Antitrust Regulation

Antitrust as Price Regulation by Least Efficient Means

Any company that has $100 billion in cash and marketable securities on its books, as Apple does, is charging excessive prices for its products, in the sense of prices higher than necessary to make everyone at Apple ready, willing, and able to continue to do the excellent job that they are doing.

Is that a problem? Unfortunately, yes, for any society that’s supposed to be a thing of the people. It means that Apple is bilking the public: taking more from the people for their iPhones and Macbooks than is strictly necessary to give Apple an incentive to produce iPhones and Macbooks.

Taking more than necessary is, after all, what it means to have $100 billion languishing in your bank and investment accounts.

You don’t need them to reward investors. Otherwise you would have paid the money out already.

You don’t need them to build more factories. Otherwise you would have built the factories already.

You don’t need them to pay Tim Cook. Otherwise you would have upped his compensation already.

And with an AA+ credit rating, you don’t need them for an emergency either, since it would cost you almost nothing to borrow cash in a pinch.

You just don’t need those billions, which is why they are what economists call “rents:” earnings in excess of what would be necessary to make the company, and all those who contribute to its success, ready, willing, and able to carry on.

Should government do something about these rents?

Yes. But not with the antitrust laws. Because Apple’s rents are not monopoly rents. Those are the excessive returns that come from making your products stand out by trashing your competitors’ products, rather than improving your own. Antitrust prohibits that sort of behavior.

But does anyone think Apple achieved the ability to charge $1,200 for an iPhone by making Samsung products worse?

Of course not.

Which is why there is no antitrust case against Apple.

Instead, Apple’s rents are Schumpeterian: excessive returns that come from making your products stand out by improving them, rather than by trashing the products of competitors. Antitrust does not prohibit such conduct.

Nor should it, because antitrust is a slayer, breaking up the firms that run afoul of its rules, saddling them with behavioral injunctions, and taxing them with trebled damages.

Those remedies make sense when the target is a firm that has gotten ahead by trashing competitors. That sort of firm doesn’t have a better product to offer, so smashing it is no great loss to society.

That’s not true for firms like Apple that have gotten ahead by being better. Smash Apple and you might well get Apple’s prices down. But you might also end up with poorer-quality products.

Why is it that Samsung keeps churning out gimmicky phones that are just a bit too ahead of their time to work properly, whereas, iteration after iteration, Apple phones continue to please?

Who knows?

By the same token, who knows whether Apple divided two ways, three ways or four ways will still have the same old magic? Organizations are mysterious things and we should break them only when they are already broken.

That doesn’t mean that something shouldn’t be done about Apple’s prices. As is so often the case, the right approach is the most direct: tell Apple to lower them.

There’s nothing novel about doing that. It’s the way America often has dealt with high-tech firms that get carried away with their own success. It happened with the landline telephone: the states regulated telephone rates for a century, and many retain the statutory authority to do so today. No vast cultural leap would be required to regulate the prices of iPhones or other Apple products.

Regulating prices runs much less of a risk of killing the golden goose, because it’s a scalpel to antitrust’s hammer, ordering prices down without smashing the firms that charge them.

But are prices really all that Apple’s antitrust adversaries care about? I think so.

The antitrust complaint brought by Fortnite-videogame-maker Epic is admirably transparent on this score, inveighing against what it calls Apple’s “30% tax” on paid App Store apps.

True, Epic spends a lot of time arguing that Apple should stop vetting the apps that can be installed on iPhones and should also stop requiring apps to accept payments via Apple’s own systems.

But it’s hard to believe Epic really cares whether consumers can run any app they want on the iPhone, or whether consumers can make in-app purchases with Paypal instead of Apple Pay.

The real reason Epic targets app vetting and payment systems lockdown is more likely because these two Apple policies prevent Epic from doing an end run around Apple’s 30% fee by connecting directly with users.

So to use antitrust to attack Apple’s prices, Epic ends up trying to thrust a stake through the streamlined, curated environment that iPhone users love. Needless to say, we know what a platform on which you can install anything and pay in any manner looks like: it’s called the PC, that bug-ridden, bloatware-filled, hackable free-for-all from which Apple users have been running screaming for decades now.

The beauty of price regulation is that you don’t need to redesign products to get what you want. Under price regulation, Apple would be able to continue to vet apps and manage payments, and thereby maintain the experience its customers love. All the company would need to do is lower its prices.

