Editors’ Briefing: This Week in Political Economy (April 14–April 28)

Why has Facebook’s scandal not dented its earnings? How much are states and local governments giving to corporations in economic-development incentives? And did CFPB head Mick Mulvaney really say “the swampiest thing ever”? 

 

 

Mick Mulvaney. Photo by Gage Skidmore from Peoria, AZ [CC BY-SA 2.0], via Wikimedia Commons

 

  • Facebook reported its first quarterly earnings since the Cambridge Analytica data scandal broke, beating Wall Street estimates and reporting record quarterly revenues of $12 billion, up 49% from the previous year. In Wired, Nitasha Tiku explains why the fierce public backlash against Facebook hasn’t dented its profits one bit. “I don’t think they do anything that will cost them more than a dollar over the long term,” she quotes NYU professor Scott Galloway as saying. Meanwhile, Facebook’s chief technology officer, Mike Schroepfer, was grilled for hours by members of the British Parliament’s Digital, Culture, Media and Sport Committee. “You aren’t an innocent party wronged by the likes of Cambridge Analytica. You are the problem. Your company is the problem,” Schroepfer was told by one MP, while another called Facebook a “morality-free zone.” BBC reports that because Schroepfer “failed to fully answer” the answers put to him by the committee, Mark Zuckerberg could face a formal summons.

 

  • In Wired, Congressman David Cicilline (D-RI) and FTC commissioner Terrell McSweeny explain why Facebook’s privacy problem is really a competition problem. “Privacy and competition are becoming increasingly interdependent conditions for protecting rights online,” they write. In the Financial Times, early Facebook investor Roger McNamee argues that the best way to rein in Facebook would be to treat it like AT&T in 1956, when Ma Bell was forced to share its patents with others at no charge. In The Guardian, Facebook co-founder Chris Hughes makes the case for a data tax, or “data dividend,” that would “ensure that everyone creating [data] shares in the economic value it generates.”

 

  • Meanwhile, as Facebook continues to deal with the repercussions of its recent scandals, attention is turning toward Google as well. “If the concern is that companies might be collecting some personal data without our knowledge or explicit consent, Alphabet Inc.’s Google is a far bigger threat by many measures,” writes Christopher Mims in the Wall Street Journal. Google “has largely escaped scrutiny of late, but deserves a congressional grilling just as much as Mark Zuckerberg did,” writes David Dayen in The New Republic, adding that “Some of the data harvesting scandals particular to Facebook are really attributable to Google.”

 

  • Amazon also reported a monster of a quarter, with profit more than doubling from the previous year. In The Guardian, Olivia Solon and Julia Carrie Wong write about the “aggressive techniques Amazon uses to achieve market dominance.” Thanks to its “profound knowledge” of its users, they write, “Amazon can move into almost any sector.”  In the Washington Post, (owned by Amazon founder and CEO Jeff Bezos) Elizabeth Dwoskin and Craig Timberg investigate the customer reviews on Amazon products and find that many—in some popular categories, a vast majority—of the reviews are fake. It has been nearly five years since Bezos bought the Post, writes Politico’s Jack Shafer, and “still we don’t know for certain why he bought it.”

 

  • Amazon also disclosed, for the first time, the median annual compensation of its employees: $28,446.

 

  • In Logic, K. Sabeel Rahman writes about how to mitigate the power of digital platforms. “Taming technological power will require changing how we think about technology. It will require moving beyond Panglossian views of technology as neutral, apolitical, or purely virtuous, and seeing it as a form of power,” he writes.

 

  • “The story of the US economy over the past 40 years has been one of rapid technological change, growing corporate monopoly power, and deepening despair for a rising share of workers,” writes Stanford professor Mordecai Kurz in Project Syndicate. Monopoly profits, he writes, have risen dramatically, from near zero in the early 1980s to $2.1 trillion—or 23 percent of total US corporate income. Monopoly wealth had reached $23.8 trillion, or 82 percent of the stock market’s total value, in 2015.

 

  • The Department of Justice has opened an antitrust investigation potential collusion between AT&T, Verizon, and a mobile industry standards-setting organization called GSMA “to hinder consumers from easily switching wireless carriers,” reports the New York Times. Meanwhile, the Trump administration’s antitrust chief, Makan Delrahim, didn’t rule out the possibility of a settlement in the DOJ’s case against the AT&T/Time Warner merger.

 

For more on how political factors shape competition in the mobile industry, see this Stigler Center paper by Mara Faccio and Luigi Zingales.

