Observations from the Tech Antitrust Hearing

This post collects some observations from yesterday’s lengthy House Judiciary Committee Subcommittee on Antitrust, Commercial, and Administrative Law hearing with the chief executives of Amazon, Apple, Facebook, and Google.

  • The parties had different conversations, as they often do. The Republicans mostly talked about political bias. Democrats mostly talked about concentrated power. Despite the different charges, their verdict was the same: guilty.
  • On net, the hearing likely hurt any future antitrust case. For example, as Mike Masnick pointed out, Rep. David Cicilline (D-RI) demanded that Facebook take down certain content—minutes after Rep. Matt Gaetz (R-FL) demanded that the same content be kept up. Judges tend not to look kindly on such incoherence.
  • The hearing had limited fact-finding value. The CEOs’ answers to questions were often interrupted after just a few seconds. The committee members appeared more interested in getting tough questions on camera than in building a case. Alternatively, since many antitrust cases tend not to survive careful scrutiny, perhaps the members knew a proper dialogue would not be in their interest, and avoided one intentionally. Neither possibility reflects well on the legislators.
  • Republicans have forgotten a basic rule of politics: Never give yourself powers you don’t want the other side to have. Reps. Jim Jordan (R-OH), Matt Gaetz (R-FL), and Greg Steube (R-FL) all argued for the federal government to regulate political speech in their party’s favor. If they succeed, Democrats will almost inevitably use that same power in their party’s favor when they are in power. The GOP’s Trump wing’s shortsightedness is quietly making some of their opponents very happy. As the saying goes, never interrupt your opponent when he is making a mistake.
  • There were no gaffes on the level of an 83-year old Sen. Ted Stevens’ (R-AK) 2006 description of the Internet as “a series of tubes” or Mark Zuckerberg’s “Senator, we run ads” response in 2018 to former Sen. Orrin Hatch (R-UT), then 84, on how Facebook makes money despite not charging its users.
  • In fact, yesterday’s oldest member, 77-year old Rep. Jim Sensenbrenner (R-WI), who is retiring after this term, came off comparatively well. He briefly defended the consumer welfare standard in his opening remarks, stated his belief that current antitrust laws do not need to be changed, then mostly stayed out of the fray.
  • The lack of meme-worthy gaffes does not mean the committee members are well versed in technology. The Committee’s average Democrat is age 57, the average Republican is 52, and frankly, it shows. For example, Rep. Lucy McBath (D-MD), 60, seemed to not know how cookies work. On at least one occasion, an angry Republican confused Twitter and Facebook, requiring Zuckerberg to point out the difference.
  • Members, who typically spend most of their careers in government, apparently know little about how retail works. Amazon came under fire for selling self-branded products at cheaper prices than name-brand equivalents, and placing them prominently in searches. Nearly every grocery store and retail chain in the country does the same thing. House brands with low prices and guaranteed shelf space have been standard practice in groceries and retail since the pre-World War II heyday of A&P—which was itself the target of dubious antitrust cases.
  • There was little, if any, discussion of regulatory capture or rent-seeking. This is an important unintended consequence of antitrust enforcement. Many established companies would be happy to comply with adverse antitrust judgments if it meant putting up barriers to entry against competitors. In the long run, cartels can only survive with government help.
  • My colleague Jessica Melugin writes, “Surely, politicians can find a better use of their time than harassing the companies that have helped so many Americans make 2020 a little more bearable.” Antitrust enforcement requires proof of consumer harm, yet this was rarely discussed at the hearing. Search engines make it easier to keep up with the latest news about the virus. Social networks help people stay in touch. Online retail and delivery services help keep people fed and supplied while social distancing. Other tech companies provide entertainment, access to medical care, and make it easier to work or learn from home. We will likely never know how many lives have been saved by these services, many of which are free of charge.
  • A running theme of the hearing was that the current big tech companies have enough market power to squash competitors—and then presumably raise their prices. But Zoom, which was not represented at the hearing, shows that the tech industry is still engaging in creative destruction. Six months ago, almost nobody had heard of it. Now, giants such as Microsoft-owned Skype are already essentially legacy services. The Committee’s own technical troubles with its older video conferencing software, which required the Committee to take a recess, underlined the point. Other tech companies are well aware of creative destruction. Facebook’s once-hip user base now has an average age of 46. More than two thirds of TikTok users, by contrast, are between ages 13 and 25.
  • Language matters. And some congressmen are slippery with it. For example, Rep. Cicilline stated that Amazon controls 70 percent of “online marketplaces.” This is a non-standard term that Rep. Cicilline did not define. It almost certainly has a much narrower definition than most people would assume when thinking of a company’s market share. Cicilline’s 70 percent of “online marketplaces” is equivalent to about 4 or 5 percent of retail sales. If people were not listening carefully to Rep. Cicilline’s boutique phrasing, they would get the impression that Amazon has a larger share of its relevant market than it actually holds—by more than an order of magnitude. Does Rep. Cicilline’s terminology include Amazon’s major competitors, such as Walmart, Target, grocery stores, electronics stores, book stores, and more? For more on this type of error, see Patrick Hedger’s recent post and my earlier one on the relevant market fallacy.
  • Rep. Cicilline argued that Google controls 85 percent of Internet searches. This is also misleading. Google does not power many common Internet searches people perform daily. Netflix famously hosted an open competition for developers to design a new search algorithm for its searches that would deliver results tailored to each viewer’s likes and dislikes. Other streaming services also use their own search technology, not Google’s. Amazon product searches use an in-house algorithm. Internet dating sites use proprietary search algorithms as selling points. Internal searches in Word documents or PDF files do not use Google. Were these included in Rep. Cicilline’s statistic? Or is this another example of the relevant market fallacy?
  • Though the hearing lasted for six hours, members missed some opportunities to score valid points. For example, Rep. Mary Scanlon (D-PA) briefly discussed price gouging. She did not bring up, as I recently did, that Amazon’s support of federal price gouging legislation has a potential anti-competitive rent-seeking component. The extensive tax breaks Amazon is receiving for its new second headquarters are another example of anti-competitive corporate welfare. Of course, the blame for these is on politicians as well as companies. This may be why they were downplayed.
  • Facebook CEO Mark Zuckerberg’s public support for heavier regulations for his company has a similar rent-seeking dynamic. Regulations often favor incumbents and lock out potential competitors. Facebook can afford expensive content moderation and privacy regulations; its startup competitors often cannot, or would be discouraged from even trying. Regulations, which Facebook would likely help to write, would likely lock in its leading position in a way that consumers would never allow.
  • Google’s sometimes-accommodating behavior to the Chinese government’s censorship and human rights policies is questionable. At the very least, the company should do more to stand up against illiberal governments. This, however, is not an antitrust issue.

