Editors’ Briefing: This Week in Political Economy (July 14–21)

The EU’s record-breaking antitrust fine against Google might be too little, too late; Facebook CEO Mark Zuckerberg thanks one of his biggest advertisers, President Trump; the FCC likely dooms the Sinclair-Tribune merger; and can economists and humanists ever be friends?

 

 

Margrethe Vestager

 

  • The European Commission has leveled a record €4.3 billion ($5.1 billion) antitrust fine against Google for abusing the dominance of its Android mobile operating system in order “to cement the dominance of its search engine.” The EC also gave Alphabet, Google’s parent company, 90 days to change its business practices or face further actions. Google is already planning to appeal the fine, but could face an “uphill battle,” according to the Wall Street Journal. While the fine is the largest of its kind imposed by the EC, and nearly twice the size of the previous antitrust fine the Commission leveled against Google last year, it is yet unclear whether it will restrain Google and other dominant tech monopolies and spur competition. Reviewing the decision, The Economist lauds the European Commission for “scrutinizing the behavior of dominant online firms”—its activism, it notes, in stark contrast with the passivity of US antitrust authorities—but nevertheless asserts that the fine “is not enough to change [Google’s] behavior.” The Wall Street Journal  also suggests that the fine “may not prove too onerous” for Google, since “even if Google loses its appeals, novel antitrust cases in the tech sector can take so long that by the time they are decided, the alleged monopolist may already be entrenched, or the entire market has already moved on.” Others have also suggested that the EU fine may be “too little, too late.”

 

  • Regardless, President Trump has already capitalized on the EU’s antitrust action against Google (which he described as “one of our great companies”), charging that the fine should be seen as a clear example of the US being “taken advantage of” by Europe.

 

  • Facebook CEO and co-founder Mark Zuckerberg landed in a bunch of hot water this week after seemingly defending the right of Holocaust deniers to spread misinformation on Facebook during a wide-ranging interview with ReCode’s Kara Swisher (the whole interview, among the longest and most revealing ever given by Zuckerberg, is worth a read). The uproar brought to mind Facebook’s weak response so far to the proliferation of disinformation and political propaganda on its platform, but also, as New York’s Max Read notes, its immense power over speech and the spread of information online.

 

  • In a related story, BuzzFeed reported this week that Zuckerberg called Donald Trump shortly after the 2016 presidential election to congratulate him on his victory and his “successful campaign” on Facebook. The company, according to the report by Ryan Mac and Charlie Warzel, even touted the Trump campaign as an “innovator” in presentations and memos. Trump, reports Sheera Frenkel in The New York Times, is currently the single biggest political advertiser on Facebook. Trump and his election PAC, reports Frenkel, spent $274,000 on Facebook ads since early May, their ads “seen the most by Facebook’s users, having been viewed by at least 37 million people since May…compared with 24 million people who saw the second-most viewed group of political ads, which were from Planned Parenthood.”

 

  • In his ReCode interview with Swisher, Zuckerberg was also asked about the growing movement that seeks to break up Facebook. Zuckerberg, needless to say, is not a fan of the idea, arguing that breaking up Facebook would hurt American interests because it would allow Chinese tech companies who “do not share the values that we have” to take over. The Financial Times published a wide-ranging project of its own this week on the Chinese government’s “large bet” on a small set of private sector tech companies—such as Tencent, Baidu, and Alibaba—which it hopes to boost into global dominance. Dominant tech firms, reports the FT, are crucial to the functioning of China’s surveillance state: “The private sector guys know the way they are going to survive and keep their duopolies is to play along with the state,” author Fraser Howie tells the paper.

 

  • Amazon CEO Jeff Bezos is now the richest person in modern history, with a net worth of over  $150 billion. Meanwhile, experts worry Amazon is building a dangerous monopoly.

 

  • Sinclair’s $3.9 billion takeover of Tribune Media has hit an unexpected roadblock that could very well kill it, after FCC Chairman Ajit Pai (long seen as favorable to Sinclair and currently investigated for his ties to the company) expressed “serious concerns” about the merger and sent it to an administrative judge, a move that likely spells its doom. The FCC’s hearing order cites “material questions” regarding three local stations Sinclair was supposed to sell in order to fall within the agency’s (already relaxed) media ownership rules, suggesting that the planned sale of these stations to a company run by Sinclair’s CEO at below market prices would allow Sinclair to effectively retain control of these stations. “The record raises significant questions as to whether those proposed divestitures were in fact ‘sham’ transactions,” the hearing order says. Politico’s Margaret Harding McGill and Gizmodo’s Rhett Jones attempt to explain Pai’s incredible turnaround and how Sinclair was able to “squander the most favorable regulatory environment in decades.” “Let’s be honest, if you’re Sinclair and you lose Chairman Pai, you’ve done something wrong,” one media professional tells Politico. In Media Matters, Pam Vogel contends that the Sinclair-Tribune deal’s issues go far beyond three stations, listing 48 stations in 23 states that are not owned by Sinclair but “operated by the company in some capacity.”

