Editors’ Briefing: This Week in Political Economy (October 1-7)

Brazil’s business community rallies around far-right authoritarian; Associate Justice Brett Kavanaugh enters the Supreme Court; Amazon raises its minimum wage to $15 an hour; Germany expects to take antitrust action against Facebook this year; and the IRS’ pursuit of tax crimes reportedly faces collapse. 

 

 

Sen. Chuck Grassley with Brett Kavanaugh. Photo by Office of Senator Chuck Grassley [Public domain], via Wikimedia Commons

 

  • Far-right populist candidate Jair Bolsonaro won the first round of Brazil’s presidential election, potentially the country’s most crucial presidential election ever, having won 46 percent of the vote. Because he fell short of the 50 percent he needed to win the presidency outright, Bolsonaro will face former São Paulo mayor Fernando Haddad (who only got 28 percent of the vote on Sunday) in the second round. Previously a marginal political figure, Bolsonaro rose to the top of the polls on the back of an extremely conservative agenda and the widespread anger of millions of Brazilians “disgusted by years of cynical politics, breathtaking corruption, economic stagnation, and obscene levels of crime,” writes Robert Muggah in Project Syndicate. Bolsonaro has frightened many with his frequent expressions of nostalgia for Brazil’s military dictatorship, but the country’s business leaders and financial markets have been warming up to him, according to AP. Brazilian industry leaders, previously worried about what they perceived to be Bolsonaro’s big-government, populist agenda, have begun to view him more favorably thanks to “factors ranging from Bolsonaro’s decision to name an esteemed banker as head of his economic team to fear about a return of the left-leaning policies of the Workers’ Party, according to the report.

 

  • Brett Kavanaugh was confirmed and sworn in to the Supreme Court on Saturday, having won a narrow Senate vote despite multiple sexual misconduct allegations against him. His ascension cements the Supreme Court’s conservative, pro-business majority, which would have deep and profound repercussions for American jurisprudence. (Stephen Calkins’s excellent ProMarket analysis on what Justice Kavanaugh will likely mean for antitrust enforcement is a highly recommended read). 

 

  • The Kavanaugh confirmation fight was also “a referendum on elite accountability,” writes Huff Post’s Zach Carter. Kavanaugh, notes David Sirota in The Guardian, is joining the Supreme Court just as ExxonMobil is petitioning the Court to block states’ investigations of its role in denying and suppressing climate change science. Kavanaugh’s confirmation, writes Sirota, is “the latest stage of the immunity project” of America’s business elites, with Kavanaugh presiding “as the sentinel standing watch over this sprawling accountability-free zone from a lifetime perch on America’s very own star chamber.”

 

  • Before the Senate vote, reported Anna Massoglia and Kaitlin Washburn in OpenSecrets.org, prominent groups on both sides of the confirmation battle spent millions of dollars on Facebook ads targeting states with senators who were still undecided as to how they would vote. Two dark money groups, Judicial Crisis Network and Demand Justice, were the two biggest spenders.

 

  • Facebook, meanwhile, is dealing with an internal revolt following the controversial appearance of its VP of global public policy, Joel Kaplan, at the Kavanaugh hearing last week.

 

  • In response to the New York Timesbombshell investigation into President Trump’s taxes, New York city and state officials have joined forces to investigate whether the president and his family devised various schemes to avoid paying taxes on his father’s real estate endeavors. The Times investigation revealed, among other things, that Trump received $413 million (in today’s dollars) from his father’s real estate empire and that much of this money came through various tax schemes. A number of tax experts quoted by the Times argued that the findings go beyond smart use of legal loopholes, representing “a pattern of deception and obfuscation that repeatedly prevented the IRS from taxing large transfers of wealth to Fred Trump’s children.”

 

  • The IRS pursues fewer cases of tax evasion than it did less than 10 years ago due to budget cuts, report Jesse Eisinger and Paul Kiel in the New York Times and ProPublica. Both IRS audits and criminal referrals are down sharply since Congress cut the IRS’ budget, according to the report: the IRS’s criminal division brought 795 criminal cases involving tax crime last year, a drop of almost 25 percent since 2010. “Provided you’re not a close associate of President Trump, there may never be a better time to be a tax cheat,” they write.

 

  • Amazon raised its minimum wage to $15 an hour, after years of being criticized for its workers’ low wages and the poor working conditions in its warehouses and following an effective public campaign by Sen. Bernie Sanders (I-Vt.) and Rep. Ro Khanna (D-CA). Amazon announced it would also lobby to raise the federal minimum wage as well. Amazon’s announcement was lauded by many (though not all), but as The Economist argues, it is possible that this was simply a smart business decision on the company’s part and yet another example of its monopsony power. Sanders himself thanked Amazon CEO Jeff Bezos for capitulating to pressure, but as Matt Stoller writes in The Guardian, Amazon underpaying its workers “is a problem, but it is not the central challenge of Amazon.” The real problem, he writes, is that Amazon is “a powerful monopoly that undermines small businesses, extracts tax concessions and suppresses producers.” Amazon employees, meanwhile, are worried they might be earning less under the new arrangement, since in addition to raising their hourly wages, Amazon slashed workers’ bonuses and stock grants. It’s also worth noting that Amazon’s new minimum wage is still below the median pay in most areas it operates in.

 

  • Khanna is also promoting his “Internet Bill of Rights” these days—a set of principles and basic rules aimed at restraining Silicon Valley and defining the rights of Americans on matters such as privacy and net neutrality that Democrats plan to push forward should they regain control of the House in November. Khanna’s proposed rules include users’ right to have “access to and knowledge of all collection and uses of personal data by companies,” to opt in rather than opt out of data-collection platforms that share their information with third parties, and also the right “to obtain, correct, or delete personal data controlled by any company.” In an interview with Kara Swisher, Khanna explained the reasoning behind his initiative: “since when did we think in this country that 30-something-year-old entrepreneurs should be writing the rules for Internet privacy?”

