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.

In the News: DC’s Amazon Antitrust Case

Canada’s Les Affaires quotes me, in French, on the DC attorney general’s Amazon antitrust case that he filed yesterday Note that I am not sophisticated enough to speak French, and can barely read it well enough to get the gist of it. This is translated from an earlier statement:

Cela nuirait aussi aux PME, qui sont déjà suffisamment en difficulté en ce moment», a abondé Ryan Young, un analyste du centre de réflexion Competitive Enterprise Institute. 

Il estime en outre qu’Amazon fait déjà face à de la compétition de la part de Walmart, qui a sa propre plateforme de e-commerce ouverte aux tiers, ainsi que d’autres sites comme Ebay, Etsy ou Shopify.

In the News: Inflation

About a week ago, I was quoted in another Center Square story on inflation.

Steel Companies Lobby for Steel Tariffs, Biden to Double Lumber Tariffs

One of the first things President Biden should have done upon taking office was to eliminate the Trump tariffs. This would have provided potent economic stimulus without any additional spending. Instead, as my colleague Iain Murray points out, Biden is making the Trump tariffs his own—along with all of the consumer harm, corporate cronyism, slowed recovery, and diplomatic strain that tariffs cause.

It is easy to see why some steel producers are lobbying to keep steel tariffs in place. Steel prices are at record highs, and U.S. steel companies don’t have to worry about customers getting a better deal from someone else. However, steel-using industries, from autos to construction, are paying record-high costs, and passing them on to consumers. Steel’s gain is offset by everyone else’s loss, to the tune of about $900,000 per steel job saved.

Meanwhile, President Biden is proposing to double tariffs on Canadian lumber, at a time when lumber prices are also at record highs. First, this is a dubious foreign policy gesture. Canada is an ally, with whom we just signed the USMCA trade deal. Second, and closer to home, housing prices are increasing rapidly, up and out of reach for many families. The administration has some explaining to do about why it wants to make housing even less affordable when the economy is still in recovery mode.

Congress should not let President Biden copy his predecessor’s mistakes. They should reclaim the tariff-making authority they mistakenly gave away to the president. Congress can do this by repealing Section 232 of the 1962 Trade Expansion Act and Sections 201 and 301 of the 1974 Trade Act. These are what made the Trump-Biden tariffs possible, and apparently it will take Congress to stop them. The time to act is now.

For more on how to improve trade policy, see the trade chapter in CEI’s recently released Agenda for Congress.

DC Antitrust Suit Against Amazon Could Actually Harm Consumers by Making Online Goods More Expensive

This press release was originally posted on cei.org.

The District of Columbia’s Attorney General filed a lawsuit today against Amazon, alleging the tech company is engaged in anti-competitive behavior by controlling retail prices online.

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

“Amazon should be free to set the terms for third party sellers on its own platform, just as sellers are free to pass on using Amazon’s Marketplace if they don’t like the terms. Amazon is pushing to offer the lowest prices possible and while that may not always please third-party sellers, it’s the dead opposite of consumer harm.”

Senior Fellow Ryan Young said:

“The District of Columbia’s Amazon lawsuit has terrible timing, for two reasons. One, it comes on the heels of the worst pandemic in a century, during which online ordering of groceries and other goods helped keep people out of crowded stores. If successful, the District’s antitrust lawsuit would make online goods more expensive. This would hit lower-income consumers and vulnerable populations the hardest. It would also harm sellers, who are having a difficult time as it is during a tough recovery.

“Two, competition is already increasing. Other retailers such as Walmart now have their own third-party seller programs that compete with Amazon’s. This is on top of existing online options small sellers can use, such as Ebay, Etsy, and Shopify, as well as numerous niche markets, such as Reverb for musical equipment and Newegg for computer products.”

Read more:

This Week in Ridiculous Regulations

CEI’s Wayne Crews looked at the Biden administration’s dismantling transparency reforms for guidance documents and warned that political spending on scientific research would become political. Meanwhile, agencies issued new rules ranging from effluent analysis to bank executive loans.

On to the data:

  • Agencies issued 62 final regulations last week, after 60 the previous week.
  • That’s the equivalent of a new regulation every two hours and 42 minutes.
  • With 1,198 final regulations so far in 2021, agencies are on pace to issue 3,088 final regulations this year. 2020’s total was 3,149 final regulations.
  • Agencies issued 29 proposed regulations in the Federal Register last week, after 48 the previous week.
  • With 836 proposed regulations so far in 2021, agencies are on pace to issue 2,155 proposed regulations this year. 2020’s total was 2,021 proposed regulations.
  • Agencies published 421 notices last week, after 408 notices the previous week.
  • With 8,552 notices so far in 2021, agencies are on pace to issue 22,041 notices this year. 2020’s total was 22,480.
  • Last week, 1,164 new pages were added to the Federal Register, after 1,933 pages the previous week.
  • The average Federal Register issue this year contains 287 pages.
  • With 27,796 pages so far, the 2021 Federal Register is on pace for 71,369 pages in 2021. The 2020 total was 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are two such rules so far in 2021, none from the last week. Agencies published five economically significant rules in 2020, and four in 2019.
  • The running cost tally for 2021’s economically significant rules ranges from net savings of $100.7 million to net costs of $362.5 million. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • Agencies have published 16 final rules meeting the broader definition of “significant” in 2020, with none in the last week. This is on pace for 41 significant rules in 2021. 2020’s total was 79 significant final rules.
  • In 2021, 230 new rules affect small businesses. Five are classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

