Editors’ Briefing: This Week in Political Economy (December 9-16)

Congress misses an opportunity to scrutinize Google; the IRS is on life support; Johnson & Johnson reportedly knew for decades that its baby powder contained asbestos; the British Labour Party considers a break-up of the Big Four accounting firms; and will Obamacare once again be upheld by the Supreme Court?

 

 

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

 

Techlash News: Facebook Fined, Congress Misses an Opportunity

 

  • Google CEO Sundar Pichai testified before the House Judiciary Committee on Tuesday, answering questions about privacy, Google’s data practices, and the company’s controversial re-entry into China. Although the hearing presented a rare opportunity for Congress to scrutinize Google—the company’s senior management has been noticeably absent from recent Congressional hearings on tech platforms—the hearing didn’t turn out to be the grilling many thought it would be, with lawmakers appearing to be shockingly ill-informed and more interested in conspiracy theories and partisan squabbling.

 

  • “Members of Congress didn’t ask strong questions or botched follow-up questions that allowed Pichai to repeat rote talking points. And Pichai, like many of his tech executive peers, too often dodged when given a chance to engage in important philosophical and practical questions about Google and the internet more broadly,” summarizes Bloomberg’s Shira Ovide. “The hearing was more than a missed opportunity for both lawmakers and members of the public. It was a foreboding reminder of Congress’s continued technological ignorance, and a sign that while lawmakers almost unilaterally agree that something must be done about tech giants’ tremendous power, they remain unwilling to set aside partisan squabbles to actually do anything about it,” writes Wired’s Issie Lapowsky.

 

  • During the hearing, the lawmakers constantly brought up a New York Times investigation into the location-data collection practices of dozens of tech companies. The report showed just how precise and easily accessible location data can be, as well as how invasive and profitable “the industry of snooping on people’s daily habits” has become. “These companies sell, use or analyze the data to cater to advertisers, retail outlets and even hedge funds seeking insights into consumer behavior. It’s a hot market, with sales of location-targeted advertising reaching an estimated $21 billion this year,” report the Times‘ Jennifer Valentino-Devries, Natasha Singer, Michael H. Keller and Aaron Krolik.

 

  • Earlier this week, Google announced it will shut down Google+ four months earlier than it previously planned following a new, second data leak that impacted 52.5 million users, according to the company. Facebook, meanwhile, added to its impressive streak of privacy scandals with a new security breach that “let third-party developers view the photos of up to 6.8 million Facebook users, whether they’d shared them or not.”

 

  • Facebook has been fined €10 million by Italy’s competition authority for misleading users about its data collection. The Italian regulators ruled that Facebook violated the country’s consumer code by “misleading users in the sign-up process about the extent to which the data they provide would be used for commercial purposes”; “emphasizing only the free nature of the service, without informing users of the ‘profitable ends that underlie the provision of the social network’”; and “forcing an “aggressive practice” on registered users by transmitting their data from Facebook to third parties, and vice versa, for commercial purposes,” reports The Guardian.

 

  • After the 2016 presidential election, Facebook launched its fact-checking initiative—a partnership between the company and prominent news outlets that was meant to fight the spread of fake news but sparked plenty of controversy. Nowadays, reports The Guardian’s Sam Levin, the program is in “disarray,” with journalists feeling that Facebook “has ignored their concerns and failed to use their expertise to combat misinformation” and with many eager to sever ties with the company. “They’ve essentially used us for crisis PR…they’re not taking anything seriously. They are more interested in making themselves look good and passing the buck … They clearly don’t care,” Brooke Binkowski, the former managing editor of Snopes, which partnered with Facebook two years ago, told The Guardian.

 

  • “Would you trust Big Tobacco’s claims about lung cancer? What about Big Sugar’s claims about obesity? Then why would you believe what Big Tech has to say about data privacy?” writes Stanford assistant professor Michal Kosinski in a New York Times op-ed that disputes Facebook’s repeated claims that it doesn’t sell data about users. “Facebook’s claiming that it is not selling user data is like a bar’s giving away a free martini with every $12 bag of peanuts and then claiming that it’s not selling drinks. Rich user data is Facebook’s most prized possession, and the company sure isn’t throwing it in for free.”

 

  • Friday was the one-year anniversary of the FCC’s net neutrality repeal, and supporters of net neutrality in the House are still 38 votes short in their attempt to restore the 2015 rules. In the year since the repeal, argues Gigi Sohn in ProMarket, “every promise made by broadband providers and every reason cited by the FCC in its decision to eliminate the net neutrality rules has proven false.”

 

  • In Huff Post, Nathan M. Jensen explains the “true absurdity” of the Amazon HQ2 debacle. “The anger about HQ2 should really be about the process of economic development. Secret deals that cost cities and states millions or, in the case of Foxconn in Wisconsin, billions of dollars, have become all too common,” he writes.

