Quotulatiousness

July 6, 2018

“That’s what governments are for — get in a man’s way”

Filed under: Bureaucracy, Business, Government, USA — Tags: , , , , , — Nicholas @ 03:00

Veronique de Rugy says that the 4th of July is a good time to reflect on the American Founding Fathers fighting to gain independence from a distant tyrannical government … and the rest of the year is devoted to coping with a less-distant but no-less tyrannical government in Washington:

Consider the oil and gas industry. Over the years, the federal government has adopted many regulations meant to hinder the industry. As Nick Loris, an energy policy analyst at the Heritage Foundation, reminds me, one such regulation is the Merchant Marine Act, also known as the Jones Act, which makes it more expensive to ship oil and natural gas from coast to coast. Then there are the past administrations’ outright moratoriums on drilling in certain areas of America’s coasts, which massively increases the cost of doing business. As Loris notes, there are many costly bureaucratic delays in issuing leases and processing applications for permits to drill (APDs), which stalls production on federal lands. On average, the federal processing of APDs in the last year of the Obama administration was 257 days, while state processing is typically 30 days or less.

Since Uncle Sam has a lot of regulations in place to make the operations of domestic oil and gas companies more costly, why is the biggest beneficiary of loans from the federal government export credit agency (the U.S. Export-Import Bank) the gigantic Mexico state-owned oil and gas company Pemex? Between 2007 and 2013 (the most complete data set we have), Pemex received over $7 billion in loans backed by American taxpayers to buy U.S. goods. Thanks to Uncle Sam, this discounted borrowing power gives Pemex a leg up on its competition with domestic oil and gas companies.

Then there’s the Trump administration tariffs. These import taxes on foreign goods coming from Europe, China, and other countries have not only raised the cost of doing business but also triggered retaliatory measures from foreign governments. For instance, the farm industry is paying a steep price from the tariffs on steel because they increase the cost of farm machinery, lowering profit margins. Farmers are also hurt by the European, Mexican, Canadian, and Chinese governments that have imposed retaliatory export restrictions on U.S. farm products. Many small farms are calling for help to survive. It’s so bad that the entire Iowa congressional delegation sent a letter to President Trump on June 25 in which it called the tariffs “catastrophic for Iowa’s economy.”

Quote in the headline from Firefly episode “Serenity, Part 1”.

July 4, 2018

It’s never a good idea to expand the power of the state

Filed under: Government, Liberty, Politics, USA — Tags: , , , , , , — Nicholas @ 05:00

Francis Porretto on the problem of giving the state yet another tool for its already overflowing toolbox:

    The party in power is smug and arrogant. The party out of power is insane.” – Megan McArdle, a.k.a. “Jane Galt”

Among the older maxims of politics is to beware handing the State a new power without first reflecting on how your opponents could use it against you. For as sure as the Sun rises in the East, your opponents will return to dominance someday, and whatever powers you awarded the State will be in their hands.

Just now, the focus is on President Trump’s choice of a replacement for retiring Supreme Court Associate Justice Anthony Kennedy. The Democrats are tearing their collective hair out over this, as now that the filibuster is a dead letter for judicial appointees, their minority status in the Senate leaves them no way to block his selection. Yet it was Senate Democrats during the Obama Administration who first attacked the filibuster – when they were in the majority and sought to confirm Obama appointees. Coulda told ‘em then, but they weren’t in a mood to listen.

Today’s critical battles are over freedom of expression and “deplatforming.”

Some folks of sound mind and generally good will are exercised about how Silicon Valley giants such as Facebook and Twitter regulate their immensely popular social-media platforms to disfavor conservatives. The complaints have been many, and a great many of them are both accurate (i.e., the things complained about really happened) and valid (i.e., only persons of conservative or libertarian bent were silenced). However, they come up against a barrier that’s proved impassable to date: the right of private property.

So a lot of those folks have embraced the notion that those platforms could be regulated by the federal government as public accommodations. That’s the conception under which the Civil Rights Acts were deemed to hold legitimate authority over restaurants, hotels, movie theaters, and other nominally private properties. If you present your facility as “open to the public,” the logic runs, then you can be forbidden to discriminate – i.e., to provide your services to some members of the “public” but not others.

