Categories
Antitrust Monopolization

Progressive Cologne

So here’s my suggestion: Give Biden and his people a break on their antitrust crusade. It won’t do any harm. It won’t get in the way of the big stuff, which is mostly outside Biden’s control in any case. At worst, administration officials will be using inflation as an excuse to do things they should be doing in any case. And they might even have a marginal impact on inflation itself.

Paul Krugman, Why Are Progressives Hating on Antitrust?, N.Y. Times (Jan. 18, 2022).

It probably won’t work, so let’s do it?

We need to do it for other reasons, so let’s do it for the wrong reason?

There’s a word for this: Obsession.

Meanwhile, elsewhere in the piece, Krugman dismisses price controls, which are the one remedy that would actually solve a few problems in the highly efficient (and hence unwise-to-break-up) industries, like meatpacking, to which he’d like to take the antitrust axe. (Not even price controls would, however, help with inflation.)

Krugman did write the introduction for a recent edition of the General Theory, but he diverges from his teacher on antitrust.

Keynes famously thought inflation, or the lack thereof, had nothing to do with competition, monopoly or any other microeconomic phenomenon, which is why he disdained both the N.R.A. and Thurman Arnold. Instead, he invented a whole new branch of economics—macroeconomics—to explain it.

But if there’s no intellectual foundation for progressive antimonopolism, why does it so appeal? As Krugman’s evocation, elsewhere in the piece, of J.F.K. talking tough to the steel industry suggests, it’s a macho thing—progressives thumping their chests at corporate America.

If that sounds a bit savage, there’s a cologne for that, too.

Meanwhile, policies like tax that would actually take a bite out of inequality (though not inflation!), but won’t sate our bloodlust, get less attention than they deserve.

Categories
Meta

The Magic of Science

Suppose that it were discovered that knocking on wood reduces the incidence of premature death by, say, 10%. Suppose that the provenance of this statistical regularity were impeccable. That it were found not only in data gathered from life, but also in carefully constructed experiments involving millions of subjects observed over decades.

Suppose, further, that a great deal of research were done on the mechanism behind such a connection between a knock-knock-knock and longevity, and that all possible mechanisms were ruled out. Knocking on wood in a vacuum produced the same result. So too did knocking with a mechanical prosthetic rather than knuckles. Even asking someone else to knock for you did the trick.

Science would, then, be forced to conclude that the connection between knocking on wood and longevity is a fundamental law of nature, up there with gravity, albeit an eccentric law given its startling narrowness (suppose that it were only to work for humans—animals knocking on wood were not to live longer) and seeming lack of integrability with the other laws of physics.

Question: would we then be forced to conclude that magic is real, since, in effect, an element of human superstition had been found, in the light of science, to be empirically verifiable? Or would the fact that it had come to be empirically verifiable make it cease to be magic?

In other words, is our disenchantment with the modern world due to the fact that the laws that science has proven are, well, boring, and don’t involve the superpowers we once so hoped were real? Or is our disenchantment caused by science itself, by an orientation to the world that seeks always to shine a light on things instead of to respect the mystery?

Categories
World

The Counterweight that Isn’t

The Muslim World. (Mohsin, OIC Member States, CC BY 3.0)

As the United States comes now to face Russia and China in great power competition, one feels intensely the lack of a unified Muslim world. For one need only take a look at a map to appreciate that it is a dagger at once aimed at the Russian belly and the Chinese back—and has historically been an important antagonist of both empires. There is no question that, were Islam not the geopolitical non-entity that it is today, Russian and Chinese horizons would be badly limited by the need to protect their flanks. Instead, the only threat the Muslim world presents to these countries today is as an enticement to conflict in dividing up its territories in Central Asia.

Categories
World

Atlas Shrugged

After the collapse of the Soviet Union, the United States believed, correctly, that they were the world’s only remaining great power. China was poor. Europe had long been exhausted by its two great 20th century wars, and political collapse in Russia had reduced her to the rank of a middle power—an echo of this view is found in the observation, oft-repeated these days, that the Russian economy is the size of Italy’s. The question then became whether the United States should use its power to police the world, or whether it should allow the lesser powers to mistreat each other or their people.

