Category Archives: Political Animals

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:

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.

Partisan Reasoning and Evolution

From p. 32 of Jonathan Rauch’s forthcoming book The Constitution of Knowledge:

Think of it this way: humans are equipped with some of evolution’s finest mental circuitry to protect us from changing our minds when doing so might alienate us from our group. We have hundreds of thousands of years of practice at believeing whatever will keep us in good standing with our tribe, even if that requires denying, discounting, rationalizing, misperceiving, and ignoring the evidence in front of our nose.

This explains much of modern politics, and is one reason I highly recommend avoiding cable news. Some of the talking heads’ performance routines are impressive. But they are seeking peer approval, not truth or understanding.

CEI is hosting Rauch for a book forum on June 9. You can register here.

Seat-Jockeying and the Separation of Powers

An item from today’s Politico Playbook newsletter highlights an important aspect of Washington culture: the importance of proximity to power.

PELOSI’S LATEST HEADACHE — “Lawmakers scramble for ‘musical chairs’ to view Biden’s first Capitol speech,” by Mel Zanona and Sarah Ferris: “Which is a hotter ticket: Beyonce’s first post-pandemic concert or President Joe Biden’s first address to Congress? Washington is about to find out. Even as life slowly returns to normal on Capitol Hill amid the shrinking threat of Covid, strict safety protocols will remain in place for Biden’s April 28 joint address inside the House chamber. That means only 200 lawmakers, administration officials and staff will likely be allowed to attend the distanced and heavily sanitized event, a far cry from the typical crowds for a prime-time presidential speech.

“Such tight limits mean Democrats are already jockeying to score one of the precious few seats. And a handful of lawmakers have already logged a request with party leaders, who have the unenviable task of divvying up the small passel of tickets for the president’s debut speech.”

“Jockeying” is one word for it. We’re told the situation surrounding Biden’s speech is already downright contentious. One Democratic source told us that some in leadership didn’t even want to have this address because they knew it would cause this very problem with their members. People will feel jilted if they don’t get an invite. And Speaker NANCY PELOSI can’t afford that now because her majority is so narrow. But Biden wanted it, and the president gets what he wants.

This is not to pick on Democrats. Republicans are even worse.

Their power-worship problem got so bad, they opted against having a specific party platform for the first time since the GOP’s founding before the Civil War. Instead they pledged to support any policies then-President Trump put forward. They also went along with Trump’s attempt to change the 2020 election results, culminating in the violence at the Capitol on January 6. Even now, officials view trips to Mar-a-Lago as almost pilgrimages and are afraid to upset him.

I’ve been arguing since the Bush 43 years that the executive branch has grown too powerful. The previous administration’s excesses should have been enough to teach a lesson to both parties a lesson about the separation of powers. While the Democratic seat-jockeying episode is minor compared to the past year’s other debasements, it does not inspire hope.

Putting a Price on Conspiracy Theories, Revisited

Conspiracy theories are back in the news, so it’s a good time to revisit my recent Fortune article about putting prices on conspiracy theories. My argument is that irrationality is the same as any consumer good, such as cars or televisions. When the price of something is low, people consume a lot of it. If the price goes up, they consume less. If you want fewer conspiracy theories, then put a price on them in line with the harm they cause. So far, this theory is holding up well.

Two recent news items show why. First is a development regarding “Release the Kraken” lawyer Sidney Powell. She claimed that the 2020 election was stolen, and that Dominion voting machines used in the 2020 election had design input from former Venezuelan dictator Hugo Chavez, who died in 2013. Her claims were dismissed from several election-related court cases for lack of evidence.

In December, Dominion Voting Systems put a price on Powell’s irrationality when it filed a $1.3 billion defamation lawsuit against her. Powell’s behavior immediately changed. This week, her attorneys said in a court filing in the case that “No reasonable person would conclude that the statements were truly statements of fact.”

That is remarkable, and likely means the end of Powell’s legal career, even if the case is dismissed.

Second, Fox News is now seeing a price increase for its conspiracy-spreading. This week, Dominion sued Fox News for $1.6 billion for defamation. Smartmatic, another voting machine maker, in February sued Fox News, three of its anchors, Powell, and Rudy Giuliani for $2.7 billion. Lou Dobbs, one of the Fox anchors named in that suit, had his show canceled in February, and is no longer making false election claims on air.

These are all normal responses to an increase in price. While media coverage will likely always remain sensationalistic and threat-based for reasons I’ll explore another time, this is one case where a little bit of ECON 101-style price theory can make the news more trustworthy. Or more to the point, make it less harmful.

