Categories
Antitrust Monopolization Regulation

Fairly Balanced

Ben Smith must be congratulated for writing one of the few accounts in the Times of the battle between Big News and Big Tech even to acknowledge that there are two players in this fight, and that both are pursuing their own private interests, not necessarily the public interest.

Smith gets it right when he observes that: “The battle between [tech] platforms and publishers is . . . an old-fashioned political brawl between powerful industries.” Contrast that to “To Take Down Big Tech, They First Need to Reinvent the Law,” the headline of a story that appeared in the Times last summer, and you see why there is cause to celebrate this tick back in the direction of balanced journalism.

Of course, there’s still a long way for the Times to go before it stops using its bully pulpit to advance the industry’s own narrow pecuniary interests, and starts giving its readers a complete picture of what’s at stake in the battle between the media industry and Facebook, Google, and Amazon.

Smith follows a popular playbook in the press’s attempts to drum up political support for smashing its tech rivals: lionizing those who help them. No doubt this is the first time that Australian competition regulator Rod Sims has been called a “pugnacious 69-year-old” defending the public against “railroads, ports, and phone companies.”

And no doubt American regulators get the message: take the media’s side and the media will talk you up too.

But Smith really does deserve kudos for trying to be balanced. After all, he comes out and says it: “politicians remain eager to please the press that covers them.”

And: “[T]he power of the press, even nowadays, makes it a formidable political force. Rupert Murdoch’s bare-knuckled News Corp . . . has long led the fight to claw back revenue from the tech giants, and hostility to Google bleeds through the pages of The Times of London and Fox News’s airwaves.”

Of course, the same hostility “fairly bleeds” through the pages of the The New York Times as well. But it would be asking too much for the Times itself to acknowledge that.

I do wish though that Smith would drop a link when he goes on to observe that “much of the American media rejects the idea that it is crusading in its pages to support its publishers’ business agenda.” Last I checked, no one of any prominence had even called out the media for the brazen, self-interested, savaging of big tech that has been running above the fold in newspapers across the country for several years now.

Much less have I read a rejection of such criticism authored by any editorial page anywhere. The press is still a long way away from coming clean to its readers about this issue. All the more reason to thank Smith for finally acknowledging that there is a conflict of interest.

You also have to admire this bit of very journalistic commentary-through-juxtaposition in Smith’s piece: “Facebook, after taking a huge public beating for its role amplifying misinformation . . . has moved to give publishers what they want: money, mostly . . . . writing checks in the seven figures to publishers.” You’d have to be a very dull reader indeed not to see “shakedown” blinking here in red, all caps.

But I haven’t said a word yet about the actual subject matter of Smith’s piece.

It’s this: the media industry has been arguing that Google and Facebook should pay newspapers for the links to news stories that Google provides on its search engine and that Facebook users spend endless hours sharing and discussing on Facebook. And the industry has made some headway in convincing government regulators in Australia and France to mandate such payments.

But is there a good argument for making Google and Facebook pay? Although there have been attempts to spin the problem of compensation into a copyright question — is a snippet of text from a news article included in a Google search result subject to copyright by newspapers? — the basic argument is that Google and Facebook would be a lot less valuable to their users if there were no journalism out on the internet for Google to help users find and for Facebook to help users share.

It follows that newspapers are contributing value to Google and Facebook, and should therefore receive compensation for that value.

The trouble with this argument is that there is no general rule that anyone who receives value from someone else should pay compensation for it. Imagine if you had to pay every pretty face you encountered on the street for the pleasure you take in a glance. There’s no doubt that Google and Facebook would be a lot less useful if there were no world for Google to reproduce in search results or for Facebook users to discuss on Facebook. That doesn’t mean that Google and Facebook should be made to pay all of their revenues out to the whole world in exchange for the value the whole world contributes to Google and Facebook’s websites.

The rule that policymakers actually do follow is to try wherever possible to ensure that those who produce value are paid enough to cover their costs of producing that value. That’s not at all the same as requiring full compensation for all the value producers confer on others.