The first Gulf War seemed to say that, at least when it came to the revision of borders, the United States would police the prevailing territorial status quo. Iraq had annexed Kuwait, and the United States rode in to reverse that outcome. American-led military action also put a stop to Serbian expansionism a few years later, seemingly reinforcing this signal.

The American commitment to protecting individual persons around the world, as opposed to sovereign nations, seemed somewhat weaker, but was by no means non-existent. There was much hand-wringing in Washington about failure to intervene to quell genocide in Rwanda, for example.

The picture of America as sole great power was reinforced over the ensuing decade. The September 11 attacks, carried out by a ragtag group without the backing of any government, suggested that the United States were without any substantial adversary. And the response—the invasion of Afghanistan and the adventure in Iraq—suggested that the United States could strike any nation at will without fear of anything more than a brief tut-tutting from global public opinion.

Then came Russia’s annexation of Crimea in 2014, which challenged America’s claim to sole great power status that had by then prevailed for the past quarter century. The first Gulf War, in 1991, had been a warning to the world: the United States, as sole great power, would not tolerate the revision of borders. Now Russia had chosen to revise a border. Would the United States seek to do to Russia—a country it had treated like a middle power for a quarter century—what it had done to Iraq in 1991?

The response was: crickets. The United States did nothing. And just like that, two new great powers (re)appeared on the world stage: Russia and China.

Things had changed over the past decade or so. First, Russia’s weakness, which had fundamentally been a political weakness caused by the collapse of the Soviet state, was gone; the country had regained political stability and was now once again capable of acting decisively on the world stage. And it still had its nuclear weapons, and plenty of delivery channels, which its Italian-sized economy was more than enough to maintain. Second, breakneck economic growth had vaulted China’s economy into competition with the United States, and her wealth was buying her the military capabilities she would need to be a great power as well.

Great power status is not just about wealth and military power, however. It is a mindset. Britain, France, and Germany could all ramp up military expenditures and challenge the United States. But they do not because they were exhausted mentally by their attempts to maintain their great power status in the 20th century. They are content to play second fiddle to the United States. Russia, however, emerged triumphant from the same wars that exhausted Britain, France, and Germany. And China has waited two centuries to regain what it sees as its rightful place as center of the world. Both countries have the great power mindset.

America’s failure to respond to Crimea suggested that perhaps America had lost it—not the mindset needed to be a great power, but the mindset needed to be the sole great power. For any country that fears war more than it fears loss of status loses its status immediately, and what was at stake was America’s claim to be the guarantor of world order. But America’s stated justification for failing to respond to Crimea was precisely that it feared war.

Russia got the hint immediately, and within the year intervened militarily in the Syrian civil war, propping up a regime that the United States opposed, not least on human rights grounds. With that, Russia had challenged not only America’s commitment to protecting states against states (Ukraine against Russia) but also America’s admittedly much more equivocal commitment to protecting people against human rights violations.

Again, the response was: crickets. The United States was willing to tolerate Russian policing of the very region over which the United States had most asserted its own control over the past 25 years. Americans themselves didn’t seem to notice, but anyone who was paying attention (i.e., the rest of the world) understood this to be a signal humiliation.

Meanwhile, even before Russia’s annexation of Crimea, the Chinese had embarked on a campaign of island building in international waters that China claimed as its own. This was another territorial revision and so another direct challenge to America’s claim to guarantee the territorial status quo.

Here, too, the response was: crickets. And the islands have become a sprawling archipelago.

What we have witnessed over the past ten years is the collapse of the unipolar world order over which the United States presided after the fall of the Berlin Wall. It should be no surprise that Russia would continue to expand territorially in the wake of such a collapse. It will be no surprise when China does as well, not least by retaking Taiwan.

At present, the United States remain the strongest power both economically and militarily. But, particularly in respect of China, that may not continue.