In short, committee members addressed a lot of things they shouldn’t have, and did not address some things they perhaps should have. If this hearing has a part seven (yesterday was actually part six), it should have fewer threats to regulate political speech and fewer common analytical mistakes. And it should focus on how tech companies affect consumers, for both good and bad, and on likely consequences of antitrust enforcement, such as regulatory capture.

For a broader view of antitrust regulation, see Wayne Crews’s and my paper. A new #NeverNeeded paper on tech regulation during COVID-19 by my colleagues Jessica Melugin, Patrick Hedger, Michelle Minton, and John Berlau is here. Jessica’s thoughts on the hearing are here. More resources are at antitrust.cei.org.

This Week in Ridiculous Regulations

Confirmed COVID-19 cases in the United States surpassed 4 million last week. Deaths surpassed 140,000. Congress returned to session after its July 4 break and is putting together another stimulus package. The 2020 Federal Register also surpassed 45,000 pages. It is averaging 315 pages per day than in past years, about 10 percent more than last year. On the bright side, baseball is back, the NBA is about to resume its season, and this analyst has missed them both. Regulatory agencies issued new regulations ranging from small satellites to lithograph emissions.

On to the data:

  • Last week, 79 new final regulations were published in the Federal Register, after 71 the previous week.
  • That’s the equivalent of a new regulation every two hours and eight minutes.
  • Federal agencies have issued 1,811 final regulations in 2020. At that pace, there will be 3,166 new final regulations. Last year’s total was 2,964 regulations.
  • There were also 59 proposed regulations in the Federal Register last week, for a total of 1,246 on the year. At that pace, there will be 2,178 new proposed regulations in 2020. Last year’s total was 2,191 proposed regulations.
  • Last week, agencies published 444 notices, for a total of 12,639 in 2020. At that pace, there will be 21,624 new notices this year. Last year’s total was 21,804.
  • Last week, 1,374 new pages were added to the Federal Register, after 1,773 pages the previous week.
  • The 2020 Federal Register totals 45,055 pages. It is on pace for 78,768 pages. The 2019 total was 70,938 pages. The all-time record adjusted page count (which subtracts 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. Three such rules have been published this year. Four such rules were published in 2019.
  • The running cost tally for 2020’s economically significant regulations ranges from net savings of between $1.38 billion and $4.19 billion. 2019’s total ranges from net savings of $350 million to $650 million, mostly from estimated savings on federal spending. The exact number depends on discount rates and other assumptions.
  • Agencies have published 39 final rules meeting the broader definition of “significant” so far this year. 2019’s total was 66 significant final rules.
  • So far in 2020, 346 new rules affect small businesses; 14 of them are classified as significant. 2019’s totals were 501 rules affecting small businesses, with 22 of them significant.

