Category Archives: Economics

Fed Hikes Interest Rate: Bigger News on Bond Portfolio Mostly Neglected

The Fed this week announced a half percentage point hike in its federal funds rate. This is the right thing to do, but it will have only a small effect on inflation. Far more important is an announcement the Fed made the same day, but got far less coverage. It will finally begin winding down its balance sheet of government bonds in June. Buying and selling bonds is the Fed’s single most powerful inflation-adjustment tool, far more powerful than interest rate adjustments. It should have started selling off bonds months ago, but June is better than never.

Inflation (or deflation) happens when there is a mismatch between the money supply and real economic output. If one grows or shrinks, the other needs to grow or shrink by a matching amount, or there will be inflation or deflation. The Fed’s job is basically to play a matching game.

Buying bonds is how the Fed directly increases the money supply—which directly increases the inflation rate. When the Fed buys bonds, it pays for them with money that it newly creates. This new money then winds its way through the economy.

If the Fed wants to directly shrink the money supply—and directly reduce the inflation rate—it can sell bonds. The money it makes from the sales can then be retired from circulation. Interest rate adjustments, by comparison, have only indirect effects on the amount of money in circulation.

In ordinary times, the Fed should engage in some bond buying. If real economic output goes up by 3 percent, the money supply should go up by a matching amount to prevent deflation. Since the Fed has a 2 percent target inflation rate, the Fed would instead usually react to 3 percent growth, with a 5 percent money increase—3 percentage points to match real growth plus two extra percentage points to meet the Fed’s inflation target. (The Fed’s exact response should vary depending on other factors, but this simplified illustration tells the essential story.)

That is not what happened during the pandemic. The Fed’s bond holdings grew by 72 percent in three months, then grew some more. It was the largest bond-buying spree in the Fed’s history. The Fed’s bond holdings totaled about $4.1 trillion when COVID-19 hit in February 2020. Three months later, it was $7.1 trillion. It continued buying bonds until March 2022, and its portfolio now stands at $8.9 trillion.

The Fed’s announced selloff is modest in this context, and may not be enough to substantially reduce inflation when the lag time ends sometime next year. It will reduce its $8.9 trillion portfolio by $47.5 billion per month for three months, then $95 billion per month for an unspecified amount of time.

Winding down inflation comes with a risk of recession, which explains the Fed’s timidity, especially in light of last quarter’s GDP contraction. So, the Fed has its reasons, though they are not entirely convincing, considering the short-term and long-term pain that inflation causes.

Nor did the Fed’s initial buying spree come out of nowhere. When people stop spending money, the Fed’s typical response is to inject some new money into the economy as a form of stimulus. It can work in the short run, though usually with the tradeoff of some slowdown later on.

The trouble is that the Fed misread the situation during the pandemic. It wasn’t a typical recession. There was no financial crisis, housing bubble, or economic malady. A healthy economy shut down for a bit, then opened back up. The virus had to pass so people could safely open back up, and that’s it. The Fed used the traditional tools to fight a new battle, and that is the biggest driver of today’s inflation. Overspending by the political branches didn’t help, but that explains only about 1 percentage point of 8.5 percent inflation.

There is a lag time in bond-buying actions from about six 6 to 18 months, since it takes time for new money to move from bond sellers’ wallets out to the larger economy. The rise in inflation that began in 2021 was the result of the Fed’s 2020 bond-buying spree. Since the Fed isn’t trimming its bond portfolio until June 2022, even if inflation has already peaked, it will likely remain high at least until early 2023 and possibly longer, since the Fed’s more recent buyups haven’t yet worked through the economy, and the selloffs to counter them are both late and relatively small. Relief would come sooner had the Fed acted sooner and more boldly.

Despite last quarter’s GDP decline, economic output is already back to where it would have been if COVID had never happened. Because of today’s needless inflation, the Fed’s delayed response in fixing it, plus overspending and general policy bungling by Congress and two presidents, a recession that COVID couldn’t cause might happen anyway. While this week’s interest rate hike will get all the attention, the real news is the Fed’s coming bond selloff.

A subsequent post will explain why the federal funds rate has only a small effect on inflation, and why journalists and stock markets should pay less attention to it.


Sorting Out Some Confusion on Trade and GDP

While inflation is the biggest economic problem right now, trade policy is another reason why GDP shrank last quarter. It is also a common source of misunderstanding. This post attempts to clear some things up.

University of Central Arkansas economist Jeremy Horpedahl notes two overlooked factors in today’s bad GDP news: 1) a decline in government spending and 2) a decline in net exports.