The first question America must answer for herself is: does she want to reestablish her former role as the world’s sole great power? If the answer is yes, then she must fear continued loss of that status more than she fears war. Russia, certainly, values her return to great power status more than she fears war. And that is precisely why she has returned to that status.

So, where do the United States stand on this?

The answer would seem to be: no, America does not want to defend her sole great power status.

And despite enjoying it mightily while it lasted, she perhaps never was willing to suffer anything to protect it. There was, after all, no real risk involved in the first Gulf War; it afforded America the equivalent of “cheap talk” in game theory—an opportunity for empty posturing.

Moreover, if America had wanted the role of sole great power to begin with, she would have exploited the vast nuclear advantage she enjoyed immediately after World War Two to deny Russia the superpower status she later enjoyed.

Having failed to do that, America would, in any event, later have exploited the collapse of the Soviet Union to ensure that Russia never again could pretend to empire.

And America would never have promoted Chinese economic growth in the 1980s, 1990s, and 2000s, for America would have heeded the warning attributed to Napoleon, to wit: “let China sleep, for when she wakes, she will shake the world.”

Categories
Antitrust Monopolization

Victor Hugo: Pro-Trust

[T]he prosperity of [the town] M. sur M. vanished with [its mayor and leading business owner] M. Madeleine; . . . lacking him, there actually was a soul lacking. After this fall, there took place at M. sur M. that egotistical division of great existences which have fallen, that fatal dismemberment of flourishing things which is accomplished every day, obscurely, in the human community, and which history has noted only once, because it occurred after the death of Alexander. Lieutenants are crowned kings; superintendents improvise manufacturers out of themselves. Envious rivalries arose. M. Madeleine’s vast workshops were shut; his buildings fell to ruin, his workmen were scattered. Some of them quitted the country, others abandoned the trade. Thenceforth, everything was done on a small scale, instead of on a grand scale; for lucre instead of the general good. There was no longer a centre; everywhere there was competition and animosity. M. Madeleine had reigned over all and directed all. No sooner had he fallen, than each pulled things to himself; the spirit of combat succeeded to the spirit of organization, bitterness to cordiality, hatred of one another to the benevolence of the founder towards all; the threads which M. Madeleine had set were tangled and broken, the methods were adulterated, the products were debased, confidence was killed; the market diminished, for lack of orders; salaries were reduced, the workshops stood still, bankruptcy arrived. And then there was nothing more for the poor. All had vanished.

Les Miserables
Categories
Antitrust Monopolization

Yet Another Amazon Antitrust Paradox

Amazon paradoxes are proliferating. Here’s another: to the extent that Amazon is engaged in anticompetitive conduct, it is the conduct of opening its website to third-party sellers, not, as Amazon critics hold, the conduct of failing to be even more welcoming to those third-party sellers.

As the Times’ David Streitfeld, who has perhaps done more than anyone else to advance the notion that Amazon is unreasonably severe with third-party sellers, seems slowly to be realizing, Amazon’s third-party sellers are, well, a problem. They sell junk. They sell defective products. They fool their customers. And then they disappear.

As the Wall Street Journal alerted us more than two years ago now: Amazon’s open door policy with respect to third-party sellers, which sellers constitute more than 50% of sales on Amazon.com, has caused Amazon effectively to “cede control of its site,” badly degrading the shopping experience.

Which begs the question: why? Why would Amazon let this happen? The answers is: “dreams of monopoly.”

Every other retailer in the world seems to understand that one of the biggest pieces of value retail can deliver to consumers is: curation. The retailer does the hard work of sifting through the junk and the fakes and the defectives to find the good stuff, so that consumers don’t have to do that themselves. Why do you shop at Trader Joe’s instead of your local supermarket? Because you know that if Trader Joe’s is selling it, it’s probably not only of reasonable quality, but likely tastes great too. That’s the value of curation.