Highlights from last week’s new regulations:

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

New #NeverNeeded Paper: Price Gouging

Massive shortages happened almost instantly when it became clear that the coronavirus would require a nationwide lockdown. Grocery stores almost instantly cleared out of frozen foods, non-perishables, hand sanitizer, and, bizarrely, toilet paper. Stores dealt with the shortages in different ways. But one of those ways, raising prices, is almost universally unpopular. In fact, 36 states have anti-price gouging legislation on the books. Both Commerce Secretary Wilbur Ross and an Amazon vice president have called for federal price gouging legislation.

In a new paper, I explain that price gouging legislation is a bad idea, regardless of one’s feelings about price gouging. The main reasons are:

  • Private companies have their own anti-price gouging responses. Moreover, they can evolve in ways regulation cannot, and more quickly. For example, Amazon’s artificial intelligence (AI) algorithms for policing price gouging among its third-party sellers turned out to have unintended consequences. But unlike Congress, they don’t have to wait until the political winds blow just right before doing something about it. Part of trial is error, and that’s okay. Without mistakes, there is no learning.
  • Price controls make shortages worse.
  • Rent-seeking. Big companies such as Amazon have already invested in AI algorithms and other anti-price gouging measures to prevent their third-party sellers from price gouging. Their smaller competitors have not. Amazon’s call for federal legislation likely has a bit more than good PR behind it.
  • Anti-price gouging measures don’t actually reduce prices. They reduce money prices at a tradeoff: non-money prices go up even more. These non-money price increases include worse shortages, longer searches, waiting lines, longer shipping times, lower quality, and in some cases, more black market activity.
  • There is no objectively correct mix of money- and non-money prices during a crisis. Different people have different needs and different preferences. Legislation, by imposing one single standard, does no favors to people’s diverse situations.

The whole paper is here. I touched on a few other price gouging tradeoffs here. CEI’s #NeverNeeded website is here.

How to Spot a #NeverNeeded Regulation

Regulatory reform is one of the most important weapons there is for fighting COVID-19 and for aiding the economic recovery after the worst passes. But with 1.1 million regulatory restrictions and 185,000 pages of rules at the federal level alone, where should policy makers start? This handy infographic shows policy makers and regulators what to look for. If a rule meets one or more of these guidelines, it is probably a #NeverNeeded regulation.

  • It slows distribution of proved medical diagnostic tests and services.
  • It blocks patients’ remote access to medical providers.
  • It increases the cost of energy at a time when people can least afford it.
  • It makes it more difficult to hire employees.
  • It adds another layer of bureaucracy or complexity to legal compliance.
  • It blocks access to capital for both consumers and businesses.

A good rule of thumb is that if a regulation isn’t needed now, during a pandemic, then it probably was never needed in the first place.

Getting rid of #NeverNeeded regulations should be a top priority for lawmakers and regulators. But it is also not enough. Regulatory sludge has been building up for decades. Federal agencies issue more than 3,000 new regulations in most years, and usually remove old or outdated rules only when forced to. Reforming the rulemaking process itself, so that it generates fewer #NeverNeeded rules going forward, will be essential to resilience against the next crisis. If net neutrality rules hadn’t been repealed, for example, people in the U.S. would have had to deal with congested, throttled networks, such as many Europeans have been dealing with. The transition to new technologies, such as telemedicine and Zoom meetings for students and workers, would have been more difficult, or even impossible.,

For more resources on identifying and reforming #NeverNeeded regulations, see neverneeded.cei.org.