That is, the basic rule on when to recognize a right to payment–otherwise known as a property right–is that producers of value should have enough of a right to payment to cover their costs. Because that is enough to ensure that they have the resources necessary to continue to produce the valuable things that they make. But beyond that, no one has, or should have, a right to payment simply in virtue of having conferred value on others.

Otherwise, no one could get any enjoyment out of the works of others! If a firm creates $10 of value for you, you would then be required to pay $10 of value back to the firm, for a net gain of zero. Clearly, a rule that value conferred must give rise to compensation simply because value has been conferred is unworkable.

The newspaper industry may be wrong to argue that value conferred gives rise to a right to payment. But the industry does, however, have a good case that at present it is not receiving even enough compensation to pay its costs of production, which suggests at least that it should have a right to more compensation from someone. Local newspapers across the country are shuttering. And the big papers that remain have had to sacrifice care and balance in their reporting in order to attract readers and protect their bottom lines. While the industry still takes in enough revenue to produce news, it no longer takes in enough to produce news of optimal quality.

But it is far from obvious that Google and Facebook should be the institutions to pay the costs of better journalism. True, those two companies now earn the advertising revenues that once sustained the media industry. But that’s because Google and Facebook distribute advertising better than do newspapers, not because Google and Facebook have used monopoly power to strike down more-innovative newspaper rivals.

And anyway the vulnerability of the newspaper industry to competition from Google and Facebook–two companies that don’t, actually, produce any news of their own–points to a deeper problem that can’t be solved by forcing these firms to subsidize the newspaper industry: that the market in which the media industry generates its revenues isn’t actually the market for news.

It’s the market for advertising.

That has always been a huge problem for newspapers, because a newspaper’s core mission is to tell the truth, whereas advertising’s core mission is to manipulate consumers into buying products they would not buy otherwise, and the more so in the information age. It makes no sense to fund an industry devoted to arming the public against manipulation–political and otherwise–through the distribution of commercial attempts to manipulate the public.

Which is why addressing the current jeopardy of journalism by tying newspapers back into advertising revenue streams, generated now through the medium of Google and Facebook, would represent a lost opportunity–to wean the newspaper industry off of dirty money.

What governments should be doing to save journalism is to set up direct government subsidies for newspapers, the way many Western European countries, and Britain, have long subsidized television news through a dedicated tax.

Detractors of this approach warn that government support could compromise journalistic independence. But here’s the thing: if Congress rides to the industry’s rescue by passing legislation advocated by the News Media Alliance that would allow the industry to negotiate compensation from Google and Facebook, that too would be a government subsidy. Few are under any illusions about that fact, not least the journalists who are currently busy rewarding friendly politicians with positive news coverage. A hostile President, or Congress, won’t think twice about demanding good press in exchange for support for such legislation. Indeed, that’s exactly what politicians who are backing the legislation are already getting in exchange.

If we’re getting government-subsidized media either way, we should at least get it without the advertising, and the additional layer of conflicts with commercial interests that entails.

Of course when, as Smith reports in a different piece, “[t]he most heated debate in places where . . . nonprofit news executives gather . . . is whether it’s ever safe or ethical to take government funding,” not whether it’s safe or ethical to take money from corporate interests in exchange for running corporate propaganda, there seems to be little hope for this approach.

Smith writes that the war between Big News and Big Tech is not just about private interests but also about “economic principle.” He’s right that the newspaper industry has tried to cast itself as the nation’s last line of defense against monopolization of the economy by the tech giants. But this craven and profoundly disingenuous appeal to the public interest was belied from the start by the industry’s advocacy of legislation that would allow newspapers to cartelize in violation of the antitrust laws in order to negotiate payments from the tech giants.

Demanding a cut of a monopolist’s profits is not the modus operandi of an industry committed to competitive markets. A News Corp. executive’s quip to Mark Zuckerberg about Facebook’s capitulation to modest payments–“what took you so long?”–says it all.

Of course, newspapers have also pressed for breakup of the tech giants, which is more like what one would expect from genuine antimonopoly advocates. But that, like all the bad press newspapers have heaped on Big Tech over the past few years, has just been about maintaining a bargaining position, the stick required to scare Google and Facebook into opening their wallets.

