2019-08-21 · Guest: Ryan Young (Senior Fellow at the Competitive Enterprise Institute) · 52:20

Filed under: Free speech and civil liberties · Regulation and the administrative state
Topics: Antitrust · Big Tech · Monopoly · Regulatory Capture

History and economic impact of antitrust regulation

Bob Zadek and Ryan Young of the Competitive Enterprise Institute discuss the history and economic impact of antitrust regulation. They analyze the vagueness of the Sherman Act, the shift from protecting consumers to protecting competitors, and why modern “Big Tech” companies are being targeted for political rather than economic reasons.

Topics: Antitrust, Monopoly, Sherman Act, Big Tech, Consumer Welfare Standard, Competitive Enterprise Institute, Standard Oil, Microsoft, Amazon, Regulatory Capture

Speakers: Bob Zadek, Ryan Young, Caller (David)

Introduction to Antitrust [00:00]

Bob Zadek: Hello everyone, and welcome to the Bob Zadek Show, the longest-running live libertarian talk radio show on all of radio. Thank you so much for listening this beautiful summer Sunday morning.

This morning’s show ought to be subtitled, “What the heck took me so long?” As in, what the heck took me so long to invite this morning’s guest to share his wisdom with us for the next hour. I’m happy to welcome to the show Ryan Young. Ryan is a senior fellow at the Competitive Enterprise Institute, aka CEI. He researches regulatory reform, trade policy, and of particular relevance to this morning’s show, antitrust regulation. He used to host the CEI podcast and he writes a popular “This Week in Ridiculous Regulations” series for the CEI staff’s blog. He’s a trained economist; he has an MA in economics from George Mason University and a BA in history from Lawrence University. He’s worked—before joining CEI, he’s worked at Cato.

This morning we’re going to examine a topic that I cannot believe it took me so long to discuss on my show, which is the subject of antitrust regulation in general, because it has become the tool du jour of the left who seek to accomplish a pretty dramatic change in our entire economic system. And when you want to effect a profound economic change, you dust off all of the tools in your governmental toolbox, such as taxation and the like, and a tool that keeps on popping up—and it is very handy, it is a blunt-edged instrument and very effective if you want to destroy the market system—is antitrust regulation. We’re going to discuss this morning: is big bad? As in Amazon, Facebook, other big tech companies, and American business in general. Is big bad? Is big good? Is big neutral? Does it make a difference? And you must understand the economics and the politics of antitrust legislation in order to follow the economic debate which will take place during the upcoming presidential election. Ryan, welcome to the show this morning.

Ryan Young: Thanks so much for having me on, Bob.

The History of the Sherman Act [04:51]

Bob Zadek: Now Ryan, we’re going to discuss something that sounds like economic theory, perhaps legal theory: antitrust regulation. Now, of course, there’s nothing in our Constitution that invites government to use the powers of legislation simply to effect economic transactions between consenting adults in the marketplace. And for the first, let’s say, hundred years of our life as a country, there was no real discussion of “woe is us, woe is us, we have big companies selling us goods and services.” Then it all changed during a very particular political era, the end of the 19th century. Tell us about antitrust legislation. What does the Sherman Act and the Clayton Act and other federal legislation—what did it target? What did it attempt to do when it was enacted around the very end of the 19th century?

Ryan Young: Well, the timing there is very important, because for a long time leading up to that, monopolies were very rare. They were essentially government-supported trade organizations like the Dutch East India Company and all that. And economists didn’t even think them to be worth studying if they weren’t propped up by government; they would simply go away, so they weren’t seen as a threat to larger market processes.

This changed in the 19th century when you had the rise of Standard Oil, Carnegie Steel, big railroads, big banks. And that frightened a lot of people. And for other companies, they saw it as a possible, very lucrative regulatory weapon. So beginning in the late 1880s, some states went together and at the behest of certain special interests passed their own antitrust laws that could be used as barriers to entry for new firms or to advantage incumbent firms to protect their privileged position. By 1890, this sentiment had reached the federal level and we got the Sherman Antitrust Act, which is still in force today. And that’s becoming a big battle with the environment being pretty restrained right now, but people on both the left and on the right are pushing for an antitrust revival, and that’s going to be a very important issue over the next several years.

Bob Zadek: Now you said when companies got to be larger—that is, larger than they were historically—and we’re talking about companies that were not propped up by government, just companies that were propped up by their own skill and their own market savvy. You said it frightened people. Why should the size of a company frighten somebody per se? And I’m not talking about any company, large or small, which operates in a way that harms its customers, that harms consumers. We’re putting aside bad actions and bad actors. We’re talking about bigness per se. Why should that per se be scary to anybody?

Ryan Young: Because concentrated power is a terrible thing. The whole American Revolution and the whole general liberal project of the last two, three, four hundred years has all been about reacting against absolute centralized authority. And while our current political situation has largely encompassed that in the political realm, this was new in the private realm in the late 19th century. And people saw this same pattern that they’d seen among kings and monarchs possibly re-emerging in the form this time of robber barons. And fortunately, these fears turned out to be overblown, but that was what the popular mind was thinking at the time.

Defining a Monopoly [09:20]

Bob Zadek: Now, of course, Standard Oil is the poster child, and the railroads, for robber baron-ness, if I can invent a phrase. The railroads, of course, became monopolies because the government made them monopolies. They not only operated with the government’s blessing, but they were protected in many ways. So railroads became monopolies because the government gave them that monopoly power. Standard Oil, of course, was different. They became a monopoly, if they were a monopoly, by dint of the cleverness of their business model and Rockefeller and others who simply grew because they were good at what they did.

Now, two comments. When we’re talking about monopoly, the word “monopoly,” which is in the statute—it’s in the Sherman Act of 1890—the word “monopoly” is kind of a squirrelly word. It’s in the statute and the enforcers are told to use the statute to beat down monopolies without a lot of guidance as to what that means. And I know you have studied this quite a bit. So what exactly is the monopoly that is evil? What are we talking about?

Ryan Young: That is an excellent question. The Sherman Act, unlike a lot of modern legislation, is two pages long, which—I appreciate the brevity, it’s wonderful. But at the same time, in two pages, they don’t define what they actually mean by monopoly. And this is still a source of confusion 130 years later.

Generally, an economist will say a monopoly is where you have a company that’s powerful enough where it can lower its supply and raise its prices. So they make their product harder to get and more expensive, which harms consumers. That’s usually what people mean when they say monopoly. The thing is, though, economists are not in charge of antitrust policy. It’s usually judges who are making cases, and they decide it based on whatever they want. This is called the “Rule of Reason” standard where they essentially use any definition of the term monopoly they find reasonable. And this changes from case to case. There is no bright-line standard for what constitutes a monopoly for legal purposes. And this creates a great deal of uncertainty. A company often has no idea of knowing whether it’s in trouble or not, and it can’t plan for the future or create long-term investments if it has any fear of a possible antitrust action.

Bob Zadek: Now the question is, you had defined monopoly for us as best you can given the fact that the statute has no guidance. But it says—as you said, I believe—it’s a company has grown in economic power so that it can reduce the supply and increase the price. Is it a monopoly if it can or a monopoly if it does? What if a company is large enough to do those anti-competitive steps but never does it? Is that company a monopoly? So it’s the power to do it without actually exercising it? In other words, if somebody has the power to do bad acts but never does the bad act, is that a monopoly and therefore the target of government action?

Ryan Young: That question has never been definitively answered. It’s been answered differently in different cases. Usually, it’s based on past actions. The Justice Department generally doesn’t have a “Department of Pre-Crime” like you’d see in science fiction movies like Minority Report. But at the same time, there is an actual antitrust legal term called “incipiency,” where a judge or a regulator sees the conditions in the market being such that they might in the future be possible conditions for monopoly. Then they can act. And that’s called incipiency. That’s been invoked rarely, but it has happened, especially back in the 1950s and 1960s.

Bob Zadek: And can you imagine—I ask our listeners—just imagine that in federal criminal law there was a statute that said if an individual has a higher than average likelihood of committing a crime, he can be arrested or his freedom can be denied because he has a greater likelihood of committing a crime. “The world will be safer,” so goes my hypothetical statute, “the world will be a better place if we get rid of the 10% of the people who are more likely than others to commit crimes.” Could we tolerate that even for a minute? Well, of course we cannot. And yet we have federal law, been around for 130 years, that says the mere power to do a bad act, even though you’ve never done a bad act, the mere power is a reason to break you up. Breaking up an enterprise is taking it apart as a matter of judge-made law because you have the power to interfere with the market. Am I exaggerating, or is that the current state and therefore the historical state of antitrust law in America?