(For those who remember the “nationwide Bell System,” the phrase common carrier might rise to mind. The concept is essentially the same, as was the federal government’s assertion of authority over it. However, in that particular case, the rationale was that the Bell System was a monopoly, protected by that same federal government. Telecom deregulation and the breakup of the Bell System put paid to that scheme, thank God.)

Those in the Right who favor this notion are asking for trouble. Someday the balance of power will shift leftward once again. What would the Democrats – an increasingly totalitarian bunch who’ve never seen a law, a regulation, or a tax it didn’t love – do with the precedent that an Internet platform can be regulated as a public accommodation, despite being private property?

H/T to Bill St. Clair for the link.

June 30, 2018

Enriching the public in ways that do not show up in the GDP calculations

Filed under: Business, Economics, Media, Technology — Tags: , , , , — Nicholas @ 05:00

Tim Worstall looks at the calls to regulate the big tech firms and points out that we already get a very good deal on “free stuff” that isn’t reflected in standard economic statistics:

It won’t have escaped your attention that rather large numbers of people are calling for the regulation of the tech companies. The Amazon, Google, Facebook (Apple and Microsoft often added, just because they’re large) nexus have lots of power over markets and thus therefore – well, therefore something. My own prejudice here is that certain people just cannot look at centres of power and or money without insisting that they, the complainers, should be the ones exercising that power and determining the disposition of that money. Thus much of the drive for “democratic” regulation of the economy more generally, the self proclaimed democrats being the ones who would end up with the power. The advantage of this analysis being that it does describe reality, the same people do end up making the same arguments about different companies over time. Mere prominence brings the demand for control.

The economist on this subject is Jean Tirole. His Nobel was for exploring this very subject, tech companies and the two sided market. Google, for example, sells the search engine to us and us to the advertisers. The tech here is different, obviously, but the underlying economics is the same as that of the free newspaper.

Tirole’s a new book out and there are a number of interesting points to be had from it:

    Yes, on the whole consumers tend to get a good deal, because we use wonderful services — like Google’s search engine, Gmail, YouTube, and Waze — for free. To be certain, we are not paid for the valuable data we provide to the platforms, as for example Eric Posner and Glen Weyl remind us in their recent book Radical Markets. But on the whole, our living standards have substantially improved thanks to the digital revolution.

From which we can extract a few points. We’re richer, we really are. Substantially richer and yet in a manner that normal economic statistics entirely fail to capture. As Hal Varian has pointed out, GDP doesn’t deal well with free. Near all of those benefits of the digital revolution are coming to us for free and so aren’t recorded in that GDP. So, we’re richer yet the numbers say we’re not. In that is much of the explanation of slow economic growth these days, even of slow real wage growth. We’re just not counting what is happening to our living standards.

But we can and should go further than that. If the above is true then we’re very much less unequal than we’re recording. Stuff that’s free is, obviously enough, distributed rather more evenly among the population than extant monetary incomes. You, me and Bill Gates all have access to exactly the same amount of Facebook at the same price. We’re entirely equal in that sense. Bill’s actually poorer concerning search engines, stuck for emotional reasons with Bing as he is while we get to use Google or DuckDuckGo. Our standard measures of inequality are wrong both because of the undermeasurement of new wealth and also the extremely equitable pattern of the distribution of that new wealth.

QotD: In government regulations, complexity is a subsidy to existing companies

Filed under: Bureaucracy, Business, Government — Tags: , , , , , — Nicholas @ 01:00

One of the major themes of the book I’m working on should be familiar to longtime readers of this “news”letter. It boils down to a simple insight: Complexity is a subsidy. The more complex you make the rules, the more you reward people with the cognitive, material, or social resources necessary to get around them. Big corporations tend not to object to more burdensome regulations because they can afford to comply with them. Dodd-Frank was great for the “too big to fail” crowd. But it has been murder on community banks that don’t have the resources to comply. As Lloyd Blankfein, the CEO of Goldman Sachs, put it:

    It’s very hard for outside entrants to come in and disrupt our business simply because we’re so regulated. We hear people in our industry talk about the regulation, and they talk about it with a sigh about the burdensome of regulation. But in fact in some cases the burdensome regulation acts as a bit of a moat around our business.