Epic isn’t the only organization out to exploit the antitrust laws for the sake of a bit of price regulation by least efficient means. Today’s Neo Brandeisians seem to share this goal.

That is the substance of an extraordinary piece by two affiliates of the Open Markets Institute that calls for using antitrust to smash big firms, but allowing small firms to form price-fixing cartels. The idea is to redistribute wealth by reducing the prices big firms can charge and increasing the prices that the little guy can charge.

That sounds great. But why not just regulate prices directly instead of smashing the country’s patrimony to get there?

Indeed, I’m mystified by the contempt in which this supposedly-radical movement seems to hold price regulation. The movement is all for returning to antitrust’s New Deal heyday. But it has nary a word to spare for price regulation, which was a much bigger part of the New Deal and the mid-century economic settlement that followed it, during which fully 25% of the American economy by GDP was price regulated.

One wonders whether the Neo Brandeisians share the Chicago School’s old concerns about “capture.” Something tells me they might.

Nevermind that we learned long ago that the notion that administrative agencies are captured by those they regulate is too simple by half.

And no one has been able to explain to me why the judges who apply the antitrust laws are any less susceptible to capture than are government price regulators.

But I do know that most Americans don’t seem to know that their gas, electricity, and insurance rates are regulated by government agencies, which says a lot about whether price regulation is the supreme evil that antitrusters of all stripes make it out to be.

The Neo Brandeisians’ mania for competition is really just run-of-the-mill American anti-statism, with a bit of progressive polish. Consider another example of intemperate fervor for competition, one that differs from the Neo Brandeisians’ campaign against big tech only in lacking that campaign’s radical pretensions: The Hatch-Waxman Act.

Rather than follow the rest of the world in regulating prescription drug prices directly, the United States has chosen to use competition from generic drugs to drive down drug prices after patents expire. The Hatch-Waxman Act of 1984 was meant to kickstart the plan by streamlining the generic drug approval process.

It’s important to understand how ridiculous using competition to reduce off-patent drug prices really is. Far and away the greatest virtue of competition is that it leads to innovation: firms must make better products or lose out to competitors.

But when it comes to generic drugs, competition cannot lead to innovation, because generic drugs are by definition copies of old drugs!

If a generic drug company were to innovate in order to get ahead of its competitors, its product would need to go through full-blown clinical trials in order to receive FDA approval and would also likely receive patent protection, instantaneously removing it from the competitive generic drug market and driving up its price. So the innovation rationale for competition just doesn’t exist in context of generics.

But we decided to promote competition anyway, purely for the purpose of reducing off-patent drug prices.

It kind of worked.

Prices for many off-patent drugs fell. But not for all off-patent drugs. As scandals involving Daraprim (of pharma bro fame) and the Epipen show (the latter in the device context), it turned out that competition does not always come to the rescue once patents expire and regulatory hurdles are lowered.

More importantly, the cost of maintaining the system turned out to be immense. Firms responded by finding ways to prevent their drugs from going off-patent, leading to interminable patent and antitrust litigation. Just google “reverse payment patent settlements”–one of the mechanisms used by drug makers to undermine competition–and behold the flood of ink spilt on this avoidable disaster.

Worse, we have learned in recent years that generic drug quality is actually pretty terrible, even dangerous: competition is killing the golden goose.

Not, in this case, because Hatch-Waxman led to the break-up of big firms, but because when competition is just about getting prices down, firms will skimp on production costs. Ruinously low prices are, incidentally, supposed to be another of the great problems with price regulation–that regulators will dictate prices that are too low to cover costs–but it turns out that competition is at least as good at undershooting.

So what we could have gotten from a rate regulator in four little words–“lower your damn prices”–Hatch-Waxman accomplished in a patchwork way, at the cost of interminable litigation and sketchy pills.

Which leads me to ask: can Congress please do something about Apple’s $100 billion cash pile? How about putting aside $25 billion (just to make sure Apple has a nice cushion against shocks), and then rebating the other $75 billion to everyone who has ever bought an Apple product, pro rata? You can be sure Apple knows who they are.

And while Congress is at it, they can take a look at Microsoft and Alphabet, too.

For $100 billion is not actually the largest hoard in Silicon Valley.

Apocrypha Miscellany

Eternal Return

He chiseled at the upper left hand corner of the sealed doorway and it fell away. “Can you see anything?” asked C____. “Yes,” he replied.

“How old?”

