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Regulation
The Ruins of Old Tech Monopolies
Look on my works, ye Mighty, and despair!
Mar 2000: Palm Pilot IPOs at $53 billion
Sep 2006: “Everyone’s always asking me when Apple will come out with a cellphone. My answer is, ‘Probably never.’” – David Pogue (NYT)…
Jun 2007: iPhone released
Nov 2007: “Nokia: One Billion Customers—Can Anyone Catch the Cell Phone King?” (Forbes)
Geoffrey Manne and Alec Stapp at Truth on the Market have written a brief history of impregnable tech monopolies that were pregnable after all, in fields from personal computers to video distribution to social media. Sen. Elizabeth Warren and others are now arguing that the government should break up and closely regulate tech giants Google, Amazon, Facebook, and Apple “claiming they have too much power and represent a danger to our democracy.” Manne and Stapp offer examples of sector after sector in which what was seen as structural, inescapable tech monopoly turned out to be not so unassailable. Here’s music distribution:
Dec 2003: “The subscription model of buying music is bankrupt. I think you could make available the Second Coming in a subscription model, and it might not be successful.” – Steve Jobs (Rolling Stone)
Apr 2006: Spotify founded
Jul 2009: “Apple’s iPhone and iPod Monopolies Must Go” (PC World)
Jun 2015: Apple Music announced
They conclude by quoting two observations by Benedict Evans, a venture capitalist at Andreessen Horowitz, first on “why competition in tech is especially difficult to predict”:
IBM, Microsoft and Nokia were not beaten by companies doing what they did, but better. They were beaten by companies that moved the playing field and made their core competitive assets irrelevant. The same will apply to Facebook (and Google, Amazon and Apple).
And why “we will not be stuck with the current crop of tech giants forever”:
With each cycle in tech, companies find ways to build a moat and make a monopoly. Then people look at the moat and think it’s invulnerable. They’re generally right. IBM still dominates mainframes and Microsoft still dominates PC operating systems and productivity software. But… It’s not that someone works out how to cross the moat. It’s that the castle becomes irrelevant. IBM didn’t lose mainframes and Microsoft didn’t lose PC operating systems. Instead, those stopped being ways to dominate tech. PCs made IBM just another big tech company. Mobile and the web made Microsoft just another big tech company. This will happen to Google or Amazon as well. Unless you think tech progress is over and there’ll be no more cycles … It is deeply counter‐intuitive to say ‘something we cannot predict is certain to happen’. But this is nonetheless what’s happened to overturn pretty much every tech monopoly so far.
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Supreme Court Argument in the “Scandalous Trademarks” Case Wasn’t So Funny
FUCT may be f … Well, you get the idea. Two years ago in the Tam case, the Supreme Court struck down the Lanham Act’s “disparaging trademarks” provision, but the justices seem less likely to erase the “scandalous trademarks” prohibition now — at least as far as one can tell from this morning’s argument in Iancu v. Brunetti.
That’s because racial slurs and other offensive phrases necessarily have a viewpoint — on the basis of which the First Amendment doesn’t allow the government to discriminate — but swear words can be just a “mode of expression.” At the same time, the “scandalous” mark restriction is so broad that the government is asking the Court to either accept its benevolent assurances or narrow the statute. There were echoes of the government’s assurances not to prosecute certain kinds of speech in Citizens United there, and indeed the same deputy solicitor general, Malcolm Stewart, initially argued that case — leading to the Court’s setting it for re‐argument and blowing up the relevant statute.
The most telling series of questions involved the regulation of bus advertising, and that example should indeed decide the case: you should be able to register trademarks that come short of obscenity (which is generally pictures or sentences, rather than single words), but both registered and unregistered trademarks are still properly subject to time, place, and manner restrictions. And that includes “limited public forums” like the sides of municipal buses, public park benches, and the like.
