteed shelf space have been standard practice in groceries and retail since the pre-World War II heyday of A&P—which was itself the target of dubious antitrust cases.
  • There was little, if any, discussion of regulatory capture or rent-seeking. This is an important unintended consequence of antitrust enforcement. Many established companies would be happy to comply with adverse antitrust judgments if it meant putting up barriers to entry against competitors. In the long run, cartels can only survive with government help.
  • My colleague Jessica Melugin writes, “Surely, politicians can find a better use of their time than harassing the companies that have helped so many Americans make 2020 a little more bearable.” Antitrust enforcement requires proof of consumer harm, yet this was rarely discussed at the hearing. Search engines make it easier to keep up with the latest news about the virus. Social networks help people stay in touch. Online retail and delivery services help keep people fed and supplied while social distancing. Other tech companies provide entertainment, access to medical care, and make it easier to work or learn from home. We will likely never know how many lives have been saved by these services, many of which are free of charge.
  • A running theme of the hearing was that the current big tech companies have enough market power to squash competitors—and then presumably raise their prices. But Zoom, which was not represented at the hearing, shows that the tech industry is still engaging in creative destruction. Six months ago, almost nobody had heard of it. Now, giants such as Microsoft-owned Skype are already essentially legacy services. The Committee’s own technical troubles with its older video conferencing software, which required the Committee to take a recess, underlined the point. Other tech companies are well aware of creative destruction. Facebook’s once-hip user base now has an average age of 46. More than two thirds of TikTok users, by contrast, are between ages 13 and 25.
  • Language matters. And some congressmen are slippery with it. For example, Rep. Cicilline stated that Amazon controls 70 percent of “online marketplaces.” This is a non-standard term that Rep. Cicilline did not define. It almost certainly has a much narrower definition than most people would assume when thinking of a company’s market share. Cicilline’s 70 percent of “online marketplaces” is equivalent to about 4 or 5 percent of retail sales. If people were not listening carefully to Rep. Cicilline’s boutique phrasing, they would get the impression that Amazon has a larger share of its relevant market than it actually holds—by more than an order of magnitude. Does Rep. Cicilline’s terminology include Amazon’s major competitors, such as Walmart, Target, grocery stores, electronics stores, book stores, and more? For more on this type of error, see Patrick Hedger’s recent post and my earlier one on the relevant market fallacy.
  • Rep. Cicilline argued that Google controls 85 percent of Internet searches. This is also misleading. Google does not power many common Internet searches people perform daily. Netflix famously hosted an open competition for developers to design a new search algorithm for its searches that would deliver results tailored to each viewer’s likes and dislikes. Other streaming services also use their own search technology, not Google’s. Amazon product searches use an in-house algorithm. Internet dating sites use proprietary search algorithms as selling points. Internal searches in Word documents or PDF files do not use Google. Were these included in Rep. Cicilline’s statistic? Or is this another example of the relevant market fallacy?
  • Though the hearing lasted for six hours, members missed some opportunities to score valid points. For example, Rep. Mary Scanlon (D-PA) briefly discussed price gouging. She did not bring up, as I recently did, that Amazon’s support of federal price gouging legislation has a potential anti-competitive rent-seeking component. The extensive tax breaks Amazon is receiving for its new second headquarters are another example of anti-competitive corporate welfare. Of course, the blame for these is on politicians as well as companies. This may be why they were downplayed.
  • Facebook CEO Mark Zuckerberg’s public support for heavier regulations for his company has a similar rent-seeking dynamic. Regulations often favor incumbents and lock out potential competitors. Facebook can afford expensive content moderation and privacy regulations; its startup competitors often cannot, or would be discouraged from even trying. Regulations, which Facebook would likely help to write, would likely lock in its leading position in a way that consumers would never allow.
  • Google’s sometimes-accommodating behavior to the Chinese government’s censorship and human rights policies is questionable. At the very least, the company should do more to stand up against illiberal governments. This, however, is not an antitrust issue.

In short, committee members addressed a lot of things they shouldn’t have, and did not address some things they perhaps should have. If this hearing has a part seven (yesterday was actually part six), it should have fewer threats to regulate political speech and fewer common analytical mistakes. And it should focus on how tech companies affect consumers, for both good and bad, and on likely consequences of antitrust enforcement, such as regulatory capture.