 

  • What is there to fix in US antitrust enforcement? A lot, argues Yale economist (and ProMarket contributor) Fiona Scott Morton in the first installment of the Washington Center for Equitable Growth’s new article series on antitrust, titled “Competitive Edge.”

 

  • Forbes hosted a fascinating Washington Bytes panel on the future of antitrust enforcement in a post-Ohio v. American Express world, featuring Michael Kades of the Washington Center for Equitable Growth, frequent ProMarket contributors Randy Picker and Chris Sagers, and Hal Singer, senior fellow of the George Washington Institute of Public Policy.

 

  • In the Washington Post, Brian Fung and Tony Romm preview what the Justice Department will argue in its appeal against the AT&T-Time Warner merger.

 

  • In their new book Big Is Beautiful, Robert D. Atkinson and Michael Lind argue that we should welcome American economy’s increasing monopolization because “on virtually every measure, big business is superior to small.” In a scathing Washington Monthly review, ILSR’s Stacy Mitchell takes them both to task, arguing that their conclusions rely on “cherry-picked data and misleading arguments.”

 

  • “America’s wage crisis,” proclaims Steve LeVine in Axios, “no longer looks temporary,” following a Bureau of Labor Statistics report that showed wages for ordinary, non-management workers fell over the last year. As the question of why wages are flatlining, despite record-low unemployment, continues to fluster some economists, the Washington Post’s Matt O’Brien reviews recent studies on monopsony power and non-poaching/non-compete agreements and provides a plausible answer: “businesses have hijacked capitalism—and left workers behind.” The Economist offers a similar diagnosis: “The evidence that concentrated wealth contributes to concentrated power is troubling. It suggests that reducing inequality becomes less likely even as it becomes more urgent. It implies that a vicious cycle of rising inequality may be developing, with a loss of democratic accountability as a nasty side-effect.”

 

  • The “Russiagate” scandal, argues Vox’s Dylan Matthews, is not just a story of possible collusion between the Trump campaign and Russia, but also the story of America’s “culture of elite impunity, where business and political leaders face absolutely no accountability for misdeeds.”

 

  • A new scandal at Wells Fargo: the bank is “in the process of refunding tens of millions of dollars for products ranging from pet insurance to legal services added to hundreds of thousands of customers’ accounts without their full understanding,” according to the Wall Street Journal. Yahoo Finance’s Bethany McLean and Ethan Wolff-Mann, meanwhile, report that despite Wells Fargo’s attempts to move past its fake account scandal, “the intense pressure for sales is alive and well, according to hundreds of pages of internal documents.”

 

  • In a victory for conservatives and Republican donors, the Trump administration will end a longstanding rule that required nonprofit organizations to disclose the names of large donors to the IRS, a move which “will affect thousands of labor unions, social clubs, and political groups as varied as arms of the AARP, the United States Chamber of Commerce, the National Rifle Association, and Americans for Prosperity, which is funded partly by the billionaire brothers Charles and David Koch,” according to the New York Times.

 

  • The fossil fuel industry has spent nearly $2 billion on lobbying in order to kill any sort of US action on climate change since 2000, outspending environmentalist groups 10-to-1, reports Think Progress, citing a shocking new study by Drexel University environmental sociologist Robert J. Brulle.

 

  • Comcast has officially dropped its bid for the film and TV assets of 21st Century Fox following a months-long bidding war with Disney, but will continue in its bid to purchase Sky, which Disney is also trying to buy through Fox, reports CNN.

 

  • From the New Yorker: Novelist John Lanchester mulls over whether economists and humanists can ever be friends.

 

Chatter From the Ivory Tower

 

  • The latest issue of the Journal of Public Economics honors the work of its founding editor Tony Atkinson, the renowned scholar of inequality, poverty, and taxation. “Tony is,” the editors write, “arguably the most influential figure in the inequality literature since Simon Kuznets.” The issue features contributions from, among others, Alvaredo, Deaton, Piketty, Stiglitz, and Saez and Stantcheva.

 

  • The second week of the marathon three-week NBER Summer Institute is winding down in Cambridge, Massachusetts. Check out the master schedule here for links to many of the hundreds of papers being presented there.

 

Stigler Center Goings-On

 

In the first part of a special 3-part series on antitrust law following the approval of the AT&T and Time Warner merger, Capitalisn’t hosts Kate Waldock and Luigi Zingales talk with the government’s expert on the case, Carl Shapiro, about the evolving concept of consumer welfare and whether antitrust law needs to change with the times.

 

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.