Amazon and the Diffuse Power of Consumers

by on November 11, 2019 · 0 comments

by Walter Stover and Anne Hobson

Franklin Foer’s article in the Atlantic on Jeff Bezos’s master plan offers insight into the mind of the famed CEO, but his argument that Amazon is all-powerful is flawed. Foer overlooks the role of consumers in shaping Amazon’s narrative. In doing so, he overestimates the actual autonomy of Bezos and the power of Amazon over its consumers. 

The article falls prey to an atomistic theory of Amazon. The thinking goes like this: I am an atom, and Amazon is a (much) larger atom. Because Amazon is so much larger than I am, I need some intervening force to ensure that Amazon does not prey on me. This intervening force must belong to an even larger atom (the U.S. government) in order to check Amazon’s power. The atomistic lens sees individuals as interchangeable and isolated from each other, able to be considered one at a time.

Foer’s application of this theory appears in his treatment of Hayek, one of the staunchest opponents of aggregation and atomism. For example, when he summarizes Hayek’s paper “The Use of Knowledge in Society,” he phrases Hayek’s argument as that “…no bureaucracy could ever match the miracle of markets, which spontaneously and efficiently aggregate the knowledge of a society.” Hayek found the notion of aggregation highly problematic, as seen in another of his articles, “Competition as a Discovery Procedure,” in which he criticizes the idea of a “scientific” objective approach to measuring market variables. His argument against trying to build a science on macroeconomic variables notes that “…the coarse structure of the economy can exhibit no regularities that are not the results of the fine structure… and that those aggregate or mean values… give us no information about what takes place in the fine structure.”

Neither Amazon nor the market can aggregate the knowledge of a society. We can try to speak of the market in aggregate terms, but we end up summing up all of the differences between individuals and concealing the action and agency of the individuals at the bottom. We cannot speak of market activity without reference to the patterns of individual interactions. It is best to think of the market as an emergent, unintended outcome of a constellation of individual actors, not atoms, each of whom have different talents, wants, knowledge, and resources. Actors enter into exchanges with each other and form complicated, semi-rigid, multi-leveled social networks.

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How Much Precaution is Wise?

by on November 1, 2019 · 0 comments

In a new essay for the Mercatus Bridge, I ask, “How Many Lives Are Lost Due to the Precautionary Principle?” The essay builds on two recent case studies of how the precautionary principle can result in unnecessary suffering and deaths. The first case study involves the Japanese government’s decision in 2011 to entirely abandon nuclear energy following the Fukushima Daiichi nuclear accident. The second involves Golden Rice, a form of rice that was genetically engineered to contain beta-carotene, which helps combat vitamin A deficiency. Anti-GMO resistance among environmental activists and regulatory officials held up the diffusion of this miracle food. New reports and books now document how these precautionary decisions diminished human welfare instead of improving it. I encourage you to jump over to the Bridge and read the entire story.

I concluded the essay by noting that, “It is time to reject the simplistic logic of the precautionary principle and move toward a more rational, balanced approach to the governance of technologies. Our lives and well-being depend upon it.” Some read that as a complete rejection of all preemptive regulation. I certainly was not arguing that, so let me clarify a few things. Continue reading →

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Auto Purchase Trends, Mobility as a Service, and Autonomous Vehicle Adoption

by on October 31, 2019 · 0 comments

Last month I spoke at the Innovation Summit in Orlando, hosted by the James Madison Institute. My co-panelists on the transportation panel were Jamal Sowell, President and CEO of Enterprise Florida, state senator Jeff Brandes, who cosponsored Florida’s autonomous vehicle legislation this year, and Stephanie Smith from Uber. Romina Boccia from the Heritage Foundation was our moderator.

Flyer for September 2019 JMI event.

It was a great event and the panel discussion made clear that Florida is at the forefront of autonomous vehicle policy. The panel got me thinking about some nationwide trends that are pushing people towards ride-sharing and, eventually, mobility as a service and autonomous vehicles. Florida seems well positioned but many of these trends will affect the ridesharing and autonomous vehicle market in the next decade.

Rising Cost of Car Ownership

Cars are expensive to own and maintain. Using AAA estimates, the annual cost of a new car in 2019 is $9,300 (nearly $800 per month). These costs are mostly depreciation and insurance, but also include gas, registration, and maintenance.

