Author Archives: Nuetzel

American Homicide Rates: Which America?

12 Thursday Oct 2017

Posted by in Discrimination, Gun Control, Immigration

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A heterogenious society and the successful assimilation of minorities are two very different things, as much as we might wish otherwise. Two populations within a region will come into contact, but conditions promoting real assimilation are complex. (I’m avoiding use of the term “diversity” because it has come to imply the successful assimilation of distinct groups.) While cultural differences can enrich the lives of both populations, sharp economic gaps between minority and majority populations (and even some cultural differences) will tend to slow the process of assimilation. This is often associated with social dysfunction, such as high crime and homicide rates, especially among the minority group. This is a fairly common phenomenon in countries with racial and ethnic minority or immigrant populations, as Ryan McMaken writes in a recent piece on international differences in heterogeneity and homicide rates.

Heterogeneity In the West

Countries in the Western Hemisphere tend to have relatively high immigrant and minority populations, as McMaken describes:

“… when considering the Americas, … nation-states are in most cases frontier states with populations heavily affected by immigration, a history of conflict with indigenous populations, and institutionalized chattel slavery that lasted until the 19th century. The factors are significant through the region, and the United States cannot be held apart in this regard from the Caribbean, Brazil, Colombia, and other states impacted by all these factors. 

Importantly, these factors also make the Americas significantly different from Western Europe and other areas — Japan and Korea, for example — where the present situation is marked by much higher levels of cultural uniformity and quite different recent histories and current demographic trends.“

Homicides

McMaken questions popular theories of cross-country differences in homicide rates based on the degree of gun control and gun ownership rates. Homicides and violent victimization have been declining in the U.S. for many years even as gun ownership has soared. Furthermore, international comparisons are traditionally plagued by arbitrary country classifications and exclusions, as well as inconsistent definitions of homocide and gun ownership. However, McMaken points to other explanations for violent crime found to be fairly robust in the academic literature: poverty and population heterogeneity:

“… these factors contribute to lower levels of social cohesion, and thus higher levels of criminality and other socially-undesirable behaviors.“

McMaken cites research involving ethnic minority populations of Slavs in Germany, Italians in Argentina and the U.S., and Arabs in Europe, all of whom had crime rates far exceeding those in their countries of origin. The connection between heterogeneity and crime might have nothing to do with particular ethnic groups, though it seems all too easy for observers within individual countries to blame specific “others” for crime. It is a symptom of alienation from the majority as well as economic desperation and vulnerability to opportunities and threats arising from the underground economy. Illegal activities might truly provide the best alternatives available to low-skilled, minority job seekers. Needless to say, underground economic activity, such as the drug trade, involves high risk and often violence among users and between competing factions. This is an important source of the high crime and victimization that typifies many minority communities.

Despite declines since the 1970s, the U.S. still has a higher homicide rate than many other industrialized countries. Beyond the weakness cited above, such comparisons fail to control for other confounding effects, including the degree of heterogeneity across countries.

Policies

Heterogeneity poses a problem in the context of involuntary and often voluntary segregation of sub-cultures. If you don’t believe the “voluntary” part, take a close look at the different clusters of individuals in the cafeteria at almost any “diverse” university or corporate office. Judge for yourself. Differences in language, fertility, demographics, religion and cultural traditions may be noteworthy, but where crime is associated with effectively segregated minorities, there is usually a gap in economic status and mobility relative to society at large.

What policies can mitigate these conditions and their impact on crime? It would be nice to approach this question strictly from the perspective that heterogeneity is a given, but the degree of heterogeneity is, to some extent, an endogenous outcome. Restrictive immigration policies might leap to mind as a way of restraining heterogeneity, and there is little doubt that illegal immigrants are less likely to assimilate (many contend that their crime rate is low). Policies allowing less restricted flows of legal immigrants tend to be salutary if they are based on domestic economic need, economic potential, or compassion for those seeking asylum or a haven from political oppression. A legal immigrant receiving a welcome on new shores is more likely to assimilate successfully than an illegal immigrant, all else equal. Citizenship and language education are avenues through which assimilation might be encouraged. And there could be ways to improve sponsorships and even temporary visa programs so as to encourage assimilation.

What can be done to encourage more effective assimilation of all minorities? And what can be done to reduce the crime associated with unassimilated populations? One major corrective is a strong economy. Policies that encourage economic growth will lead to greater participation in markets and society, with consequent interaction and mixing of sub-cultures. Growth policies include low and non-distortionary taxes and light regulation.

The war on drugs also accounts for a major share of homicides, and that war interacts with non-assimilation in perverse ways. It is crippling to disadvantaged communities precisely because it creates risky “opportunities” in the underground economy. It also produces high levels of incarceration and dangerous forms of “cut” contraband. As I’ll discuss in my next post, ending the war on drugs would reduce violent crime and lead to safer drugs in relatively short order.

A short list of other policies that would foster assimilation and economic mobility would include: improved education: school choice and apprenticeship programs; better labor market outcomes: reduce the minimum wage or create sub-minimum wage categories to enhance opportunities to gain experience and skills; better housing: eliminate rent controls.

Assimilation is always more effective when it occurs “organically”. Affirmative action and forced diversity initiatives often fail to achieve effective assimilation. Beyond the obvious infringement on liberty, these policies may sow resentment among those who suffer reverse discrimination, and among those who witness it, to the probable detriment of efforts to eliminate bias. Even worse, these policies often put their intended beneficiaries into vulnerable, un-winnable situations: jobs or programs for which their skills are not adequate. There are undoubtedly excellent candidates among those placed in positions under quotas, but there is a likelihood that many will be unsuccessful in their roles.

Conclusion

The anti-gun left is eager to attribute differences in homicide rates to the impact of gun control policies, but a close examination of the facts reveals better explanations. A prominent factor contributing to differences in homicide rates is the degree of heterogeneity across countries. Those with more homogeneous populations tend to have lower homicide rates and vice versa. But the problem is not merely heterogeneity, but the difficulty of economic and cultural assimilation of minority populations. These factors appear to lead to greater crime within many minority populations. The U.S. is not unique in its experience with high minority crime rates, but it is a relatively heterogenous nation. This is an important factor in explaining why the homicide rate tends to be higher in the U.S. than in other industrialized countries. To close, I’ll offer something cogent from Bretigne Shaffer’s On the Banks blog, in which she offers this quote from an individual named Michael Owen (the soccer player?):

“... we don’t really have a single America with a moderately high rate of gun deaths. Instead, we have two Americas, one of which has very high rates of gun ownership but very low murder rates, very comparable to the rest of the First World democracies such as those in western & northern Europe, Australia, New Zealand, Canada, Japan, South Korea. The other America has much lower rates of gun ownership but much, much higher murder rates, akin to violent third world countries.“

Bump Stock Prohibition: A Mere Inconvenience?