Once Big Tech does cut in the newspapers, don’t hold your breath waiting for the newspaper industry to continue the crusade for greater competition in America.

Categories
Civilization Regulation

Read It in the Sands

Anyone still skeptical about the usefulness of regulation as a general matter ought to consider the contrast between archaeology and treasure hunting. By which I mean, the triumphs of Twentieth Century state-sponsored archaeology and the failure of the preceding millennia of free-market treasure hunting.

Categories
Antitrust Monopolization Regulation

Cost Discrimination

One hears constantly about the power of technology to enable the consumer-harmful practice of price discrimination, which is the charging, to each consumer of a given product, of a price equal to the maximum that the consumer is willing to pay for that product. But one hears very little about the power of technology to enable the consumer-beneficial practice of cost discrimination, which is the foisting upon each firm of a price equal to the minimum that firm is willing to accept in exchange for selling a given product.

That’s not because the technology isn’t there. In fact, because big business invested in supply chain automation long before the tech giants made possible the snooping needed to identify consumer willingness to pay, the technology needed for cost discrimination is more developed than the technology needed for price discrimination. The reason we don’t hear about cost discrimination is that the technology needed to implement it is in the hands of firms, rather than the consumers who would benefit from cost discrimination.

This state of affairs isn’t surprising, since firms are few relative to consumers, and therefore more likely to have the pooled resources and capacity for unified action needed to invest in and implement a discrimination scheme. Yes, consumers have review websites, and price aggregators, but that’s a far cry from the centralized acquisition and analysis of data, and the ability to bargain as a unit based upon it, that firms enjoy.

One way for consumers to implement cost discrimination would be by organizing themselves into data-savvy cooperatives for purposes of negotiating prices with firms. Another would be for startups to step in as middlemen, taking a cut from consumers in exchange for engaging in data-based bargaining on their behalf.

But another solution is for the government to create an administrative agency with the power to regulate consumer prices. It turns out that there is ample precedent for government price regulators to dictate cost-discriminatory prices.

Here, for example, is an account of the Federal Power Commission doing just that for wellhead natural gas rates in 1965:

Pricing designed to encourage supply could also create “economic rents” (profits above a normal return) for gas producers with old, inexpensive reserves. Neither the producers’ brief for fair field prices nor the staff’s preference for rates based on average historical costs seemed acceptable or sufficient. It was the young economist Alfred Kahn, serving as an expert witness, who suggested a two-tied pricing structure: separate prices for old gas and new gas. Here, from the commission’s perspective, was an ideal political, and perhaps economic, solution. “The two-price system,” wrote the commission, “thus holds out a reward to encourage producers to engage in further exploration and development while preventing excess and unnecessary revenues from the sale of gar developed at a period when there was no special exploratory activity directed to gas discovery.”

Richard H.K. Vietor, Contrived Competition: Regulation and Deregulation in America 113-14 (1994).

The old gas here corresponds to inframarginal units of production and the new gas corresponds to marginal units of production. Economists were once acutely aware of the problem that even under perfect competition the inframarginal units can enjoy a windfall at the competitive price, so long as the cost to their owners of producing those units happens to be below the cost of the marginal units, which determine the competitive price.

David Ricardo famously explained all of English aristocratic wealth in these terms. The aristocrats take the best land by force, he observed, and cultivation of that land is relatively inexpensive, because it is the best land. The rest take land that is more expensive to cultivate. Because the competitive price for agricultural goods must be high enough to pay the higher cost of cultivating the poorer-quality, hence marginal, land, the price must then be above the cost to the aristocracy of cultivating the best land, leaving the aristocracy with great profits.

Just so, the FPC worried that the producers of the old gas, who had come upon the gas only as an accident as part of explorations for oil, and therefore had incurred a gas exploration cost of zero, would enjoy a windfall if prices were set to cover the costs of bringing new gas from the ground through dedicated and costly explorations. So the FPC approved prices that discriminated against the old gas producers based on their lower exploration costs.

Consumers don’t know enough about the costs incurred by the firms that sell to them to insist on low prices when buying from firms with low costs. Which is why I suspect that government price regulation will be the only way for consumers eventually to enjoy some of the pricing-based fruits of the information age.