 

  • In the New York Times, Nathan M. Jensen writes about the opacity of economic-development incentives given to corporations. “Every year, states and local governments give economic-development incentives to companies to the tune of between $45 billion and $80 billion. Why such a wide range? It’s not sloppy research; it’s because many of these subsidies are not public,” he writes.

 

  • Mick Mulvaney, head of the Office of Management and Budget and interim director of the Consumer Financial Protection Bureau, made some unusual remarks during an American Bankers Association conference this week, telling banking executives they should press congresspeople to pursue their agenda and that as a congressman he only met with with lobbyists who contributed to his campaign. “We had a hierarchy in my office in Congress. If you were a lobbyist who never gave us money, I didn’t talk to you. If you were a lobbyist who gave us money, I might talk to you,” said Mulvaney, who added: “If you came from back home and sat in my lobby, I talked to you without exception regardless of the financial contributions.” CNN called this remark “the swampiest thing ever,” and in The Atlantic, David A. Graham writes that while “it’s not exactly news that money makes Washington move…in the past, members of the political establishment have at least tried to pretend that isn’t true.”

 

  • In The Nation, David Dayen writes about the $1 billion fine the CFPB leveled against Wells Fargo last week, arguing that the fine is but “window dressing on a miscarriage of justice.” Also by Dayen, this time in The Intercept: the settlement between the CFPB and Wells Fargo “is set up in such a way that will allow Wells Fargo to set the terms by which defrauded customers can be made whole.”

 

 

  • From Fortune: “How high drug prices and big lobbying budgets go together for Big Pharma.”

 

  • This wide-ranging and excellent investigation of Peter Thiel’s data-mining company Palantir’s use of War on Terror–era tools to track American citizens, by Bloomberg’s Peter Waldman, Lizette Chapman, and Jordan Robertson, is a week old but still worth highlighting.

 

  • From Fast Company: Florida Governor Rick Scott led a group that raked in cash from financial firms after the state gave them pension deals.

 

  • From Quartz: One year after the Uber-Didi merger, it’s only getting harder to hail a ride in China.

 

Chatter From the Ivory Tower

 

  • A pair of Dutch economists have brought some data to David Graeber’s take on the phenomenon on BS jobs: the International Social Survey Program Work Orientation Waves, covering 100,000 workers in 47 countries, finds that 8 percent of workers see their jobs as “socially useless,” with another 17 percent being doubtful. Economists figure among the top 20.

 

  • Bloomberg View columnist Noah Smith has taken umbrage at the assault continuously being leveled at his discipline in various British publications and dedicated a post this week to answering it: “Its entire vision of what economics needs to become is distorted by a warped picture of what the profession is today.” At Prime Economics, Ann Pettifor, an economist who advises Labour leader Jeremy Corbyn, begged to differ.

 

  • Some empirical evidence this month from the Journal of Economic Psychology on the Top5itis that Brown University economist Roberto Serrano recently alleged is plaguing the profession. Economists from 44 universities worldwide were asked to rate CVs based on their publication lists; the researchers found that the respondents consistently ranked CVs displaying only publications in top journals more highly. “A short CV is preferred to a long CV that has all the publications the short CV has,” the authors write, and “additional publications from lower-ranked journals negatively impact judgments.” This bias, they argue, is likely to hurt social welfare.

 

  • Stigler Center–affiliated, LBS-based economist Simcha Barkai, with coauthor Seth Benzell, has just released a follow-up to his influential 2016 paper on the decline in the labor and capital shares in the Stigler Center Working Paper series. In “70 Years of Corporate Profits,” he qualifies his earlier findings on the profit share vis a vis recent alternative measures: “As a share of gross value added, profits today are higher than they were in 1984, but lower than their value in the years after World War II.”

 

Stigler Center Goings-On

 

  • The Stigler Center’s Digital Platforms and Concentration conference continues to make waves. “America’s antitrust establishment is like a clergy that after decades of obscurity finds itself blinking on the world stage,” writes The Economist. Fortune’s executive editor Adam Lashinsky, who moderated one of the panels, writes: “This was one impressive gathering. As I gazed out at the room I saw some of the most important voices on the debate.” And in the Financial Times, Rana Foroohar (who also moderated one of the panels) writes that “the discussion was incredibly rich, but it also reminded me how complex and fragmented the intellectual landscape of the digital economy is. The antitrust scholars, patent experts, neuroscientists and investors are all coming from very different places.”

 

  • In the new episode of the Capitalisn’t podcast, “Mo Crypto Mo Problems,” Luigi Zingales and Kate Waldock dive into the volatile, largely unregulated market of cryptocurrencies and consider creating their own ICO.

 

Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.