Categories
Miscellany

Corporate Law before Capitalism

One forgets that when Blackstone was writing his celebrated Commentaries on the Laws of England in the mid-18th century, business was not the most obvious application of the corporate form.

And so when Blackstone gives a list of types of corporations, he puts the business corporation last:

These artificial persons are called bodies politic, bodies corporate, (corpora corporata) or corporations: of which there is a great variety subsisting, for the advancement of religion, of learning, and of commerce.”

1 William Blackstone, Commentaries on the Laws of England 303 (Oxford 2016) (1765).

Blackstone goes on to take, as his primary example of a corporation, not the business corporation, but rather “the case of a college in either of our universities.”

Categories
Antitrust Regulation

“The Best Are Easily 10 Times Better Than Average,” But Can They Do Anything Else?

Netflix CEO Reed Hastings is celebrating the principle that great software programmers are orders of magnitude more productive than average programmers. The implication is that sky-high salaries for these rock stars are worth it.

Now, it may very well be the case that the best programmers are orders of magnitude better than average programmers. I’ve seen a similar thing on display during examinations for gifted students: inevitably one student finishes the exam in half the time and walks out with a perfect score, while the rest of the gifted struggle on.

Just how many orders of magnitude smarter is that student, relative not just to the other gifted students in the room, but to the average student who is not in room?

But while the rock-star principle may justify the high willingness of Silicon Valley firms to pay for talent — the more value an employee brings to a firm the more the firm can afford to pay the employee and still end up ahead — that doesn’t mean that as an economic matter a firm must pay rock-star employees higher salaries.

Far from it.

Economic efficiency requires that great programmers be put to use programming, otherwise society loses the benefit of their talents. But the minimum salary that, as an economic matter, a tech firm must pay a rock-star programmer to induce the programmer to program is just a penny more than what the programmer would earn doing the programmer’s next-most productive activity.

If the programmer isn’t good at anything but programming, that number might be $15.01 — the $15 minimum wage Amazon pays its fulfillment center workers plus a penny — or even something lower, as the programmers I know would have a tough time sprinting around a warehouse all day.

A programmer might be worth $100 million as a programmer, for example, because the programmer is capable of delivering that much value to software. But to make sure this person actually delivers that value, the market does not need actually to pay the programmer $100 million, or anything near to that amount. All the market needs to pay the programmer is a penny more than what the programmer would earn by not programming.

And if rock-star programmers tend only to be rock stars at programming, as I suspect is the case, that number might be pretty small, indeed, on the order of what average programmers make — if not $15 an hour, which is a bit of an exaggeration — because the rock-star programmer is likely to be average at programming-adjacent pursuits.

If the most the programmer would make teaching math, playing competitive chess, or just programming for non-tech companies that will never earn the profits needed to pay rock-star salaries, no matter how talented their employees, is a hundred thousand a year, then that plus a penny is all that economics requires that the programmer be paid for doing programming. Not $100 million.

So why are rock-star programmers earning the big bucks in Silicon Valley? Because tech firms compete for them, bidding up the price of their services.

Tech firms know this, of course, and once tried to put a lid on the bidding war, by entering into no-poach agreements pursuant to which they promised not to try to lure away each others’ programmers by offering them more money.

There is no reason to think that these no-poach agreements were inefficient. Unless you believe that programmers can contribute more to some tech firms than to others, in which case the bidding wars that drive rock-star compensation sky high are allocating programmers to their most productive uses. But that seems unlikely: does making Google better contribute more to America than making Amazon better?

(The agreements also could not have created any deadweight loss, because perfect price discrimination is the norm in hiring programming talent: firms negotiate compensation individually with each programmer.)

All the no-poach agreements did was to change the distribution of wealth: limiting the share of a firm’s revenues that programmers can take for themselves.

Indeed, the no-poach agreements probably contributed a bit to the deconcentration of wealth.

