Mueller’s Muddle

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The Mueller Report effectively put to rest allegations of collusion between the Trump campaign and Russia to influence the 2016 election, despite lingering wails from crestfallen Trump haters. But Trump lovers and haters alike might agree that the report should have settled much more, including whether there was evidence on which a charge of obstruction of justice could be brought against Trump. Robert Mueller demurred from that responsibility as a prosecutor, but he left a few tempting but ultimately dangerous crumbs for those still obsessed with toppling Trump.

Mueller’s statement last Wednesday wavered around the suggestion that Trump might be guilty of obstruction, a connotation colored more by politics than evidence. My conclusions, gleaned from both the report and a few other sources, are the following:

  • There was no evidence of collusion between the Trump campaign and Russia.
  • The original allegations were an attempted set-up of Trump. The scheme relied in part on the fraudulent Christopher Steele dossier, which was financed by the Clinton campaign, as well as a series of misrepresentations and suspicious contacts arranged by high-level officials at the Department of Justice and the FBI. That the entire investigation might have been compromised by such a conspiracy was not addressed by Mueller in the report, but we will learn more very soon when the DOJ’s Inspector General issues his findings. The IG will be interviewing Steele himself in the UK before long.
  • Mueller probably knew there was no collusion early in the investigation, but he persisted in “investigating” for two years. In my view, that created the appearance of an effort to entrap an angry Trump on obstruction charges.
  • Trump reacted to the collusion charges with a kind of raving petulance. Of course, it’s hard to blame him for his anger, and Mueller more-or-less acknowledged that. Trump did and said things that surely sounded intemperate, though some were within his prerogative (e.g., firing James Comey). Certain impulsive statements and actions might have risen to the level of obstruction had he not “changed his mind”, or had he bothered to follow-up on execution by aides. And Trump made statements (not under oath) that we’re intended to influence public opinion and possibly the willingness of certain witnesses to cooperate with investigators, but that sort of intent is hard to prove.
  • Of the ten instances of possible obstruction listed by Mueller in his report, two came dangerously close to qualifying as obstruction, two others were more of a stretch, and the rest were readily explained by motives other than an intent to obstruct, as Mueller sometimes indicated in the report.
  • Several of the possible obstruction issues were mitigated by Trump’s apparent willingness to cooperate with the investigation, including the provision to Mueller’s office of a huge volume of emails and documents, and by allowing members of the administration to be interviewed, some at great length.
  • Jonathan Turley has expressed his dismay at three underhanded actions taken by Mueller, one in the report itself and two in the wake of its delivery to his superiors at the DOJ (Attorney General William Barr and Deputy AG Rod Rosenstein). The first was an omission: Mueller chose not to identify grand jury material that had to be redacted before release to the public. This was contrary to instructions and with knowledge that the omission would delay the report’s release to the public and reflect badly on Barr.
  • The second action noted by Turley was a letter sent by Mueller to Barr complaining about the “impression” created by Barr’s summary of the report, despite the fact that Barr had invited Mueller to review the summary in advance. The letter also asked Barr to “release uncleared portions of the report”, which Mueller knew was prohibited. This also seems to have been intended to reflect badly on Barr.
  • Turley’s third point is Mueller’s legally incoherent statement that “he would have cleared Trump if he could have” but chose not to draw a conclusion. Mueller invoked an opinion from the DOJ’s Office of Legal Council (OLC), which he claimed prohibited the indictment of a sitting president. But over a period of two years, he failed to seek further guidance on the question from the OLC, his superiors, or the Inspector General.
  • A more obvious explanation for Mueller’s failure to seek an indictment is that he knew that no grand jury would indict on the evidence as described in the ten instances of possible obstruction he listed in the report.
  • Essentially Mueller left the ball in Barr’s court to decide whether to seek an indictment of Trump on obstruction changes, and Barr decided that the evidence did not support it.
  • However, the very idea of obstruction is moot, or should be, given the first three points above. And apparently Mueller never intended to seek an indictment on collusion, as he stated again last Wednesday.
  • Mueller strayed outside the role of a prosecutor and potentially subverted the cause of justice in stating that he could not exonerate the president of obstruction. There is no such thing as “exoneration” of an accused in U.S. criminal law. Mueller’s role as a prosecutor was to make a determination as to whether he should recommend an indictment against Trump. It was not his role to determine Trump’s guilt and certainly not his innocence, and innocence must always be the presumption.
  • The Mueller report could provide Congress with a “roadmap” for impeachment of Trump on charges of obstruction. If House Democrats decide to take that road, it would very likely be a prescription for their electoral suicide.

No matter how aggravating and uncouth you find Trump, and no matter how unwise his policies might prove to be, he was elected fair and square. Nevertheless, his opponents in Congress and on the campaign trail can’t easily give up the impeachment rhetoric without angering their leftist base. But not all congressional Democrats are voicing support for impeachment proceedings, and House Majority Leader Nancy Pelosi is doing her best to manage the division without making a commitment either way. The Senate will never go along with impeachment, of course. Now, a House vote to merely censure Donald Trump is mentioned as a possible “exit-ramp” to compromise that would let the hard-line impeachers down easy. Whatever they do, however, some Democrats might hope to drag out the process in an attempt to inflict maximal damage to Trump’s reelection prospects. And that, too, is probably ill-advised, because people are getting tired of all this.

Warming Bias and Hot-Town Thermometers

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A few little-recognized facts about global warming are summarized nicely by climate researcher Javier in a comment on this post by Dr. Roy Spencer:

It is mainly over land and not over sea. It is mainly in the Northern Hemisphere and not in the Southern Hemisphere. It is mainly during winter and not during summer. And it affects mainly minimal (night) temperature and not maximal (day) temperature.”

