Categories
Despair World

More on the Chinese Nile

We ought to know that we’ve hit a new level of denial when we become convinced that our global dominance is secured by the superiority of . . . our pop culture:

Ten years ago, I joined a U.S. trade delegation for the chance to visit, as a journalist, a remote part of China that borders both North Korea and Russia. As we traveled around, local Chinese greeters proudly pointed out the contrasting vistas: rugged empty hills in North Korea and isolated clusters of Soviet-era buildings in Russia, whereas in China, commerce and construction abounded between booming border towns. In one such town, Hunchun, population 250,000, regional officials asked me if I planned to write anything. Perhaps something cultural, I suggested. I hoped for a window onto Chinese life in this far-flung zone.

The next night they laid on a manifestly ready-made, two-hour pageant of old Manchu ethnographic music and dance, with fluttering feather fans and colorful costumes. I explained to my conscientious hosts that I had hoped for something more contemporary—perhaps portraying current life on the frontier, something about real people and ideas. My request engendered a lot of brow-furrowing discomfort. I had asked for the one thing that their country’s authoritarian system has found it almost impossible to deliver at any level: a vibrant popular culture.

China has become globally competitive in many fields with blinding speed, from the economy and military to science, medicine, sports and even in cultural areas such as cuisine, classical music and contemporary art. But it can’t seem to compete with the West in crucial mainstream genres such as movies, popular music, fashion, novels and the like. I say “crucial” because, without universalizing its culture at a popular level, China cannot ultimately sell a lifestyle for the world to emulate, a set of aspirations that people elsewhere might embrace. Nor can it make its engagement with other cultures more palatable, less like an intrusion by outsiders.

Melik Kaylan, China Has a Soft-Power Problem, The Wall Street Journal (Sept. 5, 2019).

What the Chinese offered this author was the highbrow. But our tastes have eroded so badly over the last generation that we no longer even feel shame at disliking it. Indeed, we have even come to see the persistence of highbrow art in other cultures as a sign of weakness!

Categories
Antitrust

Antitrust Blowback

The New York Times spent the spring and summer brazenly promoting antitrust enforcement against its own enemies, Google, Facebook, and Amazon, even though those companies are hardly in the first rank of firms in need of the antitrust hammer. (Telecoms, anyone?) All three are implicated in a decline in writer earnings, thanks to the competition the three have brought to the newspaper and publishing industries, and the Times seemed to want to put a stop to that.

But now the Times is shocked to find that the Trump Administration is engaging in a “cruel parody of antitrust enforcement” in its investigation into the car companies that have worked with California to improve emissions standards. The Administration’s apparent view that the car companies are guilty of collusion is, according to the Times, “[a] nakedly political abuse of authority.” That’s rich given the Times’s own apparent efforts to exploit the antitrust laws for private gain.

Where, incidentally, was the Times’s charge of foul motives when the Trump Administration opened antitrust investigations into Google, Facebook, and Amazon this summer? Absent, of course. The Times celebrated the opening of those investigations knowing full well that President Trump harbors animus toward each of those three liberal corporate bastions, and indeed knowing that the only antitrust case in which the Trump Administration had shown any interest so far was the politically-motivated attack on a merger involving Trump enemy CNN.

Categories
Antitrust Monopolization World

The Lord Grand Secretary on Regulated Monopoly

The present plan for unifying the salt and iron monopoly is not alone that profit may accrue to the state, but that in the future the fundamental of agriculture may be established and the non-essential repressed, cliques dispersed, extravagance prohibited, and plurality of offices stopped. In ancient times the famous mountains and great marshes were not given as fiefs to be the monopolized profit of inferiors, because the profit of the mountains and the sea and the produce of the broad marshes are the stored up wealth of the Empire and by rights ought to belong to the privy coffers of the Crown; but Your Majesty has unselfishly assigned them to the State Treasurer to assist and succor the people. Ne’er-do-wells and upstarts desiring to appropriate the produce of the mountains and the seas as their own rich inheritance, exploit the common people. Therefore many are those who advise to put a stop to these practices.

