Category Archives: Economics

Senate Judiciary Antitrust Hearing on Big Data Based on Flawed Premises

This press release was originally posted at cei.org.

WASHINGTON – The Senate Judiciary Committee’s Subcommittee on Antitrust will hold a hearing today on the implications of data on competition. Subcommittee Chair Senator Amy Klobuchar (D-MN) told POLITICO, “Big data is at the core of our modern economy, powering targeted advertising, driving artificial intelligence. It’s a really intense competition issue at its core.”

Competitive Enterprise Institute Senior Fellow Ryan Young said:

“Sen. Klobuchar and her colleagues are arguing that the sheer scale of Big Data makes it difficult for smaller companies to compete in areas such as targeted advertising and algorithm development. There are several problems with this argument.

“One is that new companies are still entering the market and succeeding. TikTok is now garnering more viewing time than Google’s YouTube, and was the most-downloaded app of 2020, surpassing established giants such as Facebook. Zoom, which nobody had heard of two years ago, almost instantly overtook established competitors from Microsoft and other tech giants, and its brand has even become a verb.

“Two, simply having data and established networks of users did not stop Amazon from failing with its Fire phone, Google failing with its social Network Google+, or the anemic performance of Facebook’s Portal devices.

“Three, if the ad market was anti-competitive, the big companies would be able to get away with raising their prices. Instead, ad prices fell by half over the period 2009-2019, even as print ad prices doubled in some cases. Google, Facebook, Apple, and other incumbents spend billions of dollars on research and development. Companies that feel safe from competition do not do this.

“Sens. Klobuchar, Hawley, and others want to write new, expanded antitrust laws. All this would accomplish is give incumbent companies another set of regulations they can game in their own favor; regulatory capture is real. A greater threat of being sued would also have a chilling effect on innovations that regulators might not understand or approve of. The economy needs room to recover, not more central direction from Washington.”

Read more:

Not Always an Antitrust Issue: Airline Edition

The Justice Department is gearing up to file an antitrust case against JetBlue and American Airlines over an alliance they recently formed. The Wall Street Journal reports:

The lawsuit, which could come as soon as Tuesday, is expected to argue that the recently forged alliance threatens competition and higher fares, the people said.

American and JetBlue announced their alliance in July 2020, saying boosting their offerings in the Northeast by marketing one another’s flights on certain routes would allow them to become more formidable competitors at the three New York area airports and in Boston.

Assume, for the sake of argument, that the American-JetBlue pact is anti-competitive (the airlines dispute this, and I have not yet reached a conclusion). Is antitrust enforcement the right tool for increasing competition? Probably not. Antitrust regulation has a number of built-in flaws that cannot be reformed.

Market conditions can change in a lot less time than it takes to conduct a trial, which is why the case over big IBM’s dominance in mainframe computing, filed in 1969, was eventually dropped—in 1982, when personal computers were taking over the market.

Competing in the courtroom takes resources away from competing in the market, and can have a chilling effect on efficiency-enhancing innovations and business practices.

And then there is regulatory capture, where businesses coopt regulators for their own purposes. It wouldn’t be surprising to see other airlines try to influence this case, just as rival software companies did during the Microsoft case in the late 1990s. Oracle went as far as attempting to bribe rivals’ office janitors to hand over trash that might have contained sensitive documents.

A better solution would be to repeal existing regulations that bar international airlines from operating domestic flights in the U.S.—which is essentially a Jones Act for airlines. That reform alone would expose American’s and JetBlue’s joint flights to hundreds of potential new competitors. It would require no new spending, no court costs, and no lawyer fees. The airlines could compete in the marketplace, not the courtroom, and those worried about increasing concentration in the airline industry would have far less to worry about.

Antitrust is trendy right now. Its high visibility is one reason why activists are calling for using antitrust enforcement everywhere from airlines to health care to live events—and not just against the Big Tech companies that garner most of the headlines.

When you have a hammer, everything looks like a nail. But sometimes the correct tool for the job is a screwdriver or a saw. This is one case where the right tool is regulatory reform, not an antitrust prosecution.

For more CEI research on antitrust, see our dedicated antitrust website, as well as Wayne Crews’s and my paper “The Case against Antitrust Law.”

John Stuart Mill on the Limits of Economics

We must never forget that the truths of political economy are truths only in the rough: they have the certainty, but not the precision, of exact science.

-John Stuart Mill, Principles of Political Economy, Book 2, chapter XVI.4, p. 422.

John Stuart Mill on Lawyers

The exorbitantly-paid profession of lawyers, so far as their work is not created by defects in the law, of their own contriving, are required and supported principally by the dishonesty of mankind.