A dollar of revenue paid out to a smart programmer goes in full to the programmer, whereas that same dollar, if not paid to the programmer but instead paid out as profits to shareholders, is divided multiple ways between the firm’s owners. Competitive bidding for rock-star programmer salaries concentrates wealth, and the no-poach agreements spread it — admittedly to shareholders, who tend to be wealthy, but at least the dollar is spread.

The antitrust laws intervened just in time, however, to dissolve these agreements and punish Silicon Valley firms for doing their part to slow the increase in the wealth gap in America.

Today’s antitrust movement has argued that antitrust should break up the tech giants in part to prevent them from artificially depressing the wages they pay the little guy. I’ve argued that would be a mistake, because breakup could damage the companies, reducing the value they deliver to society and harming everyone. Regulating wages directly is a better idea.

But you don’t just make compensation fair by raising low wages. You also have to reduce excessive wages. One way to start is just by allowing the tech firms to conspire against their rock stars.

And once tech firms have finished conspiring against their overpaid programmers, they can start conspiring against another group of employees that is even more grossly overpaid per dollar of value added: their CEOs.

Well, that we might have to do for them.

Categories
Antitrust Monopolization

The Decline in Monopolization Cases in One (More) Graph

DOJ, FTC, and Private Cases Filed under Section 2 of the Sherman Act
(Image license: CC BY-SA 4.0.)

Observations:

  • The decline in cases brought by the Department of Justice since the 1970s is consistent with the story of Chicago School influence over antitrust. What is perhaps less well known, but clearly reflected in the data, is that the Chicago Revolution took place in the Ford, and especially the Carter, Administrations, not, as is sometimes supposed, in the Reagan Administration, although Reagan supplied the coup de grace.

    Indeed, we have only five monopolization cases filed by DOJ over the course of the entire Carter Administration, as compared with 58 filed during the part of the Nixon Administration and the Ford Administration covered by this data series. This is consistent with the broader influence of the Chicago School over regulation of business. It was also under Ford and Carter, not Reagan, that deregulation got underway, with partial deregulation of railroads (1976), near-complete deregulation of airlines (1978), and partial deregulation of trucking (1980) (more here).

    The timing suggests that the Chicago School’s victories were intellectual, rather than merely partisan. As Przemyslaw Palka has pointed out to me, Milton Friedman consciously pursued a strategy of intellectual, rather than political warfare, because he understood that victory on the intellectual plane is more complete and enduring (a nice discussion of this may be found here on pages 218-221). As these numbers suggest, Chicago prevailed by converting its adversaries, so that even when its adversaries were nominally in political power under Carter, they implemented Chicago’s own agenda.
  • To the extent that the early part of the FTC data series is reliable (more on that below), the story in the FTC case numbers is that of the six monopolization cases brought over the past five years, following a twenty-year period during which the FTC brought only three cases. With the exception of Google, which has just been filed, there has been no corresponding uptick in monopolization cases filed by the Department of Justice.
  • The private litigation data show that in some years (1998 and 2013), private litigation across the entire United States has produced fewer monopolization cases (against unique defendants) than did a single federal enforcer–the DOJ–in 1971. The private litigation numbers for 1997 to 2020 also show that, on average, about twenty defendants face new monopolization actions each year when federal enforcers are filing near-zero complaints. To the extent that the numbers for 1974 to 1983 are reliable (of which more below), they suggest that private cases have also declined markedly since the 1970s, although there was a lag of several years between the two effects, perhaps due to the tendency of private plaintiffs to file follow-on cases to government cases.
  • Altogether, one is left with the impression that corporate America has been awfully well-behaved since about 1975.

Notes on the Data:

  • The cases brought by the Department of Justice (DOJ) come from the Antitrust Division’s own workload statistics, so I assume the numbers are accurate. For DOJ cases investigated, as well as filed, see here.
  • The cases filed by private plaintiffs come from two sources. The first, for the years 1997 to 2020, is a search for Section 2 complaints in federal court dockets via Lexis CourtLink. I must thank Beau Steenken, Instructional Services Librarian & Associate Professor of Legal Research at University of Kentucky Rosenberg College of Law, for figuring out how to search CourtLink for Section 2 cases (no easy task, it turns out).