Iron implements and soldiers’ weapons are important in the service of the Empire and should not be made the gainful business of everybody. Formerly the great families, aggressive and powerful, obtained control of the profit of the mountains and sea, mined iron at Shih-ku and smelted it, and manufactured salt. One family would collect a host of over a thousand men, mostly exiles who had gone far from their native hamlets, abandoning the tombs of their ancestors. Attaching themselves to a great house and collecting in the midst of mountain fastnesses and barren marshes, they made wickedness and counterfeiting their business, seeking to build up the power of their clique. Their readiness to do evil was also great. Now since the road of recommending capable men has been opened wide, by careful selection of the supervising officers, restoring peace to the people does not wait on the abolition of the salt and iron monopoly.

Esson M. Gale, Discourses on Salt and Iron : A Debate on State Control of Commerce and Industry in Ancient China, Chapters I-XIX: Translated from the Chinese of Huan K’uan with Introduction and Notes 34-35 (1931).
Categories
Antitrust Monopolization

Amazon’s Problem Is Too Much Competition, Not Too Little

Amazon has come under assault in recent weeks for failing to keep “thousands of banned, unsafe, or mislabeled” products sold by third parties off of its site. The New York Times, which has been acting as a mouthpiece for the Authors Guild in its crusade against Amazon, has focused on the sale of knock-off books. But The Wall Street Journal has shown that the problem extends across multiple product categories, and concludes that “Amazon has ceded control of its site.”

The great irony here is that this is proof that Amazon is being too open to competition, not, as Elizabeth Warren, the Open Markets Institute, and the Times have been arguing, too closed to it.

Unlike, say, Apple, which designs virtually every component of its phones, Amazon chose early on to platformize its business. When it created a useful cloud service to support its ecommerce website, Amazon opened the platform, called Amazon Web Services, to the market, turning it into a successful business in its own right. Amazon is doing the same thing with package delivery, allowing anyone with a car and an app to deliver packages for the company. And of course Amazon platformized its own ecommerce website, allowing third party sellers to list and sell products through Amazon.com.

Of course, Amazon could have taken a more traditional route. It could have kept its cloud services to itself. It could have continued to contract out its package delivery business to a single vendor, like UPS. And it could have remained the only retailer on its own ecommerce website. If it had, it is hard to see how Amazon would have come in for criticism from the big tech breakup crowd. Just as nary a peep has been heard about the fact that Apple insists, for example, on designing its own iPhone CPUs.

But Amazon instead did what competition advocates are supposed to want: the company threw open virtually every component of its business to competition. As a result, however, it has been attacked by Elizabeth Warren and others for failing to go even further, and to stop using its own platforms entirely. Under their approach, it is not enough, for example, to allow others to use Amazon Web Services. Amazon must stop using those services itself, otherwise in operating them there is a danger that Amazon will favor its own downstream businesses. Amazon might, for example, tank Walmart’s cloud access in order to get competitive advantage in retail. Similarly, Amazon should stop retailing products for its own account on Amazon.com, argues this group, because Amazon can alter the website to give its own products competitive advantage (by, for example, displaying them more prominently in search results).

So it is bitterly ironic to find Amazon now coming under assault for failing to exercise more control over the third party sellers who use its ecommerce platform.

The lesson here is two-fold. First, competition is no panacea. As policymakers learned in the mid-19th century, when economic liberalism first came on the scene, excessive competition means fakery, fraud, low quality, and boom and bust cycles that sow economic instability.

Second, antitrust and competition policy are not progressive projects. Progressives seek regulated environments. The big firm dictating standards and stamping out the chaos that is competition across all levels of its supply chain is itself a regulated environment. If a firm does not regulate the way progressives want, the solution for progressives is not to rip the firm apart as a petulant child would rip apart a disappointing toy, but to change the way that the firm behaves. Calling upon Amazon to do more to control what books third party sellers can sell through the company’s sites is a demand for less competition. If that sounds progressive, it is.

One more thing: The Times’s attack on Amazon for selling knock-off books highlights the political opportunism of writers–understood as an interest group–in recent antitrust debates. For at the same time that writers have wrapped themselves in the small-is-beautiful flag, attacking Amazon for destroying main street retail, they have seemed not to think twice about then turning around and attacking Amazon for failing to cast off from its website the small independent publishers of knock-offs that are competing directly, and successfully, with writers. At the end of the day, writers’ fight against Amazon is about protecting writers, not about promoting competition.