-John Stuart Mill, Principles of Political Economy, Book 1, chapter VII.5, p. 110.

Court Rules Apple App Store Rules Do Not Violate Antitrust Laws

This press release was originally posted on cei.org.

A federal district court today ruled that Apple’s rules regarding payments on its App Store do not violate antitrust laws. The case, brought by video game maker Epic Games, alleged Apple violated antitrust laws by requiring purchases be made on its own system.

Director of CEI’s Center for Technology and Innovation Jessica Melugin said:

“With a court finding it is not a monopoly, the decision is largely a victory for Apple. The company will mostly continue to operate their private property, the Apple App Store, by the rules it wishes. Apple will not be forced to allow outside payment systems from developers and the App Store can remain the exclusive app download method on iPhones and iPads. The finding that Apple is in violation of California state law under the software giant’s prohibition on developers telling users there are alternative and cheaper payment options is along the lines of concessions it has already started to make with internal policy changes and legal settlement offers. Consumers will continue to benefit from Apple’s intact security, convenience and reliability at the App Store.”    

Senior Fellow Ryan Young said:

“The wisdom of Apple’s business practices is constantly being put to the test by consumers. Their size does not protect them from flops like the Newton tablet, its failed Ping social network, or its forgotten Pippin gaming console. Same goes for the App Store’s payment and commission policies.

“The separate question of whether Apple’s App Store is a monopoly is less debatable. Making that case requires defining Apple’s market so narrowly that real-world consumers can escape its boundaries with a dozen keystrokes or less. Before Apple booted Epic’s Fortnite game from its App Store in August 2020, roughly 90 percent of Fortnite downloads came through non-App Store vendors. Epic tried to define Apple’s market this way; the court disagreed.

“Any market is a monopoly if you define it narrowly enough. But those types of language games don’t always hold up in court. Real-world considerations keep getting in the way.” 

Latest Producer Price Index Indicates Inflation Too High

This press release was originally posted on cei.org.

The government’s latest numbers on average changes in prices, as measured by the Producer Price Index (PPI), are up at an annualized rate of 8.3 percent – higher than the Consumer Price Index’s latest reading of 5.4 percent.

CEI Senior Fellow Ryan Young says the discouraging numbers indicate Congress should change course.

“The PPI is often seen as a leading indicator of what is to come, and today’s high reading indicates inflation is much higher than the Fed’s longtime target inflation rate of about 2 percent. High inflation is bad news for the near future. While a return to 1970s-era stagflation remains unlikely because the only damper on an otherwise-sound economy is the pandemic, today’s inflation is still cause for concern because policymakers may not learn the right lessons.

“The main causes of today’s inflation are heavy deficit spending and a loose Federal Reserve policy. The Federal Reserve indicated it will dial things back a bit on its end starting next year, but since there is a midterm election coming up, it will likely face political pressure to keep interests low. On spending, both parties are proving hopeless.

“Today’s inflation is preventable. People are opening up to the extent they feel safe doing so. Congress’ ongoing spending binge will have little or no effect on people’s safety decisions. Policymakers should instead encourage prudence in dealing with COVID risks without risking backlash by being too heavy-handed about it. The most useful actions policymakers could take would be passing non-spending stimulus measures such as loosening regulations on occupational licensing, trade restrictions, and excessive permit and paperwork burdens.”

Jobless Claims Are Down, but Tensions Remain in COVID Recovery

Jobless claims are at their lowest levels since the start of the pandemic; 310,000 people filed first-time claims last week, down roughly 95 percent from a peak of 6.1 million when the COVID shutdowns were at their worst.

The economic recovery is caught in a tug-of-war. On one side, COVID’s delta variant is slowing the recovery, as is the transformation of vaccines and masks into culture war issues. On the other side, economic fundamentals are in mostly good shape, aside from inflation. People are able to find work when they feel it is safe to, as shown in the all-time record 10.9 million job openings available right now. This back-and-forth tension will likely continue for as long as the delta variant or similarly harmful future COVID variants are widespread.

This week’s jobless claims were a swing to the good. The new school year has begun, and in most places, schools are back to in-person classes. This is freeing up a lot of parents who wanted to work, and felt safe doing so, but needed to stay home during last school year’s experiment in remote schooling.

Over the next several weeks, jobless claims may also decline as unemployment benefit extensions expire, prompting more people to reenter the workforce. Economists disagree over how large this effect will be, but no one seriously argues that unemployment benefit extensions have zero effect on people’s incentives to work or not. Whether this incentive effect will be strong enough to overcome delta variant fears remains to be seen.