Ryan Young: That impulse exists. It comes and it goes; it ebbs and flows. It becomes weaker and stronger over time, which actually leads to a much bigger problem, which is uncertainty. I mentioned that there are few, if any, standardized bright-line definitions of terms like monopoly that anyone can point to that applies to what you’re talking about with “well, these companies might cause trouble in the future, so let’s make sure that they don’t now.” There’s no existing standard for when that might or might not be legally permissible. Basically, antitrust policy shifts with the political winds. It was very active in the ’50s and ’60s. It tamped back in the ’70s and ’80s through to today after the Microsoft case. Right now, it appears to be on another upswing. And this has nothing to do with the merits of the matter or the companies at hand; it has to do with politics rather than actual market or legal conditions. And this uncertainty is a major problem for long-term investment and future innovation.

Antitrust and Big Tech [15:00]

Bob Zadek: Ryan, you said this has nothing to do with the merits of the matter. I would point out nothing in antitrust law has very much to do with “the merits of the matter,” but rather, since we have a two-page statute with very vague terms with no guidance, such as “monopoly,” once we have those phrases, then the courts are given a blank slate to, as you pointed out, by applying the accepted standard of “Rule of Reason.” If it seems to be monopolistic, if it seems to be in violation of a two-page statute, then a judge is on sound legal footing by applying antitrust law. And in a decision that is a little less likely to be overturned on appeal, a judge at the trial level can apply his or her own Rule of Reason to cause economic havoc in the marketplace.

So we have a concept that is purely economic conceptually, but yet its operation is 100% political. Thus, it brings us to the present where in a political battle—the battle for the Democratic nomination and maybe in the general election as well—we have the subject of breaking up big tech as an antitrust issue in the political realm, even though the issue is purely economic with the most vaguest terms possible in the statute to guide anybody. So we have, Ryan, to show how you will shortly after this show and for the rest of the political campaign until a president is elected, you and your colleagues who study antitrust legislation will be the most sought-after after-dinner speakers. You will become the rockstar of political commentary because there’ll be so much discussed about antitrust legislation.

So you have no doubt observed, and perhaps your eyes have been rolling, in the concept of applying antitrust legislation to big tech. We have big tech, which essentially gives away its product for free. There’s unlimited supply for free. So if we harken back to earlier in the show when you said the danger of monopoly is to reduce supply and increase the price, we have that concept being applied to big tech, which gives away a product for free and there is unlimited supply of it. How in the world does antitrust legislation and the concept of breaking up big tech—how do they coexist?

Ryan Young: There are lots of areas where very creative minds are attacking the issue. It’s frankly hard to undercut zero price. So for example, if a company is based on a revenue model based on selling ads instead of charging money for services rendered, there’s an argument that Google and Amazon are taking away advertising revenue from other sources, such as newspapers, for example. They’re dominating the ad-serving market now, so that’s their monopoly as opposed to social networking or online retail. That’s one area of attack. I don’t think it necessarily is relevant to consumer welfare, but that is a common line of attack these days.

Bob Zadek: And of course, the test in antitrust legislation is—I think this is correct, but Ryan help me out—the ultimate test of whether a company is guilty of violating federal antitrust legislation, the ultimate test is the effect on consumers. Isn’t antitrust legislation essentially the mother of all consumer protection statutes? And therefore the test is only: does the behavior harm or hurt consumers? If that is the test, how could the behavior of big tech harm or hurt consumers?

Ryan Young: That’s a good question, especially about the antitrust as consumer welfare policy. Does it help consumers or not? We talked earlier about the Rule of Reason standard. Antitrust policy is whatever the judge decides is best and what is reasonable in a given case. Over time, and never formally—so this has never been codified, there’s no bright-line predictable standard people can follow—antitrust jurisprudence has now for a long time been following the consumer welfare standard, under which big isn’t necessarily bad, but if big is doing consumer harm, that’s when antitrust regulators can and should step in. That has been the dominant school of thought for most court cases since about the 1980s or so, but it’s never been formalized and it could turn back on a dime as soon as the next big antitrust case. So that hopefully these days is the intent behind most antitrust action, but there’s no guarantee of that, so it could be a very slippery slope if one judge in one decision decides next week to change that.

Political Motivations [20:57]

Bob Zadek: And I think that the animus against big tech is not because consumers are harmed. It is on these peripheral and somewhat political issues that they have their thumb on the scales in terms of providing information to the public. They bar certain types of information. The conservatives have been complaining that the algorithms used by big tech to allow information to get out is tilted towards the left. There’s no real proof of that; it’s all anecdotal and I don’t have any idea who’s right and who’s wrong. But the issue of privacy and exposure to ideas is kind of what creates a lot of anger towards big tech. But that has nothing to do with monopoly. After all, how could any entity have a monopoly on information available to anybody on the planet when we have more access to information now than ever before in the history of humankind in the world? So the issue of adjusting the algorithms to affect information, that has nothing to do with pure antitrust policy. Antitrust policy is purely economic and not access to information.

Ryan Young: Well, I think especially on the right, the current antitrust push isn’t economic or consumer-oriented; it’s personal. President Trump has a personal beef with Amazon founder Jeff Bezos, in part because he owns the Washington Post, which is often critical of President Trump. He’s said that other companies such as Time Warner, which is the parent of CNN, also have possible antitrust concerns going forward because of their political coverage of the president as opposed to how any of their business affects consumer welfare. So here you’re seeing antitrust policy being wielded as a potential weapon for competition-unrelated reasons. And this kind of mission creep is something that the left and the right both should stop doing and keep a more careful eye out for.

Historical Antitrust Cases [23:29]

Bob Zadek: This is Bob Zadek, I’m speaking with Ryan Young this morning. We are talking about antitrust legislation as an economic and, more importantly, a political tool to accomplish broader changes in our economic system than merely protecting the consumers. It’s a major topic; it will be a topic front and center of the political debate in the 2020 election and thereafter. We have, in all of the discussion of economic issues such as socialism and national conservatism, we are being exposed to economic worldviews by political candidates running for federal office. So all of a sudden, Americans must have a core understanding of economic policy in order to vote intelligently. We are being asked to vote for an economic system in 2020; we have never been asked to have that kind of a vote before. Antitrust legislation is crucial to understand when you vote about selecting an economic system. Therefore, this topic is essential to exercise your right to vote. We’ll be back with Ryan Young in 30 short seconds to discuss the abuse of antitrust legislation to accomplish dark political and economic goals. It’s a pretty scary story. We’ll be back in 30 seconds.

[Break]

Bob Zadek: Welcome back to the Bob Zadek Show, longest-running live libertarian talk radio show in all of radio. Thanks so much for listening to my conversation this morning with Ryan Young. Ryan works at Competitive Enterprise Institute; he is a senior fellow there. He researches regulatory policy, trade policy, antitrust regulation. He writes his staff blog, “This Week in Ridiculous Regulations.” Of course, “ridiculous” should always precede “regulation,” so that is Ryan’s staff blog at CEI. And Ryan has authored with Wayne Crews a wonderful piece, “The Terrible Ten of Antitrust Policies.” It is the case against antitrust regulation.

Antitrust regulation is particularly important because it is a federal statute which purports to be economic in nature, protecting the free market from any kind of thumb on the scales and protect the ultimate freedom of the marketplace from monopolistic practices without defining that. And what’s happening now is antitrust legislation has again become in the political forefront. And we must understand antitrust legislation because it will be a tool that will be used by those who seek to attack the free market capitalist system.

Now Ryan, you have studied antitrust legislation going back to the first major statute, which was the 1890 statute—I believe it’s 1890, the Sherman Act. Tracing the history of antitrust legislation, has there ever been, or give us examples of when that statute, when applied, accomplished an improvement in the marketplace as opposed to where it simply destroyed bigness per se and helped competitors but didn’t help the consumers? So make the case for, if you can, and against effective antitrust legislation.