He angled an elaborate golden headdress through the gap and held it up to the candle. At its center was an object, the size perhaps of a pear, jet black but shimmering somehow in the light, like a pencil lead, cut expertly into a thousand geometric faces.

“Forever,” he replied.

Antitrust Monopolization

The Original and Purest Form of Anticompetitive Conduct

Still in those early days trade depended not upon the quality of the goods but upon the military force to control the markets. The Dutch consequently valued the island chiefly on account of its strategical position. From Formosa the Spanish commerce between Manila and China, and the Portuguese commerce between Macau and Japan could by constant attacks be made so precarious that much of it would be thrown into the hands of the Dutch, while the latter’s dealings with China and Japan would be subject to no interruptions.

James W. Davidson, The Island of Formosa, Past and Present (1903).

Here Davidson nicely contrasts monopolies based on product quality with monopolies based on force, capitalism with mercantilism. I do not think it is too much to say that democracy, or at least a genuine republicanism, even if autocratic in administration, is the principal bulwark between the two, and that antitrust, when used properly, is meant to round off any remaining mercantilist edges.

When used improperly, antitrust is of course a gunboat all of its own.


Forbidden Fruit

As if to remind those who might still be confused about what the antitrust movement against the tech giants is really about, newspapers are now making common cause with app developers to force Apple to delay new privacy protections that would have allowed app users to opt out of targeted advertising.

That’s right, the same newspapers that have been savaging the tech giants for years as evil privacy foes are fighting to stop Apple from making it harder for app developers to exploit your data.

Why? Because newspapers make money from advertising, of course. They’re the app developers who want to continue to spy on you.

Remember that fawning story in the Times last week about Tim Sweeney, CEO of Epic games, the scrappy maker of Fortnite that is leading an antitrust “crusade” against Apple? Funny how it doesn’t mention that much of the media industry, including the Times, has joined the same fight.

That’s a very old tactic: the enemy of your enemy is your friend. Go to battle with the tech giants, and the Times will talk you up. The paper has done the same for Sonos and an Australian competition regulator in recent months.

At bottom, this is just the hackneyed tale of yesterday’s technology trying to use politics–and the antitrust laws–instead of excellence to survive in the market. Readers think newspapers are in the news business; actually, their business is selling ads. But Google and Facebook do that better, because, as the Times recently noted in relation to Google parent Alphabet:

consumers interact with the company nearly every time they search for information, watch a video, hail a ride, order delivery in an app or see an ad online. Alphabet then improves its products based on the information it gleans from every user interaction, making its technology even more dominant.

Katie Benner & Cecilia Kang, Justice Dept. Plans to File Antitrust Charges Against Google in Coming Week, N.Y. Times, Sept. 3, 2020.

The result has been a catastrophic decline in newspaper revenues.

Rather than do what they should have done all along, which is cut the cord with advertising and build their business around a more wholesome revenue stream–one that doesn’t involve trying to manipulate their readers into buying products they don’t really want to buy–or seek public funding à la the BBC for what is after all a sacred public function, the media industry has appeared to engage in a craven and embarrassing campaign to scare the tech giants into giving media a share of their advertising revenues.

The “tech-lash” of the past decade? That looks an awful lot like a message from media to big tech: pay up, or we’ll wreck your reputation. Wasn’t that driven instead by concerns about privacy? The media’s opposition to Apple’s privacy safeguards today gives us the answer: not so much.

The drumbeat of articles about the courageous antitrust scholars daring to take on big tech (few of whom actually are antitrust scholars)? That looks an awful lot like a message from media to big tech too: pay up, or we’ll get the law to break you into pieces. Wasn’t that driven instead by concern that there’s too much concentration in America? The News Media Alliance’s multi-year campaign for an antitrust exemption that would allow newspapers to cartelize gives us the same answer: not so much.

The House antitrust investigation into big tech, led by a congressman who has been doing the bidding of the News Media Alliance? That too looks an awful lot like a message.

If the pen is mightier than the sword, it is perforce mightier than the microchip. The tech giants have already started to open their pocketbooks. It will be interesting to see how badly they cave.

Of course, there are limits to the amount of sympathy one can feel for Google or Facebook. Those companies may be better at what they do than newspapers, but they are better at doing something antisocial: the spying and manipulation that constitute modern commercial advertising. The newspapers’ fight to get cut in on the spoils is ugly, but one set of rogues deserves another.