Categories
Antitrust

The Fundamental Unit of Competition Is Not the Firm

The fundamental unit of competition is the individual. In American economic lore, the best way to promote innovation is to minimize barriers to entry into markets and increase the rewards to market entry, to ensure that innovators can bring cutting-edge products to market, challenging old and creaky incumbents. In this story, the unit doing the entering is the firm–often visualized as a scrappy startup–and the market consists of one or more incumbent firms serving a particular consumer need with legacy technology.

But why can’t the startup be an individual person–an innovator–and the market be the interior of some great big bureaucratic firm, plus that firm’s own customers? You have an idea for a new product, you take it to your boss, your boss approves it, and the firm starts selling it to customers. There’s competition here, because you compete with other employees of the firm. If your innovation does well, you get promoted.

We all understand that competition of this kind–within-firm competition–works, because we’ve all experienced it, at least to some extent, at that vast bureaucratic organization known as school. You compete against your classmates for grades. And that drives ambitious students to work around the clock to succeed (at least, it was that way at my high school). Why can’t firms produce great innovators internally, in the same way?

One might object that the unit of competition must be the firm because only firms have the resources to implement an individual’s innovative ideas. An individual employee of a great multinational won’t have the resources he needs to develop an idea into a marketable product. By contrast, the argument goes, a startup can assemble the resources it needs to implement its vision simply by tapping funding, labor, and other markets.

But that doesn’t make sense at all. An employee at a big firm can call upon all of the resources of the firm, and the firm itself can seek additional financing, in transforming a bright idea into a marketable product. Indeed, you would expect that a large firm would be able to deploy resources in favor of an employee’s bright idea more efficiently than would a market, because the firm can realize economies of scale in providing resources to support the employee. The startup might need to hire its own accountant, lawyer, and so on, whereas the employee of the big firm could use the firm’s existing accounting and legal staffs for support, potentially filling excess capacity in those departments.

In other words, the big firm is itself a platform upon which competition can thrive, so long as the firm is organized in a way that promotes competition between employees in innovative thinking. While business schools do spend a lot of time studying how to promote innovation within firms, and the tech giants have wrestled with the problem of internal innovation quite a bit, neither antitrust legal scholarship, nor the industrial organization field in economics that serves as antitrust’s social scientific foundation, devotes any time–to my knowledge–to the problem of how to promote competition within firms.

One does find, in Arrow’s famous work on innovation, the following hint of appreciation of the possibilities:

There is really no need for the firm to be the fundamental unit of organization in invention; there is plenty of reason to suppose that individual talents count for a good deal more than the firm as an organization. If provision is made for the rental of necessary equipment, a much wider variety of research contracts with individuals as well as firms and with varying modes of payment, including incentives, could be arranged.

Kenneth Arrow, Economic Welfare and the Allocation of Resources for Invention, in The Rate and Direction of Inventive Activity: Economic and Social Factors 609, 624 (R. Nelson ed., 1962).

The failure to consider competition within firms reflects, in my view, a cultural blindspot borne of our American aversion to bureaucratic solutions, regardless whether they work. It is reasonable to suppose that sometimes, the best way to promote competition, and reap its benefits in terms of greater innovation, will come not by making it easier for startups to enter a market, but by insisting that the large firms that dominate the market organize themselves internally in ways that promote innovation. In such cases, rather than impose remedies aimed at promoting external competition, antitrust enforcers should impose remedies that promote internal competition.

One hint that failure to consider internal competition is essentially cultural comes in a study cited in F.M. Scherer’s great, dated, industrial organization textbook. The study shows that in the middle of the 20th century, innovation rates were comparable across countries that pursued different approaches to industrial organization. In British markets that were dominated by large bureaucratic firms, innovation tended to happen internally, within those large firms, whereas in less concentrated American markets, innovation tended to come from startups. Our preconceptions regarding where innovation is possible may be all that limits where our innovation actually comes from.

I’ve been perplexed by our arbitrary insistence that the firm is the basic unit of innovative competition for a long time. What got me thinking about this today is the story of the Australian rocket scientist who invented the black box used on airplanes. While working for a government aeronautical research laboratory, he was able to convince his boss to let him work on the project, albeit in secret because it did not directly contribute to the lab’s mission.