I added the hyperlinks to Javier’s comment. The last two items on his list emphasize a benign aspect of the warming we’ve experienced since the late 1970s. After all, cold temperatures are far deadlier than warm temperatures.

Here is a disclaimer: my use of the term “global warming” refers to the fact that averages of measured temperatures have risen in a few fits and starts over the past four decades. I do not use the term to mean a permanent trend induced by human activity, since that time span is very short in climatological terms, and the observed increase is well within the historical range of natural variation.

Few seem aware that the surface temperature record is plagued by an obvious issue: the siting of most weather stations in urban environments. In fact, urban weather stations account for 82% of total stations in the U.S., as Jim Steele writes of “Our Urban ‘Climate Crisis’“. Temperatures run hot in cities due to the heat-absorbing characteristics of building materials and the high proportion of impervious ground cover. And some stations well outside of metropolitan areas are also situated near concrete and pavement. There is little doubt that urbanization and thoughtless siting decisions for weather stations have corrupted temperature measurements and exaggerated surface warming trends.

Hot summer days always arouse expressions of climate alarm. However, increases in summer temperatures, and daytime temperatures, have been relatively modest compared to increases in winter and nighttime temperatures. In Roy Spencer’s post, (also linked above), he reports that 80% of the U.S. warming observed by a NASA satellite system (AIRS) from September 2002 to March 2019 occurred at night.

Of course, climate alarmists also claim that global warming makes temperatures more volatile. So, they argue, there are now more very hot days even if the change in the average summer temperature is modest. The facts do not support that claim, however. Indeed, the world has experienced less temperature volatility as global temperatures have risen. And less extreme weather, as it happens, is contrary to another theme in the warmest narrative.

There is some reason to believe that the relative increase in nighttime temperature is connected to the urban heat island effect. Pavement, concrete, and other materials retain heat overnight. Thus, increasing urbanization leads to nighttime temperatures that do not fall from their daily highs as much as they did a few decades back. The magnification of daytime heating is not as pronounced as the effect of retained heat overnight, which causes the diurnal temperature range to decrease. But I should note that some rural farmers insist that nighttime lows have increased relative to daytime highs there as well, and Roy Spencer himself is not confident that the satellite temperature data on which his finding was based reflects a strong urban heat island effect.

For perspective, it’s good to remember that we live in the midst of an interglacial period. These are relatively brief, temperate intervals between lengthier glacial periods (see here, and more from Javier here). The current interglacial is well advanced, having begun about 11,700 years ago, but Javier estimates that it could last for another 1,500 years. That would be longer than the historical average. At the peak of the last interglacial period, temperatures were about 2C higher than today and sea levels were 5 meters higher. The last interglacial ended about 120,000 years ago, but the historical average time between interglacials is only about 41,000 years. These low frequency changes in the global climate are generally driven by the Earth’s axial tilt (obliquity), recurring cycles in the shape of our eliptical orbit around the Sun (eccentricity), and the Earth’s solar exposure (insolation) and albedo.

Biased surface temperature records have both inspired and reinforced the sense of panic surrounding global warming. Few observers seem to understand the existence of a strong bias, let alone its source: the urban heat island effect. And few seem to realize that most of the warming we’ve experienced since the 1970s has occurred at night, not during the day, and that these changes are well within the range of natural variation. Dramatic climate change happens at both long and short time scales for reasons that are largely astronomical. The lengthy historical record accumulated by paleoclimatologists shows that current concerns over global warming are exaggerated. I’m quite confident that mankind will find ways to adapt to climate change in either direction, but some global warming might be beneficial once the next glacial period begins.

 

The UN’s Mass Extinction Fiction

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A big story early this month warned of mass extinctions and a collapse of the planet’s biodiversity. This was based on a report by the UN’s Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). A high-level presentation of the data by IPBES was constructed in a way that is easily revealed as misleading (see below). But the first thing to ask about bombastic reports like this is whether the authors are self-interested. There is big money in promoting apocalyptic scenarios and public programs to avert them. Large government grants are at stake for like-minded scientists, and political power is at stake for biodiversity activists worldwide. Like many other scare stories reported as “news”, this one feeds into the statist political agenda of the environmental Left.

Exaggerated claims of species endangerment are not a new phenomenon. We’ve heard grossly erroneous forecasts of polar bear extinctions, frightening but false warnings of a “beepocalyse”, and faulty claims about declines in the population of African elephants. These are headline-grabbing and more thrilling to report than mourning the prospective loss of an obscure species of cave lichen. But a mass extinction is something else! Dan Hannon reminds us of the following:

In 1980, for example, the Jimmy Carter administration distributed to foreign governments a report claiming that, by the year 2000, 2 million species would be wiped out. In fact, by 2010, there had been 872 documented extinctions.” 

Of course, that figure does not account for the multitude of new species discovered. There are many. Recent examples just gruesome enough to garner attention are the three new species of bird eater tarantulas discovered in 2017.

In the more general mass-extinction context of the IPBES report, the blame for the extremely pessimistic outlook is placed squarely on human activity. The authors allege CO2 emissions as the primary culprit, which is at best a theory and one at odds with the chief driver of extinctions during the industrial era. That is the introduction of non-native species into environments having flora or fauna unable to withstand new competitors. Matt Ridley elaborates:

The introduction by people of predators, parasites and pests, especially to islands, has been and continues to be far and away the greatest cause of local and global extinction of native fauna.”

There is no question that the IPBES report on extinctions was intended to create alarm. As Gary Wrightstone demonstrates, the lack of rigor and misleading expositional techniques used in the report are a tell:

… the data were lumped together by century rather than shorter time frames, which, as we shall see accentuates the supposed increase in extinctions. … The base data were derived from the International Union for Conservation of Nature and Natural Resources (IUCN) Red List, which catalogues every known species that has gone the way of the dodo and the carrier pigeon. Review of the full data set reveals a much different view of extinction and what has been happening recently.”