Ryan Young: It’s very difficult to make; in fact, I’d argue that it is impossible to make. The Standard Oil case back in the day centered on a company that was continually cutting its prices and increasing its supply, which was making its product more available to consumers, more widely available, as well as cheaper. And at the same time, while the antitrust case was going on, there was a major shift in the oil market. The electric light was displacing the gas lamp. Standard Oil made its name providing fuel for kerosene lamps. That market was killed by Thomas Edison, and Standard Oil was starting to see its market share decline along with this. But then something else emerged: the automobile. All of a sudden, there was rising demand for gasoline. So Standard Oil had to innovate and change its policy to supply what consumers wanted. Standard Oil had to adapt to consumers, not the other way around. So that antitrust case was, frankly, a waste of time.

There was the IBM case in the 1960s that lasted for about 13 years, by which time the government decided to drop the case altogether because the technological issue at hand had long since become obsolete, which is a common theme in the tech industry. Then there was the big Microsoft case, which is the most recent major case back in the late 1990s. That case was mainly over the fact that Microsoft included a free browser in its Windows operating system. That browser, Internet Explorer, has since been supplanted by other browsers, from Google’s Chrome to Netscape to Firefox, that can be downloaded for free using Microsoft’s own browser. So that case turned out to sizzle and it ended up in a settlement, neither a victory nor a defeat for either side. So really looking at the long history of major cases, there’s not been a single one that—

Bob Zadek: And what about AT&T and Bell Labs?

Ryan Young: That is a good question. And frankly, Bell Labs and AT&T were a government-supported monopoly. This is the only kind of monopoly that can endure. So the government was right to break it up, but it was wrong to have protected that monopoly and preserved it in the first place. So in that sense, it was righting a wrong rather than affirmatively protecting consumer welfare.

The Natural Check on Monopolies [31:35]

Bob Zadek: And Ryan makes an important point made earlier by Milton Friedman in a widely viewed, still viewed series, Free to Choose. And Milton Friedman, a free-market economist as we all know, pointed out that the only monopoly that has any kind of legs to it, that can survive the passage of time and survive competition, is a monopoly created by or supported by government. Ryan mentioned in his introductory comments the East India Trading Company, a British monopoly. Their tea, you may recall, was thrown into Boston Harbor, the so-called Boston Tea Party. That was a governmental monopoly. So governmental monopolies have governmental support and protection, and they survive. But monopolies that are created by the skill of the management of the company never survive for all that long.

And I would just remind my listeners, long-time listeners, one of my very first shows discussed the story of the largest retailer in the world in 1960, which was—the younger listeners will never have heard of this—the A&P, Atlantic and Pacific Tea Company. They were the Walmart of their day in 1960, during my life, and they do not exist today. So the market is in many ways a cruel place if you want longevity, and certainly it’s almost impossible to live in a monopoly environment for very long, because if you are making disproportionate profits, that will draw competitors like bees to honey. So Ryan, the marketplace itself shows us that monopolies lawfully created don’t really have legs. It just draws too much competition. Isn’t that the case?

Ryan Young: That’s right. And further to your point, there are competitive abuses all over the broader economy, and that’s why antitrust policy exists. People see these problems and they want to fix them. The trouble is that the tool is ill-suited to the job, because a lot of the times, whether the policy is an occupational license that restricts entry by new competitors or other barriers to entry—fees, taxes, building permit issues—a lot of these are the real barriers to entry that prevent entrepreneurs from entering a market and either putting up a viable front against a competitor or maybe evolving a new way to do business or even a new product entirely that never existed before. Those are the real threats to competition. So competition policy is important, just maybe not so much in the Sherman Act/Clayton Act sense. It’s more of a—you don’t so much have to teach the grass to grow, but you do have to take the rocks off the lawn.

Caller Segment: Monopolies and the Founding [34:59]

Bob Zadek: We have several callers, as I expected we would. First, David, you’ve been holding for a while. Good morning, what’s on your mind?

Caller (David): Good morning. I was listening with interest. Of course, monopoly means putting all your eggs in one basket, and probably the simplest person knows that you shouldn’t do that. But I was interested, the other day Trump was caught with a little quote, “I was the chosen one.” And when he said it, you could tell he was tongue-in-cheek about it, but the interesting thing about it was that he apparently was in some planning session and that the world’s, let’s say, the people that dominate the world had chosen him to do the most wild and erratic thing, which is to help develop monopolies. And I’m just wondering if you think back to 1776, we were fighting monopolies. There were 13 colonies that were chartered by the king, and each of those 13 colonies were basically a monopoly. You couldn’t trade from New York to New Jersey without paying tribute to London. You couldn’t haul a load of corn across a state line, so to speak, or a colony line without having to pay tribute. And the idea that we’re being trapped into accepting more and more monopolies means that somebody is choosing our presidents so that we’re going to trap America into being a land of monopolies. So I’m just wondering if you’ve looked at this idea in its broader picture, whether the Democrats and Republicans are really both sides of a coin that are developing these monopolies.

Bob Zadek: Thank you so much, David. And Ryan, you have pointed out in our conversations that antitrust legislation is bipartisan. Is there much difference—there is a surprising agreement, it seems to be, at the federal level in how to apply antitrust policy with Democrats and with Republicans. I wonder if you can comment on whether or not historically or at present the ballot box gives us a clear choice when it comes to antitrust policy. Since you and I agree that antitrust policy is never a sensible policy and the marketplace is the best way to protect against the growth of economic power, can one in the ballot box make a distinction?

Ryan Young: I think the caller made excellent points about the Constitution essentially setting up America as what was at the time the world’s largest free trade zone. That was an important way to eliminate monopoly abuses, not so much by the private sector, but by the states. That was one of the main purposes of the Constitution: to get rid of those monopolies.

As far as how the ballot box can address it, that is a much trickier issue, because if public opinion favors an active antitrust regulation approach, then in the long run that’s what we’ll get, even though that tends to be economically harmful, especially for consumers. In the long run, what the people want, they get, good and hard. That’s how democracy works. The point is how we can steer both policymakers and the public to embrace innovative dynamism, to realize that the true source of a lot of restrictions on competition and a lot of the monopoly abuses don’t come from companies like Amazon or Facebook; they come from Washington.

The Baptist and Bootlegger Dynamic [39:24]

Bob Zadek: You know, you make so many good points, Ryan, in that one comment you just made. First of all, what strikes me is that the biggest monopoly, or the fastest-growing monopoly, is the monopoly in political power that is being ceded from 50 competitors for political power—the states—and it’s being ceded upstream to Washington as power devolves from the states to the federal government. So what’s interesting is people who are afraid of bigness per se and therefore have this somewhat automatic knee-jerk fear of big anything, they look to bigger government to save them from bigness. So using bigness to save us from bigness is kind of fuzzy thinking.

Also, you made a wonderful point which I had never thought about before, which is the formation of the federal government in 1788 was, as you have pointed out, done because the states were charging tariffs to move goods from one state to another, and the founders felt that we could not grow as an economic powerhouse as a country unless we allowed free trade between the states. And so we preceded the EU by a couple hundred years, and the EU is trying to accomplish with their free trade zone what we accomplished in 1788. One can only ask what took so long.

And as to bigness, so I think you have made the point more than once during our show, perhaps you can reinforce it, is that antitrust legislation seems to have its roots, to the extent that it has political history, in the fear of bigness per se. And in 1890, as you have pointed out, perhaps you can expand upon it, that the antitrust movement, the trust-busting of Teddy Roosevelt, was not done in response to any consumer abuse. The consumers and the marketplace weren’t being harmed at the time, as you pointed out. And isn’t it true that none of the antitrust legislation was done to fix an identifiable harm to the marketplace or to consumers? And Ryan, you have pointed out in your writing that antitrust legislation is done to protect competition and not the competitors. So if you can expand upon that, whether antitrust legislation was ever used to protect a clear harm to consumers.

Ryan Young: In a lot of ways, antitrust began and still is to this day a confluence of two separate things. It began as special interest legislation to protect competitors rather than competition. 95% of all antitrust lawsuits are brought not by the Justice Department or the Federal Trade Commission; they’re brought by competitors trying to take down their other competitors. They’re trying to advantage themselves rather than preserve the larger market process. So one dynamic is antitrust legislation as special interest legislation.