The story of the black box is not directly on point–it involves a government agency and an innovation that was not the product of competition between individuals within the agency–but it does show how an enterprising innovator can marshal resources within a bureaucracy to achieve the kind of from-scratch innovation that we typically associate with startups.

Categories
Antitrust Monopolization

When Writers are a Special Interest: The Press and the Movement to Break Up Big Tech

When Uber and Lyft brought competition to the Seattle taxi market, drivers fought back, asking the city to let them form a cartel to demand higher wages from rideshare companies. If that sounds anticompetitive, it is. But petitioning the government for protection from competition is also completely legal, because the courts expect that informed voters will make the right call about whether the petitioners need a bailout.

That system works well enough for cabbies, but not for another group that has been seeking government protection from competition of late: writers. In their role as journalists, writers give voters the information they need to make the right call about bailouts, but writers cannot be expected to do that dispassionately when they are the ones seeking government protection.

Over the past fifteen years, writers’ earnings have nose-dived thanks to competition from Google, Facebook, and Amazon directed at two of the main industries that employ writers: newspapers, which have lost advertising revenue to Google and Facebook, and publishers, which have lost the ability to dictate book prices as Amazon’s bookselling business has grown.

As a result, writers have quite understandably come to view these companies as a threat to their livelihood. Through the Authors Guild and the News Media Alliance, writers are calling for government protection from competition in the form of antitrust enforcement against Google, Facebook, and Amazon, and an antitrust exemption for newspaper cartels.

But writers’ views on big tech have also carried over into their reporting, making it hard for the public to judge whether government aid is warranted. I will focus on reporting by The New York Times that appears to me—as an antitrust scholar—to be colored by writers’ sense of professional vulnerability to the tech giants. But examples can be found in many other sources.

A Bully Pulpit

One expression of the strength of anti-tech feeling at the Times is the sheer volume of Times reportage suggesting that Google, Facebook and Amazon should be broken up or otherwise prosecuted under the antitrust laws.

In the first seven months of 2019, the Times published more than 300 articles mentioning Google, Facebook, or Amazon and antitrust, including an Op-Ed by a Facebook founder calling for breakup, an article discussing legal changes required to “take down big tech,” and another musing on what Amazon will do once its “domination is complete.”

That’s a lot of ink to spill on an issue that lacks either public or scholarly support. Polls show that the public has little interest in breaking up companies that either employ them, or sell them products at low or zero prices. And although I have decried Facebook’s treatment of app developers, to my knowledge no antitrust specialist has argued for the breakup of Google, Facebook, or Amazon. To the contrary, probably the two most prominent scholars in the field, Herbert Hovenkamp and Carl Shapiro, have urged caution. (Tim Wu, who has written on antitrust, but has much broader interests, has made the limited suggestion that Facebook should unwind its acquisitions of WhatsApp and Instagram.)

Grasping for Scholarly Support

The absence of scholarly support for antitrust action was highlighted by the oddest episode to date in the Times’ reporting on the tech giants. In 2017, the paper reported extensively on academic work by a law student that sought to make a legal case for antitrust action against Amazon. What surprised antitrust scholars about the publicity wasn’t just that the Times had bypassed experts in the field in favor of promoting student work, but that the work itself broke no new ground.

Firms violate the antitrust laws by taking steps to disadvantage rivals. But the student, Lina Khan, offered no evidence of such conduct. Her closest attempt—the argument that Amazon had run diapers.com out of business by charging very low diaper prices—fell flat because charging low prices is anticompetitive only if the prices charged are below cost. Otherwise, low prices are a sign of healthy competition. Khan offered no evidence of below-cost pricing.

By reporting this work, however, the paper created the impression that there is an antitrust case to be made against Amazon, one that the paper reinforced by publishing two Op-Eds by Khan and then a profile by David Streitfeld that went so far as to call her a “legal prodigy.”

Khan’s association with Barry Lynn, a journalist and head of the pro-breakup Open Markets Institute, for which Khan worked both before and after law school, highlights the close relationship between the Times’s reporting and writers’ grievances against the tech giants. Lynn has written to the Justice Department on behalf of organized writers calling for antitrust action against Amazon.