One other note: none of George Carlin’s seven dirty words were used during the argument (though the late comedian’s formulation was invoked several times). Stewart described FUCT’s “scandalous” homonym as the “past participle of paradigmatic profanity,” while Chief Justice John Roberts at one point asked (page 58): “I take it that the — a correct spelling of the vulgar word at the heart of the case, that can’t be trademarked, right?”
We’ll know by the end of June whether edgy marks are up Schitt’s Creek.
I previously wrote about the background of Brunetti — in which Cato filed its latest “funny” (more “vulgar”) brief.
Editor’s note: This post originally misstated the chief justice’s question.
Wisconsin’s Butter Grading Law Is Udderly Ridiculous
Minerva Dairy, based in Ohio, is America’s oldest family‐owned cheese and butter dairy. It has been producing artisanal, slow‐churned butter in small batches since 1935. It has sustained its business through their website and by selling to regional distributers in several states. This model has worked well everywhere except Wisconsin, which requires butter manufacturers to jump through a series of cumbersome and expensive hoops to sell their product.
Of course, Wisconsin is America’s Dairyland, with many large producers who (big surprise) have an interest in limiting competition. At the behest of these companies, the state requires every batch of butter to be “graded” by a specifically state‐licensed grader—all of whom live in Wisconsin, except for a half‐dozen in neighboring Illinois and a handful around the country that have been licensed only in the last year—who must taste‐test every single batch. Because Minerva’s butter is produced in multiple small batches over the course of each day, the law would effectively require the dairy to keep a licensed tester on‐site at all times, which is cost‐prohibitive. The state admits that the grading scheme has nothing to do with public health or nutrition, but claims that its grades, based largely on taste, inform consumers.
The fact that Wisconsin is trying to shape the taste of butter isn’t even the most absurd part of this story. The criteria used to grade the butter are a ludicrous mad‐lib of meaningless jargon not even the state’s experts understand. The law purports to identify such flavor characteristics as “flat,” “ragged‐boring,” and “utensil.” (All commonplace terms spoken by consumers in dairy aisles across the nation, no doubt.) The terminology hearkens to a freshmanic—not even sophomoric—term paper on the semiotics of postmodern agrarian literature. To claim that a grade calculated with reference to udder nonsense serves the purpose of informing anyone illustrates the danger inherent in judges’ deferring to government rationales for silly laws that burden people who are just trying to make an honest living.
Our friends at the Pacific Legal Foundation represent Minerva in a lawsuit that challenges the butter‐grading law on the grounds that it burdens interstate commerce in violation of the Commerce Clause, and also hurts small dairies’ Fourteenth Amendment rights to due process and equal protection of law. Minerva lost at the district court when the judge applied a toothless, cheesy “rational basis” test to the law in question, giving little weight to the serious concerns described above, then again in the Seventh Circuit (where Cato filed an amicus brief).
Tireless in its pursuit of reasonable review of this silly law, Minerva has asked the Supreme Court to take its case. Because laws that abrogate constitutional rights warrant meaningful judicial oversight, Cato has again filed an amicus brief supporting Minerva’s petition.
Wisconsin’s law directly burdens the right to participate in the state’s butter market, and thus their economic liberty, for no sane or “rational” reason. There are simply no benefits to consumers that come from forcing producers to pay considerable sums to have an arbitrary process deposit a random letter on product packaging. It curdles the mind to argue otherwise.
The Supreme Court will decide before it breaks for the summer whether to take up Minerva Dairy v. Pfaff.
Housing Prices, Supply, and Innovation
Housing prices have soared in many U.S. and international cities, which has generated affordability problems for middle‐ and lower‐income families. An article in the Wall Street Journal today by Laura Kusisto and Peter Grant notes, “Across 32 major cities around the world, real home prices on average grew 24% over the last five years.”
Kusisto and Grant imply that the blame should be shared: “Governments haven’t had the money to subsidize new supply … The private sector has also fallen short.” And they say, “But no approach has solved the crises and most have other negative ripple effects.”
But then the reporters undercut their own narratives with news about Tokyo:
But one major city has had stable housing prices as a result of pumping out housing supply to keep up with rising demand.