The spending decline was expected, as temporary COVID spending programs have begun to expire, though other big spending bills will partially take their place as the infrastructure bill and other recent trillion-dollar packages begin paying out over the next several years. While this can cushion short-term GDP numbers, those government spending projects will create less value on average than alternative private uses of those resources. Short-term stimulus means long-term harm.

The decline in net exports is more complicated. The Trump-Biden tariffs and the retaliations they sparked put a damper on global trade even before the pandemic. They added to existing friction points in trade, such as excessive regulations on ocean shipping, ports, and trucking.

As things go back to normal, the supply network problems exacerbated by these policies are still being untangled. If Congress and the administration are looking for ways to boost growth without raising spending, they should liberalize trade and reform regulations.

GDP measures how much stuff people create. Trade regulations block people from making stuff, often for no good reason. Moving toward freer trade would boost GDP in both the short and long run.

Trade also confuses some pundits. There will be talk on economically illiterate cable news shows about how America’s trade deficit is causing today’s economic troubles. As usual, those pundits should be ignored. Economists going back to Adam Smith know that the trade deficit has nothing to do with economic health. It is neither good nor bad. For example, Russia’s economy may shrink this year by as much as 45 percent, but it has a massive trade surplus. In America, the trade deficit went up throughout the gangbusters growth of2021. It tends to be highest during booms and lower during recessions.

Americans buy all those imports with dollars. Foreign sellers in China or Japan can’t use dollars at the grocery store—so they send them back to America. Some of those dollars buy American exports. Most of the rest goes to investments in American businesses and government bonds. Every dollar of trade deficit is a dollar of capital surplus. It’s a wash. People spend their dollars one way instead of another, but they get spent just the same. It doesn’t matter for GDP.

The only reason net exports are in the GDP equation is to avoid double counting. When an American buys a foreign import, she first has to earn the dollars to pay for it by making something here in America. That earlier production was already counted once in GDP. Similarly, exports count toward GDP, even though Americans don’t consume the final product. Exports are the price we pay for imports. Any imports beyond that are paid for by cash earned from other domestic production that doesn’t get exported, and was already counted in GDP.

As with most other issues, do not listen to hysterical, hair-pulling cable news pundits on trade deficit issues. The economy has serious problems, but the trade deficit is not one of them. Policy makers should instead focus on liberalization—perhaps starting with repeal of the Jones Act.

GDP Shrinks: The Good and the Bad

The advance estimate for 2022’s first quarter gross domestic product (GDP) is in, and the news is not good. Adjusting for inflation, GDP shrank 0.4 percent from the previous quarter. If GDP stays on its current path for the entire year, the economy would shrink by 1.4 percent. A revised estimate will come out on May 26, but likely won’t be much different. Let’s unpack some of what today’s news means.

The big news is that the economy is at a high risk of recession. The standard definition of a recession is when GDP shrinks for at least two quarters in a row. We may even be in one now, though we won’t know until next quarter’s results arrive in July.

The other big news is that the Fed’s inflation-fighting job just got more difficult. The reason inflation is high right now is because the money supply is growing faster than GDP. If they were growing perfectly in sync, inflation would be near zero. Right now they are mismatched because the Fed attempted to stimulate the economy during the worst of COVID with a flood of new currency. At a technical level, inflation is easy to fix. It’s a matching game—just match money supply growth with economic output growth.

The difficult part is that tapering back inflation risks causing a recession, and we’re now officially halfway there. The Fed has been criticized for being too timid about inflation, and in my opinion rightly so. But if you’re wondering why it’s been timid, there’s your answer.

Fortunately, today’s GDP numbers aren’t on the Fed. Changes in monetary policy have a lag time that ranges from six months to as long as a year and a half, and the Fed took no action on inflation until March, when the first quarter was nearly over. But going forward, that gives the Fed an excuse for inaction. While that might prevent some short-term harm during an election year, it comes at the cost of even greater long-term harm from sustained high inflation.

Fed Chair Jerome Powell recently indicated that the Fed will take more aggressive steps starting at its next Board of Governors meeting in May. But with today’s news, will he keep that promise?

That’s the bad news. But there are some good points. The big one is that the economy is already roughly back to where it would have been if the pandemic had never happened. Last year’s breakneck growth, which peaked at 7.0 percent, was mostly catch-up growth. It caught us up to where we were going to be anyway.