Creating the Impression of Crisis

Equally troubling is the paper’s reporting on the ongoing House investigation into big tech. The Times ran a front page story on the investigation under the headline “Antitrust Troubles Snowball for Tech Giants,” suggesting a groundswell of interest in antitrust action.

What the story did not disclose is that the Congressman leading the investigation, David Cicilline—whom the Times quoted extensively in that article—is a sponsor of legislation pushed by the News Media Alliance that would allow newspapers to cartelize for purposes of fighting Google and Facebook. Cicilline has, incidentally, hired Khan to help with the investigation.

Similarly, the Times recently gave front page coverage to a preliminary step by antitrust enforcers to consider an investigation into big tech, and suggested that a case would have merit. But the paper did not mention that the only major antitrust action brought by the Trump Administration to date was the politically-motivated, and failed, attempt to block AT&T’s acquisition of TimeWarner, owner of Trump rival CNN. Given the President’s animus toward Google, Facebook, and Amazon, the opening of an investigation tells little about whether a case would have merit.

The Giant that Didn’t Bark

Further suggestion that writers’ professional concerns are coloring their coverage of the tech giants comes from the conspicuous absence of Apple from the paper’s crosshairs. Under the standard measure of monopoly power, the ability profitably to raise price, Apple has far more power than Google, Facebook, or Amazon, earning twice what runner-up Google earned last year.

But it has been hard to find a critical word about Apple in the Times’s pages.

That may be because Apple has played the role of hero to a beleaguered trade. In 2009, as the Kindle was sowing panic among publishing executives, Steve Jobs entered into a cartel agreement with the major publishers to sell ebooks via iTunes at fixed prices several dollars above the prices Amazon insisted upon for the Kindle. The Justice Department frustrated these plans, however, suing to break up the cartel, and winning at trial against Apple.

Against this backdrop, other connections between the Times and advocates of breakup appear in a new light. Times writers have repeatedly appeared to cast Elizabeth Warren, who has called for breakup, as the Democratic frontrunner, even as she has lagged in the polls. And the Times endorsed Zephyr Teachout in her failed 2018 bid for New York Attorney General. Teachout, who made her name as a scholar of corruption, rather than antitrust, is, to my knowledge, the only current law scholar publicly to call for breakup of Google and Facebook.

I don’t think there is a writers’ conspiracy here. But just as you won’t hear a good word from a cabbie about Uber or Lyft—even if these companies have made life for the rest of us much easier—you won’t hear a good word from a writer about Google, Facebook, or Amazon. The difference is that when writers complain, America is forced to listen.

Categories
Backwardness of law Civilization

Realism in Action

A surprising number of Medals of Honor have been awarded for disobeying an order. For example:

The President of the United States of America, in the name of Congress, takes pride in presenting the Medal of Honor (Posthumously) to Technician Fifth Grade Lewis R. Hall, United States Army, for gallantry and intrepidity above and beyond the call of duty on 10 January 1943, while serving with Company M, 35th Infantry Regiment, 25th Infantry Division, in action at Mount Austen, Guadalcanal, Solomon Islands. As leader of a machinegun squad charged with the protection of other battalion units, Technician Fifth Grade Hall’s group was attacked by a superior number of Japanese, his gunner killed, his assistant gunner wounded, and an adjoining guncrew put out of action. Ordered to withdraw from his hazardous position, he refused to retire but rushed forward to the idle gun and with the aid of another soldier who joined him and held up the machinegun by the tripod to increase its field of action he opened fire and inflicted heavy casualties upon the enemy. While so engaged both these gallant soldiers were killed, but their sturdy defense was a decisive factor in the following success of the attacking battalion.

War Department, General Orders No. 28 (June 5, 1943).

The contrast, incidentally, between this sort of disobedience, and the disobedience that involves killing a child so that you can brag falsely to your friend back home that you used your knife in action, is rather stark. What matters for the realist project is that we can tell the difference.