    These are only cases for which the plaintiff, in filing the complaint, indicated the cause of action as Section 2 of the Sherman Act in the court’s cover sheet. Apart from deleting a few cases in which DOJ was the plaintiff, and a few cases in which the case was filed by mistake (e.g., the case name reads: “error”), I did not examine these cases at all, other than to note that many of the defendants look plausible (e.g., Microsoft comes up a lot in the late 1990s or early 2000s).

    Finally, I counted only unique defendants in any given year. So for example, if there were ten cases filed against Microsoft in 2000, I counted that as only one case. The reason is that multiple consumers or competitors might be harmed by a single piece of anticompetitive conduct undertaken by a monopolist, and so one would expect multiple plaintiffs to sue the monopolist based on the same conduct. For those interested in using case counts to measure enforcement, all of those cases signal the same thing, that a particular anticompetitive practice has been challenged, and so all of the cases together really only represent a single instance of enforcement. I did not, however, check each complaint to make sure that the alleged conduct was the same across all complaints. I just assumed that multiple complaints filed in a given year against a single defendant relate to the same conduct. (I did not, however, count unique defendants across plaintiff types: the Justice Department case against Microsoft was counted toward DOJ cases and and any private cases filed against Microsoft in the same year count as a an additional single case in the private cases account.)

    According to CourtLink, some federal courts adopted online filing later than others, and CourtLink only has electronic dockets. I chose to use 1997 as the start year for this count, because by that year almost all jurisdictions were online and so presumably their dockets are part of the CourtLink database. According to CourtLink, several jurisdictions had not yet moved online by that year, however, and so the counts may be slightly skewed low in the first few years after 1997 because they miss cases filed in the jurisdictions that were still offline during that period. The jurisdictions that went online after January 1, 1997, and the year in which they went online, are District of New Mexico (1998), District of Nevada (1999), and District of Alaska (2004).

    The source of the data for the years 1974 to 1983 is Table 6 in this article. That table gives the yearly percentage of refusal to deal and predatory pricing cases in a sample of 2,357 cases from five courts, Southern District of New York, Northern District of Illinois, Northern District of California, Western District of Missouri, and Northern District of Georgia, as well as the total number of private antitrust cases filed per year. Because I suspect that my CourtLink data represents “pure” Section 2 cases–cases in which the Section 2 claim is the principal claim in the case–I adjusted these percentages using information from Table 1 in the paper about the share of those percentages that represent primary claims. Because the total yearly private cases given in the Article did not appear to be adjusted for multiple cases filed against the same defendant in a given year, as I adjusted the CourtLink data, I therefore further reduced the results in the same proportion as my CourtLink results were reduced when I eliminated multiple cases against the same defendant, a reduction of about 40%.
  • I collected the FTC data by searching for cases labeled “Single-Firm Conduct” in the FTC’s “cases and proceedings” database. The cases and proceedings database goes back to 1996, and so I labeled years for which there were no hits as years of zero cases going back to 1996. However, the FTC website does caution that some older cases are searchable only by name and year, and presumably not by case type, so it is possible that this data fails to count cases from early in the period (e.g., late 1990s). I also paged through the “Annual Antitrust Enforcement Activities Reports” issued by the FTC between 1996 and 2008 and found a couple of cases not returned by the search of the cases and proceedings database. Finally, I included the FTC’s case against Intel, filed in 2009. I counted both administrative complaints filed in the FTC’s own internal adjudication system and complaints filed by the FTC in federal court. The FTC cases are nominally brought under Section 5 of the FTC Act, through which the FTC enforces Section 2 of the Sherman Act.
Categories
Antitrust Monopolization

The Smallness of the Bigness Problem

The tendency to ascribe the problem of inequality that ails us to the bigness of firms is the great embarrassment of contemporary American progressivism. The notion that the solution to poverty is cartels for small business and the hammer for big business is so pre-modern, so mercantilist, that one wonders what poverty of intellect could have led American progressives into it.