The other dynamic is basically public sentiment. People do fear the unknown; they see big, they view big as bad. And a lot of times they have very good reasons for doing so. Sometimes they’re misguided, but their heart is in the right place, often as not. So what you have is what’s called a “Baptist and Bootlegger” dynamic, where you might have both a moralizing Baptist preacher and a shady bootlegger both favoring a liquor prohibition on Sundays. The preacher does not want people drinking on the Lord’s Day, and the bootlegger enjoys a nice, very lucrative monopoly on Sundays. You have that same Baptist and bootlegger dynamic in play in a lot of antitrust regulation, where you have companies that want to pad their bottom line even if they have to do so unfairly, along with people who genuinely feel like reining in the big guy and saving David over Goliath would do good for consumers.

The Relevant Market Fallacy [44:16]

Bob Zadek: So it is the biblical David versus Goliath that drives antitrust legislation, not the fear that Goliath was a cruel person. He was just bigger than David. He didn’t do anything wrong; he was just bigger. So it was the bigness in and of itself and the fact that someone else wanted to be the Goliath but was crowded out. That’s what prompted antitrust legislation.

And there’s an interesting parallel—maybe not that interesting, but a bit interesting. I have done many shows on occupational licensing, and we have always discussed, we being myself and my guests, the fact that occupational licensing, requiring a license to be a cosmetologist for example, is not done to protect the public. There is nobody who has died because of a bad hair coloring. It’s not done to protect the public, but done to protect existing cosmetologists from competition. So much of this legislation is what economists call “rent-seeking,” using the government to give a competitor a market advantage. And that is the ugly underbelly of antitrust legislation.

In the history, I think you have commented on this earlier, Ryan, but has there ever been even one case of note where it can be said that successful antitrust legislation actually made economic life better, or is it always the case that antitrust legislation produces a result that’s worse?

Ryan Young: I can only think of one example, and that had to do with tariffs rather than specialized Sherman Act/Clayton Act antitrust legislation. And even then, it turns out to have been a false hope. What happened was in the 1890s, there was—oh, what was it, aluminum tins or something like that—where there was a protective tariff for this infant industry that was still growing, trying to find its sea legs against some very tough international competition. So Washington put up a tariff, and that helped the industry to grow, and then the tariff was later removed. So an economist named Doug Irwin, who will probably win the Nobel Prize sometime in the next decade, looked at the matter and he found that yes, this did help that industry reach maturity probably about a decade faster than it would have under market conditions. So in this case, competition policy stacking the deck in favor of one competitor over others helped one of the competitors. But the cost of doing so actually exceeded the benefit, so it was a net negative for the economy and a net negative for consumers. So people who cite that case as a positive example are simply seeing the seen but not seeing the unseen. They see the visible phenomenon of one company being helped, but at the same time they miss out on the larger costs to the rest of the economy who had to fund that company’s growth at their own expense.

Amazon and the Relevant Market [47:49]

Bob Zadek: Now Ryan, we’re running out of time, but there’s one important concept I want our audience to at least end the hour thinking about, which is: we started this show and I observed, and you concurred, that even defining what monopoly means, the statute gives us no guidance. And the test or the example we can use is Amazon. Is Amazon a monopoly? And how do you define, or what are the various ways you could define the marketplace in which Amazon operates to show how you could either conclude Amazon does have market dominance or they do not have market dominance, depending upon the use of the term monopoly? So use Amazon as a test to show how squirrelly the concept is of dominance of a particular market.

Ryan Young: That is a textbook example of what I call the “relevant market fallacy.” What is Amazon’s relevant market? Is it online retail, which they might capture as much as a third or a half of? Is it retail in general, which Amazon comprises about 5% of? They also do web services, cloud server hosting. Do they have a monopoly over that? What’s their market share? How many competing firms are there? How large are each of them? Is Amazon the only large player against a lot of smaller players, or are there several larger players in the market? All of these facts and more have to tie into what Amazon’s relevant market is. And there are so many different ways to define whatever Amazon’s relevant market is that when there’s an antitrust case, often this relevant market is one of the biggest things that the attorneys argue about. They don’t argue about whether a company’s been hurting or harming consumers; they argue about what the relevant market is, which is frankly completely arbitrary. Facebook, for example, competes—they might dominate social networking, but as a way to spend leisure time, they compete against restaurants, spending time with friends and family, sports games, television, movies, you name it. That’s their true relevant market. You can make similar arguments about Amazon. So when you say that a company is dominant in its market, always ask: what’s the real relevant market here?

Bob Zadek: And what’s important is imagine you are among Jeff Bezos’ inner circle and you are now doing economic planning, allocating capital, and you know there is antitrust legislation on the books. How in the world could you make decisions about allocation of enormous sums of capital feeling vulnerable that some court—and Ryan, I think a court could find by using applicable law that Amazon is a, whatever it means, monopoly, and a case could be made for breaking up Amazon, whatever that means. And since the risk exists, it adds uncertainty as a part of the planning team of Amazon, which interferes with growth decisions. And who in America wishes Amazon to be broken up so we can go back to higher prices?

Ryan, thank you so much for giving us an hour of your time this morning. Here comes John Philip Sousa reminding us that our time is up. Ryan, how could our friends follow your writings out there?

Ryan Young: The Competitive Enterprise Institute is online at cei.org. Thanks so much for having me on, Bob.

Bob Zadek: Ryan, thanks so much for joining us this Sunday morning, and thanks for your good work and scholarship. This is Bob Zadek saying so long for now. I’ll be back again next Sunday, God willing. Have a nice Sunday.

Show prep notes

Bob’s own preparation for this episode.

Casey Given - Young Voices Advocates, 12/18

(424) BOB-SHOW

BLURB:

Casey Given is a man on a mission. Ever since founding the UC Berkeley chapter of Students for Liberty in 2009, he has worked tirelessly to advance “a free academy and a free society” – writing and organizing on behalf of the libertarian minority on college campuses across the country. Now, as Director of Young Voices, an initiative of international nonprofit Students for Liberty, Casey helps students and young professionals jumpstart their careers as classically liberal pundits, and compete with the dominant progressive liberalism that appeals to a majority of millennials. Young Voices recently published a collection of 12 essays that bodes well for the future of liberty in our lifetime (A Future for Millennials: Policies that Can Restore Prosperity). Casey will join Bob to talk about what’s on younger people’s minds, and how the Young Voices network is penetrating the thick fog of ideological conformism on college campuses and in the mainstream media.

[BIO] Casey Given is the Director of Young Voices, and the Director of Communications at Students For Liberty. Casey previously worked as a state policy analyst at Americans for Prosperity. He is a regular columnist at Rare Politics, and has written for a number of other publications, including Forbes, The Hill, Education Week, The American Conservative, and CityAm.

YoungVoicesAdvocates.com - “Jumpstart your career as a libertarian pundit.”

“Young Voices is a policy project of the international nonprofit Students For Liberty. As our name suggests, we aim to give a voice to the brightest young policy minds of the classical liberal tradition. With over 70 writers in more than 20 countries, Young Voices is perhaps the most diverse policy project in the libertarian network in both language and content.

Our writers are in a unique position to prescribe policy solutions for the challenges facing the millennial generation in the coming years – hence the publication of this book.

In a collection of 13 essays, Young Voices’ top Advocates, and a collection of guest authors, propose the innovative solutions required to ensure a future of freedom for millennials and the generations to come.

While many of these essays are particularly focused on the policy climate of the United States in 2016, the underlying theme of choice and freedom in public life is timeless.”

Millennials: broadly defined as those born between 1980 and 2000 (i.e., the 16 to 36-year-olds of 2016).

A Future for Millennials: Policies that can Restore Prosperity

Introduction

The good news:

A 2011 Kauffman Foundation poll found 54 percent of millennials say they want to be entrepreneurs and 65 percent think making it easier to start a business should be a Congressional priority. In a 2014 Reason-Rupe poll, 55 percent of millennial respondents said they want to be entrepreneurs someday, and 64 percent said they prefer a free-market economy over a government-managed system.

12 Essays on Topics of particular interest to millennials:

Electronic freedoms
Militarization of police (SWAT raids on fraternities for small qty’s of marijuana, overcriminalization)
Student Visa reform
Drug Legalization/Harm reduction policies (creating a culture of responsible use, acknowledging that prohibition doesn’t work).
Uber & Entrepreneurship
Police Brutality
“The Renting Generation”
Liberalizing Securities Regulation
The Welfare State
Dealing with Debt
Healthcare innovation
Public Education
Campus Free Speech

Electronic Freedoms

The internet as a new frontier where millennials will defend freedoms.