But, as Streitfeld correctly notes, Amazon has all but given up on it. Anyone can list products on Amazon. And the company makes almost no effort to flag the best products for you. Ever since that Journal article, the public has known that “Amazon’s Choice” is just an empty label slapped on a piece of third-party seller junk by an algorithm parsing sales trends. No one at Amazon can vouch for the underlying product’s quality, usefulness, or safety.

You might have hoped, as I once did, that at least the products Amazon itself sells under its own brand names, like Amazon Basics, are competently curated. But those, too, have turned out to be no more than the outputs of sloppy and stupid algorithms. The programs troll Amazon’s site for popular third-party products and flag them to Amazon product teams, which then contact the original equipment manufacturer in China, slap on an Amazon Basics logo, and bring the rebranded product back to market. The result is that the Amazon-branded products can blow up in your face, just like the stuff sold by third-party sellers.

What would cause Amazon intentionally to forego delivering curation value to its customers and so risk alienating them from its website? The answer must be that Amazon gets something that it thinks is even more valuable in return for running this risk.

That thing is scale.

By opening its doors to third-party sellers, Amazon was able to bring much of the commercial internet onto its website, ensuring that if a consumer wanted to find something, he didn’t need to search the Internet, he just needed to search Amazon.com. And that in turn ensured that most consumers would do their online shopping on Amazon. And that in turn ensured that if you wanted to sell something online, you wanted to do it as a third-party seller on Amazon. And so on. In econ speak, opening the door to third-party sellers created massive “network effects” for Amazon, effects that make Amazon.com essential for both buyers and sellers.

Curation would destroy that because curation is costly. Algorithms aren’t good enough to curate effectively, as the piles of fakes, defectives, and junk on Amazon.com today shows. So if Amazon were to take curation seriously the company would need to pay people to do it. And even Amazon can only afford so many people. So Amazon would only be able to curate so many products. Which means that Amazon would not be able to offer everything on its website anymore. Which would mean that everyone would no longer shop on Amazon. Which would mean that fewer third parties would need to list their products on Amazon. And so on. Amazon would be better. But it would also be smaller.

And Amazon would face more competition, because now Amazon’s advantage wouldn’t be its network—the fact that Amazon carries everything and so everyone shops there—but rather the quality of its curation. There can only be one retailer that carries everything and at which everyone shops. But there are lots of retailers that curate—and compete on curation.

So, Amazon’s open-door policy toward third-party sellers, and the danger and frustration to which that exposes its customers, is anticompetitive. At least in the sense that it is meant to extract Amazon from the fierce competition based on curation that confronts most retailers, and to put Amazon instead in the unique position of being flea market to the Internet.

Amazon clearly believes that the benefits it gets from avoiding having to compete on curation outweigh the costs to the company of forcing its customers to wade through oceans of junky, fake, or defective products on its website. How could Amazon not, when imposing those costs on consumers makes Amazon indispensable, and hence immune to any consequences associated with alienating those consumers?

Well, not completely immune. There are still other retailers out there. And the more toxic Amazon’s site becomes—the more it really does come to resemble a flea market—the more willing consumers will be to put up with the cost and inconvenience of shopping elsewhere. I personally no longer buy books from Amazon because I hate dodging fakes on its site—buying elsewhere costs more, and sometimes I have to wait weeks longer for my books to arrive. But I’m happier.

The key for Amazon is finding a way to engage in just enough curation to prevent consumers from leaving in droves, but not so much that sellers abandon the platform and it ceases to become indispensable to consumers.

The irony here is that the anti-Amazon zealots, in fighting, under the banner of “self-preferencing,” every attempt by Amazon to impose order on third-party sellers or to curate by promoting its own brands, are effectively pushing Amazon to retain its monopoly position by continuing to welcome the entire commercial Internet onto its website.

Amazon critics: If you really want to make Amazon small, and quickly, help Amazon to engage in more self-preferencing. Ask Amazon to sell only its own branded products on the site, kicking all third-party sellers off. Or ask it to discriminate more heavily against some third-party sellers in favor of others, until Amazon.com becomes like every other retailer: offering a relatively small selection of products that Amazon believes consumers will like the most.