Indeed, the contemporary progressive’s shame is all the greater because the original American progressives a century ago, whose name the contemporary progressive so freely appropriates, did not make the same mistake. The original progressives were more modern than progressives today, perhaps because the pre-modern age was not quite so distant from them. Robert Hale, the greatest lawyer-economist of the period, wrote that

[e]ven the classical economists realized . . . competition would not keep the price at a level with the cost of all the output, but would result in a price equal to the cost of the marginal portion of the output. Those who produce at lower costs because they own superior [capital] would reap a differential advantage which Ricardo, in his well-known analysis, designated “economic rent.”

Robert L. Hale, Freedom Through Law: Public Control of Private Governing Power 25-26 (1952).

I suspect that this is absolute Greek to the contemporary progressive. I will kindly explain it below.

But first, it should be noted that the American progressive’s failure to appreciate the smallness of the bigness problem is not shared by Piketty, whom American progressives celebrate without actually reading:

Yet pure and perfect competition cannot alter the inequality r > g, which is not the consequence of any market “imperfection.”

Thomas Piketty, Capital in the Twenty-First Century 573 (Arthur Goldhammer trans., 2017). (Italics mine.)

What does Piketty mean here?

He means what Hale meant, which is that the heart of inequality does not come from monopolists charging supracompetitive prices, however obnoxious we may feel that to be, but rather from the fact that the rich own assets that are more productive than the assets owned by the poor, and so they profit more than the poor even at efficient, competitive prices.

In other words, the rich get richer because their costs are lower and their costs are lower because they own all the best stuff.

No matter how competitive the market, prices will never be driven down to the lower costs faced by the rich, because other people own less-productive assets than do the rich and competition drives prices down to the level of the higher costs associated with producing things with less-productive assets.

(Why can’t price just keep going down, and simply drive the more expensive producers out of the market to the end of dissipating the profits of the less expensive producers? Because there is always a less expensive producer! Price can therefore never dissipate the profits of them all, and anyway demand puts a floor on price: consumers are always bidding prices up until supply satisfies demand.)

Graphically, American progressives have been sweating the “monopoly profit” box without seeming to realize that it’s tiny compared to what remains once you eliminate it, which is the “economic rent” box.

Picketty, the original American progressives, and kindergartners know the difference between big and small. Why don’t we?

Categories
Antitrust

Conspiracy or Incompetence?

Let’s get this straight. The New York Times criticizes The Epoch Times today for running infomercials attacking the Chinese Communist Party’s handling of the coronavirus pandemic while making “no mention of The Epoch Times’s ties to Falun Gong, or its two-decade-long campaign against Chinese communism.”

But last week the Times ran a long piece, titled “Big Tech’s Professional Opponents Strike at Google,” that purported to reveal to readers the forces behind the Google antitrust suit while making no mention of the campaign of the News Media Alliance, of which the Times is a member, for antitrust action against Google, or the threat posed by Google to the Times’ advertising business.

Since the Times seems to think poor little Epoch Times should be disclosing its death struggle with the CCP to readers, I would like to see the Times start disclosing, in each article it writes about Big Tech, its death struggle with those companies over advertising revenues. The paper can also slap a correction to the same effect on each of the hundreds of pieces it has published over the past three years trashing its tech adversaries.

Ben Smith, who knows better, contributed to the Epoch Times piece. Let’s see him show some courage in his next column about media and tech.

So which is it? Maybe both.

Categories
Miscellany

Chess as a Warning

Still not like life, but more like it. (Source.)

There is a tendency to view the great lesson of chess as being that math-like reasoning works: the systematic thinkers and pattern recognizers among us excel at the game because they can see seven moves ahead, spot traps, and so on.

But that’s the wrong conclusion.

What chess tells us is that if even with fixed rules and an eight-by-eight square board math cannot deliver a key to winning every game–and it looks like it can’t–then imagine how much less useful mechanical thinking would be on the infinity by infinity board with no fixed rules that is life.