Used cars are significantly cheaper to own since depreciation is steepest early in a car’s life. I haven’t seen much research on used car costs but out of curiosity I estimated the cost of ownership of our used car. We recently sold my wife’s 2010 Corolla, which she’d bought in 2012. The annual cost of ownership of the Corolla (insurance, maintenance, gas, depreciation) came to about $4,200 ($350 per month).

But costs are much higher for families. Parents adding a teenage boy to their car insurance policy, for instance, can expect their annual insurance costs to jump over $6,000.

Using the AAA numbers and these insurance numbers, we can estimate the costs for adding a new vehicle and a teenage driver for a family budget: from about $15,000 annually (getting a teen driver a new sedan) to about $10,000 annually (getting a teen driver a used compact).

Further, car repair is only going to increase with time. The introduction of sensors and other technology into new cars has caused a spike in repair and insurance costs. Automakers are also adding expensive-to-fix components to engines, like turbochargers and CVTs, in an attempt to comply with federal CAFE standards.

One signal of the increasing costs of repair is rising insurance rates. Over the last four years, the consumer price index for auto insurance increased about 27%, During the same period the CPI for all goods increased about 6%. That increase even exceeds the CPI for hospital services (18%).

This is likely one reason car leasing is becoming more popular, even with good-credit drivers–leasing allows you to shift the (increasing) costs of car depreciation and maintenance to leasing companies.

Mobility as a Service and AVs in Florida

Florida seems to have the perfect recipe for AV and mobility as a service success. First and foremost, they have a governor and state legislature that is welcoming AV companies.

The state also has:

  • many students, retirees, tourists, and uninsured drivers who need rides but don’t use a car regularly
  • very high insurance premiums
  • no-fault auto insurance, which simplifies the claims process in personal injury cases
  • flat terrain and no snow

Suppose a couple in Florida is considering getting a third car, a new car for their teenage son. If their son isn’t interested in getting a drivers license (which is increasingly common) and they live in an area with high penetration of ridesharing services, they might be willing to purchase an annual subscription to mobility as a service. For many families on the fence about getting a second or third car, even a $10,000 annual subscription might make financial sense.

AV tech is slowly but surely approaching mass-market deployment. This month, Waymo announced they were increasing the number of autonomous vehicles on Phoenix-area roads without safety drivers in the front seats. These trends in auto leasing and putting off getting a license is accelerating in urbanized areas in the South. It’s probably where mobility as a service companies and, eventually, AV companies will find their largest potential market.

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San Francisco, Entrepreneurs & the Cost of Doing Business

by on October 24, 2019 · 0 comments

2019 Doing Business North America Report CoverOne of the keys to improving the standard of living for citizens is to make sure it isn’t too difficult for them to form new businesses or find good jobs. Unfortunately, some governments make that process harder than it should be. San Francisco serves as a prime example. An important new report just out from Arizona State University proves that.

“Doing Business North America,” is a wide-ranging comparison of six types of business regulations in Canada, Mexico and the United States. The almost 200-page report was released by the Center for the Study of Economic Liberty, a joint endeavor of the W. P. Carey School of Business and the School of Civic and Economic Thought and Leadership. The effort was spearheaded by my old colleague Stephen Slivinski and a team of other scholars and students at the Center.

The report is a major undertaking that examines how 115 North American cities rank overall, as measured by six categories: starting a business, employing workers, getting electricity, registering property, paying taxes, and resolving insolvency. Among all U.S. cities, San Francisco ranks dead last with a score of 59.04 out of a 100. Of the 115 cities evaluated in Canada, Mexico, and the U.S., San Fran ranked 77th. By comparison, Oklahoma City ranked first in overall ease of doing business with a score of 85.22.

Shockingly, things appear ready to get a lot worse for the citizens of San Francisco. In my latest column for the American Institute for Economic Research, I discuss the city’s newly proposed Office of Emerging Technology.  This new bureaucracy, which would be within the city’s public works department, would impose a new permitting system on anyone looking to launch new technologies that might somehow use public rights-of-way, such as sidewalks and roads. Innovators who fail to pursue and receive the appropriate permission slips will face civil and criminal penalties. Continue reading →

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The Entrepreneurial State, Some Brief Comments

by on October 16, 2019 · 0 comments

Economist Mariana Mazzucato has a full spread in the Wired UK humbling suggesting that she “has a plan to fix capitalism.” The plan is an outgrowth of her 2013 book The Entrepreneurial State, which contends that government involvement in research and development (R&D), loans, and other business subsidies are the true drivers of innovation, not the private sector. Her plan is simple: governments need to do better on funding innovation.  