Deregulate to Stimulate: #NeverNeeded Regulations Are Harming Health and Economy

The Code of Federal Regulations contains more than 1.1 million regulatory restrictions spread out over 185,000 pages. State and local governments have additional rules. Some of those rules have a valid purpose. Many others are making the COVID-19 crisis worse than it has to be. They get in between sick people and the health care they need. They make it harder for people to keep their jobs or educate their children during lockdown. If these rules are harmful during a crisis, they were probably never needed in the first place—hence CEI’s #NeverNeeded campaign.

CEI has produced a slew of studies, events, and commentary on everything from the Center for Disease Control and Prevention’s (CDC) mission creep to the Jones Act, which makes shipping slower and more expensive. There is also the #NeverNeeded hashtag on social media, which has brought together policy experts, policy makers, activists, and media outlets.

There are a lot to important reforms keep track of, so we put together an infographic that collects in one place the most urgent #NeverNeeded regulations that need reform. These focus on fighting COVID itself, and on making the economic recovery easier once it is safe to do so:

  • First and foremost, the Food and Drug Administration needs to speed up its approval process. For the average drug, this process can take a decade and cost several hundred million dollars. COVID-19 treatments must not take this long.
  • Public transportation is not exactly conducive to social distancing. Urban planners should stop trying to shoehorn people into it with a complicated web of subsidies, taxes, building and street regulations, and more. Right now, cars are safer. When the pandemic passes, people should be allowed choose their transportation options for themselves, on the level.
  • The recent decision to liberalize the Environmental Protection Agency’s rules related to the National Environmental Policy Act was a wise one. Permitting processes and environmental inspections long ago crossed from being a reasonable precaution into a politicized, ideological weapon.
  • Doctors and nurses face licensing restrictions that keep qualified people out. Loosening them to reasonable levels would make health care more abundant and more affordable. This is good policy during good times; right now, it is essential.
  • Higher utility bills are the last thing people need when record numbers of people are on unemployment insurance and small businesses are going under at alarming rates. Restrictions on fracking and other affordable energy technologies might be a burden people can bear during a boom, but not now.
  • Some cities have already rolled back their bans on single-use plastics, such as bags and straws. More need to. Plastics are vital for sanitation and preventing the spread of diseases, including COVID.
  • The Centers for Disease Control recently spent $125 million on a campaign against vaping. This and its many other other lifestyle-focused programs left the agency distracted and underprepared for the coronavirus outbreak. The CDC should get out of the lifestyle business and focus on its core mission of controlling diseases.
  • People spend more on gas than they need to, thanks to ethanol requirements in gasoline. Economists and environmentalists agree that the program has dubious environmental benefits. Instead, it raises gas and food prices while increasing the need for farmland. That means less habitat for wildlife and less money left over for families who need to stretch every dollar during lockdown.
  • Rules that discriminate against independent contractors, such as California’s AB5 legislation, had already put thousands of people out of work before COVID-19 hit. At a time when many people, especially high-risk individuals, need to work from home when possible, AB5 and similar proposals make that difficult or impossible. Rules that harm both public health and the economy need to go.

For more reform ideas and resources, see neverneeded.cei.org.

3,000th Post

This is not a very active blog, even in the best of times. But it has somehow made it to 3,000 posts since it began in September of 2005.

This site has evolved over time from a young writer practicing his craft and trying out ideas with, ahem, varying success, into mostly an archive for my published work. While I don’t post original content as often anymore, I will continue to maintain this site.

There is plenty more content on the way on that front. I have a new paper coming out later this week, two co-authored papers in the pipeline, and forthcoming op-eds and other commentary.

I am far behind on a long slew of book reviews, which judging by traffic statistics are a popular feature here, and the main source of original content. The reviews provide a searchable (and citable) archive I can turn to when doing research. They help me remember who made what argument, or revive a long-forgotten point relevant to something I’m currently working on. The very exercise of writing them forces me think more deeply about a writer’s ideas. This is helpful whether I agree or disagree–or more usually, both at the same time. In one case, a review was excerpted for a cover blurb on the paperback edition of one of my favorite books.

The urgency of coming up with helpful, coherent, and lasting policy responses to COVID-19 has caused me to neglect non-COVID-related projects. It’s worth it, but as I’ve been pointing out for years, tradeoffs are everywhere. Eventually normalcy will return, in writing as well as in life. Until then, please wear a mask in public and make prudent decisions. We’ll get through this.