But you’ve been hearing this stuff from me for years. Let’s get back to the arrogance thing. It seems to me a big part of the problem with progressive elites these days is that they lack self-awareness. That elites arrange affairs for their own self-interest is an insight that was already ancient when Robert Michels penned his Iron Law of Oligarchy. But ever since the progressives concocted their theories of “disinterestedness,” they’ve convinced themselves that they are not in fact a self-serving elite. Give feudal aristocrats their due: They were a self-dealing crop of rent-seekers and exploiters, but at least they were open about the fact that they believed they had a divine right to sit atop the social pyramid. Today’s progressive aristocracy is largely blind to the fact that their cult of expertise isn’t really about expertise; it’s about organizing society in a way that reinforces their status and power.

Well, most of them are blind to it. Occasionally the mask slips. Jonathan Gruber, one of the chief architects and financial beneficiaries of the health-care “reform,” told audiences that Obamacare was designed “in a tortured way” to hide the fact that “healthy people pay in and sick people get money.” They had to do it this way to get around the inconvenient “stupidity of the American voter.” A feudal lord who talked this way about his serfs wouldn’t get any grief for it. But in America such honesty gets you rendered an un-person.

Jonah Goldberg, “The Consequences of Overpromising on Obamacare”, National Review, 2016-10-08.

June 25, 2018

Differences between the United States and the “idealized” United States of Europe

Filed under: Bureaucracy, Europe, Law, Liberty, USA — Tags: , , , — Nicholas @ 03:00

Tim Worstall, in the Continental Telegraph:

There are those who think – urge, wish for perhaps – the European Union is or should become the United States of Europe. Lots of central bureaucratic control, the nation states left as just the remnants of once independent countries like the US states are these days. In some ways the two systems are very much the same already. No US state has any control at all over trade across its own border. Nor does any EU one. Trade is an issue solely the competence of the central organisations, respectively Washington DC and Brussels. Equally, both systems use this central control of trade and trade only to expand that central control.

In the US there was a case that Federal control of trade meant that the Feds got to decide who could grow wheat where and when. The usual sort of planning idiocy led to the Feds telling farmers who could grow how much and when. One farmer claimed he was only growing for his own consumption and this shouldn’t be limited. The centre (the Supreme Court) disagreed, the crux being that if he didn’t grow for his own consumption he would buy, this affected inter-state commerce, he had to obey the Feds. The EU takes this a step further. The Single Market rules are nominally about trade. Anything legal to be buying and selling in one place is such in all is a reasonable explanation of the nub of the matter. Sure, exceptions and all that. But this then smuggles into all law that continental (Roman Law really) idea that what is legal to do is something that the legislation defines. Instead of that Common Law idea that legislation, the law even, defines what it is illegal to do all other things being legal.

Once this is accepted then of course the next step is that there must be regulation of all things so as to tell people what it is legal to do. In this manner all sorts of things get smuggled in. Vacuum cleaner motors must be limited to a certain size or power. Because those whose lives are unfortunate enough that they’ve time to spare to be concerned about legislation on such matters note that they can be and thus incorporate their trivialities into legislation. The extent of this reach is larger than you think. The underlying legal, not political, justification for recycling targets is that some countries – Holland, where digging a hole gains nothing but wet boots – don’t have space for landfill. This would put them at a disadvantage if other countries do have the space, therefore all must recycle.

Giving the centre power always, but always, means an extension of the centre’s power. The two systems aren’t so different then.

June 5, 2018

Down with the experts!

Filed under: Government, Politics — Tags: , , , — Nicholas @ 05:00

In Quillette, Alex Smith explores the limits of expertise and why so many people today would eagerly agree with the sentiments in my headline:

“People are sick of experts.” These infamous and much-derided words uttered by UK Conservative parliamentarian Michael Gove express a sentiment with which we are now probably all familiar. It has come to represent a sign of the times — either an indictment or a celebration (depending on one’s political point of view) of our current age.

Certainly, the disdain for expertise and its promised consequences have been highly alarming for many people. They are woven through various controversial and destabilising phenomena from Trump, to Brexit, to fake news, to the generally ‘anti-elitist’ tone that characterises populist politics and much contemporary discourse. And this attitude stands in stark contrast to the unspoken but assumed Obama-era doctrine of “let the experts figure it out”; an idea that had a palpable End of History feeling about it, and that makes this abrupt reversion to ignorance all the more startling.

