Category Archives: Economics

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.”

The Progressive Playbook? Thoughts on a Slippery Slope

Is there a master plan behind the blunders of governments? Or are politicians just making it up as they go along? The cabal model is tempting. A lot of people tend to believe that it is not enough for their opponents to wrong; they must also have bad intentions. But usually, less sinister explanations, such as fallible politicians responding to incentives, are a better guide to fixing today’s political mess.

For example, President Biden recently announced that he is asking the Federal Trade Commission to consider using antitrust enforcement to fight rising gas prices. The economist Jeff Eisenach tweeted in response:

The Progressive Play Book: Step 1: Use regulations to restrict supply. Step 2: Blame the oil companies for rising prices. Step 3: Invoke antitrust. Step 4: See e.g., CITCO, Pemex. We are at Step 3.

One should not read too deeply into tweets. They lack enough space either to explain nuances or to define terms clearly enough to prevent misunderstandings. Sometimes, people are just making a snarky point, and they don’t have room for a disclaimer in a 280-character tweet.

Any or all of these situations could be the case here, but Eisenach’s playbook theory tweet has a clear—and common—slippery-slope logic that is worth a closer look. This is not to single out Eisenach, but to highlight a tendency among people of all political persuasions: to assume bad motives and master plans where there probably aren’t any.

Progressives often favor adding new economic regulation, and rarely favor rolling them back. So, it makes sense that progressives would respond to rising gas prices—largely caused by regulations—with more regulations. In Eisenach’s playbook model, this story presumably repeats until the energy sector is nationalized, as with Pemex, which is owned by the Mexican government, and Citgo, in which the Venezuelan government has a stake (though it cannot benefit from Citgo’s U.S. holdings because of sanctions).

This isn’t entirely drawn from thin air. Sen. Bernie Sanders (D-VT) really has proposed nationalizing the energy industry. The Green New Deal may not be a serious proposal, but it really was introduced as legislation.

But is the slippery slope really so deliberate? Just like the GOP’s own populist extremists, the Democratic party’s progressive wing has a high decibel level, but lower numbers and influence. Yes, progressivism touts lofty ideals, such as economic equality, democracy, and environmental protection, but in practice, progressive policies tend to be less lofty and more concrete.

If some people are having trouble making ends meet, pass a law raising the minimum wage. If other people have too much money, raise their taxes. If rents are too high, use price controls or impose a moratorium on evictions. President Biden’s antitrust threat against oil producers is similarly direct. Gas prices are going up, so do something about it. Such moves don’t involve much abstract thought about long-term competitive processes, tradeoffs, unintended consequences, or rent-seeking—what economist Thomas Sowell calls thinking beyond stage one.

If anything, President Biden’s proposal mixes a layman’s misunderstanding of the 1970s oil shock from early in his career with today’s hottest political trends, such as inflation and antitrust. Availability bias is a far likelier driver for his proposal than a playbook to eventually nationalize the energy industry.

Inflation and high gas prices were important issues in the 1970s. The two are linked together in a lot of peoples’ minds to this day. Today, inflation is back over 5 percent and gas prices going up again. In his speech, President Biden even singled out OPEC, which is long past its prime as a global economic villain.

Another factor that makes the current gas price increase appear even starker is that prices are rising from a low starting point. On April 23, 2020,  gas prices averaged $1.77 per gallon, the lowest since the 2008 financial crisis. Since then, gas prices haves been on an upward trajectory, rising to $3.17 per gallon by August 16, 2021. While that is a sharp increase, thanks in large part to that low starting point, gas is still cheaper than it was for almost all of the period between 2011 and 2014.

Inflation is also not the main driver of rising gas prices. Inflation is what happens when the supply of money gets out of whack with the supply of goods and services. If it isn’t monetary, it isn’t inflation. Today’s inflation is likely responsible for about 10 cents per gallon of the price increase, out of roughly $1.40. Most of the rest comes from a mix of supply, demand, and bad regulations.

The Jones Act of 1920, which is essentially a Buy American bill for the maritime shipping industry, makes shipping domestic gas artificially expensive and increases reliance on imported oil. Both of these make gas prices higher and more volatile. The Biden administration’s decisions to deny drilling and pipeline permits and to raise some regulatory burdens are also raising prices and squeezing supply. These are not inflation, but they are raising prices.

Coincidentally, higher prices and restricted supply are the same indicators used in finding consumer harm in antitrust cases, adding potential confusion to any antitrust cases stemming from Biden’s proposal. His recently proposed carbon tariffs on imported oil would further worsen the problem.

Repealing existing regulations and walking back proposed burdens would do more to lower gas prices than adding new restrictions—but that would require admitting mistakes. Politicians generally prefer to shift the blame and then publicly punish some supposed bad guys. That is not a conspiracy; it is rational political behavior.

The state of politics is unhealthy. There are lot of changes needed at the cultural, institutional, and policy levels. While conspiratorial allegations of political playbooks and slippery slopes are tempting as explanations, a lot of bad policy simply involves politicians responding to the incentives they face with the limited knowledge they have—the same as everyone else does.

The economic recovery and the continuing long-run rise in living standards would be better served if reformers would focus their scarce resources on these, rather than on exposing sinister narratives that aren’t really there.

FTC Re-Files Facebook Antitrust Complaint

See also a CEI news release with statements from Jessica Melugin and me.

The Federal Trade Commission (FTC) submitted a revised antitrust complaint against Facebook today. In June, a judge threw out the initial complaint for not providing evidence that Facebook had a monopoly in anything. The FTC had until today to give it another try. The text of the amended complaint is here.

The new complaint has the same problem, and relies heavily on wordplay. The FTC argues that Facebook dominates the market for “personal social networking services,” which it defines in a way that excludes TikTok, Twitter, Clubhouse, Discord, YouTube, and others. By the FTC’s boutique market definition, Facebook’s biggest competitor is Snapchat.

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

Real-world monopolies, as opposed to semantic monopolies, are characterized by rising prices, restricted supply, and slowed innovation. Facebook and its competitors show none of these characteristics. They are largely free to consumers. Advertisers pay to show their ads on Facebook and competing networks, but the prices they pay have fallen by half over the last decade—akin to a permanent 50 percent off sale compared to before Facebook got big.

Facebook is not able to restrict the supply of social networking services. New social networks are constantly rising, falling, and evolving, and Facebook cannot stop people from using them. Signing up for a competing service takes a minute or two and maybe a few dozen keystrokes. Many people also have multiple accounts on multiple social networks—how many people do you know who use both Facebook and Twitter, for example?

As for innovation, Facebook spent $21 billion on research and development over the past year. It is constantly experimenting with new features on its site in an ongoing trial-and-error process—because its competitors are, too. This is not monopoly behavior.

Nobody but lawyers are benefiting from the FTC’s ideologically charged word games. For example, a 2019 Inspector General report found that the FTC routinely pays outside experts as much as $750 per hour. In years-long antitrust cases, that can add up to millions of dollars, without creating any consumer value.

Another concern is regulatory capture. An antitrust settlement against Facebook would likely include expensive new policies involving privacy, content moderation, and more. Facebook can absorb these compliance costs; smaller startups cannot.

Facebook, with its aging user base, and seeing people under 25 moving to TikTok and other competitors, would likely be happy to negotiate such a settlement down the road. In the world of regulation, intentions and results are often very different things. Antitrust policy is no exception. The FTC’s ideological campaign is harming both consumers and the competitive process. At the very least, it should drop the Facebook case, if a judge doesn’t drop it first again.

Longer term, it is time to reconsider antitrust regulation altogether.