It goes without saying that the government is massively involved in innovation and for good reason. Open any introductory economics text and you’re likely to see an argument for why. Private actors are short sighted and often fail to plan for the long term by investing in R&D that will lead to technological progress. Basic research also might lead to advances or products outside of the company’s niche. Knowing that they won’t be able to capture all of the gains from research, private entities will choose a lower level of investment than is optimal, leading to a market failure. Governments solve this market failure by allocating resources to expanding scientific and technological knowledge.    

While Mazzucato might be finding an audience with policy makers in the UK and doers in Silicon Valley, innovation economists are a little more wary of her state first theory of innovation. Here are some things worth considering when reading her work: Continue reading →

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Locast and deteriorating TV laws

by on October 15, 2019 · 0 comments

In the US there is a tangle of communications laws that were added over decades by Congress as–one-by-one–broadcast, cable, and satellite technologies transformed the TV marketplace. The primary TV laws are from 1976, 1984, and 1992, though Congress creates minor patches when the marketplace changes and commercial negotiations start to unravel.

Congress, to its great credit, largely has left alone Internet-based TV (namely, IPTV and vMVPDs) which has created a novel “problem”–too much TV. Internet-based TV, however, for years has put stress on the kludge-y legacy legal system we have, particularly the impenetrable mix of communications and copyright laws that regulates broadcast TV distribution.

Internet-based TV does two things–it undermines the current system with regulatory arbitrage but also shows how tons of diverse TV programming can be distributed to millions of households without Congress (and the FCC and the Copyright Office) injecting politics into the TV marketplace.

Locast TV is the latest Internet-based TV distributor to threaten to unravel parts the current system. In July, broadcast programmers sued Locast (its founder, David Goodfriend) and in September, Locast filed its own suit against the broadcast programmers.

A portion of US TV regulations.

Many readers will remember the 2014 Aereo decision from the Supreme Court. Much like Aereo, Locast TV captures free broadcast TV signals in the markets it operates and transmits the programming via the Internet to viewers in that market. That said, Locast isn’t Aereo.

Aereo’s position was that it could relay broadcast signals without paying broadcasters because it wasn’t a “cable company” (a critical category in copyright law). The majority of the Supreme Court disagreed; Aereo closed up shop.

Locast has a different position: it says it can relay broadcast signals without paying because it is a nonprofit.

It’s a plausible argument. Federal copyright law has a carveout allowing “nonprofit organizations” to relay broadcast signals without payment so long as the nonprofit operates “without any purpose of direct or indirect commercial advantage.”

The broadcasters are focusing on this latter provision, that any nonprofit taking advantage of the carveout mustn’t have commercial purpose. David Goodfriend, the Locast founder, is a lawyer and professor who, apparently, sought to abide by the law. However, the broadcasters argue, his past employment and commercial ties to pay-TV companies mean that the nonprofit is operating for commercial advantage.

It’s hard to say how a court will rule. Assuming a court takes up the major issues, judges will have to decide what “indirect commercial advantage” means. That’s a fact-intensive inquiry. The broadcasters will likely search for hot docs or other evidence that Locast is not a “real” nonprofit. Whatever the facts are, Locast’s arbitrage of the existing regulations is one that could be replicated.

Nobody likes the existing legacy TV regulation system: Broadcasters dislike being subject to compulsory licenses; Cable and satellite operators dislike being forced to carry some broadcast TV and to pay for a bizarre “retransmission” right. Copyright holders are largely sidelined in these artificial commercial negotiations. Wholesale reform–so that programming negotiations look more like the free-market world of Netflix and Hulu programming–would mean every party has give up something they like improve the overall system.

The Internet’s effect on traditional providers’ market share has been modest to date, but hopefully Congress will anticipate the changing marketplace before regulatory distortions become intolerable.

Additional reading: Adam Thierer & Brent Skorup, Video Marketplace Regulation: A Primer on the History of Television Regulation and Current Legislative Proposals (2014).