The economy was mostly healthy going into the pandemic. There was no housing bubble or financial crisis. People hunkered down when COVID hit, and they opened back up when they felt it was safe. So, 2021’s rapid catch-up growth makes sense. The COVID recession wasn’t a true downturn, so much as a pause. Slower growth is a sign that things are finally getting back to normal. That’s a good thing!

That said, a shrinking economy in real terms is never a good thing. Real GDP data go back to 1947. Over the last 75 years, average annual real growth has been a little over 2 percent. If we’re caught up after the pandemic shock, we should expect growth to slow down to that 2 percent ballpark. Since the economy is shrinking, something else is going on in addition to that expected catch-up slowdown.

In sum, GDP growth was going to slow down no matter what, because the economy is now largely caught up from the COVID shock. But the fact that it actually went negative is due to a mix of factors. Inflation is the biggest one, and today’s GDP news may make them more reluctant to fix the problem they caused, especially during an election year. That is a cause for concern.

Part of the GDP reduction is from expiring COVID spending programs, and is actually good in the long run. Even most of the COVID spending bills’ supporters did not intend for them to become permanent. Russia’s invasion of Ukraine is having a small negative effect on the American economy, but is only a small part of the story, and mostly restricted to energy prices. Illiberal trade and regulatory policies are a bigger issue, which the pandemic exposed. These have mostly not been fixed, and are dragging down the economy. Congress and the Biden administration can help by liberalizing trade and regulation and allowing the Fed to do its job of reining in inflation.

Podcast: Inflation

I was recently the guest on the Of Consuming Interest podcast, hosted by Shirley Rooker. We talked about common misconceptions about inflation and a few other economic issues. After we wrapped, the producer said I was “very understandable,” which is easier said than done in monetary economics.

The audio is here.

The Updated Case for Free Trade

Trade is a core value of civilization. The very act of trade implies respect for people’s rights. Suppose you have something I want. I could take it by force or I could offer to trade you something in exchange. Not only that, but since you have the right to say no, I have to offer you something you value even more than what you give up. Civil exchange puts the civil in civilization—both morally, by rewarding peaceful behavior, and economically, by making possible the division of labor.

Stanford University historian Josiah Ober argues that one cause of Ancient Greece’s cultural flowering was a relatively liberal attitude toward trade and commerce—and its decline was caused in part by a turn inwards. The great Belgian historian Henri Pirenne made a similar claim about Ancient Rome. Dartmouth University economist Doug Irwin traces free-trade arguments through Saint Augustine and Thomas Aquinas up to the first modern defense of free trade in Henry Martyn’s 1701 Considerations Upon the East India Trade. Adam Smith made a moral and economic case for trade in 1776 that economists have been refining ever since.

The 30-fold improvement in living standards since around 1800 is due in large part to gradual popular acceptance of the benefits of trade. The process has not been smooth. In the first half of the 20th  century, growing nationalist sentiment and a rejection of bourgeois virtues helped lead to two world wars and the Great Depression. The free world came to its senses after those horrors, and spent the next 75 years lowering trade barriers, helping hundreds of millions of people to rise out of poverty. That era may now have ended with the Trump administration’s protectionist turn, the Biden administration’s normalizing of that change, and rising nationalism here and abroad.

The case for free trade may be an old one, but it needs to be restated often. To that end, the Cato Institute’s Scott Lincicome and Alfredo Carrillo Obregon this week released “The (Updated) Case for Free Trade,” an accessible restatement of the moral and economic case for free trade that offers a stark contrast to the protectionist alternatives politicians from both parties are now proposing.

They also take a look at how trade policy can affect America’s most important foreign policy challenge going forward: China.

China represents real challenges, but dealing with it does not warrant abandoning free trade. Instead, historical and recent evidence demonstrate that China’s economic threat to the United States has been exaggerated, that aggressive unilateralism will prove less effective in influencing the Chinese government’s behavior than multilateral engagement, and that the United States will be better positioned to respond to a rising China if it embraces the openness and confidence that made America an economic powerhouse.

The whole paper is worth reading.

Trade might not be a front-page issue at the moment, but it underlies nearly every issue that is getting significant ink, including supply chain problems, housing prices, the pandemic response, and foreign policy challenges such as those involving Russia and China.

Sound trade policy and the liberal values that undergird it need as many able defenders as they can get; Lincicome and Obregon’s contribution is essential in that regard. Readers interested in another easily accessble defense of free trade should also check out Iain Murray’s and my paper “Traders of the Lost Ark.”