Apple is different. The company makes most of its money selling products that genuinely make life easier. And as the company has not tired of reminding us, the fact that its business is not mainly advertising means that its interests are more closely aligned with those of consumers when it comes to privacy than are the interests of any other player in this fight.

That makes newspapers’ attacks on Apple a new low, one that shows that the media’s war against the tech giants is not in the public interest.

For a time, not competing with newspapers for advertising seemed to buy Apple some safety from the media’s antitrust crusade. But when the antitrust shakedown seems to be working against companies that wiped out your old-economy advertising business, why not extend it to one that wants to put the screws on your new-economy advertising business, and see if you can extract lower app store fees while you are at it?

Today’s antitrust movement against big tech may be many things to many people, but one thing it’s not is a progressive movement, even if some of its proponents delight in wrapping themselves in the progressive banner.

That should have been obvious to anyone watching the movement attract Trump Administration backing in assaulting what are probably the most progressive corporations ever. (It’s not normal for corporate employees to block management from accepting lucrative military contracts, and then not get fired.)

But at least now it is completely clear. For “when they tasted of the apple their shame was manifest.”


You Furnish the Briefs

No court has ever, in 130 years of antitrust practice in the United States, taken the position that dominance in and of itself, absent bad conduct, is illegal. But if you were a reader of The New York Times, you could be forgiven for thinking that as a matter of American law big is bad:

Alphabet was an obvious antitrust target. Through YouTube, Google search, Google Maps and a suite of online advertising products, consumers interact with the company nearly every time they search for information, watch a video, hail a ride, order delivery in an app or see an ad online. Alphabet then improves its products based on the information it gleans from every user interaction, making its technology even more dominant.

Katie Benner & Cecilia Kang, Justice Dept. Plans to File Antitrust Charges Against Google in Coming Week, N.Y. Times, Sept. 3, 2020.

Google is an obvious target for the Times, of course, because Google has eaten its lunch in the competition for advertising dollars. But it’s not an obvious target for anyone who knows something about antitrust, which isn’t in the business of smashing firms that win by being better.

But The New York Journal got its war by whipping Americans into a frenzy against an enemy of its choice. Why shouldn’t The New York Times get its antitrust case against Google?

Unlike in 1898, however, the only Americans who have actually been whipped into a frenzy are the elites: surveys show that Americans still love Google and the other tech giants, at least when they’re not being asked leading questions like: should the government “break up tech companies if they control too much of the economy?” (Actually, the best thing about the surveys is that the tech company Americans like least is the one that elites probably like most: Twitter.)

I suppose that it’s only the elites who matter, however, even those who might pretend not to read the Times. AG Barr is so intent on rushing out a case against Google, presumably because he’s been blinkered into thinking it will clinch a win in November for President Trump, that his line attorneys are in open revolt:

Justice Department officials told lawyers involved in the antitrust inquiry into Alphabet . . . to wrap up their work by the end of September[.] Most of the 40-odd lawyers who had been working on the investigation opposed the deadline. Some said they would not sign the complaint, and several of them left the case this summer.

Katie Benner & Cecilia Kang, Justice Dept. Plans to File Antitrust Charges Against Google in Coming Week, N.Y. Times, Sept. 3, 2020.

As PBS tells it: “Remington, who had been sent to Cuba to cover the insurrection, cabled to Hearst that there was no war to cover.” Hearst replied: “You furnish the pictures. I’ll furnish the war.”


Clearly Ruskin Wouldn’t Have Had Trouble Defending a Liberal Arts Education

Taste is not only a part and an index of morality; — it is the only morality. The first, and last, and closest trial question to any living creature is, ‘What do you like?’ Tell me what you like, and I’ll tell you what you are. . . . ‘Nay,’ perhaps you answer; ‘we need rather to ask what these people and children do, than what they like. . . .’ But they only are in a right moral state when they have come to like doing it; and as long as they don’t like it, they are still in a vicious state. The man is not in health of body who is always thinking of the bottle in the cupboard, though he bravely bears his thirst . . . . And the entire object of true education is to make people not merely do the right things, but enjoy the right things: — not merely industrious, but to love industry — not merely learned, but to love knowledge — not merely pure, but to love purity — not merely just, but to hunger and thirst after justice. . . . What we like determines what we are, and is the sign of what we are; and to teach taste is inevitably to form character. . . . [A] nation cannot be affected by any vice, or weakness, without expressing it, legibly, and for ever, either in bad art, or by want of art; and that there is no national virtue, small or great, which is not manifestly expressed in all the art which circumstances enable the people possessing that virtue to produce.