But while this new verge presents numerous benefits over the frontier landscape it has supplanted – such as stability, certainty, and security – such a transformation may very well lend itself to contentment and stagnation. Alexis de Tocqueville expressed these concerns in Democracy in America, fearing “that men may reach a point where they look on every new theory as a danger, every innovation as a toilsome trouble, every social advance as a first step toward revolution, and that they may absolutely refuse to move at all.”

Millennials were the first generation to experience both the pre-internet and internet era.

Uber/Entrepreneurship

In 2014, Washington D.C. attempted to crack down on Uber:

When I asked him if there were any specific cases of public safety being threatened by ridesharing services, or anything else that would prompt the creation of new regulations – such as deaths or injuries – he replied, “I wouldn’t say that there are issues or that there aren’t issues.”

The DCTC was willing to put people out of work and make it more costly and inconvenient for people to get around, yet its spokesman could not point to one instance to justify its actions. Students looking for flexible work to help fund their schooling, young people who need part-time work so they can take an unpaid internship, others in between jobs who need something to help pay their bills, and individuals willing to work in a demanding, customer-focused career, are all left with fewer options because of restrictions on ridesharing.

…

An opportunity to set one’s own schedule and earn extra money is clearly attractive to millennials. Nearly a quarter of Uber driver-partners are under 25 years old, and 11 percent are students – more than double the percentage of American adults who are in school.

The city has improved its regulations with the Vehicle-for-Hire Innovations Act, creating a win-win for drivers and passengers in terms of cost, convenience, and safety.

The Renting Generation

With less ability to afford homeownership millennials are a generation that will see relatively more renters compared to home buyers than older cohorts did at our age.

The author blames zoning regulations in urban areas, where special interests dominate the process used to determine which developments will be allowed.

Land use rules serve as a tax on the striving, entrepreneurial millennial who understands that place matters for success in the modern economy.

…Millennials are the most educated generation in American history. We all benefit when smart people are using their skills to their fullest potential.

Society must allow the world to be adapted and rebuilt for the realities of the 21st century, not the dreams of the 20th. And that means reforming the nation’s land use rules.

Dealing with Debt

Younger generations have a particularly strong interest in addressing this issue sooner rather than later:

The federal government is often depicted as a comically overweight person. The first step in getting our government in shape is putting it on a diet.

Proposes shifting entitlements to a privatized defined-contribution system, a la Chile, having states take on more responsibilities that currently belong to the Federal government. Also proposes selling off Federal assets, and eliminating red tape that is tying up oil and gas deposits valued at 8 times the national debt ($128 trillion).

Campus Free Speech and the Culture of Conformity

“[Advocacy by pro-PC students and teachers] has resulted in the proliferation of campus speech codes; the denial of funds by increasingly tyrannical student governments; and even institutional punishments for so-called ‘microaggressions’ – the use of phrases deemed offensive, despite often being considered routine and mundane by the general public.”

Speech Codes

Students in Modesto were prevented from handing out pocket constitutions on Constitution day.

The rise of small “Free Speech Zones”

Microagressions:

Sensitivity auditors at the University of California have shown similar tendencies, cautioning against the phrases ‘America is the land of opportunity’ and ‘there is only one race, the human race’ can no longer be uttered in polite company.

Other Issues:

Campus “lynch mobs” shutting down speaker events featuring controversial opinions.

Biased professors:

During my own time as a student, there was a time when my history teacher informed the class that Franklin D. Roosevelt’s New Deal saved America from the Great Depression. When another student pointed out that entire schools of economic thought believed that Roosevelt’s policies actually prolonged the Great Depression, the teacher scoffed and dismissed it as ‘free market mythology.’ In effect, students were told to ignore a competing theory of history – including the works of several Nobel laureates – solely because it conflicted with the lecturer’s own ideological perspective.

It’s not enough for universities to claim a commitment to free speech in the abstract. It is imperative that universities defend free expression, even when it involves views opposed by the majority of students and faculty.

Free speech on campus got a little better this year - Watchdog.org

“The Foundation for Individual Rights in Education has been documenting problematic speech codes on college campuses for years, and has just released a report of its findings for 2017. Colleges and universities have made improvements to their policies for the upcoming school year, but they are still far from acceptable.

Notes & Partnership Opportunities:

BLURB 2

6 part blog series 3

The Case Against Antitrust 7

Other websites and articles: 8

VIDEOS & Multi-Media 10

Articles 10

Links: 10

Related Shows: 10

Guest: Ryan Young

Email:

Twitter: @RegoftheDay

Website/Title: Senior Fellow, Competitive Enterprise Institute, cei.org

Topic: Antitrust 101

BIO - Ryan Young CEI

Ryan Young is a Senior Fellow at the Competitive Enterprise Institute (CEI). His research focuses on regulatory reform, trade policy, antitrust regulation, and other issues. He formerly hosted the CEI Podcast, and writes the popular “This Week in Ridiculous Regulations” series for CEI’s staff blog.

Ryan holds an M.A. in economics from George Mason University in Fairfax, Virginia, and a B.A. in history from Lawrence University in Appleton, Wisconsin. He was previously CEI’s 2009-2010 Warren T. Brookes Journalism Fellow. Before joining CEI, he worked in the Cato Institute’s government affairs department. His personal blog is Inertia Wins.

Websites:

antitrust.cei.org,

Twitter - @RegoftheDay

BLURB

Antitrust 101 with Ryan Young

How to Stop Left and Right from Colluding to Bring Back Discredited Antitrust Regulation

At this point it’s fairly clear that “Big Tech” companies like Google, Apple and Twitter are in the tank for the Democrats. However, you can easily stay informed by diversifying your news sources and listening to independent shows like mine. Subscribe: #AntiAntitrust

Trump meanwhile is threatening to regulate his political enemies in Tech like public utilities. Whether he realizes it or not, this put him in league with some of the leading progressive figures of the 19th century – like Supreme Court Justice Louis Brandeis – who defined the doctrine that led to the “Big-is-Bad” mentality of antitrust enforcement that persisted well into the 20th century.

Ryan Young of the @Competitive Enterprise Institute is at the frontlines of the antitrust debate – noting the worrisome confluence between Democrats like Elizabeth WArren and Republicans like Trump when it comes to the issue of regulating industry in the name of “competition.” This Orwellian notion finds historical support in periods of rising populism – such as today – despite the FTC’s abysmal track record of policing anti-competitive practices for the so-called “public interest.” Instead, the Department of Justice’s anti-trust division and the FTC have colluded with one another to maximize their own budgets while stifling innovation and creating an entire cottage industry in Washington D.C. for Microsoft’s lobbyists.

@Ryan Young has a new series of blog posts explaining the flaws of antitrust regulation, as well as a paper titled “The Case Against Antitrust”, View Full Document as PDF. We’ll break it down to basics this Sunday on the show of ideas, including the paradox of antitrust – namely that no monopoly can survive for long without favorable treatment from the government (often in the form of previous antitrust provisions).

6 part blog series

Introducing Antitrust Basics (6/17/19)

There is an “antitrust revivial” at work – mostly about Big Tech, social media, 5G, etc.

Justice Louis Brandes was known for his support of vigorous antitrust last – now there is a “neobrandeisian” threat, gaining conservative allies in Trump and right-wing populism.

No major antitrust cases since MIcrosoft in the late 90s.

The Case Against Antitrust by Wayne Crews Jr and Ryan Young – View Full Document as PDF – Terrible 10 of antitrust policies that should be abolished.

“In case after case, antitrust regulation protects incumbent companies from competition, encourages rent-seeking, erodes the rule of law, and slows innovation. This is a high price to pay for a policy that also works against its advocates’ goals regarding concentrated power, economic inequality, democracy, and other values.”

Relevant Market Fallacy (6/24/19)

In which market does the alleged monopoly have a monopoly? It’s hard to categorize.

Regulators try to use a narrow definition of the relevant market – defining the market too small:

Amazon controls roughly half of online retail, but a much smaller fraction of total retail. Which is the proper relevant market?