For a broader view of antitrust regulation, see Wayne Crews’s and my paper. A new #NeverNeeded paper on tech regulation during COVID-19 by my colleagues Jessica Melugin, Patrick Hedger, Michelle Minton, and John Berlau is here. Jessica’s thoughts on the hearing are here. More resources are at antitrust.cei.org.

New #NeverNeeded Paper: Price Gouging

Massive shortages happened almost instantly when it became clear that the coronavirus would require a nationwide lockdown. Grocery stores almost instantly cleared out of frozen foods, non-perishables, hand sanitizer, and, bizarrely, toilet paper. Stores dealt with the shortages in different ways. But one of those ways, raising prices, is almost universally unpopular. In fact, 36 states have anti-price gouging legislation on the books. Both Commerce Secretary Wilbur Ross and an Amazon vice president have called for federal price gouging legislation.

In a new paper, I explain that price gouging legislation is a bad idea, regardless of one’s feelings about price gouging. The main reasons are:

  • Private companies have their own anti-price gouging responses. Moreover, they can evolve in ways regulation cannot, and more quickly. For example, Amazon’s artificial intelligence (AI) algorithms for policing price gouging among its third-party sellers turned out to have unintended consequences. But unlike Congress, they don’t have to wait until the political winds blow just right before doing something about it. Part of trial is error, and that’s okay. Without mistakes, there is no learning.
  • Price controls make shortages worse.
  • Rent-seeking. Big companies such as Amazon have already invested in AI algorithms and other anti-price gouging measures to prevent their third-party sellers from price gouging. Their smaller competitors have not. Amazon’s call for federal legislation likely has a bit more than good PR behind it.
  • Anti-price gouging measures don’t actually reduce prices. They reduce money prices at a tradeoff: non-money prices go up even more. These non-money price increases include worse shortages, longer searches, waiting lines, longer shipping times, lower quality, and in some cases, more black market activity.
  • There is no objectively correct mix of money- and non-money prices during a crisis. Different people have different needs and different preferences. Legislation, by imposing one single standard, does no favors to people’s diverse situations.

The whole paper is here. I touched on a few other price gouging tradeoffs here. CEI’s #NeverNeeded website is here.

In the News: Lowering Tariffs

Bloomberg’s Ana Monteiro was kind enough to quote from my tariff relief paper in a recent piece:

While some duties have been relaxed to help with importing inputs needed for the coronavirus response, repealing tariffs related to health care altogether is something that Ryan Young, a senior fellow at the Competitive Enterprise Institute, in a July 8 paper said would have the immediate benefit of lowering costs for equipment and medical treatments. He argued that removing all duties imposed since 2017 would “aid economic recovery by reducing businesses’ supply costs,” and provide them some regulatory certainty.

The CEI’s Young also called for tariff-making authority to be moved back to Congress. That would mean repealing:

  • Section 232 of the 1962 Trade Expansion Act, which allows for tariffs without a vote by Congress if imports are deemed a national-security threat;

  • Sections 201 of the 1974 Trade Act, which gives the president authority to impose trade restrictions;

  • Section 301 of the 1974 Trade Act, which President Donald Trump has used to impose tariffs on French and Chinese goods.

Read the whole article here. The paper is here.

In the News: Tariff Reform in the CBC

It’s not often that phrases such as “institution-level reforms” and “never needed” appear in state-run media at all, let alone favorably. I am pleased this happened in a recent article on trade policy in Canada’s CBC:

In a report issued Wednesday, the U.S.-based Competitive Enterprise Institute, a conservative think tank, urged the Trump administration to get rid of all tariffs.

“Tariff reform should have been a priority before the coronavirus hit, but now it’s even more urgent to lift trade barriers, in particular for health care supplies and treatments,” said Ryan Young, CEI senior fellow and author of the report, in a statement.

“Tariffs were never needed in the first place, and they are causing harm during a potentially Depression-level economy. The time to act is now.”

Among other things, the report calls on Congress to “make big-picture, institution-level reforms to U.S. trade policy” — including the repeal of Section 232 of the Trade Expansion Act of 1962 and Sections 201 and 301 of the Trade Act of 1974 — to “restore tax authority to the legislature and make trade policy less subject to presidential whim.”

CEI is misidentified as conservative rather than liberal, in the correct sense of the word. But there are bigger battles to fight. The full article is here; my recent paper on tariff relief is here.