John Ruskin, Unto this Last, and Other Writings 234-235 (Clive Wilmer, ed. Penguin Classics 2005) (1862).

Ruskin’s Conservatism

As I was thinking over this, in walking up Fleet Street the other day, my eye caught the title of a book standing open in a bookseller’s window. It was — On the necessity of the diffusion of taste among all classes. ‘Ah,’ I thought to myself, ‘my classifying friend, when you have diffused your taste, where will your classes be? The man who likes what you like, belongs to the same class with you, I think. Inevitably so. You may put him to other work if you choose; but, by the condition you have brought him into, he will dislike the work as much as you would yourself. You get hold of a scavenger or a costermonger, who enjoyed the Newgate Calendar for literature, and ‘Pop goes the Weasel’ for music. You think you can make him like Dante and Beethoven? I wish you joy of your lessons; but if you do, you have made a gentleman of him: — he won’t like to go back to his costermongering.’

John Ruskin, Unto this Last, and Other Writings235 (Clive Wilmer, ed. Penguin Classics 2005) (1862).

In the event, it was tastes that diffused, and diffused up rather than down, and taste that disappeared, instead of classes.

Antitrust Monopolization Regulation

Antitrust’s Robocall Paradox

Today’s antitrust movement loves to point to the breakup of AT&T as an example of what antitrust enforcers can do when they put their minds to it. The only problem is that the breakup of AT&T was a disaster, and The Wall Street Journal has kindly provided a new example of that today: robocalls.

The breakup of AT&T was a politically-motivated hit, a Nixon-originated project that became the only monopolization case carried through to a conclusion by a Reagan Justice Department that otherwise wanted nothing else to do with antitrust. The target was widely recognized as the standard bearer of progressive managerialism and a leader in progressive labor practices. (Remind you of some other firms that have found themselves in the cross-hairs of an otherwise do-nothing Antitrust Division today?)

The country has little to show for the breakup forty years later. It didn’t eliminate the fundamental bottleneck associated with telephony: the massive last-mile infrastructure required to get calls into consumers’ handsets. That infrastructure is today mostly owned by just three firms, the new AT&T, Verizon, and T-Mobile, because it exhibits great economies of scale.

While the breakup did bring down long-distance rates, that’s a bug, not a feature. The only reason the old AT&T charged high long-distance rates was because the company was engaged in progressive redistribution of wealth, scalping businesses and well-off long-distance powerusers to the end of providing dirt-cheap local phone access and “universal service” to the masses.

Any economist who knows his Ramsey prices will tell you that’s not the most profitable way to set your rates, because long-distance calling is a luxury, but basic phone access is a necessity (911, anyone?). To get the most profit out of the public, you want to charge high prices for the necessity–because people will pay those prices whatever they may be–and low prices for the luxury. The trouble with that from the perspective of distributive justice is that it’s a regressive rate structure: charging the masses high prices and elites low prices.

Which is just what happened after the breakup of Ma Bell.

The court and later Congress forced the Baby Bells that owned the last-mile infrastructure to connect long-distance carriers’ calls, enabling massive entry into the long-distance market and driving down long-distance rates. But consumers don’t just pay for long distance, they also must pay for basic call connection that allows long-distance calls to reach consumers’ handsets.

The price of that went up, for everyone, not just long-distance callers, because the last mile remained a bottleneck, an infrastructure so expensive that few firms can survive in the market. Which is why the Baby Bells, which controlled that infrastructure, never went away.

Liberated from a dominating headquarters weaned on a New Deal politics that demanded the sacrifice of profits in favor of progressive pricing, the Baby Bells now charged whatever they wanted. At last they could enjoy whatever cream they might be able to skim from a public that needs phone service and has nowhere to go. The fact that they dominated regional markets, but not long-distance, gave them the political cover that hulking monopoly Ma Bell never had.

Free to grow fat, they matured into the tri-opoly we have today, one that has distinguished itself in its adherence to the maxim that the greatest reward of monopoly is a quiet life by supplying America with slower mobile internet service than almost any country in the developed world.

But at least we got competition in long distance, right? Now anyone with $10,000 in working capital and a closet to store some routers can be a long-distance provider. Isn’t that a win for local self-reliance?

More like a win for fraud and robocallers, according to the Journal, in a story about the “dozens of little-known carriers that serve as key conduits in America’s telecom system,” connecting robocalls that “in total bilked U.S. consumers out of at least $38 million in 2019.”