The more granular charts Wrightstone presents are indeed contrary to the narrative in the IPBES report. And Wrightstone also highlights the following in a postscript:

In an incredibly ironic twist that poses a difficult conundrum for those who are intent on saving the planet from our carbon dioxide excesses, the new study reports that the number one cause of predicted extinctions is habitat loss. Yet their solution is to pave over vast stretches of land for industrial scale solar factories and to construct immense wind factories that will cover forests and   grasslands, killing the endangered birds and other species they claim to want to save.”

The enduring extinction racket is one among other fronts in the war on capitalism. The IPBES report must use the term “transformative” a thousand times, as it recommends “steering away from the current limited paradigm of economic growth“. Matt Ridley highlights the faulty attribution of alleged declines in biodiversity to “western values and capitalism”:

On the whole what really diminishes biodiversity is a large but poor population trying to live off the land. As countries get richer and join the market economy they generally reverse deforestation, slow species loss and reverse some species declines.”

And Ridley also says this:

A favourite nostrum of many environmentalists is that you cannot have infinite growth with finite resources. But this is plain wrong, because economic growth comes from doing more with less. So if I invent a new car engine that gets twice as many miles per gallon, I’ve caused economic growth but we’ll use less fuel. Likewise if I increase the yield of a crop, I need less land and probably less fuel too.”

It’s no coincidence that future extinctions foretold by IPBES are predicted to have drastic impacts on less-developed countries. It thus appears that IPBES exists in a happy synergy with the UN’s climate Intergovernmental Panel on Climate Change (IPCC), as well as proponents of the Paris Accord and the entire climate lobby. An objective that helps them garner support around the globe is to redistribute existing wealth to less-developed countries in the name of environmental salvation. That would prove a poor substitute for the kinds of free-market policies that would truly enhance prospects for economic growth in those nations.

The threat of mass extinctions is greatly exaggerated by the UN, IPBES, climate change activists, and members of the media who can’t resist promoting a crisis. Any diminished biodiversity we might experience going forward won’t be solved by limiting economic growth, as the IPBES report claims. Instead, advances in productivity, particularly in agriculture, can allow expansion of native habitat, as recent experience with reforestation and global greening demonstrates. This principle is as applicable to under-developed countries as anywhere else.

The kinds of centrally planned limits on human activity contemplated by the IPBES report are likely to backfire by making us poorer. Those limits would impose costs by misallocating resources away from things that people value most highly. They would also force people to forego the adoption of innovative production techniques, leading to the substitution of other resources, such as inefficient land use. And those limits would deny basic freedoms, including the unfettered use of private property.

Tax Returns, Politics and Privacy

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It’s a constitutional crisis! Or so claim congressional Democrats, but at this point it looks more like a one-party panic attack. They keep sniffing the trailing fumes of the Mueller investigation, which turned up nothing on the President, or at least nothing worth prosecuting. There is also an ongoing dispute over the President’s tax returns, which he has chosen not to make public. Last week, House Ways and Means Committee Chairman Richard Neal subpoenaed the IRS for six years of Trump’s tax returns, but that is likely to be ignored. There is no law or requirement that Trump release the returns, and the IRS would be under no obligation to comply with the subpoena if it has “no legislative purpose”, as Treasury Secretary Steve Mnuchin said of an earlier request by Neal. For his part, Trump has falsely claimed to the public that an ongoing audit prevents him from releasing his tax documents, but he is fully within his legal rights to withhold his returns, at least for now. His decision is, no doubt, political and it may be wise to that extent. Nevertheless, the suspicion that Trump is a tax cheat is fueled by his very reluctance to make the returns public.

Constitutional Protection

The legality of Trump’s refusals to make the returns public is established in the Constitution, according to law professor Adam Grewal of the University of Iowa:

Though a federal statute seemingly compels the IRS to furnish, on request, anyone’s tax returns to some congressional committees, a statute cannot transcend the constitutional limits on Congress’s investigative authority. Congress enjoys a near-automatic right to review a President’s tax returns only in the impeachment context.”

If explicit action is taken to impeach the President, justifiably or not, then presumably he or the IRS would be forced to turn over his tax returns to Congress. Even then, however, it would probably become the subject of a protracted court fight.

Partisan Charges

It’s not surprising that Trump has engaged expensive tax experts for the Trump organization and his personal taxes. Of course he has! Anyone in his position would be crazy not to. Minimizing taxes is a complex undertaking even for those having far less wealth and business complexity than a Donald Trump. There is no reason why he should have foregone any tax advantages for which he or his business was entitled. And in fact, he was entitled to use losses on a number of failed enterprises over the years to offset other income for tax purposes. Under these circumstances, a tax liability of zero is not terribly surprising.

Specific claims that Trump is a tax cheat are as yet unfounded. As Jeffrey Carter explains, there is an array of tax provisions intended to provide incentives to businesses precisely because tax law has been crafted to encourage business activity; real estate development is no exception. The idea is that businesses encourage employment, income, incremental tax revenue, and eventually more development. While I generally oppose tax provisions that impinge on specific kinds of human activity, there is nothing illegal or even immoral about taking advantage of tax rules that exist. In fact, there are legal tax maneuvers that can allow a successful real estate development business to generate continuing tax losses.

There are allegations that the Trump organization used fraudulent appraisals to understate values of buildings as a means of minimizing taxes. A variety of appraisal techniques are used in commercial real estate, each involving a series of assumptions and possible adjustments. Appraisals might be especially difficult for complex properties such as large, high-end gambling developments. Perhaps reviews of appraisals are part of the ongoing IRS audit to which Trump referred. There’s little doubt that Trump’s tax advisors would have sought to use the most advantageous techniques and assumptions that would pass scrutiny by the IRS and other tax authorities. However, it is unlikely that he was intimately involved in the appraisal process himself. The audit should determine whether their methods were excessive, not a swarm of politicians and leftist journalists. The penalties for any past understatement of taxes might be financially significant, but his presidency would almost certainly survive such a finding.