Categories
Backwardness of law

Legal Realism and Two Forms of Obedience

You are told that an artillery barrage will begin at 5am and last for ten minutes, after which you are to attack and hold the enemy’s trench. Under no circumstances are you to advance beyond that trench until you receive further instructions. At the appointed time, your regiment scrambles across no-man’s-land and takes the objective with moderate casualties. But now you spy the enemy retreating in disarray down a communications trench perpendicular to the one that you have just taken. It is clear to you that with a minimum of loss you can take and hold the communications trench as well. Moreover, it is clear to you that if you do not take the communications trench, you will be vulnerable to counter-attack while you await further instructions from your commander.

The distinction between legal realism and legal formalism is this and nothing more: In blatant disobedience of orders, the legal realist would take and hold the communications trench. The legal formalist would not.

The appeal of legal realism is that legal realists will be more effective at carrying out the ends of the governmental enterprise, just as the army that nurtures officers who know when to disobey orders will be more effective at defeating the enemy. Nothing more.

Clearly, the distinction between realism and formalism has to do with consequences. It is the possibility of counterattack if you do nothing that induces you to advance. But it would be a mistake to see legal realism as a kind of consequentialism, as David A. Simon seems to do in his surreply to my reply to a piece by Adam Mossoff. At least if by consequentialism Simon means the method of value creation that purports to find values through an examination of their consequences. The problem of value creation–of ends–is for the lawgiver, whether a military general, or the legislature. The problem of the law, by contrast, is how to act according to received values–how to achieve a given end.

Legal realism is a humanism in the sense that it acknowledges and seeks to leverage the capacity of the human being to absorb and carry out the visions of others with a level of effectiveness–of faithfulness to the vision–that simply cannot be captured by mechanical obedience. Realism understands that mechanical obedience fails because of the impossibility of anticipating all possible future states of the world and writing a determinate rule for each. Realism accepts that the mind is able to coordinate with other minds in ways that science is not yet able to spell out. Realism therefore asks those who apply the law to use their minds to internalize the law’s values and take responsibility for realizing them, not merely to obey commands. The realist is to the legal formalist as the AI tasked with achieving an objective is to the conventional computer program executing a set of static instructions. The AI can identify the cat, even if the AI has not been given specific instructions about how to find it, and even though the builders of the AI are unable to explain precisely how the AI is able to achieve that.

But the identification of the objective remains in the hands of the programmer. I have no problem characterizing the sort of obedience owed by the legal realist to the lawgiver as religious in character. The worshiper asks himself: how can I live my life in a way that is obedient to God? The legal realist asks: how can I apply the law in a way that is obedient to the lawgiver? In other words, the legal realist is constantly asking: what would the lawgiver want me to do here? Just as the worshiper is constantly asking: what would God want me to do?

The letter of the law matters to the legal realist, but only to the extent that it helps the legal realist understand better what the lawgiver would want the realist to do, if the lawgiver were standing in the realist’s shoes, surveying the situation in light of what has been revealed about the world between the time when the lawgiver wrote down the law and the present moment.

This is an experience of constraint. Legal realism is not about value creation. The realist must be the lawgiver at a time and place that the lawgiver could not access for himself when the lawgiver wrote the law. This is precisely why legal realism is so much more powerful than formalism: because the realist becomes an extension of the lawgiver. By taking the spirit of the lawgiver into himself, the realist replicates the lawgiver across time and space. But, again, the decisions that the realist makes must be those of the lawgiver, or the realist’s best possible projection of the lawgiver. The decisions are not to be a reflection of the realist’s own personal values.

When the formalist approaches a situation that the lawgiver did not anticipate–which is always, because, in its multiplicity, experience is never as we imagine it to be in advance, when we make our laws–when the formalist approaches such an unanticipated situation, and goes ahead and applies the legal rule as written, not because the formalist believes the rule as written to be what the lawgiver would want the formalist to do in that particular situation, but simply because that is what the writing on the page says to do, the formalist does something unimaginably perverse and stupid.

For the formalist has no reason to believe at all that he is doing what the lawgiver wants. He may in fact be doing precisely what the lawgiver would not want if the lawgiver had known that events would unfold as they have. Moreover, the formalist might well be in a position to intuit, with minimal effort, the fact that the lawgiver would not want the formalist to act according to the letter of the law, if only the formalist would stop and think. The formalist takes the faculty of collective action in humans, evolved over billions of years to allow us to act as one mind, and shuts it off. We spank our children for that kind of behavior, for taking us literally, instead of doing what we want.