Categories
Regulation

An Economic Philosophy

Better not to have at all than to conserve. There is in waste an infinite utility. And in scarcity an infinite disutility. There is in declining block rate electric utility pricing, in the all-you-can-eat buffet, in the inclusion of lump-sum gas and electric charges in apartment rental payments, in airlines with a chronic 50% load factor, and in the unlimited voice and data plan a nobility that only civilization can achieve. Just as a well-engineered car should allow us complete freedom of choice regarding how fast to drive, regardless the pressures on the engine under the hood, until it melts, so too should a well-regulated economy offer us complete freedom regarding how much to consume, regardless the demands placed on the markets under the hood, until they run dry. The job of an economy is not just to manage scarcity, but to create the illusion of having conquered it.

Categories
Antitrust Monopolization Regulation

It’s about Price, not Competition

One thing we are going to encounter a lot as the anti-big-tech crusade gets under way is the confusion of pricing problems with competition problems. Consider the attack on Apple’s promotion of its own apps on its App Store. This looks like a competition problem: Apple is using its proprietary App Store infrastructure unfairly to promote its own products over those of rivals. Get a court applying the antitrust laws to order Apple to stop doing that, and, it appears, the problem is solved.

Only it’s not solved, because the heart of the problem is not Apple’s creation of an unlevel playing field in app competition. The heart of the problem is that Apple owns the App Store itself.

And for that problem, there is no competitive solution. As Chicago School scholars pointed out long ago, if a company has a monopoly on upstream infrastructure, the company can use that monopoly to extract all of the profits from downstream businesses that rely on the infrastructure, by charging high fees for access.

So long as Apple retains the power to set the fees that it charges software developers for selling apps through the app store, Apple will be able to suck all the value out of those downstream businesses. Forcing Apple to let those businesses compete with Apple’s own apps on a level playing field will not solve the problem because app developers will still need to pay Apple a fee for access that Apple has discretion to set.

Indeed, it is a mistake to think that Apple’s promotion of its own apps on the app store reflects anticompetitive intent. Because Apple could extract all of the profits from competing developers through fees, even without selling any apps of its own, Apple’s reasons for selling its own apps in the App store, and indeed for promoting them over rival apps, can only have other purposes. Most likely, for a firm that has repeatedly demonstrated the desirability to consumers of tight integration of product components, Apple sells its own apps, and promotes them preferentially, because Apple believes that its own apps are actually better, and that when consumers search for new apps, consumers want to know if Apple has a relevant offering. (I know I do.)

What should trouble us about the App Store is not that Apple manages competition on that platform–the company has every reason to do that with a view to making consumers happy–but rather that Apple’s control of the platform allows the company to extract all of the gains created by the platform for itself through fees, leaving relatively little for other app developers, or for consumers themselves.

The only way to solve that problem using competition would be to lessen Apple’s control over the App Store itself. But doing that would destroy the closed app ecosystem that has differentiated the iPhone positively in the minds of consumers from the mayhem and unreliability of Android phones. Letting iPhone owners install apps from anywhere is a recipe for trouble.

In the App Store, as in most tech platforms, we have an efficient market structure. But a monopolistic one. That means that complaints about fairness ultimately must amount to complaints about price, not competition. The solution can therefore only be price regulation, not antitrust.

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.

Categories
Annals of American Decline Despair Regulation World

Congestion Pricing Is Just the Latest in Progressives’ Betrayal of the Regulatory State

Once upon a time, most ways into New York City were tolled. Then the original progressive movement hit. Progressive economists like Harold Hotelling argued persuasively that because the marginal cost of running another motorist over a bridge was near zero, there was no economic reason for which everyone who wanted to drive over the bridge should not be allowed to do so. The way to recover the vast fixed costs of bridge construction was not by charging a toll, but by extracting contributions from motorists that would not discourage them from using the bridge whenever they wanted to do so. And the way to do that was to tax them, regardless how much they actually used the bridge.

This solution to funding infrastructure construction — taxation combined with free access — was a regulatory solution, and not just any kind of regulatory solution, but a rate regulatory solution, because the government chose to set the price of infrastructure access: only you could easily miss it, because the government set that price at zero.