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New Report: “Raising Rivals’ Costs Using the GDPR” (Just $1999!)

by on October 10, 2019 · 0 comments

“Rent-Seeking Consultants, Inc.,” a subsidiary of the Strategies and Tactics to Annoy Neighbors (SATAN) Group, is pleased to announce its latest product for clients looking to exploit well-intentioned regulation to serve their own ends. Our new report, “Raising Rivals’ Costs Using the GDPR: A Strategic Guide to Thwarting Competition, Expanding Market Share & Enhancing Profits with Minimal Effort,” is available for immediate download for just $1,999 (discounted to just $999 for our loyal “Dante’s Ninth Circle” club members).

Over the last three decades, our experts at Rent-Seeking Consultants have dedicated themselves to the mission of advancing narrow interests at the expense of public welfare. We have done so by creatively exploiting laws and regulations that — while often implemented with the very best of intentions in mind — we recognized could be converted into a tool to advantage the few at the expense of the many.

Our motto: Where others see good intentions, we see good opportunities!

Our “Raising Rivals’ Costs Using the GDPR” report continues our latest line of new products, which aim to take Europe’s bold new privacy regulatory regime and convert it into a rent-seeker’s paradise. Our previous report outlined, “How to Pretend Compliance Costs Will Destroy Your Big Company, While Also Letting Your Shareholders Know It is Actually an Amazing Way to Crush the Competition.” Continue reading →

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Explaining the California Privacy Rights and Enforcement Act of 2020

by on October 2, 2019 · 0 comments

California’s recently enacted digital privacy legislation, the “California Consumer Privacy Act,” may be getting a sequel in the form of an initiative called the “California Privacy Rights and Enforcement Act of 2020.” While the fallout of CCPA has yet to be seen, since the Act does not go into effect until next year and the regulations governing its application have yet to be finalized, CPREA promises to double-down on its approach by creating yet more largely superfluous – and hugely expensive – digital “rights”.

How did we get here? Well, CCPA, the original, was the brainchild of a wealthy real estate investor named Alastair Mactaggart who, inspired by a cocktail party conversation, used California’s initiative process as a cudgel to get the full attention of the legislature in Sacramento. The body was given an ultimatum, negotiate and pass privacy legislation or Mactaggart would place his creation on the ballot. Continue reading →

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Why Apocalyptic Rhetoric Dominates Tech Policy Debates

by on October 2, 2019 · 0 comments

The endless apocalyptic rhetoric surrounding Net Neutrality and many other tech policy debates proves there’s no downside to gloom-and-doomism as a rhetorical strategy. Being a techno-Jeremiah nets one enormous media exposure and even when such a person has been shown to be laughably wrong, the press comes back for more. Not only is there is no penalty for hyper-pessimistic punditry, but the press actually furthers the cause of such “fear entrepreneurs” by repeatedly showering them with attention and letting them double-down on their doomsday-ism. Bad news sells, for both the pundit and the press.

But what is most remarkable is that the press continues to label these preachers of the techno-apocalypse as “experts” despite a track record of failed predictions. I suppose it’s because, despite all the failed predictions, they are viewed as thoughtful & well-intentioned. It is another reminder that John Stuart Mill’s 1828 observation still holds true today: “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.”

Additional Reading:

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Tech Policy, Unintended Consequences & the Failure of Good Intentions

by on September 26, 2019 · 0 comments

by Andrea O’Sullivan & Adam Thierer

This essay originally appeared on The Bridge on September 25, 2019.

It is quickly becoming one of the iron laws of technology policy that by attempting to address one problem (like privacy, security, safety, or competition), policymakers often open up a different problem on another front. Trying to regulate to protect online safety, for example, might give rise to privacy concerns, or vice versa. Or taking steps to address online privacy through new regulations might create barriers to new entry, thus hurting online competition.

In a sense, this is simply a restatement of the law of unintended consequences. But it seems to be occurring with greater regularity in the technology policy today, and it serves as another good reminder why humility is essential when considering new regulations for fast-moving sectors.

Consider a few examples.

Privacy vs security & competition 

Many US states and the federal government are considering data privacy regulations in the vein of the European Union’s wide-reaching General Data Privacy Regulation (GDPR). But as early experiences with the GDPR and various state efforts can attest, regulations aimed at boosting consumer privacy can often butt against other security and competition concerns. Continue reading →

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