When the legal formalist seeks to deduce from existing rules new rules, not by asking what rules would be consistent with the values of the lawgiver, but through analogical thinking, the perversion is even greater, because what the formalist actually ends up doing will not even accord with the letter of existing rules, but only with the new rules that the formalist has dreamed up using some deductive process that is unmoored from the vision of the lawgiver.

Now, the lawgiver may not object to formal obedience; the lawgiver may even punish realism, just as the officer who takes the communications trench may be courtmartialed, or shot. But unless the lawgiver does that out of a fetish for formalism–meaning that one of the lawgiver’s values is formalism itself–in which case the problem of how to apply the law is resolved by mere fiat, the lawgiver does no more than harm himself, hampering his ability to achieve collective action in accordance with his values.

In the United States today, I think it is fairly uncontroversial to say that values are supposed to come from the people, and that the people care about business law only to the extent that it generates an economy that makes them better off. It is in that spirit that I offered, in my reply essay, some illustrative remarks about the considerations that might go into proper legal realist decisionmaking about whether to treat trademark rights as property rights. I did not suggest, however, that legal realism requires that trademark law must always be applied with the end of maximizing consumer welfare in the economic sense. It seems to me that our lawgivers today would like that. But tomorrow they might not — they might prefer that trademark law be applied only to advance worship of the Great Seal of the United States of America. And then the legal realist’s job would be to interpret trademark law to carry out that vision instead.

[Kindly note that I do not view posts on this blog as complete once posted, and do not flag revisions.]

Categories
Annals of American Decline Antitrust Despair Regulation World

Why Progressives Once Fought Tariffs as They Fought Monopolies

The Nineteenth Century understood very well that tariffs have the same effect on consumers as do monopolies. Tariffs prevent foreign competitors from undercutting the prices of domestic companies, because the foreign competitors must now pay the tariffs, and that in turn allows domestic companies to raise prices. It is for this reason that in the Nineteenth Century the same Progressive movement that sought to prevent monopoly pricing, either through antitrust or rate regulation, also sought to replace tariffs with income taxation as the source for government revenue. And succeeded.

But what millions of Americans understood in the late Nineteenth Century is greeted as a bizarre and surprising result today.

Compare:

President Trump’s decision to impose tariffs on imported washing machines has had an odd effect . . . . It is hardly surprising that the tariffs drove up the price of foreign washers. Perhaps more unexpectedly, they also prompted American manufacturers to raise their prices.
Companies that largely sell imported washers, like Samsung and LG, raised prices to compensate for the tariff costs they had to pay. But domestic manufacturers, like Whirlpool, increased prices, too, largely because they could. There aren’t a lot of upstart domestic producers of laundry equipment that could undercut Whirlpool on price if the company decided to capture more profits by raising prices at the same time its competitors were forced to do so.

Jim Tankersley, Trump’s Washing Machine Tariffs Stung Consumers While Lifting Corporate Profits, N.Y. Times, April 21, 2019.

With:

Beginning as early as the 1860s, the Democratic Party challenged Republican power with a biting critique of the central element of the consumption-tax system — the tariff. . . . The Democratic Party developed a general attack on special privilege, monopoly power, and public corruption — one that harkened back to the ideals of the American Revolution and the early republic. Most important, the Democrats described the tariff as the primary engine of a Republican program of subsidizing giant corporations. In 1882, in his first public political statement, the young Woodrow Wilson declared that the tariffs had “Monopoly for a father.” . . . . In the face of these problems, millions of Americans . . . regarded the progressive income tax at the federal level as the next-best alternative . . . .

W. Elliot Brownlee, Federal Taxation in America: A History 77, 79 (3d ed. 2016).
To battles won that were then fought anew,
Our bodies hastened while our minds withdrew.
Categories
Miscellany Regulation

The Streets Should Be Free. Let’s Decongest While Keeping Them That Way.

In her column on congestion pricing, Emily Badger exhibits the unquestioning acceptance of the legitimacy of the price system that lamentably characterizes so much work by progressives today. She argues that because driving has a cost, drivers should be asked to pay that cost through congestion pricing, and she suggests that our current system, in which driving in the city is free, was the uneconomic product of lobbying by the car industry. Hence the title of her column: The Streets Were Never Free. Congestion Pricing Finally Makes That Plain.