Tokyo is one of the few cities in which supply has kept up with demand, keeping a crisis from developing. But that is due largely to deregulated housing policies that other countries would have a hard time reproducing.
“It goes against the notion of planning and developing cities in an orderly fashion,” said Laurence Troy, research fellow at the City Futures Research Centre of the University of New South Wales, Australia.
So maybe the idea of imposing top‐down “order” is harmful. If the government gets out of the way, businesses can invest, supply will increase, and prices will be restrained.
Not only will supply increase, but Kusisto and Grant report that businesses in deregulated markets respond to the high‐price problem by innovating to cut construction costs. Thus, the private sector is not “falling short” in places where it is allowed to work its magic.
On the next page in the Journal today, River Davis reiterates these points in her report on Tokyo’s relatively free housing markets:
In the past two decades, home prices in some leading North American and European cities have skyrocketed. In Tokyo, however, they’ve flatlined.
So why no affordable‐housing crisis in Japan? A big factor, experts say, is the country’s relatively deregulated housing policies, which have allowed housing supply to keep up with demand in the 21st century.
With no rent controls and fewer restrictions on height and density, Tokyo appears to be a city where the market is under control—where supply is keeping home prices from rising as drastically as they have in many other major world cities.
… Japan’s current level of housing supply is tied to a package of policy changes—implemented around the turn of the century—that were aimed at restoring the profitability of Japan’s land‐development industry, according to Andre Sorensen, a professor of urban geography and a Japan housing expert at the University of Toronto Scarborough.
The Japanese government began relaxing regulations that had restricted supply, allowing taller and denser buildings in Japan’s capital. Private consultants were given permission to issue building permits to speed up construction. “This created something like a free‐trade zone in Tokyo,” Mr. Sorensen said.
With deregulation has come business innovation, which has further restrained prices:
Two of Japan’s largest housing construction companies, Daiwa House Industry Co. and Sekisui House Ltd, both say that the easing of land and construction regulations has helped them build in Tokyo. The companies say that deregulation has benefited them particularly in their ability to expand housing units by replacing low‐rise residential complexes with much higher ones.
“A good environment for housing construction is being created,” says Daiwa House managing executive officer Yoshinori Ariyoshi.
To deal with rising construction fees, Mr. Ariyoshi says Japan may have to rely more on prefabricated homes to provide affordable housing. He estimates that about 20% of the country’s homes are already being assembled in increasingly automated factories.
For more on these issues, see Vanessa Brown Calder’s analysis here.
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Snatching Defeat from the Jaws of Victory
All the elements for swiftly legalizing marijuana in New Jersey seemed to be in place: A proposed bill was enthusiastically backed by Gov. Philip D. Murphy and had been endorsed by leaders of the Democratic‐controlled State Legislature. Also, statewide polls showed support for the issue.
Then the plans unraveled.
Why?
Some lawmakers were unsure about how to tax marijuana sales. Others feared legalization would flood the state’s congested streets and highways with impaired drivers. Some would not be deterred from believing that marijuana was a dangerous menace to public health.
A disagreement existed among lawmakers about … whether it was necessary to expunge criminal records for marijuana‐related offenses for those found with as much as five pounds of the drug.
[And,]
For states like California and Massachusetts, legalizing marijuana has led to some negative results: underwhelming tax revenue; a host of public health and safety concerns, such as keeping the drug out of teenagers’ hands; and a burgeoning industry dominated by white corporate interests even as advocates in Hispanic and black communities say their neighborhoods have been most negatively affected by the drug.
Comments:
1. The claim that NJ could not figure out how to tax marijuana makes no sense. NJ taxes thousands of products, and ten states plus DC already tax MJ sales.
2. The concerns about impaired drivers, public health, and teens are no doubt real, but grossly overstated and based on misleading anecdotes or faulty statistics; the evidence from existing state legalizations finds little evidence of adverse effects.
3. Expungement of past marijuana offenses should be a separate issue from whether to legalize going forward.
4. Antipathy to “corporate” provision of legalized marijuana is mainly protectionism for existing marijuana sellers, whether underground or medical. Legalization will likely drive out small, high cost suppliers; that is how capitalism works.