Misleading Herfindahl-Hirschman Index (7/1/19)

Argument for breaking up monopolies: “if a company has too large a market share, it can abuse that market power to raise prices, restrict output, and engage in all manner of anti-competitive business practices.”

Government (FTC) uses an index to decide whether to approve mergers, etc.

But how should market concentration be measured? Should it be by number of firms? Or by how much market share the biggest players control?

The Herfindahl-Hirschman Index (HHI) accounts for both factors. It also gives analysts a single numerical score they can work with, ranging from 0 to 10,000.

The flaw is the relevant market fallacy.

As Judge Richard Posner observed in the second edition of his book “Antitrust Law,” “There is no sound basis in economic theory for thinking that if there are just a few major sellers in a market, competition will disappear automatically.”

The mere threat of competition can also function to create competition in a market with just a few dominant firms.

Rule of Reason Standard vs. Consumer Welfare Standard (7/8/19)

What is Neo-Brandeisianism and why is it making a comeback?

“The rule of reason standard was used for most of antitrust regulation’s history. It heavily relies on a judge’s discretion—whatever they think is reasonable is the rule. This usually, but not always, contains an implicit big-is-bad ideological bent. The rule of reason standard is less well defined than both the preponderance of evidence standard used in most civil cases and the reasonable doubt standard used in criminal cases.

The consumer welfare standard slowly replaced the rule of reason starting in the 1970s, and gained mainstream acceptance by the 1980s. Under the consumer welfare standard, big is OK, so long as no consumers are harmed.

In the current populist moment, the pendulum is swinging away from the consumer welfare standard and back towards the old reason of rule standard.

Supreme Court Justice Louis Brandeis is one the intellectual fathers of the rule of reason standard. In 1911, during testimony before the Senate Committee on Interstate Commerce, Brandeis said, “I have considered and do consider, that the proposition that mere bigness can not be an offense against society is false, because I believe that our society, which rests upon democracy, cannot endure under such conditions.”

Government is necessary to sustain monopolies long-term:

“Economists dating back to Adam Smith believed that monopolies were unsustainable without government help, with real-life examples limited to the Dutch East India Company and similar government-backed enterprises. If a company raises prices, another company can make a nice profit by undercutting it. If companies collude to restrict output to raise prices, the temptation to cheat is too strong to resist, and the cartel collapses on its own.

Lawyers at DOJ and FTC resent the economists worldview, since it would put antitrust lawyers out of a job.

However, since the rise of Law and Economics departments in the 1980s such of U of Chicago’s, until recently, consumer welfare standard has been the norm:

The most famous defense of the consumer welfare standard remains Robert Bork’s 1978 book “The Antitrust Paradox,” which was one of the first major law books to heavily incorporate economic analysis.

…

In 1981, the federal government dropped a 13-year long antitrust case against IBM after more than a decade of technological advancement and market competition rendered the case moot. In 1984, the government broke up the AT&T monopoly it had previously enforced, and the last hurrah for old school antitrust came with the Microsoft case, which ended with a settlement mostly in Microsoft’s favor. Since then, some mergers have been blocked, but always on consumer welfare grounds rather than the fear of bigness that had movitaved Justice Brandeis.

Bork and the Chicago school, however, still favor antiturst, thinking that government can accelerate the market’s correction.

Regulatory Uncertainty (7/11/19)

Related to Robert Higgs’ “Regime Uncertainty”

*“*Antitrust enforcement is mostly guided by a mix of inconsistent judicial precedents, regulators’ personal discretion, and political factors unrelated to market competition; cases are not always chosen on the merits.

Even the mere threat of antitrust enforcement can have a preemptive chilling effect on innovation, attempts at new business strategies, and potential efficiency-enhancing arrangements. Uncertainty is the enemy of investment. In the long run, this can have significant negative impacts on consumer welfare as fewer new products come to market, and companies seek fewer ways to lower prices.”

The more discretion, the more uncertainty.

Antitrust Basics: Corruption and Rent-Seeking (8/21/19)

Neo-Brandeisians and other progressives rightfully oppose rent-seeking, but err when they propose increased antitrust policies as a solution.Tim Wu, a prominent neo-Brandeisian analyst, correctly points out how numerous companies game government policies to reduce competition, but then goes on to advocate for more government power as the solution.

Notes & Partnership Opportunities:

BLURB 2

6 part blog series 3

The Case Against Antitrust 7

Other websites and articles: 8

VIDEOS & Multi-Media 10

Articles 10

Links: 10

Related Shows: 10

Guest: Ryan Young

Email:

Twitter: @RegoftheDay

Website/Title: Senior Fellow, Competitive Enterprise Institute, cei.org

Topic: Antitrust 101

BIO - Ryan Young CEI

Websites:

antitrust.cei.org,

Twitter - @RegoftheDay

BLURB

Antitrust 101 with Ryan Young

How to Stop Left and Right from Colluding to Bring Back Discredited Antitrust Regulation

6 part blog series

Introducing Antitrust Basics (6/17/19)

There is an “antitrust revivial” at work – mostly about Big Tech, social media, 5G, etc.

Justice Louis Brandes was known for his support of vigorous antitrust last – now there is a “neobrandeisian” threat, gaining conservative allies in Trump and right-wing populism.

No major antitrust cases since MIcrosoft in the late 90s.

The Case Against Antitrust by Wayne Crews Jr and Ryan Young – View Full Document as PDF – Terrible 10 of antitrust policies that should be abolished.

“In case after case, antitrust regulation protects incumbent companies from competition, encourages rent-seeking, erodes the rule of law, and slows innovation. This is a high price to pay for a policy that also works against its advocates’ goals regarding concentrated power, economic inequality, democracy, and other values.”

Relevant Market Fallacy (6/24/19)

In which market does the alleged monopoly have a monopoly? It’s hard to categorize.

Regulators try to use a narrow definition of the relevant market – defining the market too small:

Amazon controls roughly half of online retail, but a much smaller fraction of total retail. Which is the proper relevant market?

Misleading Herfindahl-Hirschman Index (7/1/19)

Government (FTC) uses an index to decide whether to approve mergers, etc.

But how should market concentration be measured? Should it be by number of firms? Or by how much market share the biggest players control?

The Herfindahl-Hirschman Index (HHI) accounts for both factors. It also gives analysts a single numerical score they can work with, ranging from 0 to 10,000.

The flaw is the relevant market fallacy.

As Judge Richard Posner observed in the second edition of his book “Antitrust Law,” “There is no sound basis in economic theory for thinking that if there are just a few major sellers in a market, competition will disappear automatically.”

The mere threat of competition can also function to create competition in a market with just a few dominant firms.

Rule of Reason Standard vs. Consumer Welfare Standard (7/8/19)

What is Neo-Brandeisianism and why is it making a comeback?

“The rule of reason standard was used for most of antitrust regulation’s history. It heavily relies on a judge’s discretion—whatever they think is reasonable is the rule. This usually, but not always, contains an implicit big-is-bad ideological bent. The rule of reason standard is less well defined than both the preponderance of evidence standard used in most civil cases and the reasonable doubt standard used in criminal cases.

The consumer welfare standard slowly replaced the rule of reason starting in the 1970s, and gained mainstream acceptance by the 1980s. Under the consumer welfare standard, big is OK, so long as no consumers are harmed.

In the current populist moment, the pendulum is swinging away from the consumer welfare standard and back towards the old reason of rule standard.

Supreme Court Justice Louis Brandeis is one the intellectual fathers of the rule of reason standard. In 1911, during testimony before the Senate Committee on Interstate Commerce, Brandeis said, “I have considered and do consider, that the proposition that mere bigness can not be an offense against society is false, because I believe that our society, which rests upon democracy, cannot endure under such conditions.”

Government is necessary to sustain monopolies long-term:

“Economists dating back to Adam Smith believed that monopolies were unsustainable without government help, with real-life examples limited to the Dutch East India Company and similar government-backed enterprises. If a company raises prices, another company can make a nice profit by undercutting it. If companies collude to restrict output to raise prices, the temptation to cheat is too strong to resist, and the cartel collapses on its own.

Lawyers at DOJ and FTC resent the economists worldview, since it would put antitrust lawyers out of a job.