It should be clear that Amazon’s policy of being a flea market, instead of a normal, curating, retailer, is anticompetitive. But just because something is anticompetitive—in the sense that it harms competitors and hence competition—doesn’t make it bad, or an antitrust violation, unless the conduct also harms consumers. So, does it?

The answer must be no. Because, as I have said, Amazon is not completely immune to consumer dissatisfaction. You can find almost everything sold on Amazon elsewhere; it just takes more time and expense to get it. So Amazon today presents the following choice to consumers, who can shop elsewhere: Speed or safety; A low price or the genuine article; One stop shopping or purchases free from defects. And consumers so far have chosen the former, which suggests that they prefer it.

Antitrust cannot eliminate the tradeoff that seems to exist here between scale and quality. But consumers can decide which they prefer. If Amazon doesn’t do something about its site, if it doesn’t strike a better balance between scale and quality, if the junk and the fakes and the defectives continue, consumers will rebel. They will learn that the extra time and expense required to secure curation is worth it. And Amazon will go down; or change to save itself.

I for one don’t plan on buying any more books from Amazon anytime soon.

Categories
World

Calling His Buffer

It makes sense to annex territory that welcomes you. That’s why Crimea went off without a hitch. And so, perhaps, Donbas, too. But Kiev? There would be an insurgency. And the West would supply it. And who would want that? So it’s the Donbas or just a bit of fun watching the West sweat. Either way, the Orange Revolution will still have left the West way, way ahead on this one, for Russia’s longstanding, historic buffer zone will still mostly be on the West’s side. At least for now.

One is struck by how unlike 1939 the situation really is.

Back then, Russia’s buffers were buffers against Germany, and those same buffers were also Germany’s buffers against Russia. And the West, in the sense of Britain and France, did not border those buffers at all. When Poland (the buffer at issue back then) sided with the West, it had no prospect of support across a land border.

In siding with the West, Poland became of no value to either Germany or Russia, each of which would otherwise have wanted to support it as a buffer against the other. Instead of being a friend of one and a threat to the other, Poland became a threat to both. And so the two powers got together and agreed to divide Poland between themselves via the secret protocol to the Molotov-Ribbentrop Pact.

The West could not oppose this by fomenting trouble in-country—as it certainly can do with Ukraine today—because the West had no land borders with Poland across which to run supplies. To stop it, the West had to go to war. Which it did. Although it never did succeed at saving Poland.

But today, Germany, defeated in the Second World War, is now with the West. And Poland is now with the West. And Russia is down to its last buffers, Belarus and Ukraine. And Ukraine wants out. And has plenty of friends on its western borders.

Categories
Antitrust Monopolization

When You Can Win with Advertising, Why Win in Fact?

By the end of last year, 150 million Chinese were using 5G mobile phones with average speeds of 300 megabits a second, while only six million Americans had access to 5G with speeds of 60 megabits a second. America’s 5G service providers have put more focus on advertising their capabilities than on building infrastructure.

Graham Allison and Eric Schmidt, Opinion: China Will Soon Lead the U.S. in Tech, Wall St. J. (Dec. 7, 2021), https://www.wsj.com/articles/china-will-soon-lead-the-us-in-tech-global-leader-semiconductors-5g-wireless-green-energy-11638915759.

Of course, it’s a bit rich to be reading this in the opinion pages of the Journal, which can usually be found defending laissez-faire commercialism.

The American telecom industry is a marketing-driven oligopoly that colludes tacitly to minimize expensive investment in infrastructure and competes instead for market share via worthless, unproductive advertising.

Things would have been different if we had not broken up the old Ma Bell, an engineering-focused organization that took national defense very seriously. As a monopoly, it knew that it had to serve a public purpose or the pitchforks would come out.

Unfortunately, they came out anyway, and antitrust got it, and we are left with the miserable, middling shards that we have today—shards that quickly replaced their engineering culture with a marketing culture, because once they were small they didn’t need to worry about public scrutiny and were free to work exclusively for themselves.