06 Friday Oct 2017

Posted by in Gun Control

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Today’s news was full of speculation that a consensus is developing to ban the sale of so-called “bump stocks” of the kind used by Stephan Paddock, the perpetrator of last Sunday’s Las Vegas massacre. These are accessories that allow a semi-automatic rifle or pistol to be fired in a way that mimics a fully-automatic weapon, albeit less than perfectly. Today, even the National Rifle Association (NRA) stated its support for a regulatory review of bump stocks by the Bureau of Alcohol, Tobacco and Firearms. The idea was also endorsed, more or less, by conservative writer Jonah Goldberg earlier this week in an article called “Slow Down and Think“, which was otherwise focused on the unfortunate tendency of the Left to politicize the tragedy in Las Vegas. As I’ll explain below, a bump-stock ban would be a largely symbolic concession. It would represent something of an inconvenience to gun enthusiasts; like most gun control proposals, it would have approximately zero impact on the likelihood and severity of gun violence and even mass killings in the future.

One could argue that a prohibition on the sale of bump stocks represents an erosion of Second Amendment rights. Goldberg, however, rests his position on the fact that machine guns have been banned already (not quite true), so why not? Goldberg’s not really a “gun guy”, and neither am I, but here’s how he puts it:

“I am actually open to the idea that we might need tougher or better gun-control regulations. That’s an easy concession for me to make. The hard part is figuring out what those reforms would look like. One place we might start is making it harder to convert semiautomatic weapons into fully automatic ones. If it’s okay to ban machine guns, it doesn’t seem unreasonable to make it harder to turn guns into machine guns.“

It should be noted that the trade of certain (pre-1986) fully-automatic weapons is not outlawed, though it is heavily regulated and very costly.

In addition to bump stocks, Goldberg is favorably disposed to changes in gun laws that would prohibit the sale of kits enabling the actual conversion of semi-automatic to fully-automatic firearms. Currently it is legal to do so. It’s not really that easy for an individual without expertise to make such a conversion, however. A poorly done job is unlikely to be durable, if it works at all. A semi-automatic equipped with a bump stock might not be very durable either, since a semi-automatic itself is not really built to fire continuously or near-continuously.

Another issue addressed at the last link is that fully-automatic weapons, when hand-held, are not terribly accurate when engaged in firing more than a few rounds at a time. Bump firing a semi-automatic, with or without a bump stock, is even less accurate. But this might have suited Stephan Paddock just fine. If he planned to target the jet fuel tanks near the outdoor venue, then the accurate targeting of a small area on a tank with repeat-fire might have helped him achieve an even more horrific objective. But if he simply planned to spray bullets into the large crowd, the degree of accuracy was less important than the number of rounds he could fire.

Nevertheless, banning the sale of bump stocks won’t stop anyone determined to rapid-fire a gun, innocently or otherwise. First, apparently a bump stock can be 3D-printed with relative ease. Beyond that, “bump firing” is a rapid-fire technique that can be performed without a bump stock, though a bump stock makes it easier. Gun enthusiasts and hobbyists sometimes desire the thrill of firing something that feels like a fully-automatic weapon. Try it sometime, they say, under appropriate supervision! Some gun owners might like to have rapid-fire capability as extra protection against violent intruders on their property, human or animal, the advent of tyranny, or a violent breakdown of civil order. That gun-control advocates would scoff at these notions surely belies their shallow knowledge of history, or perhaps it really underscores the legitimacy of concerns that go to the very heart of the Second Amendment.

I cannot endorse the proposal to ban bump stocks. I understand the rationale offered by Goldberg and the NRA’s apparent flexibility on bump-stock regulation, but my view is that steps to outlaw conversions, like gun laws in general, will be ineffective in stopping determined killers. In the end, it amounts to an additional intrusion on private behavior without any real benefit, and the symbolism of such a concession does not help the cause of defending the Second Amendment.

In general, legal guns promote public safety via deterrence and the many reported and unreported defensive gun uses (DGUs) that occur every day (see here and here). In general, I’m aligned with the view expressed this week by Nick Gillespie in “This Is the Time To Defend the Second Amendment and Less-Strict Gun Control“.

Electric Cars: EPA Serves Up Green Kool-Aid To Pair With Subsidies

03 Tuesday Oct 2017

Posted by in Environment, Subsidies, Technology

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Electric cars don’t save much energy over gas-burners if at all, at least for now. Warren Meyer’s recent Coyote Blog post on this topic is aptly titled “Why Is It So Hard To Get Even Smart People To Think Clearly On Electric Vehicle Efficiency“. Meyer begins by quoting the following tweet from Google smarty Eric Schmidt, which typifies the general level of public awareness regarding the supposed energy savings from electric cars produced by Tesla and many others:

“Electric motors are the unsung hero of clean energy – the latest are 97% efficient, vs. 45% for internal combustion.“

Meyer emphasizes these major points:

  1. the efficiency with which source fuels are converted to physical work via electric and gas-burning cars is more comparable than Schmidt’s tweet suggests;
  2. differences in energy density weigh heavily in favor of fuel-burning vehicles.
  3. the so-called miles-per-gallon equivalent (MPGe) calculated by the U.S. Environmental Protection Agency (EPA) is a sham.

First, Schmidt’s tweet is accurate only if the discussion is confined to simple conversion of energy to physical work performed by the respective engines. The tweet ignores energy losses that occur prior to that conversion: electricity must be generated with far less than 100% efficiency, mainly by burning coal and natural gas. In an earlier Forbes article, Meyer compares this situation to a distorted comparison of two refrigerator installers:

“In both cases the customer lives in a fourth floor walkup. The first installer finds the refrigerator has been left on the street. He has to … haul the appliance up four flights of stairs. After that, relatively speaking, the installation is a breeze. The second installer finds his refrigerator has thoughtfully been delivered right to the customer’s door on the fourth floor. He quickly brings the unit inside and completes the installation. So who is a better installer?“

The fact is that both gas-burning and electric vehicles rely heavily on fossil fuels. And, in addition to losses in the generation process, there are other losses of energy attributable to electric cars: transmission of power involves a significant energy loss, as does charging batteries and storage itself. Meyer considers only the extra losses from production and transmission of electricity in the following comparison:

“We take 97% times 90% transmission efficiency times 50% electricity production efficiency equals 43.6%.  This is actually less than his 45% figure.  By his own numbers, the electric motor is worse….“

Meyer qualifies this comparison, as some of his assumptions are of the “best outcome” variety, but contrary to Schmidt’s assertion, gasoline and electric engines are reasonably comparable in terms of energy efficiency.

Some contend, however, that power losses in electricity transmission are much larger than the 10% Meyer assumes (see the comments on his post). Battery charging involves a loss of perhaps 20%. And a replacement for a Tesla battery, post 8-year warranty, is $8,000 – $12,000, an additional storage “cost” that is virtually non-existent for gas-powered vehicles. Beyond a certain point in its life, that cost will have an impact on a Tesla’s resale value. Moreover, some contend that the production of electric vehicles is more energy-intensive, putting them in an energy efficiency hole right from the get-go.