Inflation Rises to 8.5 Percent: Straining for Optimism

High inflation will likely be with us for a while, which means I’ll be writing a lot of posts like this. So, for the sake of variety, after this morning’s inflation news, I’ll try to put as optimistic spin on it as possible. Just keep in mind that today’s news is objectively very, very bad. The Consumer Price Index (CPI) increased by 1.2 percent during March, which annualizes to 8.5 percent inflation. This up sharply from February’s 0.8 percent month-over-month increase and 7.9 percent annualized rate. The Fed’s target inflation rate is 2 percent.

A small part of the CPI increase is due to the Kremlin’s invasion of Ukraine and the related energy supply shock. As I recently explained, supply shocks are not inflation. When the administration points to Putin to deflect blame from itself, it won’t be entirely wrong, but it will be exaggerating.

For one, energy is only 7.5 percent of the basket of goods that CPI tracks, or less than 1/12th, not nearly enough to push inflation as high as it is now by itself.

Second, while, the Putin oil shock is severe enough to show up in the CPI, that doesn’t make it inflation. It is extremely difficult to tease out how much of a good’s price rise is due to monetary inflation that affects all goods and how much is due to a supply shock that affects just one good (and its downstream uses). The CPI is not up to the task, which is one reason why the Fed no longer uses it.

One way to compensate for this is to use the Core CPI instead of the regular CPI index. This is identical to the standard CPI, but excludes food and energy, which have frequent inflation-unrelated supply shocks. This currently reads an annualized 6.5 percent. The Atlanta Fed also calculates a Sticky Price CPI based on a similar philosophy. Its most recent reading is 4.3 percent.

These are both better than the standard CPI’s 8.5 percent inflation rate, and likely more accurate, since they exclude supply-shock-prone goods. But the target inflation rate is 2 percent, and inflation is still at multi-decade highs by any measure.

The second piece of (kind of) good news is that the Fed can get inflation back to its target 2 percent level very quickly. Congress and President Biden have not been helping with their multi-trillion-dollar deficit spending spree, which will likely add a percentage point or so to the inflation rate for as long as the next decade. But that’s only one percentage point out of eight.

Most of the rest is on the Fed, which has been creating new money at a frantic pace in an attempt to stimulate the economy during the COVID-19 pandemic. This was not the right thing to do, since the economy was otherwise healthy, but this mistake is fixable. All the Fed has to do now is to slow money supply growth so that it matches growth in real economic output. It has the authority and the tools to do so.

That does not mean reducing the money supply in absolute terms. The money supply should still grow, which is an underappreciated point right now among inflation hawks. The money supply needs to grow at the same pace as the rest of the economy, but not slower than real growth, which would cause deflation. And not faster, which is what is causing today’s inflation, but as close a match as possible.

The Fed is able to quickly grow the money supply by buying large amounts of government bonds. It pays for these with new money it creates, which then spreads throughout the economy. The Fed can counteract this just as quickly by doing the opposite—selling government bonds. It can then retire from circulation the currency it receives from bond buyers.

The Fed seems to know this, and ended its multi-trillion-dollar COVID-stimulus bond buying program last month. It is also hiking the federal funds rate. This has smaller inflationary effects than the bond buying program’s direct money creation, but the federal funds rate has important psychological effects on the public’s inflation expectations. Many supply chain and investment decisions cover months and even years. Companies set their prices today in part based on what they expect inflation to look like over those periods. If the Fed credibly commits to getting its monetary house in order, companies will set their prices accordingly.

Expectations aren’t as important as the actual money supply, but they still matter for getting inflation back to Earth. Higher interest rates can play a positive role, despite their lack of oomph on attacking inflation directly. The Fed has indicated that it will continually raise the federal funds rate for at least most of this year.  

While it will take a few months for those changes to work their way through the economy, they bode well going forward, especially if the Fed ramps up its changes to the degree it should.

There is some reason for guarded optimism, if you look hard enough. On one hand, anything could happen with Russia and Ukraine, the Fed is being far too timid, and Congress and President Biden show no indication of reining in deficit spending. But on the positive side, supply shocks are not inflation, no matter what the CPI says. The Fed has finally started to do the right thing. These things take time to percolate through the economy, so inflation will likely remain at or near 40-year highs for a while, but we may be at or near the worst of it.

As Eric Idle sings in the crucifixion scene at the end of The Life of Brianalways look on the bright side of life.