In this way, the original progressive approach to roads and bridges was not different from the progressives’ approach to markets of all kinds, which was to regulate terms of sale with social justice in mind. Thus the government in this period encouraged AT&T to recoup its own fixed costs by charging high prices to wealthy long-distance users, freeing the company up to provide local calling services, which were used more heavily by the poor, at very low rates. And the government forced the railroads to recoup more of their fixed costs from intercity routes used by the wealthy, even though competition would typically have held prices down for those customers, and to use the savings to charge lower prices to rural customers.

The progressives’ approach to regulating roads and bridges though a combination of taxation and zero price access was socially just, too, because of course it meant that city driving was free for everyone.

Then, for reasons that remain unclear, progressives seemed to forget what the entire regulatory project was all about, and in the stunningly short space of three years in the late 1970s, they collaborated with conservatives to tear down most of the regulatory state at the federal level. They deregulated the airlines, trucking, railroads, and natural gas. And in ensuring decades the federal government stopped regulating banking, and telecom rates as well.

One might have thought that the resurgence of the progressive movement in recent years would have led to a rediscovery of the original progressive model of price and quality regulation, but instead the movement has seemed time and again to mistake policies that the original progressives fought bitterly to overcome for progressive solutions to today’s problems. This has played out to a farcical extreme in the recent progressive love affair with the antitrust laws, which promote the unrestrained competition that the progressives fought so hard to overcome through the regulatory model.

And it is sadly in evidence now too in the progressive love affair with congestion pricing, which amounts to no more than reimposing the toll system that the original progressives fought so hard to take down. To be sure, the original progressives missed something important about roads: they congest, and they pollute. So Hotelling was wrong to assume that the marginal cost of allowing another driver to cross a bridge would always be near zero. That cost stays near zero until the bridge reaches the optimal level of congestion, after which point the cost of adding another car to the bridge is very high indeed.

But the solution to the problem of congestion isn’t to start charging users a price for access. That just takes us back to the bad old days when being poor meant you lost your right, even, to access that most quintessential of public spaces, the streets. The solution is to ration access to the streets using a criterion that isn’t tied so closely to wealth. And technology makes that easier to do today than it ever has been.

I’ve argued that one approach would be for the city to use a smartphone app to decide who gets access based on a combination of first-come-first-served and proximity to public transportation. You could log in from the comfort of home, the app would decide whether the city can accommodate you based on current traffic conditions and whether you are near a subway, and you would instantaneously receive an authorization to proceed or a request to go into town by other means that day. A colleague has suggested to me that those with jobs in the city should get priority.

Regardless how the rationing mechanism might be structured, the point is that price — and its sinister correlation with wealth — doesn’t need to play any role. Nor should it, unless you are so naive as to believe that those who are willing to pay more are always those who can put the streets to more productive use, rather than simply those for whom a dollar isn’t worth as much as it is to others, because they happen to have more of them.

What’s so troubling about the progressive embrace of congestion pricing is that progressives don’t seem to care about the classist consequences, setting today’s progressives rather starkly apart from the originals. Instead, today’s progressives view the price system as the solution not just to big city traffic, but climate change more generally — in the form of the carbon tax. What they don’t seem to understand is that there is no magic to price when it comes to rationing access to resources that are in fixed supply, like city streets, or air. Price is just another ration card, just another way of deciding who takes and who doesn’t. Only unlike other rationing mechanisms, price gives the rich priority.

Why would progressives ever opt, among the myriad criteria to use in sorting those who get to take and those who do not, to choose the one that selects for wealth? This approach may of course be self defeating — the gilets jaunes movement that almost toppled the French government consisted of poor people aggrieved by a gas tax aimed at fighting climate change, a tax that the government was forced to withdraw.

But even if reliance on price rationing doesn’t prove a political loser, it’s still socially unjust. Why should the poor bear the burden of saving the world’s climate? Yes, under carbon taxes and congestion pricing, the rich do end up paying, but they also end up getting to drive. The poor might end up better off, if some of the proceeds of the tax are redistributed to them, but they still won’t get to drive. Why? Because if they were to benefit so richly from redistribution of tax proceeds, or from exemptions designed to temper the effects of the tax, that they were still able to access the streets as much as the rich, why, then the carbon tax wouldn’t actually reduce emissions after all!