Again, Trump may be wise to withhold his tax returns. In today’s political environment, every deduction, credit, and loss carry-forward would be characterized by Democrats and the media as an affront to the American people. In fact, most American taxpayers attempt to minimize their taxes, as well they should. In a world with a simple, sane tax code, a simple definition of taxable income, and a competent IRS, there would be little reason for the clamor over public disclosure of tax data by public officials or candidates for office.

Universal Tax Disclosure? No

That brings me to the subject of a rather striking proposal: Robin Hanson believes that all tax returns should be made publicly available: yours, mine and Donald Trump’s. That change was made in the U.S. in 1924, but soon reversed, according to Hanson. It is done today in Norway, though the identity of anyone seeking that information on a taxpayer is made available to the taxpayer. Without the latter condition, the idea seems like an invitation to voyeurism, or worse. The several rationales offered by Hanson all tend to fall under the rubric that “transparency is good”. He includes critical remarks from Tyler Cowan on the proposal, dismissing them all on various grounds. But I happen to agree with Cowan that not all transparency is good. In fact, my first reaction is that the proposal would be an unnecessary extension of the intrusion into private affairs made by government taxation of income.

Universal tax disclosure might have some value in discouraging tax evasion, and perhaps the IRS could create a schedule of buy-off rates by income level at which tax information would be kept private. However, I’m skeptical of the other benefits cited by Hanson. For one thing, if the identity of the inquirer is revealed, many of the purported benefits would be nullified by discouraging the queries. To the extent that transparency has value, many credit transactions or credit payment mechanisms already require verification of income. Insurance underwriting is also sometimes dependent on proof of income. I am skeptical that the ability of workers to collect information from the tax returns of other individuals would greatly improve the efficiency of labor markets. The value of income data to counter-parties in other kinds of relationships, such as prospective marriage, would seem to be balanced by the value of privacy. Hanson says that people don’t place a high value on privacy, but it clearly has value, and I’m not sure his Twitter poll with a single price point is a valid test of the proposition. And again, with the simple tax code we should have, the benefits of acquiring the tax returns of politicians would boil down to an opportunity for shaming the rich and “tax pinchfists” (successful tax minimizers), which is what some of this is about anyway.

Conclusion

Donald Trump’s tax returns are a prize that his detractors hope will reveal an abundance of classist political fodder and perhaps even evidence of misdeeds. They can only hope. Unless Articles of Impeachment are drafted in the House of Representatives, the Constitution protects President Trump’s tax returns from congressional scrutiny. Trump is probably wise to resist disclosure of his taxes, since the returns would be picked over by the Left and criticized for any whiff of tax management, legal or otherwise. Trump’s businesses hired experts to aggressively minimize tax liabilities, but there is no evidence that they engineered any illegal maneuvers.

Finally, to suggest that all tax returns be made publicly accessible is to support a massive invasion of privacy. Then again, the very imposition of our complex income tax code is a massive invasion of privacy, and one that creates a substantial compliance burden on all income earners.

A “Right to Health Care” Is Code for “Freebie“

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The existence of a right to health care is often taken for granted without a moment’s reflection on its absurd implications. Does your right to health care exist regardless of how you comport yourself? Do you smoke or drink heavily? How much treatment for diseased lungs and livers will be owed to you? Do you take physical risks? By how much are the world’s ERs and orthopedists in thrall to you? There are always people who can benefit from additional care, so providers must then come face-to-face with truly daunting obligations. Are caregivers to be in bondage? Can they take vacations? After all, delivery of care is their duty to all health-care rights-holders. If you are entitled to health care as a basic right, does that relieve you of any responsibility to purchase insurance coverage? Or does that become everyone else’s responsibility? 

These are just a few of the decisions that have to made to determine the boundaries of a “right” to health care. The answers are dependent on politics and, surrounding many details, bureaucratic rule-making. It is an odd thing for a so-called “right” to be subject to the shifting vagaries of politics and the day-to-day decisions of bureaucrats.

There is an important distinction between two different kinds of rights, however. The least controversial rights place obligations on others only insofar as they must tolerate free exercise by the rights-holder. So it is with free speech, religion, and private property, which only compel others to inaction. For that reason, they are sometimes called “negative rights”, a rather unfortunate appellation. Trevor Burrus draws contrasts between negative rights and those which obligate others to take action. The latter are called “positive rights”, which is equally unfortunate and dubious.

The problem is that no one has an indisputable right obligating others to take action on their behalf. One may feel it is their moral imperative to aid others under some circumstances, as under a physician’s oath, but ultimately, in a free society, such acts are voluntary. Neither should these actions be matters of state compulsion. Instead, they are ordinarily self-imposed as professional duty or Samaritanship. The point is that a positive right to health care cannot exist without the consent of someone else: those second parties (providers) or third parties (payers) upon whom the exercise of the right depends.

Don Boudreaux states things simply: asserting a right to healthcare is really a demand that health care be “free” at the point of service, despite its resource costs. Inspired by this misguided notion, vote-seeking politicians have given us a history of efforts to subsidize health care via Medicaid, Medicare and tax deductibility. But as Boudreaux explains, this has driven up health care costs, often undermining the ability to access the very care meant to have been available in greater abundance. Boudreaux’s key insight is the application of real-world scarcity to the problem of inventing “rights” that require the positive action and resources of others.

