Long-term structures matter more for policy outcomes than electing a preferred candidate.
Or as Geoffrey Brennan and James Buchanan put it in the closing paragraph of The Reason of Rules: Constitutional Political Economy, p. 167:
Good games depends on good rules more than they depend on good players.
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Posted in Books, Economics, Public Choice
Nationwide 5G networks are coming. They will expand possibilities for everything from smartphone applications to GPS to streaming video, and will enable new technologies that have not yet been invented. President Trump wants the U.S. to be a world leader in 5G adoption. But his Justice Department’s antitrust division might hinder that goal by blocking the proposed merger between Sprint and T-Mobile.
The antitrust division’s rationale is that the deal would decrease the number of major wireless carriers from four to three. But my colleague Jessica Melugin argues that without the merger, the number of carriers might actually be two: “T-Mobile and Sprint will [need to] be able to combine their resources [in order to] stay competitive with Verizon and AT&T, and hopefully help the mobile communications industry in the United States win the race to build the first 5G network.” Together, they might survive. Apart, both might go under.
On the other hand, the rule of thumb is that 90 percent of mergers are failures, remember. This could well be the next AOL-Time Warner. Nobody knows how Sprint-T-Mobile would turn out, including the Justice Department, as well as the companies themselves. But unlike antitrust regulators, Sprint and T-Mobile have skin in the game, and thus a stronger incentive to make the right decision.
Then there is the rent-seeking angle. As my colleague Wayne Crews notes: “It’s also important to note that invoking antitrust laws in this case is de facto corporate welfare for Verizon and AT&T. It means they can stand pat rather than reacting to dynamic changes to the marketplace.”
Third, there is the uncertainty angle. There are no set criteria for what makes a merger legal or illegal. Regulators decide at their own discretion—and politics are often involved, as with President Trump’s recent unsuccessful attempt to block the AT&T-Time Warner merger (Time Warner owns CNN, which is often critical of Trump).
There are ways to measure market concentration, such as the Herfindahl-Hirschman Index. But its numbers are easy to manipulate to reach any conclusion—just define the relevant market however narrowly or broadly you want, and you can generate a number showing any desired degree of market concentration. The Federal Trade Commission has a set of merger guidelines, but they are not binding and can easily be ignored if politics or other merit-unrelated factors are more important at the moment.
This regulatory uncertainty has costs far beyond whatever happens with the Sprint-T-Mobile deal. Even if the merger goes through, and a merged T-Mobile-Sprint proves a viable 5G-era competitor, the fact that mergers are approved or denied at a whim will continue to have its chilling effect on companies far outside of technology or communications. For some companies, the upside is not worth the cost in legal fees, political engagement, and potential bad publicity. This is consumers’ loss, not just entrepreneurs’ and investors’.
For more reasons to be skeptical not just of the move to stop the Sprint-T-Mobile merger, but of antitrust regulation in general, see Wayne Crews’ and my just-released paper, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.”
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Posted in Antitrust, Competition, Economics, Public Choice, Uncategorized
Alan Stern and David Grinspoon – Chasing New Horizons: Inside the Epic First Mission to Pluto
An inside history of the New Horizons mission, which sent a satellite past Pluto. Stern is the Principle Investigator (head honcho) for the mission, and Grinspoon assisted with PR as well as some of the mission science. The photographs are beautiful, the science is awe-inspiring, and the amount of work the team put in is admirable.
I was especially struck by the amount of politicking, bureaucratic infighting, turf wars among contractors, and backroom-dealing that went into the mission, delayed it for years, and almost killed it altogether. I found a similar theme in Steve Squyres’ book about the Spirit and Opportunity Mars rovers (Squyres was the PI for that mission).
Public choice theorists will find a vindication of Gordon Tullock’s The Organization of Inquiry, which is an economics-based analysis of how scientists behave.
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Posted in Books, Public Choice, Science, Uncategorized
James M. Buchanan – Ideas, Persons, & Events: The Collected Works of James M. Buchanan, Volume 19
An essay collection that shows Buchanan’s wide range of interests. Most economists stick to their discipline, rarely wandering outside its comfortable enclosure. Buchanan thought, read, and wrote on a much bigger scale, incorporating political science, philosophy, history, literature, and more into his work. About the only thing Buchanan wasn’t interested in was agrarian poetry, a bizarre allegation of some of his critics. And he was delighted to be at least as influenced by his colleagues as they were by him. Those aspects of this book, and Buchanan’s larger research program, are as valuable as its contents.
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Posted in Books, Economics, Public Choice
Over at Fox Business, I explore three lessons policy makers should learn from General Motors’ announcement of 14,700 layoffs and five plant closures:
One, GM is being too shy about the reasons for the layoffs. President Trump’s tariffs have already cost the company a billion dollars. GM is skirting the topic, possibly to avoid political blowback—a strategy that is already not working.