 

This Week in Trump Administration News: Trump’s Inauguration Under Investigation; Zinke Resigns

 

  • After a contentious term described as a “monumental disaster” by former staffers and over a dozen ethics investigations and numerous scandals to his name, Interior Secretary Ryan Zinke announced his resignation. Zinke is “the fourth Trump Cabinet member to resign under an ethics cloud in less than two years,” reports the Washington Post.

 

  • President Trump’s former lawyer Michael Cohen has been sentenced to three years in prison for arranging payments to silence women who claimed to have had affairs with Trump in the run-up to the 2016 election. In an interview with ABC, Cohen said Trump was aware of the payments and that “of course” he knew they were wrong. “Nobody got killed, nobody got robbed… This was not a big crime,” Trump’s current lawyer, Rudy Giuliani, told the Daily Beast about Cohen’s crimes. In the wake of Cohen’s legal troubles and falling out with Trump, the president’s son-in-law Jared Kushner replaced Cohen as the liaison between the administration and National Enquirer publisher David Pecker, the Daily Beast’s Asawin Suebsaeng, Maxwell Tani and Lloyd Grove report. This week, Pecker admitted to paying hush money to a woman who alleged an affair with Trump in order to prevent her story from influencing the 2016 election.

 

  • Before his presidential inauguration, President Trump’s inaugural committee raised and spent record amounts, with Trump himself as one of the main beneficiaries, a ProPublica/WNYC investigation by Ilya Marritz and Justin Elliott reveals. Before Trump’s January 2017 inauguration, the inaugural committee “paid the Trump Organization for rooms, meals and event space at the company’s Washington hotel.” The President’s daughter Ivanka was reportedly involved in negotiating the prices that Trump’s Washington hotel charged the inaugural committee. Trump’s inauguration is reportedly the subject of a criminal investigation into whether the hotel overcharged the committee and whether donors gave money in return for political favors.

 

  • From the New Yorker: Rep. Adam Schiff (D-CA), who will become the chairman of the House Permanent Select Committee on Intelligence next month, has a plan to investigate Trump’s finances.

 

  • President Trump has named Mick Mulvaney, the director of the Office of Management and Budget and former acting director of the Consumer Financial Protection Bureau, as acting White House chief of staff. Meanwhile, Kathy Kraninger, the new director of the CFPB, began her tenure this week by claiming she won’t be beholden to Mulvaney, under whom the CFPB has rolled back oversight of private companies, with enforcement actions dropping about 75 percent from their average in recent years.

 

  • It has now been a year since President Trump and the GOP passed their $1.5 trillion tax cut through Congress, promising that the massive corporate tax cut would increase productivity and wages. Did it? No. Meanwhile, in Project Syndicate, J. Bradford Delong admonishes the economists who supported the tax cut and remained silent after being proven wrong. “The economists who predicted that tax cuts would spur a rapid increase in investment and sustained growth have now been proven wrong. If they were serious academics committed to their discipline, they would take this as a sign that they have something to learn. Sadly, they have not. They have remained silent, which suggests that they are not surprised to see investment fall far short of what they promised,” he writes.

 

  • A federal judge in Texas ruled on Friday that the Affordable Care Act, otherwise known as Obamacare, is unconstitutional. The White House now expects the law to once again be brought before the Supreme Court, which already upheld Obamacare twice, in 2012 and 2015. The ruling immediately sparked controversy, with legal experts criticizing its reasoning. Meanwhile, The Guardian reports that the US district judge responsible for Friday’s ruling, Reed O’Connor, is a former state and federal prosecutor who has been active in the Federalist Society. The ruling “is not a model of constitutional or statutory analysis. It’s instead a predictable exercise in motivated reasoning—drafted by a jurist with a history of ruling against policies and laws advanced by President Barack Obama,” argues Cristian Farias in the New York Times.

 

In Other Regulation News: Johnson & Johnson Obfuscates, the IRS on Life Support

 

  • An eight-year campaign to slash the IRS’ budget has left it “understaffed, hamstrung and operating with archaic equipment,” report ProPublica’s Paul Kiel and Jesse Eisinger. “The IRS conducted 675,000 fewer audits in 2017 than it did in 2010, a drop in the audit rate of 42 percent,” resulting in $8.3 billion in lost government revenues, they report. “The IRS’ ability to investigate criminals has atrophied as well,” they write, to the great benefit of wealthy taxpayers. The working poor, according to the report, are far more likely to face IRS scrutiny these days than the rich: “If you claim the earned income tax credit, whose average recipient makes less than $20,000 a year, you’re more likely to face IRS scrutiny than someone making twenty times as much.”

 

  • A Reuters investigation alleges that Johnson & Johnson has known for decades that its popular baby powder contained asbestos, causing J&J stock to tumble 10 percent. The Reuters report is based on internal documents related to a lawsuit filed against the company by 22 women who blamed asbestos in its talc products for their ovarian cancer that ended with a $4.7 billion verdict for the plaintiffs. The report alleges that going back to the 1970s, tests found asbestos in J&J’s talc, but the company kept this information from both the FDA and the public.