5. The failure of revenues to match expectations, in the more recent legalizations, was completely predictable. On the one hand, many revenue forecasts have been wildly optimistic. On the other hand, the early legalizers collected substantial revenues because of limited competition from other states; as more states have legalized, the remaining demand is inevitably smaller.
Bottom line: New Jersey should just legalize.
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Elizabeth Warren’s Economic Nationalism
Economic nationalism and pandering to farmers are two classic parts of presidential campaigning. In this post by Senator Elizabeth Warren, she does both at the same time:
Advancing the Interests of American Farmers
Washington has also bowed to powerful foreign interests instead of standing up for American farmers. Congress repealed mandatory country‐of‐origin labeling for beef and pork in 2015 after a series of World Trade Organization challenges from Canada and Mexico, and it hasn’t established a new rule to protect American farmers. The result is that beef and pork can be given a US origin label if it is processed in the United States — even if the animals are not born and raised here. This misleads consumers looking for American‐grown meat and undermines American beef and pork producers.
That’s why I will push hard for new country‐of‐origin rules for beef and pork — and use the trade tools available to me as President to push Canada and Mexico to accept them. These new rules will not only be good for consumers because they promote transparency, but good for independent American farmers, who are otherwise undercut by global agribusinesses passing off foreign beef and pork as American.
We also must stop foreign governments and companies from buying up American farmland. Foreign companies and countries like China and Saudi Arabia already own 25 million acres of American farmland. That’s about the size of Virginia. And one in four American hogs has a Chinese owner. That jeopardizes our food security, which threatens our national security too.
Iowa has the right idea. It passed a law prohibiting foreign individuals or entities from purchasing farmland for the purpose of farming. I support a national version of that law, and as President, will use all available tools to restrict foreign ownership of American agriculture companies and farmland. And I’m committed to stronger beneficial ownership laws so that foreign purchasers can’t set up fake American buyers to get around these restrictions.
Her argument about country of origin labelling and the World Trade Organization channels Donald Trump (“Washington has … bowed to powerful foreign interests”), but misunderstands the nature of the legislation/regulation at issue. Country of origin labelling requirements are not per se prohibited under WTO rules, but the rules do say that you can’t use them as a disguised means of protectionism, as was the case with the U.S. legislation/regulation at issue. My colleague Inu Manak wrote about the COOL legislation/regulation here, and she and I did a case study of the issue for this book. We explained that the trade problem was not the labelling requirement itself, but rather the structure of the particular legislation/regulation at issue, which created an incentive for meat processors to use domestic rather than foreign beef and pork. We also found a good deal of evidence in the legislative history indicating that protectionism, rather than consumer information, was the real purpose.
As for Warren’s reference to “countries like China and Saudi Arabia” buying up 25 millions acres of American farmland, that is a very creative use of the actual data. If you follow her links, you get to this explanation by the USDA:
Canadian investors own the largest amount of reported foreign held agricultural and non‐agricultural land, with 28 percent, or 7,250,834 acres (report 1B). Foreign persons from an additional four countries, the Netherlands with 19 percent, Germany with 7 percent, the United Kingdom with 6 percent, and Portugal with 5 percent collectively hold 9,511,437 acres or 36 percent of the foreign held acres in the United States. The remaining 9,577,982 acres, or 36 percent of all reported foreign held agricultural and non‐agricultural land, is held by various other countries.
But wait, where is Saudi Arabia in all of this? Her inclusion of a reference to that country seems designed to get people thinking about terrorism or human rights abuses, but here’s what is actually going on and it’s not all that scary: “Saudi Arabia and the UAE alone have acquired more than 15,000 acres in Arizona and Southern California to grow fodder for dairy cattle.”
Warren’s attempt to appeal to economic nationalism is not surprising. But given recent polling showing that Democrats are more supportive of free trade these days, it might be smart if other Democrats took a different approach.