My original Fortune article is here.

Restoring Separation of Powers and Improving Resilience with the USA Act

Separation of powers is a core principle of American government. But things haven’t gone quite as planned. Congress, the first branch, has increasingly taken a back seat to the second branch, headed by the president. This is not a partisan problem, but a systemic one.

The Framers designed a system of checks and balances in the belief that the different branches of government would compete against each other. They were mistaken. It turned out that it is parties, not branches, that compete against each other. This institution-level problem requires an institution-level fix.

To that end, Rep. Cathy McMorris Rodgers (R-WA) recently reintroduced the Unauthorized Spending Accountability (USA) Act, which seeks to rebalance a tilted scale by reasserting Congress’ power of the purse. It would reengage Congress in policy making, regardless of who runs which branch at any given time.

Only Congress has the power of the purse, yet a long list of unauthorized executive branch programs continue to operate—971 in all as of 2019, at a cost of more than $306 billion. That is roughly a quarter of discretionary federal spending.

The USA Act would automatically cut an unauthorized program’s budget to 90 percent of its previously authorized level in its first unauthorized year, and to 85 percent in the second unauthorized year. Programs would sunset altogether after a third unauthorized year.

The Trump administration displayed less respect for the limits on its power than any previous administration, including the “pen-and-phone” Obama administration. President Biden is unlikely to suddenly show a restraint that no one in his office has in decades. That bodes poorly for the COVID-19 recovery effort, which cannot be planned from Washington, let alone from one individual’s office. Congress needs to reassert itself as a check and a balance on the executive.

The USA Act would require Congress to own up to its budgeting responsibilities, while simultaneously making the executive branch more accountable. The reform is much needed.

As it stands now, there are programs currently operating that Congress has not authorized since the 95th Congress, which was in session from 1977 to 1979. In fact, when Rep. McMorris Rodgers introduced the first version of the USA Act in 2016, entire cabinet-level departments, such as the State Department, had not been congressionally authorized since 2003. The Justice Department was last authorized by Congress in 2009. Other agencies, such as the Bureau of Land Management, have operated for roughly 25 years without congressional authorization.

There is more. The USA Act’s automatic budget cuts and sunsets apply only to programs classified as discretionary spending. Roughly three quarters of federal spending is classified as mandatory, including major programs such as Social Security and Medicare. While Congress has the power to change these programs at any time, they do not require congressional reauthorization, and can continue indefinitely on autopilot.

To address mandatory spending, the USA Act would create a Spending Accountability Commission to examine mandatory spending programs and make them more accountable to Congress. It is especially crucial to make those programs more efficient and fairer, given the coming entitlement crunch. The Commission would also assist Congress in creating a schedule for sunsetting unauthorized programs.

Restoring a proper separation of powers is a tall order. The USA Act is no panacea, but it would mark an important step in crucial area of reform. With a difficult recovery from both COVID-19 and a recession ahead, the time to act is now.

Abraham Lincoln on the Separation of Campaigning and Legislating

Abraham Lincoln, when he was a member of the House of Representatives from the Whig party, supported Zachary Taylor’s 1848 presidential candidacy. This was in part because he thought Taylor would be a weak executive. As David Herbert Donald writes on p. 127 of his 1994 biography Lincoln:

The proper Whig policy ought to be one of “making Presidential elections, and the legislation of the country, distinct matters; so that the people can elect whom they please, and afterwards, legislate just as they please, without any hindrance [from the Chief Executive], save only so much as may guard against infractions of the Constitution, undue haste, and want of consideration.”

Lincoln would change his tune when he became president himself. There is also more to successful executive restraint than this. And there is need for stricter legislative restraints, too. But on the whole, this is a healthier vision of executive power and the president’s proper role than what we have endured over the last few decades.

Agenda for Congress: Regulatory Reform

CEI’s new agenda for Congress is out now. If you’re interested only in certain issues, individual chapters are downloadable here. We also hosted a launch event yesterday featuring Sen. Rand Paul (R-KY).

The first chapter is on regulatory reform. The focus here is not so much on individual rules, but on the rulemaking process itself. If there is a key message, it is that institutions matter. If you want a better game, you need better rules for the game. Effective reforms don’t just treat symptoms; they treat root causes, too.