The majority of educated people are fairly unequivocal in their belief that this rebound is a bad thing, and as such many influential voices — Quillette‘s included — have been doing their best to restore the value of expertise to our society. The nobility of this ambition is quite obvious. Why on earth would we not want to take decisions informed by the most qualified opinions? However, it is within this obviousness that the danger lies.

I want to propose that high expertise, whilst generally beneficial, also has the capacity in certain circumstances to be pathological as well — and that if we don’t recognise this and correct for it, then we will continue down our current path of drowning its benefits with its problems. In short, if you want to profit from expertise, you must tame it first.

[…]

However, it is worth drawing a distinction between these two types of expertise — the kind people question, and the kind people don’t. In short, people value expertise in closed systems, but are distrustful of expertise in open systems. A typical example of a closed system would be a car engine or a knee joint. These are semi-complex systems with ‘walls’ — that is to say, they are self-contained and are relatively incubated from the chaos of the outside world. As such, human beings are generally capable of wrapping their heads around the possible variables within them, and can therefore control them to a largely predictable degree. Engineers, surgeons, pilots, all these kinds of ‘trusted’ experts operate in closed systems.

Open systems, on the other hand, are those that are ‘exposed to the elements,’ so to speak. They have no walls and are therefore essentially chaotic, with far more variables than any person could ever hope to grasp. The economy is an open system. So is climate. So are politics. No matter how much you know about these things, there is not only always more to know, but there is also an utterly unpredictable slide towards chaos as these things interact.

The erosion of trust in expertise has arisen exclusively from experts in open systems mistakenly believing that they know enough to either predict those systems or — worse — control them. This is an almost perfect definition of hubris, an idea as old as consciousness itself. Man cannot control nature, and open systems are by definition natural systems. No master of open systems has ever succeeded — they have only failed less catastrophically than their counterparts.

May 9, 2018

Freedom of the Press … except where prohibited by (British) law

Filed under: Britain, Law, Liberty — Tags: , , , , — Nicholas @ 03:00

Wednesday is a critical day in the history of Britain, in the sense that a long-established freedom is at risk of being curtailed:

Press freedom is hanging by a thread in Britain. Tomorrow, the House of Commons will vote on the Data Protection Bill, and Labour MPs have added amendments to it that would effectively end 300 years of press freedom in this country.

That this profound affront to liberty had almost passed under the radar, until spiked and others began making noise about it over the weekend, shouldn’t surprise us. This vote is the culmination of a slow and covert war on the press that has been waged for the best part of a decade.

This story begins with the Leveson Inquiry, an effective showtrial of the press that sparked dozens of spurious trials of journalists and barely any convictions. Since then, press-regulation campaigners have had to find new and underhand ways to push their agenda on an industry and a public who clearly see right through it.

In the wake of Leveson, a new regulator, Impress, was established and given official recognition. It was an historic moment, in the worst possible sense: this was Britain’s first state-backed regulator since the days of Crown licensing. But it was also a stunningly bad bit of PR for the press-regulation lobby, in that Impress was staffed by tabloid-loathing hackademics and funded by tabloid-loathing millionaire Max Mosley.

No national newspaper signed up to it. And so the Hacked Off brigade has been pushing over the past few years for Section 40, a law that would force publications to sign up to a state-approved regulator, which at the moment means signing up to Impress. Those publications, like spiked, who would refuse on principle, would be required to pay the legal costs of any case brought against them, even if they win.

As such, Section 40 would be a gift to the powerful and the begrudged. It would enable anyone to launch lawsuits aimed at shutting down publications they dislike. This is an opportunity that people who have been exposed by the press would take in a heartbeat. It would undermine not only press freedom, but also natural justice.

And it isn’t just the press who are concerned about this. In 2016, the government opened a public consultation into press freedom, asking members of the public if it should implement Section 40 and commence the second part of the Leveson Inquiry. Out of a huge 174,730 responses, 79 per cent said No to Section 40 and 66 per cent said No to Leveson 2.

Update, 10 May: The vote was too damned close, but it was defeated by a nine-vote margin. Guido has the list of MPs voting in favour of muzzling the press here.

May 5, 2018

Canada is #1 in the world! In the ripping-off-the-wireless-user sweepstakes!