However, since the rise of Law and Economics departments in the 1980s such of U of Chicago’s, until recently, consumer welfare standard has been the norm:

The most famous defense of the consumer welfare standard remains Robert Bork’s 1978 book “The Antitrust Paradox,” which was one of the first major law books to heavily incorporate economic analysis.

…

In 1981, the federal government dropped a 13-year long antitrust case against IBM after more than a decade of technological advancement and market competition rendered the case moot. In 1984, the government broke up the AT&T monopoly it had previously enforced, and the last hurrah for old school antitrust came with the Microsoft case, which ended with a settlement mostly in Microsoft’s favor. Since then, some mergers have been blocked, but always on consumer welfare grounds rather than the fear of bigness that had movitaved Justice Brandeis.

Bork and the Chicago school, however, still favor antiturst, thinking that government can accelerate the market’s correction.

Regulatory Uncertainty (7/11/19)

Related to Robert Higgs’ “Regime Uncertainty”

*“*Antitrust enforcement is mostly guided by a mix of inconsistent judicial precedents, regulators’ personal discretion, and political factors unrelated to market competition; cases are not always chosen on the merits.

Even the mere threat of antitrust enforcement can have a preemptive chilling effect on innovation, attempts at new business strategies, and potential efficiency-enhancing arrangements. Uncertainty is the enemy of investment. In the long run, this can have significant negative impacts on consumer welfare as fewer new products come to market, and companies seek fewer ways to lower prices.”

The more discretion, the more uncertainty.

Antitrust Basics: Corruption and Rent-Seeking (8/21/19)

Neo-Brandeisians and other progressives rightfully oppose rent-seeking, but err when they propose increased antitrust policies as a solution.Tim Wu, a prominent neo-Brandeisian analyst, correctly points out how numerous companies game government policies to reduce competition, but then goes on to advocate for more government power as the solution.

SYNOPSIS:

1.1 million regulations take up 185,000 pages in the federal register – that’s what 100 years of the “Ratchet Effect” gives us.

We need a metaphor for the opposite effect – when citizens demand the repeal of regulations that are found to be non-essential during a time of crisis.

Ryan Young of the Competitive Enterprise Institute has some prime candidates for “the shredder.”

BLURB: Reversing the Ratchet 1

Articles 2

VIDEOS & Multi-Media 5

Links: 6

Related Shows: 6

Guest: Ryan Young

Email:

Website/Title: Senior Fellow, Competitive Enterprise Institute, cei.org

BIO - Ryan Young is a Senior Fellow at the Competitive Enterprise Institute (CEI). His research focuses on regulatory reform, trade policy, antitrust regulation, and other issues. He formerly hosted the CEI Podcast, and writes the popular “This Week in Ridiculous Regulations” series for CEI’s staff blog. Ryan holds an M.A. in economics from George Mason University in Fairfax, Virginia, and a B.A. in history from Lawrence University in Appleton, Wisconsin. He was previously CEI’s 2009-2010 Warren T. Brookes Journalism Fellow. Before joining CEI, he worked in the Cato Institute’s government affairs department. His personal blog is Inertia Wins.

Websites: Antitrust.cei.org, Twitter - @RegoftheDay, neverneeded.cei.org

BLURB: Reversing the Ratchet

Rob Berger, writing in Forbes, recently based an article on a stark, red-barred graph – claiming the picture to be worth a thousand words.

Unfortunately for his readers, the Q2 GDP figure, which sticks out like a sore “thumbs down,” paints a very misleading picture. Jeremy Horpedahl takes less than 1,000 words or so to dispel the 32.9% decline figure – making necessary adjustments to come to the number of -9.5%.

While rumors of economic destruction have been greatly exaggerated, the real story still isn’t pretty. Ryan Young of the Competitive Enterprise Institute is unsatisfied with the policy response to a novel recession caused by our response to a novel virus. At the federal level, politicians have had remarkably little creativity. They keep recycling “stimulus” funding that rewards people for not working, while punishing those who are trying to work with burdensome regulation.

You know him as “@RegoftheDay” on Twitter – Young is the anti-regulation warrior the world needs now more than ever. He joins me this Sunday to discuss CEI’s new #NeverNeeded campaign – highlighting laws that COVID revealed to be particularly unnecessary or even harmful, but which we never needed in the first place. In a recent article for National Review, Young writes:

“Unfortunately, many drastic regulations are passed during emergencies, from unconstitutional national-security and surveillance policies to bailouts for favored big businesses. But fortunately, regulations can also be removed that way. We have a choice. The famous “ratchet effect” of government’s grabbing power during a crisis and keeping it afterward does not have to be an iron law.”

My new book on “Essential Liberty” (download a sample) makes the same point as Ryan – that we have a golden opportunity to usher in the Libertarian moment we’ve been waiting for.

Where to start? How about the tariffs that cost the average American family $2,000/year? Or the occupational licensing laws that are stopping people from working in their chosen profession?

Trump has ordered every federal agency to eliminate nonessential regulations that might be hindering the economic recovery. With over 1 million Federal regulations totaling 185,000 pages on the books, it shouldn’t be hard to cut red tape by at least as much as the alleged decline in Q2 GDP.

Tune in Sunday for the live conversation, and call in with your questions for Ryan.

Articles

2020 Second Quarter GDP Decline Is Worst in U.S. History—But Not 32.9 Percent | Competitive Enterprise Institute

While normalcy might be years away, that steep of a decline is unlikely to happen. 9.5 percent and 7 percent are more accurate numbers for what has happened to the economy. Here is why.

Original reporting in Forbes: GDP Plunged At A 32.9% Rate: Here’s Why It Matters

The detailed correction:

Putting the GDP Numbers in Context: What You Need to Know - Texas CEO Magazine

Jeremy Horpedahl, PhD

Numbers were annualized - so multiplied by 4 basically - assuming things will stay that bad all year.

Also not seasonally adjusted. Q2 is always lower than Q4 for example. The non-seasonally adjusted number is a 7 percent decline.

At the same time, author says the unemployment rate understates how much pain there is in the labor market right now.

Ryan Young proposes several reforms under the #neverneeded banner:

Take prudent precautions - Young believes the threat is real to the vulnerable.
Abolish regulations against telemedicine
End occupational licensing
Slash tariffs (which increase annual costs by $2,000 per household)
Stop antitrust.

But the Code of Federal Regulations alone contains 1.1 million regulatory restrictions and 185,000 pages. There is much more to do. For lots of ideas, see neverneeded.cei.org.

Two NRO articles on the costs of regulation

#NeverNeeded Regulation Report: White House Can Speed Up COVID-19 Recovery by Cutting Regulations without Congress | Competitive Enterprise Institute about a report by Wayne Crews

All government knows how to do is spend trillions – no sense of how regulation repeal could help.

How Loosening Regulations Can Fight Coronavirus and Help the Economy | Competitive Enterprise Institute by Ryan Young

To his credit, President Trump signed an executive order on May 19 to encourage federal regulatory agencies to remove regulations hindering the response to the COVID-19 pandemic.

…

Waiving regulations can take months or even years, even when they are clearly harmful. Trump’s new executive order is a start. It encourages agencies to use whatever emergency powers they have to speed along the cleanup process. Unfortunately, many drastic regulations are passed during emergencies, from unconstitutional national-security and surveillance policies to bailouts for favored big businesses. But fortunately, regulations can also be removed that way. We have a choice. The famous “ratchet effect” of government’s grabbing power during a crisis and keeping it afterward does not have to be an iron law.

On Tariffs:

Trump is good on some regulations but bad on internet censorship and tariffs. U.S. is vulnerable having withdrawn from the TPP.

Trump Tariffs Will Soon Cost U.S. Families Thousands of Dollars A Year by Stuart Anderson

Same point you made with Jeffrey Tucker and Don Boudreaux in the book.

QuantGov-Home - searchable visualizer lets you see growth of regulation by agency/industry. There is a noticeable spike this year.

Share Ideas for Getting Rid of #NeverNeeded Regulations Hurting the Response to COVID-19

On Employment:

Trump Can Ensure a V-shaped Economic Recovery by Heeding the Lessons of 1921 | Mises Wire - by Walter Block

Stimulus checks on the order of $600 / week deepen the recession by encouraging people to not work.

1921 Depression was short (a matter of weeks) because there was very little government intervention under Pres. Warren Harding - a V-shaped recovery.

The Great Depression, FDR propped up industry. Passed tariffs, expanded money supply.