Microsoft to Retire Internet Explorer: Lessons for Today’s Antitrust Cases

Microsoft just announced it will retire its Internet Explorer browser next year. This is the same program that was at the heart of an antitrust lawsuit against Microsoft in the late 1990s. There are two lessons here for today’s calls for expanding antitrust enforcement. One is that making something the default option does not guarantee that people will use it. The second is that the difference between a 90 percent market share and a laughing stock can be as small as a few years.

Internet Explorer was bundled into Microsoft’s Windows operating system, and Microsoft would not allow computer manufacturers to unbundle it. It was also set as Windows’ default browser in every new machine. It had a 90 percent market share in 2001, when the case was still active. The antitrust case argued that Microsoft’s inclusion of Internet Explorer with Windows was illegal tying—requiring consumers to buy two products together, even if they only want one of them.

The case more or less ended in a draw. The initial decision to break the company up was overturned on appeal. In the final settlement, Microsoft made some minor concessions to the government and paid about $3 billion to competitors who had sued it in separate private antitrust lawsuits.

Just a few years later, Internet Explorer’s 90 percent market share cratered. It turns out that making something the default option is not enough to make people actually use it. A succession of superior browsers, including Mozilla’s Firefox and Google Chrome, have taken turns as the leading browsers. Chrome is the current market leader with about a 65 percent market share.

As a response to the competition, Microsoft launched Edge, a new browser, and made it the default Windows browser. Its market share is currently about 3 percent. Internet Explorer is around 1 percent.

Microsoft’s real-world experience puts a damper on today’s antitrust claims that Google, Apple, and Amazon giving preferential treatment to their in-house offerings is an effective anti-competitive strategy. This is because of what I call the dozen keystrokes argument—that’s about how difficult it is to download a different browser, type in a different search engine’s URL, join a new social network, or find a different product in a search.

Internet Explorer’s journey to the pasture is not the only news story poking holes in populist antitrust arguments. AT&T is selling its WarnerMedia division for about half of what it paid for it just three years ago. The deal was nearly blocked, with critics arguing that combining network infrastructure and media content in the same company would devastate competition. Now AT&T is refocusing on networks, while WarnerMedia is attempting to compete with a raft of streaming services, many of which did not exist just a few years ago. Antitrust regulators’ cries of foul will never change, but markets always do. Just ask Microsof and AT&T.

What Inflation Is, and What It Isn’t

It looks like we’re in for a bit of inflation. After decades of stable 2 percent inflation, the latest indicators say it’s moving up to about 4 percent. While fears of Carter-era stagflation are overblown, even a modest jump in inflation would be harmful. The warning signs are clear, and policy makers should act to avoid it. They probably won’t. Even so, a lot of people need to chill out on their inflation fearmongering.

We’re not going to become Argentina or Zimbabwe. We’re not even going back to the 1970s, when inflation was in the double digits. Part of the confusion is that many people seem to be confused about what inflation is, and what it isn’t. This post will try to clarify that in plain English.

The late Nobel laureate economist Milton Friedman famously said that “inflation is always and everywhere a monetary phenomenon.” That means inflation has to do with money itself. When the money supply changes, but the amount of actual goods and services doesn’t, the price level changes. This can happen when the government prints more dollars, adjusts interest rates on loans, and engages in heavy deficit spending.

Other types of price changes are not inflation. The recent hike in gas prices following the Colonial Pipeline hack was not inflation. That was supply and demand. The supply of gas was cut off, so its price went up. Since this didn’t involve the supply of money itself, it wasn’t inflation.

Computers are another example of non-inflation price changes. Most people are familiar with Moore’s Law, which states that computing power at a given price doubles every two years or so. On paper, this continual price drop looks like deflation. It is not. The price is going down because of technological improvements. Money supply has nothing to do with it. Again, if a price change isn’t monetary, it isn’t inflation.

Some of this confusion is baked into the indicators we use to measure inflation, such as the Consumer Price Index) and the Personal Consumption Expenditures Price Index. These take a basket of common goods and track their prices over time. While this is good for tracking overall price changes, they can’t precisely suss out how much of those price changes are due to monetary factors like deficit spending or dollar printing, versus how much is caused by non-monetary factors, like broken pipelines or technological progress. These indicators are useful and can give us a general idea of what is happening. But they are not perfect, and most economists believe they overstate inflation.

Many people are worrying about gas price increases as a harbinger of inflation. There is a psychological reason for this—for a lot of people, the oil price shocks of the inflationary 1970s are within living memory. Today’s shocks are bringing back some bad memories, and it is natural to make that association. But if it isn’t monetary, it isn’t inflation. The recent price shock was a supply and demand shock.