Filed under: Business, Cancon, Technology — Tags: , , , — Nicholas @ 05:00

This is the sort of thing that isn’t really surprising — if you’re a Canadian wireless data user — but puts it into a sad, sad perspective:

The sad state of Canadian wireless pricing is old news for consumers and the government, but a new report graphically demonstrates how Canadians face some of the least competitive pricing in the developed world. The Rewheel study measured pricing in EU and OECD markets by examining how many gigabytes of 4G wireless data consumers get for the equivalent of 30 euros. This chart from Rewheel says it all:

Canada is at the far left of the chart with consumers getting less for their money than anyone else. While many countries offer unlimited mobile data at that price, the report says Canadian carriers offer a measly 2 GB. The smartphone data plans aren’t much better, with nearly all countries offering better deals and many shifting to unlimited data at that price.

[…]

In addition to outrageously expensive wireless data plans, Canadians also face huge overage charges (more than a billion dollars per year generated in the wireless overage cash grab) and steadily increasing roaming charges. Yet when it came to introducing greater resale competition, the CRTC rejected new measures that it admitted could result in some improvement to affordability.

QotD: Making decisions for other people’s “best interests”

Filed under: Economics, Government, Quotations — Tags: , , , — Nicholas @ 01:00

Confession: ever since I began to study economics as an 18-year old, I’ve always had difficulty understanding the thought processes of people who fancy themselves fit to intervene into the affairs of other adults in ways that will improve the lives of other adults as judged by these other adults. I understand the desire to help others, and I also understand that individuals often err in the pursuit of their own best interests. What I don’t understand is Jones’s presumption that he, who is a stranger to Smith, can know enough to force Smith to modify his behavior in ways that will improve Smith’s long-term well-being. Honestly, such a presumption has struck me for all of my adult life as being so preposterous as to be inexplicable. I cannot begin to get my head around it.

I cannot get my head around Jones’s presumption that he knows enough to forcibly prohibit Smith from working for an hourly wage lower than one that Jones divines is best for Smith. I cannot understand Jones’s presumption that he ‘knows’ that Smith meant, but somehow failed, to bargain for family leave in her employment contract. I am utterly befuddled by Jones’s presumption to know that the pleasure that Smith gets from smoking cigarettes is worth less to Smith than is the cost that Smith pays to smoke cigarettes. I cannot fathom why Jones presumes that he knows better than does Smith how Smith should educate her children.

Yet this presumption is possessed by many, perhaps even most, people. Why?

Don Boudreaux, “A Pitch for Humility”, Café Hayek, 2016-08-05.

April 28, 2018

Lab-Grown Meat Is Coming to Your Supermarket. Ranchers Are Fighting Back.

Filed under: Business, Food, Health, Science, Technology, USA — Tags: , , — Nicholas @ 04:00

ReasonTV
Published on 26 Apr 2018

The U.S. Cattlemen’s Association petitioned the USDA to declare that “meat” and “beef” exclude products not “slaughtered in the traditional manner.”

April 12, 2018

Alex Tabarrok profiled in the Washington Monthly

Filed under: Business, Cancon, Economics, Liberty — Tags: , , , — Nicholas @ 03:00

Alex Tabarrok is a friend-of-a-friend (does that make us “friends once removed”?) I’ve read lots of his blog posts and watched many of his videos, but I’ve never actually met him in real life, so this profile was quite interesting:

Tabarrok came by his libertarianism early. When he was growing up in Toronto, his family would debate political and ethical issues over dinner every night. One evening the Tabarroks were debating the moral value of rock and roll. “I said, ‘Well, look at this band, Rush: they even quote this philosopher Ayn Rand in their songs,’ ” he recalled recently. “My mother said, ‘Oh yeah, you’d probably like her,’ and I felt embarrassed because I was using this in an argument and I actually hadn’t read any Ayn Rand before.” Tabarrok thinks his mother probably regrets her suggestion to this day.

Tabarrok made his way to the U.S. for graduate studies at George Mason, returning there as a professor in 2002. He now directs its Center for Study of Public Choice and is the economics chair at GMU’s Mercatus Center, a research institute heavily funded by Charles Koch and cofounded by Richard Fink, a former Koch Industries executive. The center, which boasts ties to prominent right-wing groups like the American Legislative Exchange Council, funds research to promote free-market policy solutions and the rollback of regulations. (Mercatus is Latin for “market.”) The Wall Street Journal has called Mercatus “the most important think tank you’ve never heard of.”