Meyer then takes up the notion of storage density as an explanation for why early experiments with electric cars were essentially abandoned:

“15 gallons of gasoline weighs 90 pounds and takes up 2 cubic feet. This will carry a 40 mpg car 600 miles. The Tesla Model S 85kwh battery pack weighs 1200 pounds and will carry the car 265 miles (from this article the cells themselves occupy about 4 cubic feet if packed perfectly but in this video the whole pack looks much larger). We can see that even with what Musk claims is twice the energy density of other batteries, the Tesla gets  0.22 miles per pound of fuel/battery while the regular car can get 6.7. More than an order of magnitude, that is simply an enormous difference…“

Meyer notes in the Forbes article that the EPA calculates its MPG conversion factor for electric vehicles by dividing BTU’s in a gallon of gas by the BTUs in a kilowatt hour: 33.7 KwH per gallon. Thus, the EPA multiplies an electric car’s miles per KwH by 33.7 to arrive at the so-called MPG equivalent: MPGe. But as we’ve seen above, the conversion factor ignores the generation and transmission of electricity required at the front end, and the associated energy losses that occur before a single KwH is released by a Tesla battery.

Despite what we hear from the EPA, Tesla, and other interests today, electric cars have not really overcome these disadvantages, at least not yet. The EPA’s MPGe estimates are vastly inflated. Perhaps if they were accurate, these vehicles would not have to rely so heavily on taxpayer subsidies to be competitive. By extension, the presumed environmental benefits of electric cars are nonexistent at this stage of development. I’m certain that Eric Schmidt and many other smart people are capable of understanding these nuances, but they might be too busy tripping over their politics to bother.

Initial Coin Offerings: Bits of Capital For Little Guys

27 Wednesday Sep 2017

Posted by in Capital Markets, Technology, Transaction Costs

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It’s possible for relatively small ventures to raise significant sums of capital without meeting onerous government filing requirements or venture capitalist demands and controls. This is enabled by a sort of hybrid between an initial public stock offering (IPO) and the issuance of private crypto-currency (like Bitcoin). It’s called an initial coin offering (ICO), and it is growing in importance as a funding source, primarily (but not exclusively) for applications leveraging blockchain technology. ICOs themselves are enabled by blockchain, through which a system of virtual, shared accounts is maintained in the cloud, essentially a ledger of who owns (and owes) what claims on whom (and to whom). Like stock or a venture capital investment, its value is tied to the success of the venture or project:

“When a cryptocurrency startup firm wants to raise money through an [ICO], it usually creates a plan on a white paper which states what the project is about, what need(s) the project will fulfill upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO campaign will run for. During the ICO campaign, enthusiasts and supporters of the firm’s initiative buy some of the distributed cryptocoins with fiat or virtual currency. These coins are referred to as tokens and are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction.“

Scanning though a list of ICOs or “token sales” just might make your eyes glaze over. The descriptions of some of the ventures sound impossibly intangible (or ethereal… a major blockchain application platform is called Ethereum). A few relatively accessible examples: augmented reality platforms; crypto-payment mechanisms; gaming community services; software platforms for dentists and “gig” economy providers; “tokenized” real estate investment; and peer-to-peer property rental.

Crypto-currencies like Bitcoin are viewed as highly speculative by many investors; likewise, ICO tokens are very risky. In fact, the ICO “space” has been fertile ground for fraudulent activity, pyramid schemes, and “exit scams”. Investor due diligence is often no better than guesswork, unless there is already an established product or service related to the project. The last link quotes a Bitcoin expert name Andreas Antonopoulos:

“The best way to learn which ICOs are worth it is to lose money. Waiting for the wash-out. When these people promise great riches, they usually mean for themselves. If you have a viable product… build it first and they will come. I do not treat these technologies as investments but learning opportunities.“

Very comforting! Some guidance and a framework for ICO due diligence are offered here and here, respectively. More guidance is here. And here is an actual due diligence report on an ICO. Suffice it to say that ICOs are not a perfect match for my risk-return preferences!

Nevertheless, there is a lot to like about ICOs. Jeffrey Tucker writes enthusiastically about their disruptive and innovative nature. The heavily regulated world of investment banking tends to deny smaller firms access to capital, and venture capitalists have their own, frequently costly demands on start-ups. ICOs open a new, low-cost channel through which funds can be raised from investors with a greater appetite for risk. Here is Tucker:

“Why is this strategy for raising money for new ventures working so well? There is the most obvious consideration of low barriers to entry. Anyone can float them and anyone can buy them–from and to anyone in the world regardless of geography. There is a larger pool of investors that can bypass the impossiblycostly and complex national regulatory machines that have gummed up capital-raising methods in conventional finance.

It has been a long time since the financial markets have been free. That the market is mostly deregulated and decentralized, and thereby more active and effective, is itself interesting. No sector is more replete with the myths of ‘consumer protection’ than this one. …

And the solution is absolutely ingenious. It relies on decentralized markets that live on the Internet, combined with the invention of new tokens that have all the qualities of traditional money, depending entirely on supply and demand for their value, and also serve as asset titles to the protocol of the company itself.“

Unfortunately, governments and large private players do not always wish to promote decentralized markets. Quite the contrary, and in the case of ICOs, governments and regulators are already “chomping at the bit”, so to speak, to impose regulation. Warnings of ICO risks have been formally issued by the SEC, and China has placed a freeze on ICO activity pending inspections of exchanges, reports and the likely issuance of regulatory measures. Given this scrutiny, Tucker might be a bit too optimistic about the ongoing development of the ICO market. It will depend in large part on the success of efforts by participants at self-governance. That’s something financial markets have traditionally done well, despite shrill claims to the contrary. Let the investor beware!

ICOs will tend to encourage the development of competitive forces in the broader economy. And while investment banks might view the funding objectives of many ICOs as table scraps, ICOs will create more competition for those banks if the volume and breadth of “coin” funding continues to grow. ICO’s won’t find their way into my portfolio any time soon, but they show great promise as an economic development.

Climate Change, Hurricanes and Noisy Statistics

22 Friday Sep 2017

Posted by in Global Warming

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IMG_4919

The nasty spate of hurricanes this year has been a catch-up of sorts following a decade of subdued activity. In fact, global hurricane activity has been flat to declining in frequency since 1970. Until the recent increase, hurricane activity had been trending down in terms of 24-month cumulative energy since the 1990s, as the chart above shows. The historical data on the number of U.S. landfalls extends back to 1900, and it has had a negative trend as well. Nevertheless, we hear from climate alarmists that Hurricanes Harvey and Irma, which ended a drought of record length in U.S hurricane landfalls, and now presumably Maria, were a consequence of anthropomorphic global warming (AGW), er… climate change.

The implication is that increases in the atmospheric concentration of CO2 led to these hurricanes or their high intensity. Apparently, the paucity of hurricane activity over the previous ten years can be waved off as a fluke. A further implication of the alarmist view is that the longer negative trends in hurricane frequency and energy can be ignored in the context of any relation to CO2 concentration. But how so? One confounding factor I’ve seen mentioned blames El Nino warming in the Pacific, and a consequent increase in Atlantic wind shear, for the long lull in activity after 2005. That has a ring of plausibility, but a closer look reveals that actual El Nino activity during those years was hardly impressive, with the exception of 2015-16.