To that end, here are a few principles for sound reform:

  • If a rule was not needed during the COVID-19 crisis, it was probably never needed in the first place.
  • Getting rid of specific regulations is not enough. Congress must also reform the systems that create those regulations.
  • Congress—not just the executive—needs to be involved in reform.
  • Congress should require agencies to be more transparent about the regulations they issue and their cost.
  • Remember that regulations are made and enforced by the real-world government we have, not the ideal government we want.
  • Introduce reform bills, even if they won’t pass right now. They need to be ready when the moment is right. It is also important to keep reform ideas and conversations alive. Sometimes the most impactful legislation is introduced knowing full well it will not become law.

We also suggest specific reforms based on these principles:

  • Require transparency for “regulatory dark matter.” This includes guidance documents, announcements, and even press releases and blog posts, which agencies use to make policy changes without going through the proper rulemaking process. Rep. Bob Good’s (R-VA) recently introduced Guidance Out of Darkness (GOOD) Act would do this for guidance documents.
  • Require Congress to vote on all new major agency regulations. Agencies often issue regulations that are not in accordance with congressional legislation. This would provide a check against such abuses. The recently reintroduced Reforms from the Executive in Need of Scrutiny (REINS) Act, sponsored by Sens. Todd Young (R-IN) and Rand Paul, would do this. See also my paper on the REINS Act.
  • Annual regulatory report cards for agencies containing important information, such as their major current and planned rules, their cost, and more. Rep. Paul Gosar (R-AZ) introduced a bill last year to implement a version of this idea.
  • A Regulatory Reduction Commission to repeal outdated and harmful rules. I wrote about this idea here and here. The Pandemic Preparedness, Response, and Recovery Act would establish a COVID-focused version of this idea. It was sponsored last Congress by Rep. Virginia Foxx (R-NC) and Sens. James Lankford (R-OK), Ron Johnson (R-WI), and Rob Portman (R-OH).
  • Automatic sunsets for all new regulations. All regulations should automatically expire after 10 years unless Congress votes to reauthorize them. This will make it easier for obsolete rules to stop doing harm.
  • Publish a federal regulatory budget. Congress is required, at least in theory, to create an annual budget for government spending. It should be required to do the same for regulatory costs.

These reforms should apply to independent agencies as well as cabinet-level agencies. Independent agencies, which constitute roughly two thirds of all rulemaking agencies, are currently exempt from many transparency and rulemaking requirements that apply to other agencies. This is bad institutional design, and should be fixed.

For more ideas, see chapter one of Free to Prosper, CEI’s new agenda for Congress. The entire agenda is here.

The Regional Differences Argument against a $15 Minimum Wage

The strongest political argument against increasing the federal minimum wage is the regional differences argument. Basically, while a $15 minimum wage might not be a big deal in an expensive place like New York or San Francisco, the tradeoffs would be much steeper in lower-cost places like small towns and rural areas. That tends to matter to politicians more than the usual economic arguments. Over in The Hill, I explain why the regional differences argument means there should be no federal minimum wage.

House members often represent heavily urban or heavily rural districts, so they don’t have to worry much about regional differences. Senators do, because they represent entire states. They have constituents in expensive big cities and constituents in lower-cost small towns. Something barely felt in downtown Chicago might not play as well in Peoria. This is one reason why minimum wage bills such as the Raise the Wage Act routinely pass the House yet stall in the Senate.

Regional differences are also why President Biden, whose constituency is the entire country, said that it “Doesn’t look like we can do it” about including a $15 minimum wage in the next COVID-19 spending bill.

The regional differences argument is in addition to the other problems with minimum wages. The tradeoff of higher wages is lower no-wage compensation, which includes cheaper insurance, fewer breaks, less vacation time, fewer resources put into better working conditions, and more.

Big companies such as Amazon and Costco already pay $15 minimum wages to their workers, yet favor it for their competitors, too. This is rent-seeking by using government to raise smaller competitors’ costs and lock in their own dominance. Minimum wages often act as a tax increase on lower-income workers. Their total compensation shifts toward higher taxable wages and lower untaxed benefits and perks. Even if their total compensation remains roughly unchanged, those extra taxes can mean a cut in take-home pay.

Read the whole thing here. For more arguments against minimum wage legislation, see my paper “Minimum Wages Have Tradeoffs.”

Event: Reviving America after a Year of Chaos

Yesterday I spoke on a panel discussion hosted by the Pacific Legal Foundation. The topic was opportunities and challenges for enacting sound policy in the year to come. PLF president Steven Anderson moderated, and the other panelists included the State Policy Network‘s Jennifer Butler and Greg Brooks of the Better Cities Project.

The event is viewable on YouTube here.