Categories
Miscellany Philoeconomica

An Economics of False Advertising

The first fundamental theorem of welfare economics states conditions under which any price equilibrium with transfers, and in particular any Walrasian equilibrium, is a Pareto optimum. For competitive market economies, it provides a formal and very general confirmation of Adam Smith’s asserted “invisible hand” property of the market. A single, very weak assumption, the local nonsatiation of preferences . . . , is all that is required for the result. Notably, we need not appeal to any convexity assumption whatsoever.

Andreu Mas-Colell et al., Microeconomic Theory 549 (1995).

Wow. So there is a mathematical proof that a “competitive market economy” is always efficient? And all that is required is “[a] single, very weak assumption, the local nonsatiation of preferences,” which translates into the reasonable assumption that people always tend to want more?

If only.

Page forward 70 pages and you encounter the following proviso:

We have, so far, carried out an extensive analysis of equilibrium equations. A characteristic feature that distinguishes economics from other scientific fields is that, for us, the equations of equilibrium constitute the center of our discipline. Other sciences, such as physics or even ecology, put comparatively more emphasis on the determination of dynamic laws of change. In contrast, we have hardly mentioned dynamics. The reason, informally speaking, is that economists are good (or so we hope) at recognizing a state of equilibrium but are poor at predicting precisely how an economy in disequilibrium will evolve. Certainly, there are intuitive dynamic principles: if demand is larger than supply then the price will increase, if price is larger than marginal cost then production will expand, if industry profits are positive and there are no barriers to entry, then new firm will enter, and so on. The difficulty is in translating these informal principles into precise dynamic laws.

Andreu Mas-Colell et al., Microeconomic Theory 620 (1995).

So, that great proof of the efficiency of competitive markets applies only to an economy in “equilibrium,” but economics has no idea how any economy would actually get into equilibrium?

Yes, that is exactly right.

Economics has shown that if buyers and sellers happen to trade at competitive prices in all markets, then the invisible hand will work great. But economics has never been able to show that buyers and sellers will actually bargain their way to competitive prices, even in “competitive market economies,” and even if they are rational profit-maximizers and all that.

Actually, even this proviso is false advertising. Because economics has actually gone and nearly proved the opposite of the proposition that buyers and sellers will always bargain their way to competitive prices: that buyers and sellers in competitive market economies can bargain their way to almost any set of prices—not just competitive prices—and, moreover, that they can bargain prices in circles forever, never achieving any equilibrium set of prices at all, much less the efficient competitive equilibrium set.

The entire project of free market economic theory is, in other words, a failure, and has been since these results appeared in the 1970s.

But you wouldn’t know it from reading the canonical graduate textbook in economics.

Categories
Miscellany

The Peril of Reasonable Inferences

Cortes goes to Mesoamerica, discovers a great empire, and plunders it.

Pizarro goes to South America, discovers a great empire, and plunders it.

Soto, who was with Pizarro in Peru, infers that there must be a great empire to plunder in North America.

He leads a military expedition through Florida, Georgia, Alabama, Mississippi, and probably Arkansas, finds no great empire to plunder, and dies of fever on the banks of the Mississippi.

Postscript:

The Spanish therefore give up on North America, more or less. No native empire had done the hard work of finding and extracting the continent’s gold for them. And no native empire had done the hard work of marshaling the population into labor units that could be exploited from the top by invaders. It seemed obvious that the hemisphere would be most easily dominated from the places at which native civilization was most advanced.

What saved North Americans from the slavery that befell Mesoamericans and South Americans in the 16th century was that they had not been brought under the centralized control of their own native emperor prior to the European invasions. In the language of James C. Scott, they, unlike their Aztec or Inca neighbors, had not yet been domesticated; they were still free. And that made it impossible for the tiny groups of Spaniards who were carrying out the colonial project to dominate them. For those groups operated by killing the native emperor and substituting themselves at the top of a pre-existing power structure.