A hot topic in the current health care debate involves coverage of individuals with pre-existing conditions and the subsidies necessary to ensure that they get care. Do they have a right to that care? Perhaps a “positive right”, but maybe not: as a society, we might choose to ensure their care, but if that is a political decision lacking the full consent of all potential payers, the delivery of care is really just an act of majoritarian compassion, not an absolute right.

The most fundamental of human rights, so-called negative rights, require only tolerance from others. In a free society, so-called positive rights do not exist without the voluntary consent of those who must shoulder the burdens necessary to allow the exercise of those rights. The burdens might involve tasks or payments on the rights-holders behalf. Human rights should never be conceived as creating enforceable, involuntary debts for second or third parties to be repaid with action. Without full consent, government creates such obligations only by force and the taking of resources. Health care should be viewed as a real right only to the extent that caregivers and payers agree to provide the needed resources voluntarily. That doesn’t mean we lack an ethical obligation to care for the sick, only that sick individuals may not demand free, unrestricted care.

Amazon, Happy Users Face Lust for Antitrust

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It’s almost always best to resist the temptation to “fix” perceived market failures, perceptions that are often incorrect to begin with. An equivalent truism is that government intervention in any market will almost always damage outcomes for consumers and producers alike. So it is with ill-advised calls to bring antitrust action against Amazon. Elizabeth Warren is a prominent voice among the would-be meddlers. She tells the story of a hypothetical pillow manufacturer reliant on sales through Amazon’s platform. But alas, the small company is squeezed out of its market because Amazon gives its own brand of pillows superior placement and pricing. Is this a clear case of anti-competitive behavior? And if so, what’s to be done?

In this Yale Law Journal article Lina M. Kahn asserts that there is an antitrust case against Amazon. From the abstract:

We cannot cognize the potential harms to competition posed by Amazon’s dominance if we measure competition primarily through price and output. Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors.”

A basic argument against anti-trust action is that the retail market and e-commerce market are not as concentrated as Kahn and Warren suggest. Amazon’s share of U.S. retail sales was an estimated 5% in 2018, but its share of e-commerce is the more worrisome to modern-day trust busters: Amazon is estimated to have controlled about 49% of U.S. online sales in 2018.

Obviously 49% is not close to monopolization, but the company is far ahead of other on-line rivals: eBay’s share was slightly less than 7%; Apple and Walmart each had less than 4%, and an assortment of sellers such as Home Depot, QVC and Wayfair, had shares of 1.5% share or less. The point is, however, that there are prominent rivals, some with aggressive plans to compete in the space. For example, apart from its traditional auction model, eBay is instituting a number of changes to its platform and offerings that it hopes will help it to compete with Amazon, some of which are very much like the practices for which Amazon is now criticized, such as preferential placement for big advertisers. Wal Mart is investing heavily in an effort to expand its online sales.

Companies like these rivals have the resources and access to capital to pose a legitimate threat to Amazon’s online dominance. That sort of competitive pressure, or even its mere possibility, imposes a far more effective form of market discipline than government regulators can hope to achieve, assuming they wouldn’t break the market. The governance imposed by the market itself keeps the focus squarely on bringing value to customers, which for Amazon means both buyers and third-party sellers. And while Amazon’s business model and platform are highly successful, no one, including Amazon management, can anticipate the shape of new technological developments that could lead to the next revolution in retail. Again, there are potent incentives for those who might be in a position to foment such a revolution.

But what about those sellers who rely so heavily on Amazon’s platform? Does Amazon exercise monopsony power to the detriment of these sellers, as Kahn and Warren contend? Again, sellers have alternatives. While it might be a burden for the smallest startups to compete on several different platforms, they do have choices. Therefore, the monopsony story just doesn’t hold up. Amazon has a large marketplace precisely because so many third-party sellers have chosen to compete there. But they can compete elsewhere.

If barriers to entry are created by Amazon’s platform management, it would involve a loss of revenue earned from hosting third-party sellers and create market opportunities for competitive platforms. The same can be said of “predatory placement” of Amazon’s own first-party product offerings. This practice bears a similarity to grocery stores giving preferred placement to certain brands in exchange for fees, which allow grocers to offer those products at lower prices. Indeed, few if any grocery stores carry all national brands, but those brands are usually available at competing stores. If anything, it would seem that getting a product listed on an online platform is relatively easy compared to getting space on grocery shelves, though like grocery brands, preferred placement is another matter. Building a brand has never been easy, and it may be necessary for less established products to be marketed on multiple platforms, including platforms based on auction models.

It would be very difficult to prove that Amazon engages in predatory pricing of their own offerings (also see here). That involves pricing below cost (including the loss of revenue from third-party sellers). Amazon might practice what has been described as loss leadership: offering products below cost from time-to-time in oder to spur sales of other products, which is a time-honored marketing tradition. The following quote, taken from the first link in this paragraph, is from a judge in a recent price fixing case involving Apple and Amazon:

… the Complaint asserts that Amazon’s e-books business was ‘consistently profitable.’ Moreover, to hold a competitor liable for predatory pricing under the Sherman Act, one must prove more than simply pricing ‘below an appropriate measure of . . . costs.’ There must also be a ‘dangerous probability’ that the alleged predator will ‘recoup its investment in below-cost prices’ in the future. None of the comments demonstrate that either condition for predatory pricing by Amazon existed or will likely exist. Indeed, while the comments complain that Amazon’s $9.99 price for newly-released and bestselling e-books was ‘predatory,’ none of them attempts to show that Amazon’s e-book prices as a whole were below its marginal costs.” 