 

  • Tech giants are reportedly lobbying for new federal privacy legislation in order to neutralize much harsher legislative efforts by state legislatures. “A federal law wiping out—otherwise known as preempting—state protections would be a bad deal for consumers,” writes the ACLU’s Neema Singh Guliani in the Washington Post. “It would likely put existing consumer protections, many of which are state-led, on the chopping block and leave states bound by a federal law that could prevent additional consumer privacy protections from ever seeing the light of day. State regulators could lose the authority to sue or fine companies that violate their laws. And consumers may even be barred from taking companies to court.” In related news, both the Internet industry and the Justice Department are now suing the state of California over its one week old net neutrality law.

 

  • Germany expects to take antitrust action against Facebook later this year. “We are currently evaluating Facebook’s opinion on our preliminary assessment and I’m very optimistic that we are going to take further steps, even this year, whatever this would mean,” the head of the country’s antitrust authority, Andreas Mundt, told reporters in Berlin this week. The company could also face a $1.63 billion fine from the EU for its latest data breach.

 

  • Has Facebook learned anything from the Cambridge Analytica fiasco? Its recent breach—“among one of the most egregious in the history of Silicon Valley”—suggests not, argues the New York Times’ editorial board. Apparently, the company has also learned little from the troubles it had in curbing the widespread use of its platform in promoting the genocide of Rohingya Muslims in Myanmar, since it is now apparently speeding its efforts in the developing world. Wired’s Nitasha Tiku reports.

 

  • The consumer welfare standard that has dominated US antitrust enforcement in the past four decades is under attack by scholars who argue that it played a major part in the monopolization of America’s industries. Should antitrust enforcers move beyond it? Forbes hosts a Washington Bytes panel between the Roosevelt Institute’s Marshall Steinbaum, the Capitol Forum’s Sally Hubbard, the Hoover Institution’s Nicolas Petit and Hal Singer of the George Washington Institute of Public Policy.

 

  • CNN’s Hadas Gold on how liberal judges could help the DOJ’s case in its appeal against the court decision to clear the AT&T-Time Warner merger.

 

  • From The Intercept: Sen. Ted Cruz (R-TX), who as a corporate lobbyist helped Google squash the government investigation into its anti-competitive conduct, is now running for reelection as a populist fighting big business, moneyed interests, and tech giants. Lee Fang explores Cruz’s little-known past as a lobbyist, which contrasts sharply with the image he’s now trying to convey.

 

  • From the New York Times: Sen. Lindsey Graham (R-SC) has been one of the biggest supporters of President Trump’s China tariffs. He has also been helping chemical and textile companies in his home state of South Carolina avoid them.

 

  • The United States-Mexico-Canada Agreement (USMCA), the trade deal between the US, Mexico and Canada announced last week, is worse than NAFTA, the trade deal it replaced (actually, just revised), argue Gustavo A. Flores-Macías and Mariano Sánchez-Talanquer in the New York Times. “A key goal of Nafta, like all free trade agreements, is bringing certainty to the rules of the game to facilitate commercial exchanges,” they write. The new deal, which eliminates expert panels for resolving government-investor disputes and sets up a mechanism for automatically reviewing the terms of the deal on a periodic basis, “undermines that certainty.”

 

  • Tesla CEO Elon Musk continues his verbal battle against the Securities and Exchange Commission, mocking it on Twitter as the “Shortseller Enrichment Commission,” a week after he was forced to resign as the company’s chairman as part of his settlement with the SEC. Facing serious fraud charges related to his false declarations that he had “secured” funding to take Tesla private at $420 a share, the SEC could have forced Musk to resign as CEO, but decided not to do so because it deemed him “indispensable” to the company, writes David Dayen, who argues in The New Republic that the SEC’s leniency toward Musk has to do with “America’s toxic cult of the CEO.”

 

  • “Representing corporations also can be a form of public interest law because companies contribute so much to the well-being of society,” SEC commissioner Hester Peirce told University of Michigan Law School students this week. Before she joined the SEC, Peirce was a senior research fellow at the Koch-funded Mercatus Center at George Mason University and director of its Financial Markets Working Group, reports Sludge’s Alex Kotch.

 

  • California governor Jerry Brown signed a landmark bill that requires publicly-held companies based in California to have a minimum of one woman on their board of directors by the end of 2019. The law, reports Vox, “would mean 684 women would be needed for just the boards of the publicly traded companies that rank among the nation’s 3,000 largest — plus many more for smaller companies.”

 

  • From the Financial Times: PwC’s global chairman, Bob Moritz, doesn’t think the Big Four accounting firms should be broken up.

 

  • From The Nation: Can the US provide a public option for prescription drugs?

 

Stigler Center Goings-On

 

  • Join the Stigler Center and the Union League Club of Chicago on Monday for a conversation with author Yascha Mounk on his latest book, The People vs. Democracy: Why Our Freedom is in Danger and How to Save It. The discussion will be moderated by Capitalisn’t hosts Luigi Zingales and Kate Waldock and will be recorded and released in a future episode of Capitalisn’t. Details here.

 

Also, check out our interview with Mounk ahead of the event.

 

  • In the second of a three-part series on the 2008 financial crisis, Kate Waldock and Luigi Zingales discuss the aftermath of the Lehman crash. In the weeks after the crash Zingales remembers petitioning the government for a better bank bailout. Looking back, he and Waldock review everything from TARP to Dodd-Frank to see how we averted a worse recession. But did some CEOs get away with fraud?

 

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