This Week in Ridiculous Regulations

After another busy week for agencies, the 2020 Federal Register is on pace to be 79,121 pages. None of those pages include the Spring 2020 Unified Agenda, which was supposed to have been published in April. Even so, this year’s Federal Register would be more than a 10 percent increase over last year. It would also be the Trump administration’s longest Federal Register by more than 8,000 pages and would exceed three of the Obama administration’s eight yearly totals. Regulatory agencies issued new regulations ranging from the National Environmental Policy Act (NEPA) to beryllium work areas.

On to the data:

  • Last week, 71 new final regulations were published in the Federal Register, after 93 the previous week.
  • That’s the equivalent of a new regulation every two hours and 22 minutes.
  • Federal agencies have issued 1,732 final regulations in 2020. At that pace, there will be 3,138 new final regulations. Last year’s total was 2,964 regulations.
  • There were also 41 proposed regulations in the Federal Register last week, for a total of 1,197 on the year. At that pace, there will be 2,168 new proposed regulations in 2020. Last year’s total was 2,191 proposed regulations.
  • Last week, agencies published 472 notices, for a total of 12,195 in 2020. At that pace, there will be 22,036 new notices this year. Last year’s total was 21,804.
  • Last week, 1,773 new pages were added to the Federal Register, after 1,815 pages the previous week.
  • The 2020 Federal Register totals 43,679 pages. It is on pace for 79,129 pages. The 2019 total was 70,938 pages. The all-time record adjusted page count (which subtracts 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. Three such rules have been published this year. Four such rules were published in 2019.
  • The running cost tally for 2020’s economically significant regulations ranges from net savings of between $1.38 billion and $4.19 billion. 2019’s total ranges from net savings of $350 million to $650 million, mostly from estimated savings on federal spending. The exact number depends on discount rates and other assumptions.
  • Agencies have published 35 final rules meeting the broader definition of “significant” so far this year. 2019’s total was 66 significant final rules.
  • So far in 2020, 331 new rules affect small businesses; 12 of them are classified as significant. 2019’s totals were 501 rules affecting small businesses, with 22 of them significant.

Highlights from last week’s new regulations:

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

In the News: Lowering Tariffs

Bloomberg’s Ana Monteiro was kind enough to quote from my tariff relief paper in a recent piece:

While some duties have been relaxed to help with importing inputs needed for the coronavirus response, repealing tariffs related to health care altogether is something that Ryan Young, a senior fellow at the Competitive Enterprise Institute, in a July 8 paper said would have the immediate benefit of lowering costs for equipment and medical treatments. He argued that removing all duties imposed since 2017 would “aid economic recovery by reducing businesses’ supply costs,” and provide them some regulatory certainty.

The CEI’s Young also called for tariff-making authority to be moved back to Congress. That would mean repealing:

  • Section 232 of the 1962 Trade Expansion Act, which allows for tariffs without a vote by Congress if imports are deemed a national-security threat;

  • Sections 201 of the 1974 Trade Act, which gives the president authority to impose trade restrictions;

  • Section 301 of the 1974 Trade Act, which President Donald Trump has used to impose tariffs on French and Chinese goods.

Read the whole article here. The paper is here.

In the News: Tariff Reform in the CBC

It’s not often that phrases such as “institution-level reforms” and “never needed” appear in state-run media at all, let alone favorably. I am pleased this happened in a recent article on trade policy in Canada’s CBC:

In a report issued Wednesday, the U.S.-based Competitive Enterprise Institute, a conservative think tank, urged the Trump administration to get rid of all tariffs.

“Tariff reform should have been a priority before the coronavirus hit, but now it’s even more urgent to lift trade barriers, in particular for health care supplies and treatments,” said Ryan Young, CEI senior fellow and author of the report, in a statement.

“Tariffs were never needed in the first place, and they are causing harm during a potentially Depression-level economy. The time to act is now.”

Among other things, the report calls on Congress to “make big-picture, institution-level reforms to U.S. trade policy” — including the repeal of Section 232 of the Trade Expansion Act of 1962 and Sections 201 and 301 of the Trade Act of 1974 — to “restore tax authority to the legislature and make trade policy less subject to presidential whim.”

CEI is misidentified as conservative rather than liberal, in the correct sense of the word. But there are bigger battles to fight. The full article is here; my recent paper on tariff relief is here.

In the News: Tariff Relief

Reason‘s Eric Boehm was kind enough to draw on my recent paper on tariff reform in a piece urging the inclusion of tariff relief in the next coronavirus stimulus bill. The article is here; the paper is here.