More historical data can be seen in the charts on the tropical cyclone page on the Watts Up With That? blog. (The charts in question start about two-thirds of the way down the page.) Hurricane expert Ryan Maue compiled a number of these charts, including the one above. He authored an editorial in the Wall Street Journal this week bemoaning the climate-change hype surrounding Harvey and Irma (if the link doesn’t work, it is available at the WSJ’s Opinion page on Facebook, posted on 9/17). Maue believes that both the climate science community and the media share in the blame for that hype. But he also says the following:

“Although a clear scientific consensus has emerged over the past decade that climate change influences hurricanes in the long run, its effect upon any individual storm is unclear.“

Maue provides a link to this NOAA web site offering cautious support for the proposition that there is a link between global warming and hurricane intensity, though the data it cites ends about ten years ago, so it does not capture the recent lull. Also, some of the information it provides is based on modeled global temperatures and hurricane activity through 2100. As is well-known by now, or should be, long-term climate forecasts based on carbon forcings are notoriously inaccurate, and NOAA admits that the association between those predicted temperatures and future hurricanes is tenuous:

“It is premature to conclude that human activities–and particularly greenhouse gas emissions that cause global warming–have already had a detectable impact on Atlantic hurricane or global tropical cyclone activity.“

Perhaps the idea that there is consensus regarding the relationship between climate change and hurricanes is more of a stretch than Maue and NOAA let on. Here is a summary of 30 peer-reviewed studies showing no connection to either hurricane frequency or intensity. Most of these studies are more recent than the end of the data record cited by NOAA. And in fact, many of these studies find support for a negative link between global temperatures and hurricane activity.

One of the prominent alarmists in the climate research community is Penn State’s Michael Mann, who has famously claimed that hurricanes are more frequent now than at any time in the past 1,000 years. He based his conclusions on highly speculative hurricane “proxies” identified in layers of sediment. Mann’s claims and research technique have been called into questioned by other climate scientists, who have arrived at contrary results in their own research. Lest anyone forget, Mann was implicated in a  data manipulation fraud related to the East Anglia climate scandal. Though cleared by a group of tenured professors at his own university, there are a number of climate scientists who believe Mann violated scientific standards.

The claim that global warming will cause hurricanes to become increasingly intense relies on elevated sea surface temperatures. This year, temperatures in the Gulf of Mexico are elevated and are said to have had a role in strengthening Harvey as it approached the Gulf Coast. Texas, however, has experienced as many landfalls of major hurricanes with cooler Gulf waters as with warmer waters. And Irma strengthened in a part of the Atlantic without such warm temperatures. Instead, minimal wind shear was implicated as a factor contributing to Irma’s strength.

In general, Atlantic temperatures have been relatively warm since the late 1990s, a fact that most scientists would at least partially attribute to the “Atlantic multi-decadal oscillation“, a regular cycle in water temperatures that repeats with a period of multiple decades. Potentially adding to that temperature increase is a controversial change in NOAA’s calibration of sea surface temperatures, as an increasing share of those readings are taken from buoys rather than ship-board measurement. There is some suspicion that NOAA’s adjustments “cool the past” more than is justified, a suspicion that was heightened by allegations from one whistle-blowing NOAA scientist early this year. Then, there is the contention that the sea surface temperature makes little difference if it is matched by an increase in air temperature.

Overall, NOAA says the combination of frequency and intensity of tropical cyclones will increase by 2%-11% over the rest of this century. As Roy Spencer notes, that is not a terribly alarming figure given the risks people have always willingly accepted by living in coastal areas. In any case, the range is based on models of climate behavior that are of questionable reliability. And like past temperature predictions produced by carbon-forcing climate models, it is likely to be a gross overestimate. Here is Roger Pielke, Sr., who is quoted in this wide-ranging post on hurricanes and climate at the Fabius Maximus web site:

“Model projections of hurricane frequency and intensity are based on climate models. However, none have shown skill at predicting past (as hindcasts) variations in hurricane activity (or long term change in their behavior) over years, decades, and longer periods. Thus, their claim of how they will change in the future remains, at most, a hypothesis (i.e. speculation). When NOAA, IPCC and others communicate to the media and public, to be scientifically honest, they should mention this.”

Despite the spike in activity this year, strong hurricanes are intermittent and fairly rare. Establishing reliable statistical connections with other forces is difficult with emergent events like hurricanes. Moreover, the degree of error in measuring global or regional temperature itself is much larger than is generally acknowledged, and the global warming “signal” is very weak. As we say in the statistical analysis business, noisy data are compatible with diverse hypotheses. The relationship between hurricanes and climate change is a prime example.

“Freedom of Representation” Is a Better Name Than “Right To Work”

15 Friday Sep 2017

Posted by in Right to Work, Unions

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Missouri’s Right-to-Work (RtW) legislation, signed into law by Governor Eric Greitens in February of 2016, essentially states that no employee or prospective employee, with certain exceptions, can be required to join a union or to pay union dues or agency fees. But before the RtW law’s effective date on August 28th, well over 300,000 signatures were collected in opposition, which is believed to meet state requirements for a referendum on the issue. As a consequence, the law was put on hold, pending a vote in November.

A casual look at a variety of statistics by state “right-to-work” status shows an impressive advantage for RtW states, though that doesn’t imply causality. One can certainly think of reasons why the causality might be operative, and I find some of them plausible, but that’s not the line of argument I want to pursue here.

The Libertarian Divide

Libertarians are of divided opinion on the desirability of RtW laws. David Boaz wrote about this division back in 2012. On one side, it’s clearly an abrogation of an individual workers’ rights to require, as a condition of employment, entry into a third-party association against their will, or to coerce payment of dues or fees for collective bargaining and ongoing representation on a variety of job-related issues. Such a requirement would violate the constitutional protections on freedom of association, freedom of speech, and freedom of contract. Boaz quotes Vinnie Vernuccio and Joe Lehman of the Mackinac Center for Public Policy:

“Right to work does not change any aspect of collective bargaining other than preventing employees from getting fired for choosing not to join or remain in a union and pay union dues or agency fees, which may go toward political causes they don’t support. Collective bargaining still exists in right-to-work states, and workers are of course free to organize.“

This may overstate the consequences for workers who would rather not join a union. Non-union workers have so-called Beck rights, which allow them to opt out of “core membership” and  pay reduced dues covering only representation. An appropriate accounting for that portion of dues might not be straightforward, however, and it is still likely to represent an involuntary payment. Moreover, awareness of Beck rights is far from universal, and asserting them might not be straightforward.