It is this sort of seemingly naive betrayal of the regulatory state, and the civic values that it stood for, by those who ought to be sticking up for those values, that makes the current progressive movement a shadow of the original.

Categories
Antitrust Monopolization Regulation

The Big and the Bad

That firm size tells us little about propensity to innovate is nicely illustrated by contrasting AT&T and Verizon with Amazon. AT&T and Verizon have rightly been criticized for what looks like intentional underinvestment in broadband, made possible by their oligopoly power. Comes now Amazon, planning to invest billions to provide global broadband access via satellite, and Google, investing billions to build new undersea internet cables.

The big can do wrong, but they can also do right.

There is a Schumpeterian lesson here too. Schumpeter argued that market power is always in jeopardy from outside the market, and that is in evidence here. Who would have thought a few years ago that an online retailer would one day plan to use the profits generated from dominance in its own market to challenge the vicious telecom oligopoly?

It should also be clear that a broken up Amazon or Google, an Amazon or Google confined to one business, one market, and one level of the supply chain, would have neither the capital, nor the ambition, nor the legal right to attack the telecoms.

It is not size that is a problem, but the misuse of size, and the remedy for misuse is to encourage the good uses and suppress the bad. Which is to say: not to break up, but to regulate.

Categories
Antitrust Meta Monopolization Regulation

Chicxulubian Antitrust

There is a lot for industrial policy, including antitrust, to gain from reflecting upon evolution. Consider, for example, the theory that the demise of the dinosaurs in a catastrophic meteor impact at Chicxulub cleared the way for mammals to become the world’s dominant megafauna.

If we suppose that mammals are better creatures than dinosaurs — more advanced, more sophisticated, somehow — then the theory suggests that until the meteor impact the dinosaurs had short-circuited competition from mammals, preventing them from leveraging their superiority to overpower the dinosaurs.

Perhaps the short circuit was the mere fact of dinosaurs’ incumbency. Mammals couldn’t reach livestock size, for example, and compete with larger dinosaurs, simply because dinosaurs already occupied that niche, denying mammals the resources they would need to evolve into it. Similarly, antitrust and innovation economics have long recognized that there are first-mover advantages that can block competition. Indeed, the argument current today that Google and Facebook use their size to acquire startups before they can grow into serious competitors resembles the role dinosaurs’ incumbency may have played in obstructing the development of mammals.

But perhaps instead of confirming our fears about the anticompetitive character of incumbency, the story of dinosaurs and mammals undermines it. For there is no reason to assume that mammals really are the better — more advanced, more sophisticated, somehow — of the two groups. Perhaps if the advantages of incumbency could be eliminated, and dinosaurs and mammals, in fully-developed form, could be set against each other, dinosaurs would emerge victorious.

In that case the meteor impact did not operate the way some believe that using the antitrust laws to break up Big Tech would operate today. The cataclysm did not free up space for more innovative upstarts to develop and occupy the ecosystem, but rather wiped out a more advanced form, allowing less-developed upstarts to thrive, and then to turn around and use the advantages of incumbency to prevent the more advanced form from returning to its original position of dominance. The meteor laid low the dinosauric epitome of life, and mammals leapt into the space and prevented dinosaurs from coming back. It is hard, when looking at the dinosaurs’ descendants, the birds, with their obsession with beauty, long-term amorous relationships, and increasingly-well-documented intelligence, not to wonder what might have been.

In other words, there is no reason for industrial policymakers to suppose that periodically shaking up the business world using the industrial cataclysm of the deconcentration order must necessarily, through competition, lead to better firms. Some value judgment must be made by policymakers regarding whether what will come next promises to be better than what we have now. Competition is path dependent, a kind of roll of the dice, and there is no guarantee that a new roll will produce better forms than the last. The evolution of the mammals into man — an unmitigated disaster for the global ecosystem — stands as Exhibit One to that sorry fact.