FTC Merger Guidelines Update

All proposed corporate mergers above a certain size have to go through review by antitrust regulators. The Federal Trade Commission (FTC) and the Justice Department have written guidelines for that review process to help their officials decide which mergers to allow, and which to block. Those guidelines are currently being updated for the first time in more than a decade.

The guidelines are not binding, and are not always followed to the letter, but they heavily influence agency actions, and companies plan their mergers—or decline to merge—based on those guidelines. This round of revisions lacks transparency. Revisions usually have publicly available advance drafts, open hearings, input from panels of outside experts, and other accountability measures. This round of revisions has had almost none of that. About the only transparency measure current FTC Chair Lina Khan has permitted so far has been a public comment period.

While it is difficult to comment on something when the agency is not allowing anyone outside the agency to read it, my colleague Jessica Melugin and I weighed in with some principles for effective merger guidelines (footnote omitted):

• First, the process requires more transparency than the FTC is currently providing.

• Second, vertical mergers should be presumed to be competitive.

• Third, if the FTC’s policy goal is to have fewer mergers, then the policy solution lies outside antitrust enforcement. Not everything is an antitrust issue.

Our policy recommendations for improving transparency include adopting a set procedure for guideline revisions. An off-the-shelf option is to follow the Administrative Procedure Act’s (APA) notice-and-comment rulemaking process. Another option is an in-house version of the APA process that includes public drafts, open hearings, an expert panel, and a public comment period. Additionally, all merger cases should take place in independent Article III courts, not in the FTC’s in-house administrative courts, where the agency pays the judges’ salaries and sets the procedures.

Vertical mergers should be presumed competitive. They are a form of the old make-it-or-buy-it decision that every company, household, and individual faces daily. The answer to these decisions, whether at the individual or the firm level, often depends on which option has lower transaction costs. The FTC’s merger guidelines should require the agency to consider potential transaction cost savings in proposed deals.

The FTC, when reviewing vertical mergers, should also consider the potential elimination of double marginalization (EDM), which results in lower consumer prices. Every company in a vertical supply chain marks up the price to earn a profit. Vertical mergers eliminate some of these multiple-markup opportunities. The evidence shows that these EDM savings typically result in lower consumer prices.

In merger reviews where the FTC can prove that a vertical merger would raise rivals’ costs, this should be measured against consumer benefits due to EDM. The FTC’s list of risks arising from mergers should be equally applied to risks of denying mergers—namely, whether blocking a merger “can lead to higher prices, fewer or lower-quality goods or services, or less innovation.” If consumers benefit on net, the deal should be presumed competitive.Antitrust policy is supposed to protect the competitive process, not this or that competitor.

Finally, if the FTC’s policy goal is to reduce the number of mergers, the answers often lie outside of antitrust. The FTC’s guidelines should require it to consider less intrusive policy alternatives. For example, post-Sarbanes-Oxley and Dodd-Frank financial regulations make raising capital and initial public offerings (IPOs) costly and difficult. By comparison, a firm in the process of scaling up may find it easier to be acquired than to run through the gamut of financial regulations to go public.

That said, the FTC should adopt an agnostic approach regarding the number and size of mergers. Mergers are neither inherently good nor bad; they are part of the ongoing competitive process.

Our full comments are posted here. The full FTC docket, including more than 400 other public comments, is here.

See also the recent CEI paper by former FTC chair Timothy J. Muris and former FTC Bureau of Economics director Bruce H. Kobayashi on the stalled Illumina-GRAIL merger, which would lead to improved early cancer detection tests. CEI’s dedicated antitrust site is here.

The FTC’s public comment period is open to the public, and is open until April 21. If you would like to add your own comments, you can submit them here.

New Job Gains for March 2022 Shows Businesses Open with Jobs to Offer: CEI Analysis

This press release was originally posted at

The federal Bureau of Labor Statistics announced today that the U.S. economy added over 400,000 jobs in the month of March – good news for policy makers to build upon with spending and regulatory restraint.

Statement by Sean Higgins, CEI research associate:

“After more than two years, the economy has nearly crawled back to where it was before the Corona virus outbreak thanks primarily to the rolling back of the pandemic’s restrictions. March’s gain of 431,000 jobs, which brought the unemployment rate down to 3.6 percent according to the Labor Department, was impressive. But the more noteworthy news was the number of people said who said they were unable to work because their employer closed or lost business due to the pandemic was now 2.5 million, down by 1.7 million from the prior month. That more than accounts for March’s gains and reaffirms that the best thing the government at all levels can do to aid the recovery is to simply get out of the way and let the economy repair itself.”

