Editors’ Briefing: This Week in Political Economy (July 21–27)

The rumors of Facebook’s newfound vulnerability have been greatly exaggerated; Google reportedly employs more contractors than actual employees; Britain has a monopoly problem; and can consumers resist companies’ market power?

 

 

Mark Zuckerberg. Caricature by DonkeyHotey [CC BY 2.0], via Wikimedia Commons

 

  • CBS is investigating chairman and CEO Leslie Moonves ahead of a New Yorker exposé by Ronan Farrow that details numerous sexual misconduct allegations against Moonves.

 

  • After Facebook’s stock dropped 20 percent in a single day following its latest quarterly earnings report and subsequent earnings call, there are some who believe the tech giant—and by extension, other tech giants— is no longer “invincible.” In MarketWatch, Therese Poletti writes that “Facebook Inc. appears to finally be paying for the impact of fake news in the 2016 elections and user privacy concerns.” Siva Vaidhyanathan, author of the recent book Antisocial Media: How Facebook Disconnects Us and Undermines Democracy, contends that the news of Facebook’s newfound vulnerability has been greatly exaggerated. “We live in stupid times. Only dupes pay attention to one-day moves in any stock, or even whole sectors. I can guarantee you no one inside Facebook is panicking. No one on its board of directors is worried or is demanding a shift in course or Mark Zuckerberg’s resignation. If anything, institutional investors are getting ready to buy Facebook at a bargain,” he writes.

 

  • Unlike Facebook, Google parent Alphabet actually exceeded profit estimates in the second quarter. However, the most interesting Google news this week didn’t concern its revenue growth, but rather its hiring practices. An illuminating Bloomberg article by Mark Bergen and Josh Eidelson reveals Google’s “shadow workforce,” a “permanent underclass” of “temps, vendors and contractors” who don’t “serve meals and clean offices…write code, handle sales calls, recruit staff, screen YouTube videos, test self-driving cars, and even manage entire teams” and yet don’t receive the same benefits as direct employees. For the first time in its 20-year history, according to the report, Google’s contractors outnumbered the company’s direct employees last year.

 

 

  • In the New York Times, Luigi Zingales [Faculty Director of the Stigler Center and one of the editors of this blog] writes about the differences between American and European antitrust following the European Commission’s decision to fine Google $5.1 billion last week. Lax antitrust enforcement in the US, he suggests, is the reason Americans “are paying so much more for smartphones in the United States than Europeans are.”

 

  • Following years of declining ad revenues, the New York Daily News—at one point, the largest-circulation paper in the US—laid off half of its editorial staff. In The Guardian, Barry Lynn of the Open Markets Institute argues that the decimation of journalism “is largely the result of Google abusing its monopoly over online advertising, in tandem with Facebook.” Google and Facebook, her writes, “pose fundamental dangers to even the most successful outlets. Their status as essential gatekeepers to the news…gives these two the power to steer readers away from any newspaper, almost at will.”

 

  • From the New York Times: How mega-mergers are changing the way you watch your favorite shows and movies. “Five companies now control nine of the 10 most-watched cable channels this season. Disney, with the Fox acquisition, owns 50 percent of the North American box office for this year.”

 

  • “Like America, Britain suffers from a lack of competition,” proclaims The Economist. “If you split the British economy into 250-odd industry sectors, you will find that in nearly 60 percent of them the four biggest firms claim a larger share of revenues than they did a decade ago. Since the early 2000s the top 100 firms, excluding finance and oil, have seen their share of economy-wide takings creep up, from 18.5 percent to 23 percent.”

 

  • In the Financial Times, Rana Foroohar defines the concentration of economic and political power, particularly in the hands of a few Silicon Valley giants, as the “economic and political challenge of our time.” “Regulators on both sides of the Atlantic need to grapple with it,” she adds. New York attorney general candidate Zephyr Teachout has already promised that if she is elected, she would explore the possibility of breaking up Facebook and Google through state and federal antitrust laws.

 

  • Meanwhile, in the New York Times, Chicago Booth economist Austan Goolsbee writes about ways in which consumers can resist companies’ market power. “Even as we debate these larger notions let us not forget the ways in which we, consumers at the very base of the economy, increase corporate market power with the ways we shop,” he writes.

 

  • From the Wall Street Journal: two whistleblower letters detail the skewed incentives and sales goals behind the recent scandals concerning Wells Fargo’s wealth-management business.

 

  • Donor-advised funds (DAFs) are among the hottest trends in the world of philanthropy these days, particularly among Wall Street financial institutions. A new report by the Institute for Policy Studies, however, warns of the rapid growth of these unregulated vehicles, which are being used by wealthy individuals to claim substantial tax benefits and yet often fail “to move funds in a timely manner to independent nonprofits addressing urgent social needs.”

 

  • In The Intercept, David Dayen writes on the Consumer Financial Protection Bureau’s newfound habit of reducing fines for corporate offenders to “a fraction of the initial amount.” In Washington political circles, he writes, this has apparently come to be known as the “Mulvaney discount,” after CFPB acting director Mick Mulvaney. 

 

  • From the New York Times: Trump’s trade truce with Europe “mirrors Obama’s path.” 

 

  • From Huff Post: the shadowy PR firm working to make the Supreme Court nomination of Brett Kavanaugh more palatable to the American public.

 

Chatter From the Ivory Tower

 

  • A federal jury found Columbia Business School professor Geert Bekaert and Columbia University liable for retaliating against Enrichetta Ravina after she accused Bekaert of sexual harassment and gender discrimination. Ravina has sued Bekaert and Columbia for $30 million, claiming that after she spurned Bekaert’s advances and complained, both he and Columbia retaliated against her. The jurors awarded Ravina $750,000 in compensatory damages from Columbia and Bekaert and also ruled that Bekaert is liable for $500,000 in punitive damages.

 

  • The University of Chicago Law Review has released a call for papers for its Symposium on Re-Assessing the Chicago School of Antitrust Law, to be held May 10-11, 2019. Further details here.

 

  • The new issue of the Georgetown Law Technology Review features a symposium on Problems of Access and Entry, with contributions from, among others, Lina Khan and Maurice E. Stucke.

 

  • The European Economic Association has announced the launch of the first European Job Market for economists in Naples on December 6-7, 2018, with the participation of institutions of the likes of UniBocconi, LSE, UCL, TSE, the Banks of Italy and Spain, and the Einaudi Institute.

 

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.