The Journal treads lightly here–after all it’s got as much to gain as any newspaper from the current antitrust campaign against the tech giants that have out-competed the paper for advertising revenue in recent years–but it’s hard to disguise the culprit:

These small carriers took hold in the decades following the 1984 breakup of AT&T’s phone system monopoly, which was designed to lower the costs of long-distance calls. They mushroomed during the introduction of internet-based calling services in the 2000s.

The emergence of these small phone companies was in many ways a positive development for consumers who now pay less for long-distance calls. The downside is that the system wasn’t designed to discern between legitimate and illegitimate calls, which are sometimes mixed together as they are passed along. U.S. regulators generally didn’t require these carriers to block calls and in some cases forbade them from doing so as a way of limiting anticompetitive behavior. Some telecommunications experts say that opened the door for smaller carriers to hustle business from robocallers, or simply turn a blind eye to suspect traffic.

Ryan Tracy & Sarah Krause, Where Robocalls Hide: the House Next Door, Wall Street Journal, August 15, 2020.

Would there have been robocalls if we still had Ma Bell? Unlikely for a company that was so obsessed with control over its network that it famously stamped “BELL SYSTEM PROPERTY – NOT FOR SALE” on every handset in America.

(I do have to admit, however, that another communications monopoly still with us today provides something of a counterexample. The largest category of mail delivered by the U.S. Postal Service is advertising.)


The Just Price and Discounts for Online Education

Students forced to learn online are demanding tuition reductions. That is a sign that we still believe that there is such a thing as a just price.

The argument for discounts seems to be that the value of the educational product is less when delivered online, so the price should fall. The implication is that product quality, not market forces, ought to determine price.

Economics rejected just price theory when the world rejected God back at the end of the 19th century. In economics, disillusionment was expressed in the realization that price is determined by supply and demand, not value. Think of a diamond whatever you will. But if supply increases, price will fall. And if demand increases, price will rise. Like everything in a world without God, price is relative.

So the economic question posed by the switch to online education is: what’s become of the supply and demand for education in the pandemic?

As an armchair matter, the answer would seem to be: not much.

While some students might choose to forgo school because they believe the quality of online education to be poor, the poor job market suggests that many others will be choosing to return to school. And even if one grants that online teaching is poor in quality, it is more accessible, allowing students who might not have gone to school due to geographic or temporal constraints now to do so. So demand is likely unchanged.

And supply is likely unchanged as well. The poor economy may shutter some schools that were dependent on sports or housing revenues. But the online format allows others to enroll more students from distant markets.

Which suggests that price–tuition–is unlikely to be driven upward or downward by market forces, at least at the industry level.

One complicating factor is competition. The online format could potentially give students more options. It is easier to transfer from a school in California to a school in New York when all that is required is to click on a different Zoom link.

Competition tends to drive prices down. But less so in markets in which the product is highly differentiated. And product differentiation is a huge factor in education, only in education it’s called “reputation.” Students identify with an institution based on legacy status, geographic or sports affiliation, prestige, career networks, and so on, weakening their sensitivity to price in making enrollment choices. The availability of cheap financing (student loans at historically-low interest rates) further reduces the sensitivity to price.

So while competition may put some downward pressure on prices, I wonder if the effect will be large. Schools will likely be able to continue to charge the same tuition rates, despite moving online, because so few students will bail out in response that profits will remain higher than they would be were schools to discount. Indeed, the fact that students are complaining, rather than voting with their feet, suggests that the absence of discounting is not really a dealbreaker for students. It’s more a matter of justice.

But the story does not need to end with market forces. Anger creates social pressure, and that pressure is real.

Although we don’t believe anymore that there is an objectively-verifiable just price, we can still moralize about prices, using the language of progressive law and economics. We can think of the bargaining that takes place between schools and students over tuition as representing a struggle to determine how the two groups share the gains generated by education. To the extent that online education reduces quality, those gains have shrunk. (They have not shrunk at the margin, which is why price is not likely to change much. But they have shrunk inframarginally, reducing the size of the pie.)

In demanding a discount, students are arguing that their share of the gains ought to remain constant. That is, they are arguing that it is not fair to ask them to bear all of the losses associated with constraints placed on the quality of education by the global pandemic, even if market forces dictate that they should.