Statement by Ryan Young, CEI senior fellow:

“The latest numbers provide further evidence of the COVID economic recovery. The most encouraging news is just under the surface, in the labor force participation rate. Today’s low 3.6 percent unemployment rate doesn’t tell the whole story, because it only counts workers who are actively seeking jobs. During the worst of COVID, many displaced workers didn’t even bother looking for work, due to safety and regulatory concerns.

“Before COVID hit, labor force participation was 63.4 percent. It quickly bottomed out at 60.2 percent when people first hunkered down — the lowest level since 1973, when there were far fewer women in the workforce. It is now at 62.4 percent, closer to pre-COVID levels than to that big COVID drop. There is still a ways to go, but barring another variant, the recovery will continue. It would go even faster if politicians used up fewer resources in their big spending bills and removed never-needed regulations that block opportunities for millions of people.”

Pay College Athletes

No March Madness tournament would be complete without at least one school being caught paying its players in violation of NCAA rules. This year, the Memphis Tigers allegedly did the honors. In a piece syndicated by Inside Sources, I argue that the NCAA should allow colleges to pay their players for three main reasons:

The first is fairness. College players are unpaid laborers who generate millions of dollars for others.

The second is that big-time college sports are, in fact, a business. There is nothing amateur about the NCAA’s $1.15 billion in revenue, its marketing deals, college coaches’ and athletic directors’ salaries, or the amount of time many athletes put in to compete at a high level.

The third reason is practical: Black markets exist. Some star college players will always be paid, no matter what the NCAA says. It should be above the table so schools and the NCAA can keep a better eye on it.

Read the whole thing here.

Antitrust Triangulation

Sometimes it’s useful to introduce useless bills. The Prohibiting Anti-Competitive Mergers Act , sponsored by Sen. Elizabeth Warren (D-MA) and Rep. Mondaire Jones (D-NY), is a case in point. It bans mergers larger than $5 billion, not indexed for inflation. It has a near-zero chance of passing, and top antitrust hawks like Sen. Amy Klobuchar (D-MN) and Rep. David Cicilline (D-RI) did not cosponsor it. And yet, this doomed bill can be politically useful. The reason lies in an old political strategy called triangulation, made famous by former President Bill Clinton.

Triangulation is a rhetorical technique that can make yourself appear moderate, even if you aren’t. For nearly every policy position, it’s possible to point to other proposals to both your right and your left, and paint those as radical. Your proposal will always be the middle point of that triangle. That relative center position makes a position look moderate, even if in absolute terms, it isn’t.

The Warren-Jones merger bill’s usefulness is that it can serve as that left flank to Klobuchar and Cicilline’s own antirust bill, the American Innovation and Choice Online Act (AICOA, S. 2992). On the right flank, populist Republicans are in full culture-warrior mode against Big Tech, adding their special mix of tragedy and comedy to the drama. Together, they make the radical AICOA appear moderate in comparison. It’s classic triangulation.

Don’t fall for the trap. Sen. Klobuchar and the bill’s other sponsors seem to know their bill is ideologically loaded. That may be one reason why they never held a formal committee hearing for it. Instead, they held a markup session behind closed doors. Even there, many of the “yes” votes came with reservations about voting for the final bill when it reaches the Senate floor.

One reason for such reservations is that AICOA’s ban on self-preferencing by online sellers would create countless aggravations for consumers. If voters find out who is responsible, there will likely be significant backlash. As my colleague Jessica Melugin pointed out recently:

Consider just a few possible consequences: Amazon would not be able to offer free-shipping services on certain items; Google would not be able to display its map at the top of search results for local businesses; Facebook would be prevented from showing you a friend’s Instagram story at the top of your news feed; and Apple’s App Store wouldn’t suggest the apps that might be the best fit for users. Microsoft would even be swept up by the bill’s prohibitions, too, by no longer being allowed to integrate LinkedIn contact info with Microsoft Office 365.

For context, self-preferencing has been standard practice in physical retail for decades. Costco’s Kirkland brand is the most famous example. Walmart and Target have their own house brands, as does nearly every grocery store chain. Self-preferencing has helped those companies’ markets remain competitive and innovative. Doing the same thing, but online, is no different. Klobuchar and her cosponsors’ legislation does not change that.Just because AICOA appears moderate in comparison to the Warren-Jones merger bill on the left and the culture warriors on the populist right, that doesn’t mean it is actually moderate. Whatever its relative position, an absolutely bad idea is an absolutely bad idea.