A few years ago, Tabarrok got a new toy to play with. Until recently, there was never great data available for researchers who wanted to empirically study the effects of regulation. But, in 2014, two other Mercatus Center research fellows developed a new public-use database called RegData, which captures everything published in the Code of Federal Regulations each year. Measuring regulation has always been surprisingly tricky, because when an agency puts out a rule, it can contain any number of new individual legal requirements. RegData addresses that problem by scrubbing the Code for key words such as “shall,” “required,” and “may not.” The theory is that this more accurately measures the number of regulations than simply counting the total number of pages in the Code, as past studies tended to do. RegData also uses artificial intelligence techniques to predict which industry each regulation will affect. The upshot is that, for the first time, economists could more confidently measure federal regulations over time and by industry. In theory, that would make it easier to build the case that regulations were hurting the economy.

April 10, 2018

Structural Unemployment

Filed under: Economics, Europe, USA — Tags: , , — Nicholas @ 02:00

Marginal Revolution University
Published on 8 Nov 2016

Unemployment comes in many forms. Sometimes, like we saw with short-term, frictional unemployment, it can actually indicate a healthy, growing economy. But what about persistent, long-term unemployment? That’s not so good.

When a large percentage of those who are considered unemployed have been without a job for a long period of time and this has been true for many years, it’s considered structural unemployment.

Structural unemployment can result from shocks to an economy that drastically alter the labor market. These shocks are not all bad – the rise of the Internet is one such example. Regardless, it can take a while for an economy to adjust to big changes.

These adjustments tend to happen faster in the United States than in Europe. This is most likely due to differences in labor regulations, and how those regulations affect a country’s ability to respond to shocks.

The United States’ employment law known as the “at-will doctrine” makes it so that an employee can quit, or an employer can fire, at any time for any reason. It’s legally much harder to terminate an employee in many European countries. This makes hiring riskier in Europe, resulting in a less dynamic labor market that isn’t able to quickly respond to shocks.

As you might guess, structural unemployment tends to count for a higher percentage of total unemployment in Europe than in the United States. This remains one of the most serious issues facing many European economies today.

April 7, 2018

Car rental agencies look to government to quash upstart “personal vehicle sharing” companies

Filed under: Business, Government, USA — Tags: , , , , — Nicholas @ 03:00

Steven Greenhut discusses yet another entrenched industry trying to get the government to protect them from disruptive competitors:

Real capitalism is a tough sport where entrepreneurs risk their capital in hopes of winning customers.

The “crony” version of it involves politicians rigging the rules to assure that the “right” people are winners. We see this ugly process on high-profile national issues, such as when Donald Trump promotes tariffs to boost steel makers at the expense of companies that use steel products. But most of this nonsense proceeds quietly in legislative committees, without garnering any headlines or vocal opposition.

One awful but illustrative example popped up recently in the California state Capitol. Assembly Bill 2246, by Assemblywoman Laura Friedman, D-Glendale, apparently is part of a national effort by rental-car companies to snuff out a burgeoning industry that just happens to be threatening its business model. The bill would redefine “personal vehicle sharing” companies as “car rental companies” — and then slam them with reams of new regulations. Similar measures have been proposed in Idaho, New Hampshire, Maryland and Maine.

Rental-car companies are facing the same challenges as other established business models in this internet and app-based age. Capitalism — the real sort — is defined by “creative destruction,” as economist Joseph Schumpeter called it. New companies are free to offer better products and services that appeal to customers. This is creative as new ideas flourish and consumers get a broader choice and lower prices thanks to competition. But it’s also destructive. Complacent old companies suddenly are forced to improve their offerings or shut their doors. The consumer is king.

For example, I recently grabbed a taxicab rather than my usual Uber and noticed the oddest thing. The cabbie had a modern app-based system for taking my credit-card payment. Until recently, paying by credit card was a hassle because cab services didn’t really want to take your card. I’ve also noticed a fleet of nice new cabs around my city. And the cab I took even sent an email with a receipt and a rating system. Sound familiar?