Two, President Trump is right to want to end GM’s government subsidies, but for the wrong reasons.
Three, contrary to popular belief, U.S. manufacturing is healthy, despite GM’s bad news.
On that third point, real value-added manufacturing output recently set an all-time record, eclipsing the old mark set in 2007. As is often the case, popular fears are unfounded. Read the whole thing here.
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Posted in Economics, Public Choice, Publications, Trade
Over at the American Institute for Economic Research, Max Gulker has a perceptive take on why support for free trade doesn’t much matter for winning or losing elections. As he points out, tariffs “were only a hot campaign topic in select states and congressional districts. When candidates did discuss trade, they presented it as an issue of gamesmanship rather than economics.”
In other words, politics and policy are different things.
Gulker is also kind enough to cite something I wrote a while back about public choice and trade. Aside from that, he makes a valuable contribution to the debate.
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Posted in Economics, Public Choice, Trade, Uncategorized
Government is responsible for billions and billions of dollars of corruption and corporate welfare. Considering the potential returns on investment compared to honest entrepreneurship, it is a minor miracle the vice-to-virtue ratio in the economy isn’t even worse than it already is. Why is that? CEI founder Fred Smith and I wrote a recent paper, “Virtuous Capitalism,” which explores several possible answers to the question.
If you don’t have time to read the whole thing, Fred summarizes it in his most recent Forbes column, to which I contributed:
Capitalism has a bad reputation. Many people see it as corrupt, uncaring, and in bed with politicians. And popular wisdom isn’t always wrong. For example, take the Export-Import Bank’s pending renewal. How dare large, healthy businesses such as Boeing and General Electric receive billions of dollars-worth of special privileges?
Has Big Business thought through the political and social costs of such self-aggrandizement? Is sacrificing long-term moral standing for short-term dollars really wise?
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Posted in Economics, Public Choice, Publications
Over at the Institute for Energy Research’s Master Resource blog, I have a guest post summarizing Fred Smith’s and my recent paper, “Virtuous Capitalism.” The post is here, and the paper is here.
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Posted in Economics, Public Choice, Publications
Nice writeup of Fred Smith’s and my recent paper at Business Ethics Highlights.
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Posted in Economics, Media Appearances, Public Choice
The venerable Fred Smith and I have a new paper out today. Click here to read it. In the paper, we try to solve the Tullock Paradox, named for the late, great economist Gordon Tullock (my remembrance of him is here).
What is the Tullock Paradox? It involves rent-seeking, or seeking special favors from the government. Bailouts, subsidies, and regulations that prevent competition are all examples of rent-seeking. To provide some context, lobbying is roughly a $3.5 billion industry, and the federal government doles out more than $100 billion in corporate welfare—meaning rent-seeking is potentially a 30-fold investment. Not 30 percent, 30-fold. Meanwhile, the Dow Jones averages an 8 percent return. With such outlandish returns on investment, the Tullock Paradox is: why so little rent-seeking?
Tullock had his answers, rooted in economic reasoning, which we summarize in the paper. But while Tullock’s theories are valid, they’re missing something: ethics, virtue, and a full picture of humanity. Most economists stick to analyzing a Homo economicus character who is unfailingly rational and utility-maximizing. This is a useful and interesting species to study, but Fred’s and my goal is to encourage economists to study Homo sapiens as well. We are capable of pride and shame, we want to love and be loved, we aren’t always 100 percent consistent, and we make mistakes all the time.
One reason there is so little rent-seeking is that most (but not all!) businessmen and entrepreneurs have a sense of virtue and honor that prevents them from seeking special favors. It is much more satisfying to make an honest living than a dishonest one. This sort of thing is difficult to quantify, but it is real, and economists should allow virtue to exist in their models.
Moreover, economists’ single-minded focus on sin means they’re only doing half their job. They should also praise and encourage virtuous behavior when they see it. Praise where due, not just criticism where due. Just as rent-seekers deserve opprobrium, honest entrepreneurs deserve to be admired and emulated. Maybe if virtuous capitalists had higher social standing, there would be more of them.
Over the next week or two, we’ll be putting up a series of short posts explaining Tullock’s “Big Four” theories for why there is so much less rent-seeking than one would expect. Besides providing a rent-seeking primer for those who don’t have time to read our entire paper, we’ll also delve into our larger project of encouraging economists to study Homo sapiens as well as Homo economicus, and to acknowledge virtue as well as sin.
Read our paper here.
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Posted in Economics, Public Choice, Publications
Inertia Wins! 