Libertarians who disagree with the perspective expressed in the quote above emphasize the employers’ freedom of contract as though it takes primacy over worker autonomy in the shaping of voluntary and mutually beneficial employment relationships. The thinking is that an employer might actually prefer to host a union shop. There are presumed efficiencies of collective bargaining, standard and agreed-upon work rules, lower turnover, and perhaps even worker loyalty. Among this group of libertarians are Holman Jenkins, Sheldon Richman, and Gary Chartier:

“When a legislature interferes with voluntary employment contracts, it infringes people’s freedom to bargain with their own labor and possessions. Treating this kind of interference as acceptable means licensing arbitrary interventions into the market by politicians, who are ill-equipped to second-guess the decisions made by the real people making work agreements with one another.“

Labor Law

One could be forgiven for thinking that Chartier and the others view RtW as a form of government intervention in otherwise free labor markets. These critics acknowledge, however, that there is already intervention in labor relations via the Wagner Act (1935), which among other things prohibits any refusal “to bargain collectively with the representative of the employer’s employees.” Under the Act, the National Labor Relations Board (NLRB) is charged with:

“… overseeing the process by which employees decide whether to be represented by a labor organization and prosecuting violations. ... issue rules interpreting the labor legislation. This will generally be binding, unless a court deems it to have acted outside its authority. … prevent unfair labor practices, lead investigations, collect evidence, issue subpoenas, and require witnesses to give evidence.“

So, the NLRB is empowered to force employers, if it so chooses, to bargain collectively and even to rule on whether a vote by employees was “fair”. RtW laws are defended as a force to countervail against this federal power. The Wagner Act was later amended by the Taft-Hartley Act (1947) to curb union power and abuses. It created more balance in the relations between unions and employers and it offered some protection to non-union job seekers by prohibiting closed shops. It also allowed states to pass RtW laws to proscribe the forced payment of agency fees by non-union employees, if states so choose. Nevertheless, labor law continues to support monopoly union privileges and abusive tactics. Moreover, restrictions on unions’ use of dues and agency fees for political activities are difficult to enforce in the absence greater requirements for union financial transparency. The response from libertarian critics of RtW laws is that there are avenues for additional reform at the federal level without adding additional interventions (RtW) at the state level.

One of the clearest rebuttals to the above arguments against RtW laws comes from Ivan Osorio of the Competitive Enterprise Institute, who first quotes Chartier on prospective legislation in Indiana:

“‘If employers choose to conclude union-shop contracts with unions, what gives the Indiana legislature the right to interfere?‘”

Here is Osorio’s rejoinder:

“... there is no jurisdiction anywhere in the United States where there is no such interference at all. Simply replace “union shop” with “open shop,” and the one-sidedness of Chartier’s query … becomes clear. Why should the government forbid an employer from negotiating a voluntary membership agreement with a union?“

Exclusive Representation

Another side of the RtW debate is the contention that non-union workers receive the same benefits achieved via collective bargaining if they are employed by a firm having an otherwise unionized work force. Thus, the non-union workers are said to be “free riding” on the union’s efforts. This framing is highly misleading, however. Under the Wagner Act, a firm’s non-union workers are not entitled to pay for benefits negotiated by the union unless the union has opted for exclusive representation. In that case, those non-union workers are not so much free riders as “compelled riders“, who may be forced to accept certain terms, working conditions and particular representation in grievances against their wishes. The union’s exclusive power is thus flexed in two ways: as a monopoly seller of labor to the firm, and as a monopoly seller of agency services to the worker, extracting dues or agency fees in the process.

Balancing Rights

David Henderson’s perspective on the RtW issue is appealing, as he accounts for the tradeoff between emphasizing the rights of workers and employers:

“It’s true that [RtW] laws make it illegal for employers to do what some of them might want to do: namely hire only union workers, require everyone who works for them to join unions, or require everyone who works for them to pay dues to a union. But are there really likely to be many such employers? I don’t think so. …

Now, I don’t know that there are no such employers. Maybe there are some. If so, then it becomes a tradeoff. On the one hand, preserve the rights of many non-union workers, many union workers, and unionized employers but trample on the rights of those few unionized employers. On the other hand, trample on the rights of many union workers, non-union workers, and unionized employers but preserve the rights of those few unionized employers. I choose the first option because I think it tramples on way fewer people’s rights. And, remember, that if you say right-to-work is wrong and you get your way just on that issue, the federal government will continue to trample on many people’s rights. …

… the best solution is to abolish the law that gives government-enforced monopoly power to unions. Sheldon [Richman] and I agree on this. The issue here is whether we should just settle for saying that and pushing for that or do something else meanwhile.“

Union representation can protect workers from an imbalance of power between a large employer and individual workers. But it is not all sweetness and light for unionized workers, not to mention consumers who pay for the influence of unions on prices in general. While unions played a critical role in establishing and defending workers’ rights over the years, they have increasingly presented agency problems for their constituencies. They have also hastened declines in industries facing competitive pressures, which in turn have hastened the decline of union representation generally. (Public sector unions present a different set of problems involving conflicts of interest with taxpayers, but those are beyond the scope of this post.) In general, worker rights in the private sector are better served by allowing self-determination in the matter of union representation. To the extent that state RtW laws protect that autonomy, they are probably worthwhile at this point in the evolution of labor relations. However, if that is the primary effect, RtW is something of a misnomer.

Behold Our Riches! Quality, Prices, Income, and the Purchasing Power of Labor

12 Tuesday Sep 2017

Posted by in Human Welfare, Markets

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coffeemaker

A steady refrain among pundits is that the American middle class can’t get ahead. The standard of living of average Americans has stagnated over the past 30 years, according to this view. It’s bolstered by government measures of average wage growth relative to consumer prices. But Martin Feldstein describes the flaws in constructing these measures; he says they may have led to an understatement of real income growth of more than 2% per year! Here is a link to Feldstein’s piece in the Wall Street Journal: “We’re Richer Than We Realize“. (If the link doesn’t work, an ungated link can be found on the WSJ Facebook page, posted at 10:30 a.m. on Saturday, Sept. 9th.)

Here are some of Feldstein’s observations:

“If there is no increase in the cost of production, the government concludes that there has been no increase in quality. And if the manufacturer reports an increase in the cost of production, the government assumes that the value of the product to consumers has increased in the same proportion.

That’s a very narrow—and incorrect—way to measure quality change. In reality companies improve products in ways that don’t cost more to produce and may even cost less. That’s been true over the years for familiar products like television sets and audio speakers. The government therefore doesn’t really measure the value to consumers of the improved product, only the cost of the increased inputs. The same approach, based on measuring the cost of inputs rather than the value of output, is also used for services.

The official estimates of quality change are therefore mislabeled and misinterpreted. When it comes to quality change, what is called the growth of real output is really the growth of real inputs. The result is a major underestimation of the increase in real output and in the growth of real incomes that occurs through quality improvements.

The other source of underestimation of growth is the failure to capture the benefit of new goods and services. Here’s how the current procedure works: When a new product is developed and sold to the public, its market value enters into nominal gross domestic product. But there is no attempt to take into account the full value to consumers created by the new product per se.“

It goes well beyond that, however, as great swaths of consumer value are completely ignored by government statistics:

“A basic government rule of GDP measurement is to count only goods and services that are sold in the market. Services like Google and Facebook are therefore excluded from GDP even though they are of substantial value to households. The increasing importance of such free services implies a further understatement of real income growth.“

Some of these criticisms are unfair to the extent that income statistics correspond to what consumers can purchase in terms of market value. That is a fundamentally different concept than the total value consumers assign to goods and services (market value plus consumer surplus). Nevertheless, there are efforts to adjust for quality in these statistics, but they fall far short of their objective. Also, GDP and income statistics purport to be measures of economic welfare, though it’s well known that they fall short of that ideal. It might be more fair to say that that official income statistics are reliable in tracking short-term changes in well being, but not so much over long periods of time.