The basic considerations discussed above are couched in terms of traditional anti-trust thinking: monopoly, concentration, competitive threats, and predatory pricing. However, there is another, more fundamental point to be made: Amazon’s massive success is due precisely to the popularity of their platform as well as service to consumers and third-party sellers. That’s capitalism, baby! Does Amazon extract a price from users? Yes, it engages in mutually beneficial trade! If it tries to extract too much, it will suffer at its own hands by creating market opportunities for others. It is Amazon’s platform, asset, and private property. The Amazon Marketplace belongs to Amazon, and the company is free to manage it as shareholders allow. There is no social value in interfering with private property and voluntary arrangements that bring unambiguous benefits to customers on both sides of the transactions sponsored on the platform. Such interference would diminish those benefits and destroy private value belonging to Amazon shareholders.

Jeff Bezos’ recent letter to Amazon shareholders tells of third-party sellers “kicking our first-part butt.” Amazon’s total sales have grown fast over the past two decades, and while its sales in first-party transactions have grown at a robust 20% a year, third-party sales on the platform have grown at a rate of 52%! The last link provides this Bezos quote:

Why did independent sellers do so much better selling on Amazon than they did on eBay? And why were independent sellers able to grow so much faster than Amazon’s own highly organized first-party sales organization? There isn’t one answer, but we do know one extremely important part of the answer: We helped independent sellers compete against our first-party business by investing in and offering them the very best selling tools we could imagine and build.”

Bezos also tells of the heavy investments Amazon makes in efforts to improve its platform, which have brought tremendous successes and a few noteworthy failures. His letter is obviously self-serving, both as an effort to engage shareholders and as an implicit appeal against anti-trust action. Nevertheless, it is hard to deny the company’s outstanding performance, the benefits it brings to the consuming public, and the opportunities it creates for enterprising sellers and entrepreneurs. The unfortunate fact is we must always be vigilant for the itchy fingers of leftists grasping for the value created by private effort.

Health Reform and Pre-Existing Confusion

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Several Democrats vying for the party’s presidential nomination are pushing Medicare For All (MFA) as a propitious avenue for health care reform. They make the dubious claim that universal government health insurance would broaden real access to health care. As we know from experience with Medicaid, Medicare, and Obamacare, broader coverage does not necessarily imply better access. Even more dubious is the claim that MFA would reduce the costs of insurance and health care.

Single-Payer Perils

MFA appeals to the Democrats’ extreme leftist flank, a segment likely to have an out-sized influence in the early stages of the nomination process. Their fixation on MFA is borne of leftist romanticism more than analytics. Democrats have long-championed less ambitious plans, such as a public option, but those are stalling in “blue” states precisely due to their costs.

MFA would demand a massive transfer of resources to the public sector and would completely decimate the private health insurance industry, upon which 90% of Americans rely. As John C. Goodman explains, MFA would lead to less choice, misallocated health resources, long waiting times to obtain care for serious illnesses, and even greater inequalities in access to care because those who can afford private alternatives will find them.

Goodman also discusses a new health plan proposed by House Democrats that is more of an effort to save Obamacare. It won’t, he says, because among other issues, it fails to address the narrowing in-network choices faced by people with chronic conditions, and it would aggravate cost pressures for those who do not qualify for subsidies.

Outlining A Plan

There are many obstacles to a health care deal. Democrats are bitter after the effective repeal of the individual mandate, but despite their assertions, subsidized coverage of pre-existing conditions is not a principle about which most Republicans disagree. Really, the question is how to get it done. MFA is pretty much dead-on-arrival, despite all the bluster. But those who wish to protect choice and the efficient allocation of risk prefer to leverage a combination private insurance and targeted subsidies to achieve broad coverage.

Capitation: Goodman suggests an approach to high-risk patients that has proven successful in private Medicare Advantage (MA) coverage. These plans are structured around “capitated” payments to the insurer from the Centers for Medicare and Medicaid Services (CMS): per patient fees that cover in-network costs above the patient’s out-of-pocket limit. The insurer bears the risk of a shortfall. Assuming that the capitated payment makes coverage of high-risk patients a fair risk, insurers will compete for those buyers. That competition is what makes MA so appealing. Patients with pre-existing conditions under an MA-like system, which I’ll call “Mediprex Advantage”, or just Mediprex for short, would be pooled in “special needs” plans with relatively large capitations.

Risk-Shifting: The other major issue addressed by Goodman is the need to eliminate incentives for risk-shifting from the employer-paid, group insurance market to the individual market. The population of employed individuals in the group market is less costly, on average, and the sickest individuals often have to stop working. Goodman recommends state-level premium taxes on group policies, dedicating the proceeds to subsidies for individuals who must migrate from the group to the individual market. Employers could avoid the tax by offering full portability.

Tax Treatment: The bifurcation of health insurance coverage between employer and individual markets might not have lasted were it not for the favorable tax treatment afforded to employer plans. Deductibility of premiums on employer plans has inflated both premiums and health care costs, much to the detriment of those in the individual market. I would be happy to see deductibility repealed. An obvious alternative to.repeal, extending deductibility to the individual market, would balance incentives, but it would also tend to inflate costs somewhat. Still, the status quo is probably inferior to either repeal or deductibility for all.

Future Insurability: The concept of insuring future insurability is highly attractive. That is precisely what employer guaranteed-portability does, and the actuarial cost could be funded at employer/employee initiative, by a premium tax, or simply mandated. Voluntary action is preferred, but there are reasons why it is not a natural progression in the group market. First, renewability is usually guaranteed for the duration of employment, though job tenures have declined substantially since the early years of employer-based coverage. Nevertheless, health coverage is a retention tool that full portability would nullify. Second, employer coverage is itself a creature of government intervention, a result of the wage controls put into place during World War II. Since then, the features of health coverage have partly been driven by the tax-deductibility of premiums, which makes the cost of coverage cheaper after-tax. That, in turn, has encouraged the extension of coverage into areas of health maintenance and preventative care, but that increases the burden of paying for portability.