In fact, the elimination of bridge and road tolls that took place alongside the popularization of the automobile sat on a sound economic foundation: when the marginal cost of adding another driver to the roads is low, you should encourage as many drivers to use the roads as possible. Charging a price for access discourages use, and therefore unnecessarily limits the number of drivers on the roads.

Accordingly, argued Columbia economist Harold Hotelling in 1938, the proper way to pay for the cost of building and maintaining bridges and roads is to make people pay for them regardless how much they use them — because that way the price won’t limit use — and the only way to do that is to pay for roads and bridges through taxes, rather than by charging tolls. Of course, traffic was not a thing unknown to economists in the early 20th century. But they thought cities would eliminate congestion by building more and bigger roads — expanding supply to meet demand — not by rationing supply, and the efficient way to do that was again by paying for bigger roads through taxes and granting drivers access to them for free. The car industry may have helped the process of de-tolling along, but it was sound economics.

For the time. What everyone missed was that there are more costs to roads than just those of their creation and maintenance: they also destroy the climate, by enabling energy-inefficient driving, as opposed to energy-efficient public transportation. And it turned out that roads simply could not be built big enough to eliminate congestion. So it was not efficient to maximize the number of drivers after all, and the marginal cost of allowing an additional driver onto the roads was therefore not always near zero.

That has led Badger, and the climate movement more generally, to the conclusion that we should have been charging a price for access to roads all along. But that does not follow at all. As Badger points out, congestion and climate concerns make driving a scarce resource, meaning that no matter how high the price charged for access to the resource, more cannot be brought online. So the price system here isn’t needed to stimulate supply; the only work it would do is to winnow down demand to match the fixed level of supply of the resource. That in turn makes price here no more than a rationing mechanism.

And not a necessary one at that. For there are an infinity of ways to ration scarce resources. By birth year. By height. By how early you wake up in the morning. Etc. Price rations based on wealth, and that’s why progressives interested in solving the congestion problem should reject price as the means to that end.

Badger seems unaware that there are alternatives to the price system when it comes to rationing. She observes that:

If we had that problem with other kinds of infrastructure or commodities, we’d charge people more for them. If airline tickets were particularly in demand, their prices would go up. If there were a run on avocados, grocers wouldn’t respond by keeping them as cheap as possible.

All true, but those are all markets in which the goods in fixed supply are sold by private enterprise. Of course private enterprise will use price to ration access, because rationing with price is profitable. But roads and bridges are owned by governments, and governments both have goals other that profit maximization — such as ensuring that everyone has access to basic infrastructure, regardless of wealth — and other ways than price of raising revenue — such as through the tax system. Why is the behavior of markets in the face of shortage a good model for the way governments should behave in the face of shortage?

Moreover, in all the markets Badger mentions, higher prices are capable of calling forth greater supply. When airline prices rise, new airlines enter the market. When avocado prices rise, Mexico sends more avocados. But we aren’t trying to encourage private firms to flood the market with other ways to drive to work. We just want to limit use. We don’t need price for that.

In the information age, non-price approaches to rationing are easier to implement than ever before. I’ve argued that New York should just create an app to grant access to roads during busy periods, routing users to public transportation when congestion is bad. But that doesn’t have to be the only way. A little imagination and attention to technological alternatives could certainly reveal more.

But what we don’t need is unquestioning acceptance of the neoliberal playbook as the solution to our climate problems, or the sacrifice of our values — like the civic value of equal access to public space — that the playbook requires.

To her credit, Badger does seem concerned about the classism of charging for access to the city. But the solution she suggests, subsidized rates for the poor, just can’t work. Any subsidy that truly puts the poor on an equal footing with the rich will defeat the purpose of congestion pricing, by failing to price drivers out of the market. The utilities that subsidize rates to the poor, to which Badger points as a model, don’t use their rates to ration access, as congestion pricing would do, but rather use their rates to cover the fixed costs of maintaining the utilities, so the utilities don’t mind if the subsidy increases demand. Congestion pricing advocates often suggest that the class consequences of congestion pricing can be solved with an administrative tweak; but these tweaks work only to salve guilty consciences.