The graphic at the top of this post is taken from Marian L. Tupy’s “Cost of Living and Wage Stagnation in the United States, 1979-2015“, on the CATO Institute‘s web site:

“… many, perhaps most, big-ticket items used by a typical American family on a daily basis have decreased in price. Over at Human Progress, we have been comparing the prices of common household items as advertised in the 1979 Sears catalog and prices of common household items as sold by Walmart in 2015.

We have divided the 1979 nominal prices by 1979 average nominal hourly wages and 2015 nominal prices by 2015 average nominal hourly wages, to calculate the “time cost” of common household items in each year (i.e., the number of hours the average American would have to work to earn enough money to purchase various household items at the nominal prices). Thus, the ‘time cost’ of a 13 Cu. Ft. refrigerator fell by 52 percent in terms of the hours of work required at the average hourly nominal wage, etc.“

Tupy’s post also covers the huge increases in non-wage benefits enjoyed by many workers over the past several decades, which are not captured in average wage statistics.

It’s clear that standard measures of income growth are distorted by the failure to properly account for changes in the quality of goods and services at our disposal. The narrative of middle class stagnation is flawed in that respect. As Don Boudreaux has said, most ordinary Americans are richer today than John D. Rockefeller was a century ago. The availability and quality of goods and many services today, affordable to ordinary Americans, are vastly superior to what Rockefeller had then or could even imagine. And many of those advancements occurred since the 1970s.

An Immigration Reform Dream: What’s Trump’s Price?

08 Friday Sep 2017

Posted by in Executive Authority, Immigration

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Two major issues weigh on critics and supporters of President Trump’s rescission of DACA, President Obama’s 2012 executive order establishing the Deferred Action on Childhood Arrivals program. First is the treatment of individuals who entered the U.S. illegally prior to mid-2007 at less than 16 years of age (and who were 30 or younger in 2012). Under Trump’s new order, these individuals would be subject to deportation in March 2018 or later, depending on their remaining DACA eligibility and the status of any renewal application already filed by then.

As an isolated question, draconian treatment of so-called “Dreamers” (taken from the “Dream Act”, which never made it through Congress) is difficult to justify. These individuals did not arrive here by choice or through any fault of their own, and the vast majority are now productive members of society. The problem, however, is the usual argument against amnesty: it creates an incentive for would-be immigrants to circumvent the legal immigration process in the hope of later forgiveness. If children of illegals are subject to lenient treatment once in the U.S., it probably magnifies that incentive. While some take a hard line with respect to deporting today’s Dreamers, many critics of DACA are strongly sympathetic to their plight.

The second issue defines another basis for opposition to DACA: the questionable legality of Obama’s original order. Obama issued another executive order in 2014 that essentially expanded DACA. That later order, already rescinded by Trump in June, was likely to be overturned by the Supreme Court. This article quotes from the majority opinion of the U.S. Fifth Circuit Court of Appeals:

“The administration’s interpretation of the Immigration and Naturalization Act, [5th Circuit Judge] Smith wrote, would effectively vest the Secretary of Homeland Security with the power ‘to grant lawful presence and work authorization to any illegal alien in the United States—an untenable position in light of the INA’s intricate system of immigration classifications and employment eligibility.’ In other words, Smith wrote, ‘the INA flatly does not permit the reclassification of millions of illegal aliens as lawfully present and thereby make them newly eligible for a host of federal and state benefits, including work authorization.’“

The key here is the clause “making them newly eligible for a host of federal and state benefits” without proper legislative authorization. In other words, Obama exceeded his authority. The original DACA order suffers from the same defect as the extension, and it was likely to be challenged as well. However, Ilya Somin has defended DACA as a matter of “prosecutorial discretion”, which was Obama’s original rationale for not enforcing immigration law for Dreamers. (But there is suspicion that the likelihood of adding to Democrat voter rolls appealed to Obama.) Enforcement against the children of illegal immigrants, Somin contends, is simply bad policy of the sort routinely avoided by prosecutors. In 2013, Zachary Price addressed this defense of DACA, including the application of earlier statutes specifically allowing discretion in immigration enforcement (also see this post by Michael Ramsey):

“The immigration [DACA] policy, in contrast, provides a more definite and specific guarantee of non-enforcement to a broad category of undocumented immigrants who fall squarely within the scope of removal statutes. … It’s worth noting (as some folks have helpfully pointed out to me) that the Obama Administration has maintained vigorous enforcement with respect to other groups of undocumented immigrants. But DACA goes beyond simply turning a blind eye to their unlawful presence in the country. It effectively grants a form of lawful status not contemplated by the applicable statutes through an exercise of prosecutorial discretion.

It’s true that there is a history to the practice of deferred action. Although this form of relief originated in executive practice, it’s now mentioned in several statutes, so to some degree at least Congress may have ratified it. … Yet the practice (as I understand it) originated as a form of case-by-case humanitarian relief. While immigration officials have used it categorically a few times in the past (for instance, to grant relief to immigrant students affected by Hurricane Katrina), I’m not aware of it ever being used for as broad and significant a group of immigrants as in the DACA program. So I think it’s hard to claim that there’s been even an implicit ratification of the practice sufficient to support the DACA program.“

Legislative action — a new attempt at some kind of Dream Act — could resolve the dilemma faced by Dreamers and their defenders while avoiding the legal objections to unrestrained executive authority. It’s likely that Trump is willing to exchange a continuation of the DACA regime, or even complete amnesty for Dreamers, to achieve other priorities, such as funding for his ballyhooed border wall. One could accuse Trump of using the Dreamers as pawns — why else would he have agreed to a grace period of six months? And why did he say, subsequently, that he would “revisit DACA” if Congress failed to act? That might give him some leverage with those who oppose DACA on the legal grounds discussed above, but it might undermine his ability to cut a deal for the wall or any other priority with Democrats.

David Harsanyi writes in The Federalist that “Rescinding DACA Is the Right Thing To Do“:

“If there’s one thing that exemplified Obama’s administration, it was its embrace of executive unilateralism. No administration in memory was stopped more often by courts on this front—often by unanimous Supreme Court decisions. … The Constitution makes no allowance for the president to write law ‘if Congress doesn’t act.’“

Somin notes that rescinding DACA, and even passing a law in this case, will do nothing to prevent this and future presidents from exercising excessive authority. That’s certainly true, but rectifying a case in which that authority was exceeded, along with recognition of the constitutional limits on executive authority, is worthwhile.

Congress should pass legislation offering relief to the Dreamers. In a best case scenario, new legislation would provide them with a clear path to citizenship, and it would also reform existing immigration law to allow for greater flows of immigrants through the legal process. Those provisions might come at the cost of building a wall, as well as funds for tougher immigration enforcement. And Trump has made merit-based criteria for issuing green cards and accepting immigrants a priority. That’s fine as long as: 1) “merit” is defined partly by economic needs, such as low-skilled farm labor; and 2) there is some sort of navigable process for refugees.

While the prospect of allowing Dreamers to be used as political pawns might be repugnant, the end result could be worthwhile. And we shouldn’t forget that some of those Dreamers, as children, were probably used as pawns by the very parents who brought them here.