In 2008, we had interventions (not to mention bad incentives causing bad mortgages to be issued).

Trump must cleave to market principles to get a V-shape recovery:

“First, and perhaps most important, stop paying people more to stay home from work than the salaries they can garner from their employers.

It is beyond me why US President Donald Trump ever agreed to any such a scheme in the first place.

…

Does he not realize that a fast recovery, a V, will help him inordinately in that regard? Does he not realize that if people do not get back to work, there will be no recovery at all?

Second, do not commit the same error as the Smoot-Hawley Tariff. Trump should beware this error, because he has a natural protectionist instinct in his intellectual armamentarium. He should mightily resist it.

Third, do not give in to our friends on the left who wish to boost the federal minimum wage level to $15, or to raise it at all. This is an unemployment creator par excellence, particularly for unskilled workers.

…

Fourth, in no particular order, Trump should use all his good offices to stop the maniacal US Federal Reserve from furiously pumping money into the economy. These are the seeds for the next business cycle downturn, and risk another bout of inflation, which we certainly do not need to compound our economic difficulties.”

BLURB - Why Trustbusting Big Tech is a Bad Idea

What do Elizabeth Warren and Senator Josh Hawley (R-MO) have in common? They both want to break up Big Tech.

Last month, the DOJ filed the highest-profile antitrust lawsuit since the Microsoft case of the late 90s, highlighting conservatives’ ongoing concerns about bias, censorship, and even election meddling by Big Tech – specifically Google. There’s no doubt that social media giants like Twitter and Google have increasingly begun muting certain voices, including the nation’s oldest newspaper, The New York Post, and even the President himself.

The post-election frenzy to take control of the narrative is further inflaming the debate, with conservatives loudening their calls for trustbusting action – a la the railroads and Standard Oil in the 19th-century.

Ryan Young, a senior fellow at the Competitive Enterprise Institute, warns that categorizing Google et al. as monopolies subject to heavy-handed regulation would be a mistake, especially with the possibility of an incoming Biden administration.

Tune in live this Sunday (8-9am PACIFIC), as we discuss the fallout from the election and claims that the media - facilitated by Big Tech - is colluding with the Biden campaign to sway the election. Ryan will expand on his “Case Against Antitrust” in the current context, and we will take your calls any time during the hour.

Although, it’s clear that “Big Tech” companies like Google, Apple and Twitter are in the tank for the Democrats, their bias poses no serious obstacle to staying informed as long as you diversify your news sources and listen to independent shows like this one. There is no great threat to competition in the market for news and information — to the contrary, the internet has given us more options than we could have dreamed of.

Don’t miss it.

New Links

Main Article: Google Antitrust Lawsuit Heavy on Politics, Weak on Legal Merits | National Review By Ryan Young, Oct. 22

DOJ alleges that default status gives Google a way to exclude competitors. They say the fact that “Google” is a verb is evidence of their monopoly status (what about “Bandaid” “Kleenex” etc.?)

“Dozen keystrokes argument” - you can switch out your browser/search engine for a ocmpetitior with less than a dozen keystrokes. Type “duckduckgo” click, click done.

Consumers control the search market, not google.

Specialized searches like Amazon, Netflix, Ebay, Expedia, etc. are all competitors. Search algorithms are built into many different platforms and software applications.

Economic theory of monopoly power:

“The classic legal test of monopoly power is whether a company can raise prices while restricting output. Online ad prices went down by more than half from 2009–19, and Google was a major reason why. Meanwhile, prices for print advertisements — which compete with Google for advertising dollars — rose, and in some cases doubled.

Monopolists do not cut prices. They raise prices while slashing output, because they have the market power to get away with it. The Justice Department would not have to use fancy phrasing if it had a better case.”

VIDEO - Cruz Torches Twitter CEO Jack Dorsey - Louder With Crowder

You be the judge - did Cruz really “torch” Jack Dorsey?

Dorsey replies that users sign terms of service, and can go elsewhere if they want different policies.

Re: Censorship of NY Post story, originally based on a 2018 policy that Twitter doesn’t allow the publication of hacked materials.

Cruz grandstands and says his answers are not satisfactory.

AUDIO - Short radio interview with a skeptical host (conservative) who argues that we should regulate social media companies.

The complaint argues that Google is acting unfairly to protect its monopoly on “search” and “search advertising.”

Host says “no question google is a monopoly.”

Young distinguishes between “search” and “general search.” Google has 90% of “general search” but there are search features on many other websites such as Amazon, etc. that bypass Google. This is an example of the relevant market fallacy.

Election Articles:

Election 2020 Polls: The Disinformationists | National Review by Victor Davis Hanson

2020 Election: Voters Support Free Market Propositions & Initiatives | National Review by Ryan Young

Prop 22 overturns AB 5 in California.

California rejects rent control.

Congress remains split.

“Illinois voters said no to giving their legislature the ability to raise taxes more easily. The Illinois state constitution requires a flat income tax. The Fair Tax Amendment would have changed that to allow a progressive tax and would have made tax increases easier. The Illinois legislature had already passed a separate tax hike bill, conditional on voters approving the amendment. Voters disapproved by a 55–45 margin, and taxes will remain as they are.

Oregon decriminalized possession of hard drugs. Five other states legalized marijuana for medical or recreational use, including socially conservative Mississippi. Oregon and the District of Columbia also decriminalized hallucinogenic mushrooms. These are important libertarian victories, and not in the snickering libertine sense. These are victories for the rule of law.”

I believe Dave Rubin is correct when he tweets:

It’s not partisan to say Dems can get away with anything at this point because they have mainstream media and big tech. It doesn’t matter what happens in these states, only matters what narrative is.

Saying that doesn’t make you a Repub, it makes you awake. (As opposed to woke.)

PREVIOUS NOTES

6 part blog series

Introducing Antitrust Basics (6/17/19)

There is an “antitrust revivial” at work – mostly about Big Tech, social media, 5G, etc.

Justice Louis Brandes was known for his support of vigorous antitrust last – now there is a “neobrandeisian” threat, gaining conservative allies in Trump and right-wing populism.

No major antitrust cases since MIcrosoft in the late 90s.

The Case Against Antitrust by Wayne Crews Jr and Ryan Young – View Full Document as PDF – Terrible 10 of antitrust policies that should be abolished.

“In case after case, antitrust regulation protects incumbent companies from competition, encourages rent-seeking, erodes the rule of law, and slows innovation. This is a high price to pay for a policy that also works against its advocates’ goals regarding concentrated power, economic inequality, democracy, and other values.”

Relevant Market Fallacy (6/24/19)

In which market does the alleged monopoly have a monopoly? It’s hard to categorize.

Regulators try to use a narrow definition of the relevant market – defining the market too small:

Amazon controls roughly half of online retail, but a much smaller fraction of total retail. Which is the proper relevant market?

Misleading Herfindahl-Hirschman Index (7/1/19)

Government (FTC) uses an index to decide whether to approve mergers, etc.

But how should market concentration be measured? Should it be by number of firms? Or by how much market share the biggest players control?

The Herfindahl-Hirschman Index (HHI) accounts for both factors. It also gives analysts a single numerical score they can work with, ranging from 0 to 10,000.

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Explorer

Antitrust 101 with Ryan Young

Introduction to Antitrust [00:00]

The History of the Sherman Act [04:51]

Defining a Monopoly [09:20]

Antitrust and Big Tech [15:00]

Political Motivations [20:57]

Historical Antitrust Cases [23:29]

The Natural Check on Monopolies [31:35]

Caller Segment: Monopolies and the Founding [34:59]

The Baptist and Bootlegger Dynamic [39:24]

The Relevant Market Fallacy [44:16]

Amazon and the Relevant Market [47:49]

Show prep notes

(424) BOB-SHOW

A Future for Millennials: Policies that can Restore Prosperity

BLURB

6 part blog series

BLURB

6 part blog series

BLURB: Reversing the Ratchet

Articles

On Tariffs:

On Employment:

Links:

BLURB - Why Trustbusting Big Tech is a Bad Idea

Links:

New Links

Main Article: Google Antitrust Lawsuit Heavy on Politics, Weak on Legal Merits | National Review By Ryan Young, Oct. 22

Election Articles:

PREVIOUS NOTES

6 part blog series

Table of Contents

Backlinks