Schools may reply that their costs have gone up, perhaps because state funding has shrunk, and so they too are suffering losses, leaving students’ share of the gains roughly constant, and therefore just.

So the situation might look something like this:

A.O. Hirschman argued long ago that voice is as powerful a bargaining tool as is exit. Let’s see if that turns out to be true here.


Ruskin on Regulation and Fuller on Choice

Government and co-operation are in all things the Laws of Life; Anarchy and competition the Laws of Death.

John Ruskin, Unto this Last, and Other Writings 202 (Clive Wilmer, ed. Penguin Classics 2005) (1862).

Anarchy and competition are Nature.

Government and cooperation are Civilization.

One can make out the difference in the data, which describes rather nicely why the former is Death (see the part of the plot up to -2000) and the latter is Life (see the part of the plot starting from -2000, when civilization started to take off).

Source: The Longest-Run Shape of the Global Economy: PRELIMINARY AND INCOMPLETE: The Honest Broker for the Week of June 14, 2014, Grasping Reality with Both Hands: The Weblog of Brad Delong, June 8, 2014.

Ruskin also makes of regulation an axiom. He writes:

The word “righteousness” properly refers to the justice of rule, or right, as distinguished from “equity” which refers to the justice of balance. More broadly, Righteousness is King’s justice; and Equity Judge’s justice; the King guiding or ruling all, the Judge dividing or discerning between opposites (therefore, the double question, “Man, who made me a ruler . . . or a divider . . . over you?”) Thus with respect to the Justice of Choice (selection, the feebler and passive justice), we have from lego, -lex, legal, loi, and loyal; and with respect to the Justice of Rule (direction, the stronger and active justice), we have from rego, -rex, regal, roi, and royal.

John Ruskin, Unto this Last, and Other Writings 191 (Clive Wilmer, ed. Penguin Classics 2005) (1862) (emphasis mine).

To which one might append: regulation.

Thus there are two kinds of governance, that which strives only to prevent discrimination, but which otherwise is laissez faire. It is ultimately juridical in nature, directed at fairness. And then there is regulation, governance as guidance.

The implication is that good government must both equalize and guide. It must not only ensure that each member of a particular fare class has an equal chance of getting the middle seat (lex), but also command that the seat be clean, and wide, and pleasantly lit (rex).

Little wonder that a nation founded by lawyers in revolt against a king would have no concept of regulation and a burning enthusiasm for law. (That’s true across the political spectrum: the urge to “break ’em up” is bipartisan.)

The more so in light of some very bad Twentieth Century run-ins with guidance.

And yet a governance without rex does seem highly problematic, even impossible. For we do always need guidance. Here is a remarkable passage, from Lon Fuller, of all people:

When the idea of freedom from choice is introduced into a philosophic discussion it tends to carry with it overtones of morbidity, escape and totalitarianism. Yet when we encounter it in everyday life we do not view it that way; often it is welcome indeed. There is surely nothing morbid or escapist about the sense of freedom and release that a lawyer experiences when he finds a good secretary capable of taking over the hundred small decisions or choices that have to be made in managing an office and in handling routine correspondence.

There is, in fact, nothing more appalling than the thought of having to choose everything. Anyone who has read an exposition of philosophic anarchism knows what a sense of oppression comes from thinking of society’s being so organized (or unorganized) that nothing is decided in advance for the individual, so that he has to carve his own way through life without the guidance of institutions, or traditions, or legal compulsions. For the man who has to choose everything the burden of choice becomes so unbearable that choice itself loses its meaning.

The apparent contradiction between freedom to choose and freedom from choice is removed when we observe that of the two the first is primary and original, while the second is derivative and dependent for its significance on the first. Freedom from choice is meaningless if choice itself does not exist. If we feel free when we are relieved from choice, it is because we can then exercise choice in a field of our preference where we consider it important that we should decide things for ourselves.

The problem of freedom, then, is the problem of allocating choice.

Lon L. Fuller, Some Reflections on Legal and Economic Freedoms–A Review of Robert L. Hale’s Freedom through Law, 54 Colum. L. Rev. 70, 72 (1954).

The allocator, of course, is the regulator. And so there is no question whether to have rex, anymore than it is possible for each of us to choose which of a thousand components should be included in our iPhones. The inescapable question is: how to ensure that the guidance is wise?

Confucius’s reply has always sounded pretty good to me:

道 之以德、齊之以禮、有恥且格。

Confucius, Analects bk. 2 ch. 3.