 

Tragic Harvey Flooding Was a Known Risk

31 Thursday Aug 2017

Posted by in Flood Insurance, Global Warming, Subsidies, Uncategorized

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Houston-flood-1935

The photo above is downtown Houston during the flood of 1935, which I lifted from a post on Roy Spencer’s blog. The rate of rainfall from Hurricane Harvey in Houston is not unprecedented, according to Spencer. The geographic breadth and duration of the heavy rainfall might be, but ready comparisons are difficult on that basis, even for the 100 years of recorded rainfall in East Texas. The tragic severity of the flood damage is probably unprecedented as well, though the full tally won’t be in for some time. The severity is a consequence of four factors: the breadth of the rainfall, its duration, the growth of the Houston metro area, and the unnecessary development of low-lying areas that can no longer provide effective drainage and absorption of rainfall due to impervious cover.

Harvey was (and is) a big storm, but an unusual aspect of Harvey was the way it stalled after making landfall:

“The exact same tropical system moving at, say, 15 mph might have produced the same total amount of rain, but it would have been spread over a wide area, maybe many states, with no flooding disaster. This is usually what happens with landfalling hurricanes. … Instead, Harvey stalled after it came ashore and so all of the rain has been concentrated in a relatively small portion of Texas around the Houston area. In both cases, the atmosphere produced the same amount of rain, but where the rain lands is very different.“

Spencer also notes that Harvey is in no way evidence of global warming, as many in the media have implied:

“Roger Pielke Jr. has pointed out that the U.S. has had only four Category 4 (or stronger) hurricane strikes since 1970, but in about the same number of years preceding 1970 there were 14 strikes. So we can’t say that we are experiencing more intense hurricanes in recent decades. … Going back even earlier, a Category 4 hurricane struck Galveston in 1900, killing between 6,000 and 12,000 people. That was the greatest natural disaster in U.S. history. … And don’t forget, we just went through an unprecedented length of time – almost 12 years – without a major hurricane (Cat 3 or stronger) making landfall in the U.S.“

As for the role of development in the severity of the flooding, Spencer says:

“Major floods are difficult to compare throughout history because the ways in which we alter the landscape. For example, as cities like Houston expand over the years, soil is covered up by roads, parking lots, and buildings, with water rapidly draining off rather than soaking into the soil. The population of Houston is now ten times what it was in the 1920s. The Houston metroplex area has expanded greatly and the water drainage is basically in the direction of downtown Houston.”

Short memories and inaccurate assessments of flood potential might have encouraged excessive building in low-lying areas in and around Houston. However, the profligate extension of federal flood insurance to properties in those areas played a large role. Here is Michael Grunwald:

“Nearly two decades before the storm’s historic assault on homes and businesses along the Gulf Coast of Texas this week, the National Wildlife Federation released a groundbreaking report about the United States government’s dysfunctional flood insurance program, demonstrating how it was making catastrophes worse by encouraging Americans to build and rebuild in flood-prone areas.“

Houston played a noteworthy role in the report quoted by Grunwald:

“‘Houston, we have a problem,’ declared the report’s author, David Conrad. The repetitive losses from even modest floods, he warned, were a harbinger of a costly and potentially deadly future. ‘We haven’t seen the worst of this yet,’ Conrad said.

Climate alarmists would be well-advised to read Spencer’s piece on Harvey. It offers  excellent historical and climatological context. It’s also interesting to read some of the venomous ad hominem sprayed in Spencer’s direction by alarmist trolls in the comments section. Spencer knows too well, however, that “floods aren’t just due to the weather“. Let’s hope that the Houston area won’t be encouraged to rebuild in low-lying areas by prospective subsidies from a federal flood insurance program in need of drastic reform.

Does Google Dominance Threaten Choice, Free Speech and Privacy?

29 Tuesday Aug 2017

Posted by in Censorship, Free Speech, monopoly

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I’ve long been suspicious of the objectivity of Google search results. If you’re looking for information on a particular issue or candidate for public office, it doesn’t take long to realize that Google searches lean left of center. To some extent, the bias reflects the leftward skew of the news media in general. If you sample material available online from major news organizations on any topic with a political dimension, you’ll get more left than right, and you’ll get very little libertarian. So it’s not just Google. Bing reflects a similar bias. Of course, one learns to craft searches to get the other side of a story,  but I use Bing much more than Google, partly because I bridle instinctively at Google’s dominance as a search engine. I’ve also had DuckDuckGo bookmarked for a long time. Lately, my desire to avoid tracking of personal information and searches has made DuckDuckGo more appealing.

Google is not just a large company offering internet services and an operating system: it has the power to control speech and who gets to speak. It is a provider of information services and a collector of information with the power to exert geopolitical influence, and it does. This is brought into sharp relief by Julian Assange in his account of an interview he granted in 2011 to Google’s chairman Eric Schmidt and two of Schmidt’s advisors, and by Assange’s subsequent observations about the global activities of these individuals and Google. Assange gives the strong impression that Google is an arm of the deep state, or perhaps that it engages in a form of unaccountable statecraft, one meant to transcend traditional boundaries of sovereignty. Frankly, I found Assange’s narrative somewhat disturbing.

Monopolization

These concerns are heightened by Google’s market dominance. There is no doubt that Google has the power to control speech, surveil individuals with increasing sophistication, and accumulate troves of personal data. Much the same can be said of Facebook. Certainly users are drawn to the compelling value propositions offered by these firms. The FCC calls them internet “edge providers”, not the traditional meaning of “edge”, as between interconnected internet service providers (ISPs) with different customers. But Google and Facebook are really content providers and, in significant ways, hosting services.

According to Scott Cleland, Google, Facebook, and Amazon collect the bulk of all advertising revenue on the internet. The business is highly concentrated by traditional measures and becoming more concentrated as it grows. In the second quarter of 2017, Google and Facebook controlled 96% of digital advertising growth. They have ownership interests in many of the largest firms that could conceivably offer competition, and they have acquired outright a large number of potential competitors. Cleland asserts that the Department of Justice (DOJ) and the FTC essentially turned a blind eye to the many acquisitions of nascent competitors by these firms.

The competitive environment has also been influenced by other government actions over the past few years. In particular, the FCC’s net neutrality order in 2015 essentially granted subsidies to “edge providers”, preventing broadband ISPs (so-called “common carriers” under the ruling) from charging differential rates for the high volume of traffic they generate. In addition, the agency ruled that ISPs would be subject to additional privacy restrictions:

“Specifically, broadband Internet providers were prohibited from collecting and using information about a consumer’s browsing history, app usage, or geolocation data without permission—all of which edge providers such as Google or Facebook are free to collect under FTC policies.

As Michael Horney noted in an earlier Free State Foundation Perspectives release, these restrictions create barriers for ISPs to compete in digital advertising markets. With access to consumer information, companies can provide more targeted advertising, ads that are more likely to be relevant to the consumer and therefore more valuable to the advertiser. The opt-in requirement means that ISPs will have access to less information about customers than Google, Facebook, and other edge providers that fall under the FTC’s purview—meaning ISPs cannot serve advertisers as effectively as the edge providers with whom they compete.”