As Congress follows up its trillion-dollar infrastructure plan with a $3.5 reconciliation bill and then a roughly $6 trillion budget, growth and employment could slow in the medium to long term as more resources get diverted to politicized spending projects, regulatory compliance, and paying off record levels of government debt.

Disappointing August Job Gains Tied to Covid Restrictions, Politics

This press release was originally posted at cei.org.

Competitive Enterprise Institute experts commented on today’s disappointing news about August job gains, urging policy makers to reject restrictions and politics and look for ways to lift barriers to economic recovery.

Sean Higgins, CEI research fellow:

“Friday’s Labor Department report https://www.bls.gov/news.release/pdf/empsit.pdf that the nation gained only 235,000 jobs in August was well below the gains of the previous months and proof that re-instituting Covid-related restrictions has created a serious drag on the recovery. Prior to August, the economy had been growing by more than a half million jobs a month. The department’s report is a reminder that there is a stark cost to restrictions and officials must be mindful of broader consequences. The economy has been resilient so far, but that was partly because the end appeared to be in sight. New uncertainty is undermining that.

“The number of people who reported being unable to work for pandemic-related reasons was 5.6 million, an abrupt rise of 400,000 in a single month. The leisure and hospitality industry, usually the first to feel the effects of covid-related policies reported no gains in August due to a loss of 42,000 jobs in restaurants and bars wiping out all other gains. That’s a serious blow to people who have already endured a year and a half of difficult times.

Ryan Young, CEI senior fellow:

“Covid’s delta variant is showing up in economic statistics now, not just health statistics. Payrolls are still growing, on net, and will likely to continue to grow for the rest of the year. But that growth will be slower than it otherwise would be, in part because some people simply insist on turning vaccines and masks into political issues. Today’s tendency to turn everything into a culture war bears a lot of the blame for low vaccination rates. This in turn makes people more reluctant to travel, dine out, and attend events, which is where a lot of vulnerable jobs are being lost.

“There isn’t much policymakers can do about cultural attitudes, since mandates tend to backfire; but there is plenty they can do to roll back regulatory, licensing, and financial regulations that are blocking businesses from opening, staying afloat, or even expanding. Policymakers can also restore confidence by walking back unnecessary multi-trillion dollar spending projects that have more to do with politics than economic recovery.”

Consumer Spending, Personal Income Growth Hinge on Combating Covid Delta Variant

This press release was originally posted at cei.org.

The federal government today released July data on consumer spending (slower growth compared to June) and personal income growth (higher than expected). CEI Senior Fellow Ryan Young says reducing the Covid risk through vaccines and mask-wearing is what will help economic and income growth most – not ramped up spending by Washington:

“Consumer spending grew in July, but that growth was down two-thirds from June. Personal income growth was higher than expected, though that number was inflated by government assistance and other temporary policies. The most likely reason for the slower growth is the rise of COVID’s delta variant. The extent to which people feel safe doing normal activities has more to do with COVID than with anything else, including grand political plans to spend and stimulate.

“The recovery would be much easier if people were not so eager to make everything a political issue. Vaccines and masks are tools to fight the virus, and their effectiveness has nothing to do with red-team-blue-team culture wars. Politicians from both parties who are using the virus as an excuse to enact pre-existing policy agendas are hurting both the economy and the virus response.

“The best COVID response going forward, though it lacks the drama of a cable news shouting match or another headline with the word ‘trillion’ in it, would be a little prudence, both at home and in Washington.”

In the News: Facebook’s Antitrust Case

I’m quoted, in French, in Paris’ Le Monde newpspaper about the FTC’s revised antitrust complaint against Facebook:

La FTC « joue sur les mots », abonde Ryan Young du think tank Competitive Enterprise Institute. Pour lui, l’autorité s’est juste « arrangée pour exclure TikTok, Twitter, Clubhouse, Discord, et d’autres de ce marché »« Tout marché est un monopole si vous le définissez de façon suffisamment étroite, et c’est la seule chose que la plainte de la FTC prouve réellement. »

An English-language version of the same story in Techxplore says:

But Ryan Young of the Competitive Enterprise Institute countered that the FTC complaint “relies heavily on wordplay” to define Facebook as a monopoly.

“It argues that Facebook dominates the market for ‘personal social networking services,’ then defines that term in just such a way that excludes TikTok, Twitter, Clubhouse, Discord and others from that market,” Young said.

“Any market is a monopoly if you define it narrowly enough, and that is the only thing the FTC’s complaint successfully proves.”