Plan Migration: If you’re not already covered under a group plan, another mechanism is needed to insure your future insurability. For example, Obamacare requires guaranteed issue and renewability in the individual market with a few exceptions related to non-payment, fraud, and product availability. Lower-income premium payers are eligible for subsidies. The suggestion here is that a guaranteed issue, renewable contract must remain available in the individual market with subsidized premiums for some individuals. This might also apply when an individual’s employment terminates. An individual who has fallen ill might be placed into a different risk class via the sort of “Mediprex Advantage” program outlined above, perhaps with subsidies to fully cover the premium and capitation.

Catastrophic Plans: Affordable catastrophic policies with guaranteed renewability should be available in both the individual and group markets. But what becomes of an individual seeking a change to broader coverage? They’ll pay a higher premium to cover the actuarial cost as well as the greater level of future insurability they choose to insure. But if they are not eligible for broader coverage, then it’s on to Mediprex.

Belated Signups: Finally, under guaranteed-issue Mediprex, individuals who refuse coverage but then get sick might or might not be entitled to the same panoply of services available to other insureds. It is reasonable to expect that late-comers would pay a penalty premium and higher out-of-pocket costs, assuming they have the income or resources to do so, or they might face a curtailed set of benefits.

Conclusion

The ability to “insure future insurability” should be a key component of any health insurance reform plan. That means portability of group insurance, which requires funding. And it means premiums in the individual market reflecting the actuarial cost associated with future insurability. A healthy individual entering the individual market should have competitive insurance options from which to choose. A sick individual new to the individual market might have access to the portable coverage provided by their former employer, other risk-rated private plans, or they might need access to an individual plan that covers pre-existing conditions: what I have called Mediprex Advantage. A certain percentage of these individuals will have to be subsidized, but the cost will be supported, at least in part, by the premiums paid by healthy individuals to insure their future insurability. Finally, individuals should be free to opt-out of traditional insurance coverage, choosing concierge providers for various aspects of their health care.

 

April 22: Happy Human Achievement Day!

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By way of celebrating human ingenuity, I’ll be driving 600 miles on Monday in a beautiful sedan powered by high-octane fuel. I’ll be clothed in incredibly comfortable fibers and have access to a great variety of listening amusements via satellite. The celebration will continue when I arrive home. I’ll enjoy the comfort of climate-control, electric power, modern plumbing, a refrigerator and pantry full of agricultural bounty, delicious wine, and even more incredible access to entertainment and intellectual pursuits. But it’s not just the goods and technology I’ll celebrate. I’ll also raise a glass to the fabulous, free-market institutions that have made all this possible, effectively allowing us to trade with specialized producers all around the world at low cost, and at prices that signal the true scarcities of resources… ill-considered tariffs aside.

In honor of mankind’s great achievements, I bring you additional testimony from Don Boudreaux, who provides some juicy tidbits to mark our progress. Here is more from Marion Tupy at humanprogess.org. And one more link is from Paul Driessen, who last Thanksgiving wrote of the the many developments since 1800 that have drastically improved human well being, including the ability to exploit fossil fuels that are extremely clean-burning and efficient relative to primitive energy sources.

What riches we enjoy today! Contrary to the claims of doomsayers, busybodies, and self-appointed enforcers of an austere existence, our prospects for continued improvement in human standards of living are excellent. The long arc of technological progress has made the effective abundance of resources greater and more sustainable than ever. As the many charts in Tupy’s article demonstrate, long-term trends in real incomes, poverty, literacy, longevity and the incidence of disease are quite favorable. We owe all that to the spread of human ingenuity, freedom, and voluntary exchange. That’s truly progressive!

Progs Give New Meaning To “Tax Distortions”

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Tax day has come and gone, but I’m struck by 1) the incredible misconceptions people express about the change in their tax liabilities caused by the 2018 income tax legislation; and 2) the confusion about how our progressive income tax system actually works! Some of these misapprehensions are encouraged by progressives who would rather misinform the public than evaluate policy on its own terms. I am not a fan of our income tax system, nor all aspects of the 2018 tax law, but let’s at least discuss it honestly.

First, a substantial majority of taxpayers paid lower taxes on their 2018 income than they would have under prior tax rules (also see here). However, as I’ve observed before, many people conflate the change in the amount of their tax refund with the change in their taxes paid. And again, the progressive media hasn’t helped to allay this misconception, as noted by Vox cofounder Matthew Yglesias when he tweeted this:

Nobody likes to give themselves credit for this kind of messaging success, but progressive groups did a really good job of convincing people that Trump raised their taxes when the facts say a clear majority got a tax cut.”

Even worse, members of Congress misrepresent the facts with little media backlash. For example, Andrew Wilford of the National Taxpayers Union Foundation reports the following:

the tax cut actually made the tax code more progressive, not less.  … Of course, none of this stopped Democrats such as Sen. Kamala Harris (D-Calif.) from claiming that the TCJA was a “middle-class tax hike.” Nor did it prevent three separate Democratic senators from claiming that the average family making up to $86,000 would see a tax hike of $794, despite the fact that the source for this claim clarified that this tax hike would apply to only 6.5 percent of households in this income bracket.”

It’s amazing just how drastically our income tax system is misunderstood or often misrepresented by the media. Apparently, it’s considered politically advantageous to do so. Chris Edwards offers the following quote from Christine Elba in the Washington Post:

Meanwhile, the wealthier among us (remember: corporations are people, too!) are able to hire tax lawyers, consultants and accountants to clue them in on lightly advertised but heavily lobbied for loopholes that allow them to pay a lower tax rate or even no taxes at all.”

That is simply not a fair characterization of our income tax system. Edwards goes on to demonstrate the progressive nature of U.S. income taxes based on information from the Tax Policy Center. Not only do statutory federal income tax rates rise with income, but so do average effective tax rates, which account for the effects of deductions, credits and exclusions. In fact, average effective rates are negative in the lowest income groups and are zero on balance for the lowest 50% of earners. And average effective rates keep rising in the top quintile, moving up through the top 10%, 5%, 1% and 0.1%. Ms. Elba is clearly confused. And if she is aware of the pernicious double-taxation of corporate income, she probably would never admit it.