 

  • From Slate: “The government isn’t regulating a deadly paint stripper, so retailers are instead.”

 

  • A New York Times investigation by Hiroko Tabuchi reveals the “covert campaign” by refining giant Marathon Petroleum, powerful oil-industry groups and the conservative policy network of Charles Koch to roll back car efficiency standards: “When the Trump administration laid out a plan this year that would eventually allow cars to emit more pollution, automakers, the obvious winners from the proposal, balked. The changes, they said, went too far even for them.”

 

  • Sen. James Inhofe (R-OK), the chairman of the Senate Armed Services Committee, purchased tens of thousands of dollars’ worth of stock in defense contractor Raytheon, just days after announcing his support for increasing the 2020 military budget to a record $750 billion, reports Lachlan Markay in the Daily Beast. “Federal lawmakers are prohibited from trading stock based on non-public information. But since news of Trump’s massive Pentagon budget request was already public when Inhofe purchased the stock, it likely would not have run afoul of congressional insider trading laws even if Inhofe himself were behind the transaction,” Markay writes. “But the Raytheon stock purchase still raised a flag for government ethicists, who said it underscored the moral hazard of lawmakers owning assets in areas of industry affected by legislation they are in positions to author and shepherd into law.” Inhofe’s stock purchase is “representative of the kind of corruption that is slowly eroding American democracy—when the people’s elected representatives do not even pretend to hide the fact that they are making policy to benefit themselves,” argues The Week’s Ryan Cooper.

 

  • “I want to be clear. I do not respect the SEC. I do not respect them,” Tesla CEO Elon Musk said in an interview with CBS’s 60 Minutes. In September, Tesla and the SEC reached a settlement over Musk’s infamous false statements about having “secured” funding to take Tesla private, under which Musk agreed to step down as Tesla’s chairman and pay a $20 million fine.

 

  • In The Intercept, David Dayen surveys the strange and brief Senate career of corporate lobbyist Jon Kyl, who somehow ended up being appointed as a US Senator from Arizona as a temporary replacement for the late John McCain. “Few have paid much attention to Kyl, who is wrapping up one of the strangest and—to his critics—one of the most corrupt tenures in the modern history of the Senate,” writes Dayen.

 

Antitrust Updates: Labour Considers Break Up of Big Four Accounting Firms

 

  • The British Labour Party is considering supporting a proposal that would force the Big Four accounting firms to break up their UK businesses and drop a huge number of prominent clients, reports the Financial Times. According to the FT, a report commissioned by Labour and written by Sheffield university professor Prem Sikka also “recommended an independent body to appoint and remunerate auditors for large groups outside of finance, to help eradicate cosy ties between company directors and their accountants.”

 

  • “The outcry over monopoly power has gone mainstream,” argues Noah Smith in a Bloomberg piece about the growing antimonopoly movement in the US. People who view the monopolization of the American economy as a serious problem, however, are “going up against an entrenched nexus of lawyers, bureaucrats, economists and companies that has spent the last several decades creating a merger-friendly regulatory environment,” he writes.

 

  • From Huff Post: the farm bill that was passed in the Senate and the House this week will mostly benefit big farms and hurt small farmers. The new bill, argues Austin Frerick of the Open Markets Institute, will only serve to entrench a system in which “only the largest farms can eke out a living, pushing out most midsized operations.”

 

  • From Reuters: The FCC is considering ending the rule that bars the “Big Four” broadcast networks from merging with each other. 

 

McKinsey, Harvard, and the Purpose of the Corporation

 

  • From the New York Times: How McKinsey helped raise the stature of authoritarian governments around the world. “At a time when democracies and their basic values are increasingly under attack, the iconic American company has helped raise the stature of authoritarian and corrupt governments across the globe, sometimes in ways that counter American interests,” Walt Bogdanich and Michael Forsythe write. 

 

  • “We must rethink the purpose of the corporation,” argues Martin Wolf in a Financial Times piece about Colin Mayer’s recent book Prosperity and Jonathan Tepper and Denise Hearn’s The Myth of Capitalism. “These books suggest that capitalism is substantially broken. Reluctantly, I have come to a similar conclusion. This is not to argue for the abandonment of the market economy, but for better companies and more competition,” writes Wolf, who argues that it is now time to move away from the focus on shareholder value maximization as the sole purpose of corporations—an idea ProMarket has explored at length in the past.

 

  • From the Wall Street Journal: Making a bet on climate change, Harvard’s $39 billion endowment has been purchasing California farmland—and the water underneath it.

 

  • In The Guardian, Thomas Piketty presents a “manifesto to save Europe from itself.”

 

Stigler Center Goings-On

 

In the second of a two-part look at global inequality, Capitalisn’t hosts Kate Waldock and Luigi Zingales talk about the downside of globalization. A listener’s email sparks a conversation about what’s driving the growing wage gap within the US, and the two survey the latest research on the lingering effects of the ‘China Shock’ and debate how to reverse the trend before the people revolt.

 

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