Issue 47

When in doubt, antitrust for the win

Last week President Donald Trump escalated his trade war with China (FYI his frequently updated Twitter feed is a near-endless source of amusement), citing theft of intellectual  property and a lack of what he calls "Far and Balanced Trade" (not  properly defined). But the thing is, Trump's tariffs are only possible  because of Section 232 of the Trade Expansion Act of 1962,  which allows a President to impose tariffs if "an article is being  imported into the United States in such quantities or under such  circumstances as to threaten or impair the national security".

There's nothing in there about intellectual property or "fair and  balanced trade", just national security. He even opted to name-drop the International Emergency Economic Powers Act of 1977,  a scary piece of legislation that effectively gives the President the  power to freeze people's assets, block their private transactions and  even confiscate property. Provided he can prove that there's an "unusual  and extraordinary threat... to the national security, foreign policy,  or economy of the United States", that originates "in whole or  substantial part outside the United States", that is. But that's the  thing about national security; deliberately opaque and ill-defined, it's  a brilliant method that an executive, empowered by decades of Congress  undermining itself, can use to justify almost anything.

The same  might be said for antitrust, which is topical at the moment as people  who dislike Big Tech are trying to use it as a cudgel with which beat it  down, provided they can prove sufficient "market power" (like national  security,not properly defined). This isn't a new phenomenon, either;  even the now defunct MySpace was once accused (and acquitted) of an  antitrust violation, when the CEO of its former owner sued it for refusing to link to his website.

Alas  history tends to repeat, and it appears some are beginning to worry  that a few Big Tech companies have been satisfying their customers for far too long:

"Big  Tech will soon be facing too many antitrust probes to count on one  hand, as several states reportedly plan to launch their own joint  investigation to accompany all of the federal inquiries already in  progress. Attorneys general for as many as 20 states may be joining  forces to dig into whether the dominant tech players use their outsized  market power unfairly to quash competition, sources tell the Wall Street  Journal.
...
The specific targets of the probe were not named but  are widely considered to include Apple, Amazon, Facebook, and  Google—all of which are the targets of other antitrust probes, both in  the US and abroad—at a minimum."

Not content with  services that actually exist, Facebook might even cop an antitrust case  for Libra - something it hasn't even created yet - with the European  Union clearly desperate for things to regulate (you can only regulate the curvature of a banana once, after all):

"European  Union antitrust regulators are already probing Facebook Inc.’s  two-month-old Libra digital currency project, according to a document  seen by Bloomberg. The European Commission is "currently investigating  potential anti-competitive behavior" related to the Libra Association  amid concerns the proposed payment system would unfairly shut out  rivals, the EU authority said in a questionnaire sent out earlier this  month."

For the sake of consumers everywhere I hope,  as with the MySpace case, that these legal but mostly political  assaults fall flat. While I much prefer paying for a product than being  the product, most people seem quite happy with the current arrangement.  If any Big Tech companies decided to piss enough of their users off they  will quickly go the way of MySpace, Friendster, Bebo, OpenSocial,  ConnectU, Tribe.net, Path, Yik Yak, Ello, Orkut, Google+ and Vine, i.e.  into the social media void.

Yes, those were all competitors of Facebook that it managed to fend off, but only by offering a superior product.  Let's face it, Facebook is the #1 social network not because it was  first but because it got social media right and managed to turn a profit  at the same time. Its acquisitions of WhatsApp and especially Instagram  have helped, but those are not immune to market forces either. Sure,  there are network effects, but those only go so far; if a competitor is good enough, people will switch.

As  for the other two Big Tech targets, Amazon is only able to maintain its  online market share of nearly 50% in the US (it's only responsible for  ~5% of total retail spending) by offering people better value than its many, many competitors. It barely makes any money on its retail activities due to its razor-thin margins, precisely the  opposite of how a monopolist exploiting its "market power" is supposed  to behave, i.e. by restricting output and charging higher prices.

As for Google, it is only the dominant search engine because it was the first to offer people a quality web search option (Google is literally now the verb for a web search) and maintain that quality over time. If Google slips and/or something people value more emerges, whether that be a higher quality search result or a more privacy-friendly option (e.g. DuckDuckGo), Google will fade away into obscurity.

Ultimately,  antitrust regulation targeted at companies in a sector which is almost  as far removed from what antitrust was designed to prevent will result  in a worse outcome for consumers. As I have written many times before, regulating these firms as monopolies will risk making them monopolies. It assumes a static state of affairs and acts accordingly, when that could not be further from the truth.

Enjoy the rest of this week's issue. Cheers,

— Justin


The bits

Who pays the tax (or tariff, subsidy, costs of poor regulation)?

Consumers. A thousand times, consumers.

Learn more:

When artificial intelligence just isn't good enough...

...use  humans. Given how fickle these algorithms are there will be plenty of  high- and low-skilled jobs directly created by the increased use of AI.

Learn more:

The culture that is tipping

I  have never understood how tipping, as it exists in some places today  (e.g. North America), has persisted for so long (culture really is hard  to change). I get how it came about - aligning incentives between  employee and customer to improve service - but that connection was  severed long ago. Maybe, just maybe, it won't be around for much longer.

Learn more:


Other bits of interest


Image of the week

When is the worst time to deregulate and industry riddled with moral hazard? At the peak of the cycle. Yet as Scott Sumner points out, that's exactly what US regulators are doing:

"In  a perfect world, there would be no capital requirements at all, but  also no FDIC, no too-big-to-fail, no Fannie Mae and Freddie Mac, no FHA,  etc. Given all the moral hazard in the system, there needs to be some  way of discouraging excessive risk-taking... [however] what I object to  is procyclical banking regulation. We loosen regulations during booms  and tighten them during recessions."

He's right. While the next financial crisis is unlikely to be centred on mortgage-backed securities again (regulators are generally good at cracking down on prior causes), it certainly won't help.

Remember,  this is a system with similar feedback mechanisms (or lack thereof) to  that which people are relying upon to regulate big tech. 🤦‍♂️


This week's data breaches

Google's software might be malware but at least it's relatively open about that fact (not that anyone cares).

The breaches:

That's all for now. If you enjoyed this issue, feel free to share it via email


Issue 47: When in doubt, antitrust for the win was compiled by Justin Pyvis and delivered on 27 August 2019. Join the conversation on the fediverse at Detrended.net.