April 5, 2018

QotD: ESR’s “Iron Laws of Political Economics”

Filed under: Economics, Government, Politics, Quotations — Tags: , , , , , — Nicholas @ 01:00

Mancur Olson, in his book The Logic Of Collective Action, highlighted the central problem of politics in a democracy. The benefits of political market-rigging can be concentrated to benefit particular special interest groups, while the costs (in higher taxes, slower economic growth, and many other second-order effects) are diffused through the entire population.

The result is a scramble in which individual interest groups perpetually seek to corner more and more rent from the system, while the incremental costs of this behavior rise slowly enough that it is difficult to sustain broad political opposition to the overall system of political privilege and rent-seeking.

When you add to Olson’s model the fact that the professional political class is itself a special interest group which collects concentrated benefits from encouraging rent-seeking behavior in others, it becomes clear why, as Olson pointed out, “good government” is a public good subject to exactly the same underproduction problems as other public goods. Furthermore, as democracies evolve, government activity that might produce “good government” tends to be crowded out by coalitions of rent-seekers and their tribunes.

This general model has consequences. Here are some of them:

There is no form of market failure, however egregious, which is not eventually made worse by the political interventions intended to fix it.

Political demand for income transfers, entitlements and subsidies always rises faster than the economy can generate increased wealth to supply them from.

Although some taxes genuinely begin by being levied for the benefit of the taxed, all taxes end up being levied for the benefit of the political class.

The equilibrium state of a regulatory agency is to have been captured by the entities it is supposed to regulate.

The probability that the actual effects of a political agency or program will bear any relationship to the intentions under which it was designed falls exponentially with the amount of time since it was founded.

The only important class distinction in any advanced democracy is between those who are net producers of tax revenues and those who are net consumers of them.

Corruption is not the exceptional condition of politics, it is the normal one.

Eric S. Raymond, “Some Iron Laws of Political Economics”, Armed and Dangerous, 2009-05-27.

March 29, 2018

Google, Facebook, anti-trust laws, and the Network Effect

Filed under: Business, Economics, Media, Technology — Tags: , , , , , , — Nicholas @ 03:00

Google and Facebook (and other, lesser, social media companies) have a lot of information on you. Lots and lots and lots of information on you. Many people are coming to the conclusion that this is bad, bad news and “something must be done”. Politicians and activists share a tendency to respond to such demands by pushing “something” they already favour as the solution to the popular demand for action. A few days ago, the “something” seemed to be some form of anti-trust action over the social media giants.

In the Continental Telegraph, Tim Worstall explains why an over-the-top anti-trust offensive is likely to leave everyone in a worse state than the status quo:

Which brings us to the tech companies of today:

Big Tech May Be Monopolistic, But It’s Good for Consumers

Quite so, thus no antitrust actions should or need be taken.

At the first level there’s the simple point that Facebook, Google a little less, Microsoft, e-Bay, they benefit from network effects. The more people who use them the more attractive they become to the next user. Meaning that size, in and of itself, creates yet more size. That’s just what we mean by network effects.

In turn that also means that the efficient size of an organisation here is that global monopoly. It isn’t true in most cases because there are diseconomies of scale as well as economies of it, but another way to describe network effects is just that we’re insisting that the -economies outweigh the dis- at scales up to and including 7 billion people.

In that first reading of antitrust that would mean they gain economic power and thus government must step in. In our second reading that’s not enough.

Firstly, the monopolists must exercise that economic power they have. Something not greatly in evidence as just having power doesn’t mean it can be exercised. For when you do try to, say, raise prices can someone come in and try to undercut you? If so you’ve got contestable economic power, or even a contestable monopoly. As an example, think the Chinese and rare earths. They were producing some 97% of the world’s supply. So, they decided to play silly buggers, exercise that power. It took a couple of years but two new mines opened, China’s share of rare earths fell and prices halved, below their original point. People contested that Chinese economic power when China tried to exercise it. China didn’t win either.

If Google tried to raise the price of adverts then business would flow away from them. If Facebook started charging for access then there wouldn’t be a Facebook. They’ve got contestable monopolies.

[…]

Sure, we should keep a wary eye open and if the consumer is being gouged then we could and should do something. But while we’ve got efficient companies, monopolies or not, benefiting consumers then the correct response is to get the hell out of the way.

Unless you’re a politician who simply wants to expand the powers politicians have over society – something which explains most politicians – but then we can tell them to go boil their heads. Only the exercise of economic power to the disbenefit of consumers justifies intervention.

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