The rapid gas price increase also comes after people had gotten used to enjoying a year of low gas prices due to the pandemic. Coming up from a lower baseline makes a sharp increase feel even sharper. But again, this price change wasn’t monetary. People weren’t driving as much during lockdowns, so demand for gas was down. Money supply had nothing to do with it.

People shouldn’t be so jumpy, though it’s understandable that they would be. While 4 percent inflation is not cause for alarm, it will still cause harm. Inflation is a regressive tax that hits everyone, but especially the poor. When your dollars buy less for reasons having nothing to do with supply and demand, that is unfair—especially if you are already having trouble making ends meet.

Inflation also causes long-term harm. Prices are information signals. Even if people had no idea the Colonial Pipeline had been hacked, seeing a $16 per gallon price told them to buy less gas, and save supply for people who really need it. The hoarders the Internet has been making fun of are the exception, not the rule. Some of the images are also fakes.

Inflation messes with those signals. When a fake price signal tells people to buy one good instead of another, businesses will shift resources to meet that fake demand. That leaves everyone worse off—consumers and businesses alike. When people make long-term investment decisions based on faulty signals, the result is malinvestment—and fewer resources available for good investments.

How can policy makers keep inflation in check? One way is to spend less. When government engages in deficit spending, it increases the money supply. Part of the cost of the trillions of dollars of stimulus and infrastructure spending will be extra inflation—not enough to bring back bellbottom jeans, but enough to cause some harm.

Unfortunately, neither party is interested in spending restraint. Fortunately, even a $2 trillion infrastructure bill, if spread out over 10 years, will not have a major inflationary effect on an economy that is expected to produce more than $200 trillion over that time. It might be enough to add 1/10th of a percentage point or two to inflation, depending on how other factors play out. But it is not enough to cripple the price system.

Another way to keep inflation in check is through the Federal Reserve. The best policy for the Fed would be to adopt a strict rule like the Taylor rule or Nominal GDP targeting. These work by giving the Fed set instructions on how to respond to economic conditions. A simplified version of how these rules work is that if the economy grows by a certain amount, the Fed increases money supply by a certain matching amount specified by the rule.

This would accomplish two things. First, it would keep the level of inflation relatively low. All else being equal, a lower inflation rate is better than a higher one.

Second, sticking to a rule would keep inflation predictable. That is more important. If inflation is stable, it can’t do very much harm, even if it is relatively high. People can plan around steady inflation by factoring it into interest rates and cost-of-living pay increases. But if inflation is jumping all over the place, how can a small business taking out a 10-year loan calculate a fair interest rate?

While the Fed is unlikely to adopt a formal rule, it can at least resist political pressure to mess with inflation levels on election-minded politicians’ changing whims.

The recent news about inflation is not good, but it is also not apocalyptic. While inflation and monetary policy are a lot more detailed than described here, even a little bit of knowledge can show that while people should keep an eye on the new inflation, they also do not need to panic.

In the News: Inflation

I was recently quoted in a Center Square article about the recent uptick in inflation. Also quoted in the article is George Selgin, who unlike me is one of the top monetary economists in the country.

Read the whole thing here.

This Week in Ridiculous Regulations

The best news of the week was the Centers for Disease Control and Prevention advising that vaccinated people can safely go mask-free pretty much anywhere. Inflation is likely creeping upwards, due to monetary policy decisions and rapid spending increases. While it won’t return to Carter-era levels, an extra percentage point or two of inflation would slow down the COVID recovery. A hacked pipeline led to a gas shortage on the east coast and predictable calls for price gouging legislation. Meanwhile, agencies issued new rules ranging from solar-powered airports to triangle pigtoe.

On to the data:

  • Agencies issued 60 final regulations last week, after 55 the previous week.
  • That’s the equivalent of a new regulation every two hours and 48 minutes.
  • With 1,145 final regulations so far in 2021, agencies are on pace to issue 3,111 final regulations this year. 2020’s total was 3,149 final regulations.
  • Agencies issued 48 proposed regulations in the Federal Register last week, after 35 the previous week.
  • With 798 proposed regulations so far in 2021, agencies are on pace to issue 2,168 proposed regulations this year. 2020’s total was 2,021 proposed regulations.
  • Agencies published 408 notices last week, after 534 notices the previous week.
  • With 8,131 notices so far in 2021, agencies are on pace to issue 22,095 notices this year. 2020’s total was 22,480.
  • Last week, 1,933 new pages were added to the Federal Register, after 1,458 pages the previous week.
  • The average Federal Register issue this year contains 289 pages.
  • With 26,631 pages so far, the 2021 Federal Register is on pace for 72,367 pages in 2021. The 2020 total was 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are two such rules so far in 2021, none from the last week. Agencies published five economically significant rules in 2020, and four in 2019.
  • The running cost tally for 2021’s economically significant rules ranges from net savings of $100.7 million to net costs of $362.5 million. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • Agencies have published 16 final rules meeting the broader definition of “significant” in 2020, with none in the past week. This is on pace for 43 significant rules in 2021. 2020’s total was 79 significant final rules.
  • In 2021, 216 new rules affect small businesses. Five are classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.