Chess has always been an amalgam of systematic behavior that is quite alien to daily life, and strategies and concepts that are much more familiar to us, like daring, care, and luck.

In chess there are the moments when a great systematic mind can see checkmate seven moves ahead. But just as often there are the moments in which several possible moves would open up a near-infinity of possible outcomes and no one can say which is best, both because that depends on what the other player does and because the possible variations are almost too numerous to count.

Sometimes the game lands us on an end branch of the tree of possibilities, and it’s possible to see your way to the blossom on the end, but other times the game lands you on a trunk and the brambles are so dense that you can scarcely see the sky.

When we find ourselves on the end branches, systematic thinking looms large, and we tend to use this as chess’s great lesson for life: find the system! Find mate in seven moves!

But when we find ourselves in the brambles, we call upon the same tools we use in daily life. We think in terms of strategy. Dominate the center of the board. Take the initiative by putting the opponent’s King in check. Pin down important pieces. Defend. Attack. Trust your gut. Victory goes to the bold.

There is in human relationships nothing at all even remotely analogous to mate in seven moves. Sometimes we talk about the relations between great powers as “like a game of chess,” but in truth they never are. The statesman who thinks he can mate his opponent is a dangerous fool, because he will sacrifice sound, human strategy for a system that will inevitably fail.

The closest thing we have to mate in life is the law, which purports at times to be a set of fixed rules that govern all human interactions. But any practicing lawyer will tell you that a bit of politics, or an appeal to heart of a judge, can win a case, even if the letter of the law is against you.

The board of life is so vast, and the pieces so numerous, that we are always, always caught in the brambles, unable to see the sky.

The great success of machine learning in chess represented by AlphaZero, a simple learning algorithm slapped together by Google that went on to beat the best chess computers in the world in dashing style, makes this lesson clear.

The legacy chess computers that AlphaZero beat were systematic thinkers, combining hardcoded programming about the best opening moves with number crunching that would explore possible games emanating from different moves and try to pick the most promising of them.

But AlphaZero is machine learning. Google’s engineers fed it the rules of chess and it played tens of millions of games against itself, creating a map of the best moves in different situations based on whether they ultimately led to a win or a loss.

It takes an approach akin to the approach of the human mind to life: note what seems to work based on experience and then do it when you encounter similar situations in the future. Of course, AlphaZero has a lot more experience to work with, because no one can play forty-four million games with himself in two hours.

The important thing about AlphaZero is that no one, not AlphaZero, not the Google engineers, can identify a winning rule of decision that AlphaZero follows, other than the learning map itself, and that changes as AlphaZero learns. There’s no system in there, other than the learning process, which is really just a method of coping with the richness of experience.

The thing that astonished chess enthusiasts is that AlphaZero plays in a human fashion, making daring sacrifices to achieve positional advantages. Some say it hearkens back to the age of “romantic chess” in the 19th century, before human players became obsessed with systematic play and made the game boring.

The lesson here is not that we have found a mechanical solution to the game. We haven’t: AlphaZero can lose; it’s just better at strategy than anyone else, so it tends to win more often. The lesson is that most of chess is not finding mate in seven moves–otherwise the brute force chess computers would be unbeatable–but rather being very, very good at the the familiar strategies that we use to navigate life: learning from experience, noticing what seems to work.

There’s no doubt that being able to see a few moves ahead helps avoid traps–those mates in seven–and that is what stands out at first about the game to human players.

But it stands out precisely because life is not like that.

Categories
Civilization Despair Miscellany World

God Has Died a Thousand Times, and Once in Philadephia

In its most extreme form, the state to an American is ‘a bunch of people’, politicians and their officials whom he watches with critical and even distrustful eyes; he sees the state as a powerful instrument that belongs to and is operated by groups of people for their own ends. At the other extreme one finds in Europe the adoration of the state as something majestic, transcendent and even divine (in the tradition of the ‘divine’ emperors of Rome). Nobody expressed this feeling better than the famous philosopher Hegel, who was professor at the Prussian University of Berlin from 1818 to 1831 and wrote: ‘The march of God in the world, that is what the state is. In considering the Idea of the State we must not have our eyes on particular states . . . Instead we must consider the Idea, this actual God, by itself’.