Apparently the current state of income tax progressivity is not enough to satisfy statists and redistributionists, who take license to lie about it in order to make their case for higher taxes on the rich, and even the not-so-rich. But here’s some advice for Bernie Sanders, Kamala Harris, and others who insist that, while they are rich, they desperately want to pay more taxes: you are free to do so without penalty. Better yet, give it to a good charity instead!

The EU Chokes the Free Flow of Information

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The European Union wants to force me to pay “news sites” for links with “snippets” of content I might quote on this blog, and it wants the WordPress platform to flag and censor anything that might qualify as copyright infringement. The EU also wants search engines like Google and platforms like Facebook to pay for links and “snippets” or else censor them. Most members in the EU Parliament apparently think the best way to regulate information services is to choke off the flow of information. As Warren Meyer says, if you weren’t for Brexit, this single EU action might well convert you (though British statists have their own designs on censorship, Brexit or not). And if you think government involvement won’t ruin the internet, think again.

These restrictive demands are the essence of two controversial provisions of the so-called European Copyright Directive (ECD) passed by the EU Parliament on March 26th. My summary here leaves out lots of detail, but be assured that administering the Directive will require a massive regulatory apparatus:

The Link Tax: If you link to a source and quote a “snippet” of text from that source, you will have to obtain a license from the source, or else the link you use may be blocked. Keep in mind the rule applies despite full attribution to the original source! It remains to be seen how these licenses will be negotiated, but it will almost certainly impose costs on users.

Censorship Machines: Platforms will be required to monitor and assess everything posted for possible copyright infringement. That will require the development of automated “filters” to flag and remove material that might be in violation. That’s a stark change in the treatment of speech on platforms that, heretofore, have not been required to police their users. The responsibility was on those holding copyrights to go after unauthorized use with takedown notices.

Cory Doctorow of the Electronic Frontier Foundation (EFF) wrote an informative position paper on the ECD a week before the vote. He has been an active and articulate opponent of the legislation. Here are some of his comments (his emphasis):

… text that contains more than a ‘snippet’ from an article are covered by a new form of copyright, and must be licensed and paid by whoever quotes the text …[the ECD] has a very vague definition of ‘news site’ and leaves the definition of ‘snippet’ up to each EU country’s legislature. … no exceptions to protect small and noncommercial services, including Wikipedia but also your personal blog. The draft doesn’t just give news companies the right to charge for links to their articles—it also gives them the right to ban linking to those articles altogether, (where such a link includes a quote from the article) so sites can threaten critics writing about their articles.”

The ECD seems intended as a gift to large news organizations, but it will discourage the free exposure now given to those news sites on the internet. It’s therefore not clear that the ECD will generate much incremental cash flow for news sites or other content providers. However, collecting the new license revenue will come at some expense, so it won’t be of much help to smaller “rights holders”. Therefore, the rule is likely to benefit large platforms and news outlets disproportionately, as they are in a better position to negotiate licenses for the use of material.

As for censorship machines, perhaps rights holders prefer a shift in the burden of policing the use of copyrighted material away from themselves and to the platforms. Some might suggest that it will achieve efficiencies, but that seems unlikely. These filters are costly and are likely to suffer from an excess of false positives. Moreover, the ECD creates risks that demand conservatism on the part of the platforms, so their censorship machines will systematically side against users. There is also a reasonable possibility that filters will be used to control political speech.

All of this is contrary to the doctrine of fair use, as codified and practiced in the U.S. This involves four conditions giving fairly broad latitude to users, described at the last link by Stan Adams:

The relevant statutory provision (17 U.S.C. § 107) describes four factors to consider when determining whether a particular use of a work is “fair”: the purpose and character of the use; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the work as a whole; and the effect of the use on the potential market for, or value of, the original work.”

Copyright protection has never been absolute nor intended to guarantee perfect exclusivity. Ever lend a book to a friend? Ever heard a cover band perform pop hits? Ever offered a quote to forward a written argument? All of this falls broadly under fair use, and much of it serves to promote the economic interests of rights holders, as opposed to infringing on the market for their original work. The EU, however, has no provisions for fair use in its copyright laws (though EU countries may have limitations and exclusions to copyright protection).

It’s bad enough that Europeans will suffer the consequences of this ill-considered piece of legislation, but can the platforms be counted upon to apply their censorship machines only to select geographies? Adams encapsulates the difficulties the ECD presents to users elsewhere:

… the rest of the world must rely on private companies to ensure that the EU’s misguided copyright policies do not restrict freedoms enjoyed elsewhere in the world.”

Internet regulations in Europe and the U.S. seem to be following different cronyist disease vectors. The ECD favors large news organizations at the expense of social media platforms, and ultimately consumers and the cause of free speech. The large tech platforms are of course equipped to survive, but perhaps not small ones. In the U.S., we have Mark Zuckerberg begging for regulation of Facebook, including the regulation of speech. That’s a spectacularly bad idea for public policy. It too would disadvantage smaller competitors in the social media space. Ultimately, in Europe and the U.S, these steps will come at the expense of consumers, possibly in higher monetary costs, but definitely in restrained trade in online services and in the marketplace of ideas. So goes the cause of free speech when government has the power to regulate the flow of information.

For further reading on the ECF, see Catarina Midoes: “Is this blog post legal (under new EU copyright law)?” She discusses how different factions view the ECD, gives additional perspective on the controversial provisions, and discusses some potential unintended consequences. Also see Scott Shackford’s “Hide Those Meme’s Folks…