Furthermore, there are allegations that Google played a role in convincing Facebook to drop Bing searches on its platform, and that Google in turn quietly deemphasized its social media presence. There is no definitive evidence that Google and Facebook have colluded, but the record is curious.

Regulation and Antitrust

Should firms like Google, Facebook, and other large internet platforms be regulated or subjected to more stringent review of past and proposed acquisitions? These companies already have great influence on the public sector. The regulatory solution is often comfortable for the regulated firm, which submits to complex rules with which compliance is difficult for smaller competitors. Thus, the regulated firm wins a more secure market position and a less risky flow of profit. The firm also gains more public sector influence through its frequent dealings with regulatory authorities.

Ryan Bourne argues that “There Is No Justification for Regulating Online Giants as If They Were Public Utilities“. He notes that these firms are not natural monopolies, despite their market positions and the existence of strong network externalities. It is true that they generally operate in contested markets, despite the dominance of a just few firms. Furthermore, it would be difficult to argue that these companies over-charge for their services in any way suggestive of monopoly behavior. Most of their online services are free or very cheap to users.

But anti-competitive behavior can be subtle. There are numerous ways it can manifest against consumers, developers, advertisers, and even political philosophies and those who espouse them. In fact, the edge providers do manage to extract something of value: data, intelligence and control. As mentioned earlier, their many acquisitions suggest an attempt to snuff out potential competition. More stringent review of proposed combinations and their competitive impact is a course of action that Cleland and others advocate.  While I generally support a free market in corporate control, many of Google’s acquisitions were firms enjoying growth rates one could hardly attribute to mismanagement or any failure to maximize value. Those combinations expanded Google’s offerings, certainly, but they also took out potential competition. However, there is no bright line to indicate when combinations of this kind are not in the public interest.

Antitrust action is no stranger to Google: In June, the European Union fined the company $2.7 billion for allegedly steering online shoppers toward its own shopping platform. Google faces continuing scrutiny of its search results by the EU, and the EU has other investigations of anticompetitive behavior underway against both Google and Facebook.

It’s also worth noting that antitrust has significant downsides: it is costly and disruptive, not only for the firms involved, but for their customers and taxpayers. Alan Reynolds has a cautionary take on the prospect of antitrust action against Amazon. Antitrust is a big business in and of itself, offering tremendous rent-seeking benefits to a host of attorneys, economists, accountants and variety of other technical specialists. As Reynolds says:

“Politics aside, the question ‘Is Amazon getting too Big?’ should have nothing to do with antitrust, which is supposedly about preventing monopolies from charging high prices. Surely no sane person would dare accuse Amazon of monopoly or high prices.“

Meanwhile, the proposed Amazon-Whole Foods combination was approved by the FTC and the deal closed Monday.

Speech, Again

Ordinarily, my views on “speech control” would be aligned with those of Scott Shackford, who defends the right of private companies to restrict speech that occurs on their platforms. But Alex Tabbarok offers a thoughtful qualification in asking whether Google and Apple should have banned Gab:

“I have no problem with Twitter or Facebook policing their sites for content they find objectionable, such as pornography or hate speech, even though these are permitted under the First Amendment. A free market in news doesn’t mean that every newspaper must cover every story. A free market in news means free entry. But free entry is exactly what is now at stake. Gab was created, in part, to combat what was seen as Facebook’s bias against conservative news and views. If Gab or services like cannot be accessed via the big platforms that is a significant barrier to entry.

When Facebook and Twitter regulate what can be said on their platforms and Google and Apple regulate who can provide a platform, we have a big problem. It’s as if the NYTimes and the Washington Post were the only major newspapers and the government regulated who could own a printing press.

In a pure libertarian world, I’d be inclined to say that Google and Apple can also police whom they allow on their platforms. But we live in a world in which Google and Apple are bound up with and in some ways beholden to the government. I worry when a lot of news travels through a handful of choke points.“

This point is amplified by Aaron M. Renn in City Journal:

“The mobile-Internet business is built on spectrum licenses granted by the federal government. Given the monopoly power that Apple and Google possess in the mobile sphere as corporate gatekeepers, First Amendment freedoms face serious challenges in the current environment. Perhaps it is time that spectrum licenses to mobile-phone companies be conditioned on their recipients providing freedoms for customers to use the apps of their choice.“

That sort of condition requires ongoing monitoring and enforcement, but the intervention is unlikely to stop there. Once the platforms are treated as common property there will be additional pressure to treat their owners as public stewards, answerable to regulators on a variety of issues in exchange for a de facto grant of monopoly.

Tyler Cowen’s reaction to the issue of private, “voluntary censorship” online is a resounding “meh”. While he makes certain qualifications, he does not believe it’s a significant issue. His perspective is worth considering:

“It remains the case that the most significant voluntary censorship issues occur every day in mainstream non-internet society, including what gets on TV, which books are promoted by major publishers, who can rent out the best physical venues, and what gets taught at Harvard or for that matter in high school.“

Cowen recognizes the potential for censorship to become a serious problem, particularly with respect to so-called “chokepoint” services like Cloudflare:

“They can in essence kick you off the entire internet through a single human decision not to offer the right services. …so far all they have done is kick off one Nazi group. Still, I think we should reexamine the overall architecture of the internet with this kind of censorship power in mind as a potential problem. And note this: the main problem with those choke points probably has more to do with national security and the ease of wrecking social coordination, not censorship. Still, this whole issue should receive much more attention and I certainly would consider serious changes to the status quo.“

There are no easy answers.

Conclusions

The so-called edge providers pose certain threats to individuals, both as internet users and as free citizens: the potential for anti-competitive behavior, eventually manifesting in higher prices and restricted choice; tightening reins on speech and free expression; and compromised privacy. All three have been a reality to one extent or another. As a firm like Google attains the status of an arm of the state, or multiple states, it could provide a mechanism whereby those authorities could manipulate behavior and coerce their citizens, making the internet into a tool of tyranny rather than liberty. “Don’t be evil” is not much of a guarantee.

What can be done? The FCC’s has already voted to reverse its net neutrality order, and that is a big step; dismantling the one-sided rules surrounding the ISPs handling of consumer data would also help, freeing some powerful firms that might be able to compete for “edge” business. I am skeptical that regulation of edge providers is an effective or wise solution, as it would not achieve competitive outcomes and it would rely on the competence and motives of government officials to protect users from the aforementioned threats to their personal sovereignty. Antitrust action may be appropriate when anti-competitive actions can be proven, but it is a rent-seeking enterprise of its own, and it is often a questionable remedy to the ills caused by market concentration. We have a more intractable problem if access cannot be obtained for particular content otherwise protected by the First Amendment. Essentially, Cowen’s suggestion is to rethink the internet, which might be the best advice for now.

Ultimately, active consumer sovereignty is the best solution to the dominance of firms like Google and Facebook. There are other search engines and there are other online communities. Users must take steps to protect their privacy online. If they value their privacy, they should seek out and utilize competitive services that protect it. Finally, perhaps consumers should consider a recalibration of their economic and social practices. They may find surprising benefits from reducing their dependence on internet services, instead availing themselves of the variety of shopping and social experiences that still exist in the physical world around us. That’s the ultimate competition to the content offered by edge providers.