R. C. van Caenegem, An Historical Introduction to Western Constitutional Law 168 (2000).
Categories
Monopolization

Chamberlin Against Trademark

The wastes of advertising, about which economists have so often complained, would be reduced, for no one could afford to build up goodwill by this means, only to see it vanish through the unimpeded entrance of competitors. There would be more nearly equal returns to all producers and the elimination of sustained monopoly profits. All in all, there would be a closer approach to those beneficent results ordinarily pictured as working themselves out under “free competition.”

Edward Hastings Chamberlin, The Theory of Monopolistic Competition: A Re-Orientation of the Theory of Value 274 (7th ed. 1956).

This view, by the father of the theory of monopolistic competition, is of course still radical today. The entirety of Appendix E of The Theory of Monopolistic Competition, which he devotes to this attack on trademark, did not deserve to be forgotten. You can read it all here.

Where I think I differ with Chamberlin on trademark is this passage:

The question is, where does identification leave off and differentiation begin? [Absent trademark, t]here would be mere identification, without further differentiation of product, in the case of two competing goods, identical in every respect, – as to color, shape and design, labels, marks and names, everything excepting only an inconspicuous identification mark or the name and address of the producer. Obviously “protection” which went no further than this would have no economic value to the producer, for it would mean no more to the buyer than does the slip found in a container (and which identifies perfectly), “Packed by No. 23.”

Edward Hastings Chamberlin, The Theory of Monopolistic Competition: A Re-Orientation of the Theory of Value 272 (7th ed. 1956).

Chamberlin’s claim that “Packed by No. 23” is all identification and no differentiation works intuitively for us because we know that the company that employs No. 23 already engages in a great deal of supervision of the quality of No. 23’s work. We have learned that within-brand product quality is pretty good (at least these days), and so we can ignore these little notes, which may be the legacy of an earlier stage in the industrial age in which within-firm quality standards were still something of a work in progress.

But I do think that we would be far more likely to pay attention to No. 23 were it used as a brand name, rather than an identifier of within-brand quality, for there is no great bureaucratic organization standing over all brands in our economy, making sure each meets quality requirements, and willing to “fire” any that shirks or underperforms. To analogize the Consumer Products Safety Commission to a boss to American’s producers would be funny.

And so we would pay attention to No. 23–just as we pay attention to Chanel No. 5–and paying attention is all it takes for identification to cross over into differentiation, as any marketer will tell you. Attention leads to familiarity which leads to irrational preference.

The only way out of differentiation and all the irrational loyalty that comes with it is not to identify. But to do that, without throwing the consumer into a hell of shoddy and fake goods, one must then build up that great bureaucratic organization standing over all brands in our economy, making sure each meets quality requirements, and willing to “fire” any firm that shirks or underperforms.

That is, we must put businesses in the position of poor, hardworking No. 23.

But even if we were to do that, I am not sure that the end would justify the means. For if the point were alone “the elimination of sustained monopoly profits” via the increased price competition that would follow the demise of trademark, as Chamberlin suggests that it would be, I have a better idea: just pass a law that says “charge lower prices.”

If the goal is, instead, to achieve better product quality standards than exist today, then of course the great economy-wide bureaucracy would be needed.

(I thank my colleague Brian Frye for triggering this line of thought.)

Categories
Antitrust Regulation

Antitrust as Price Regulation by Least Efficient Means

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

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

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

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

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

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

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

Should government do something about these rents?

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

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

Of course not.

Which is why there is no antitrust case against Apple.

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

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

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

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

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

Who knows?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It kind of worked.

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

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

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

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

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

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

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

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

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Apocrypha Miscellany

Eternal Return

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

“How old?”

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

“Forever,” he replied.