Editors’ Briefing: This Week in Political Economy (September 16–22)

The White House is getting ready to go after tech platforms and the EU is going after Amazon, while Louisiana’s attorney general wants to break up social media giants; new details revealed about Google’s plans to launch a censored search engine in China; and can tech moguls save legacy media?

 

 

Amazon CEO Jeff Bezos. Photo by Steve Jurvetson. CC BY 2.0, via Wikimedia Commons

 

  • The White House has begun preparing a draft for a presidential executive order that would direct antitrust agencies to “thoroughly investigate” tech giants like Google and Facebook, Bloomberg reports. According to the report, the draft is still in its early stages. Although the document doesn’t mention any specific company by name, it reportedly instructs government agencies to “thoroughly investigate whether any online platform has acted in violation of the antitrust laws.” Following the Bloomberg report,  however, the Washington Post’s Tony Romm and Josh Dawsey wrote that the White House quickly “sought to distance itself” from the executive order. The Post quotes three White House aides who “insisted they didn’t write the draft order, didn’t know where it came from, and generally found it to be unworkable policy anyway.”

 

  • Amazon unveiled a slew of smart home devices and gadgets this week, but its special press event in Seattle was overshadowed by an announcement by the EU’s Competition Commissioner Margrethe Vestager that her office has launched a preliminary investigation into whether Amazon uses the data it gathers from third-party marketers that sell on its platform to gain an anticompetitive advantage in selling its own products to consumers. The European investigation, as Natalia Drozdiak and David McLaughlin notes in Bloomberg, echoes the scholarly work of the increasingly influential Lina Khan regarding Amazon’s dual role as both marketplace and competitor. James Thomson, a former Amazon executive who now consults for brands that sell on the platform, told Axios that Amazon’s “singular advantage” is the behavioral data that allows it to precisely target customers. “They know exactly who has looked for batteries but has not purchased them,” he said.

 

  • Earlier this week, CNBC reported that Citi’s research analysts believe Amazon should split into two companies, separating its retail and AWS businesses, to avoid antitrust scrutiny from the Trump administration. Meanwhile, Amazon has increased its share of the digital advertising market, generating $4.61 billion this year and becoming the third-biggest digital ad platform after Google and Facebook, according to eMarketer. Also, it is considering a plan to open as many as 3,000 cashierless stores in the next few years, according to Bloomberg.

 

  • Google’s leadership forced company employees to delete a confidential memo that exposed “explosive details” about its controversial planned censored search engine in China, writeThe Intercept’s Ryan Gallagher and Lee Fang. The memo, according to the report, was authored by a Google engineer who worked on the project, and revealed that the censored version of Google’s search engine, code-named Dragonfly, “would require users to log in to perform searches, track their location—and share the resulting history with a Chinese partner who would have ‘unilateral access’ to the data.”

 

  • Facebook has reportedly decided to scale back the kind of on-site support it provided the Donald Trump campaign in 2016 in future political campaigns, after the relationship between Facebook and the Trump campaign—which included “embedding” Facebook employees in the campaign’s offices to help them reach voters more effectively using Facebook’s advertising platform—came under intense scrutiny in the past two years.

 

  • Facebook may also face sanctions from the EU because it has yet to comply with Europe’s consumer rules, reports Reuters.

 

  • Louisiana’s Attorney General, Jeff Landry, called for social media giants—including Google and Facebook—to be broken up in the same way that Standard Oil was broken up a century ago, reports The Advocate’s Mark Ballard. “This can’t be fixed legislatively. We need to go to court with an antitrust suit,” Landry told The Advocate.

 

  • “In the crucible of litigation, DOJ’s claims were exposed as both narrow and fragile,” argues AT&T in a a 59-page brief in which it defended the court decision that cleared its merger with  Time Warner. The Justice Department is currently appealing the court’s decision, arguing that the ruling ignored “fundamental economic principles.”

 

  • As accusations of sexual assault threaten to derail Brett Kavanaugh’s nomination to the Supreme Court, Vox’s Matthew Yglesias sees the allegations and the responses from the US political system as indicative of “a larger crisis of elite accountability in America.”

 

  • FEMA administrator Brock Long may face criminal charges related to his use of government vehicles, after the findings of an internal investigation have been federal prosecutors. According to the Wall Street Journal, Long and two other federal employees “may have broken as many as six laws as they commuted frequently between Washington and Mr. Long’s home in Hickory, North Carolina, at taxpayers’ expense.”

 

  • The Washington Post’s Tracy Jan investigates Ben Carson’s Department of Housing and Urban Development, finding a department rife with political appointments, where the governing principle seems to be “loyalty over expertise.” The proliferation of inexperienced political appointees, she reports, “injected confusion into the rollout of policy initiatives and brought delays to even routine functions.” The new hires, former HUD official Ron Ashford is quoted saying, “really don’t know housing at all.”

 

  • “For the first time in 10 years, buybacks are garnering the largest share of cash spending by S&P 500 firms,” says a new Goldman Sachs report. Share buybacks increased by almost 50 percent to $384 billion in the first half of 2018, according to the report, compared with $341 billion in capital expenditures.

 

  • The Department of Justice is investigating Tesla over Elon Musk’s failure to back up the infamous August 7 tweet in which he announced that he has “secured” funding to take Tesla private. Meanwhile, in the New York Times, William D. Cohan argues that Tesla’s biggest problem isn’t Elon Musk’s erratic behavior, but Tesla’s fragile finances, namely $11 billion in long-term debt.

 

  • “Just imagine if your Facebook page had a checking account attached. What could go wrong?” asks the Financial Times’ Rana Foroohar in a smart piece on data sharing between financial institutions and tech giants.

 

  • Salesforce CEO Marc Benioff and his wife purchased Time magazine this week for $190 million. This makes Benioff the latest in a long line of tech moguls to invest in legacy media publications. In the New York Times, Kara Swisher asks: “Can the people who almost brought down the news business save it?”

 

  • Bloomberg’s Shawn Donnan profiles President Trump’s trade czar, Robert Lighthizer, “in charge of translating the president’s often vague and impulsive protectionism into a battle plan.” Alibaba CEO has reneged on his promise to bring 1 million jobs to the US, blaming the US-China trade war.

 

Chatter From the Ivory Tower

 

“The Mercatus Center at George Mason University is not, apparently, part of George Mason University,” reports David Dayen in a piece in The Intercept. The association between the public university and Mercatus—“an independent 501(c)3 not-for-profit organization”— gives Mercatus “the imprimatur of academic research, something to be taken more seriously by the media than the flurry of white papers churned out by ideological think tanks,” he argues. 

 

Stigler Center Goings-On

 

In the first of a three-part series on the 2008 financial crisis, Capitalisn’t hosts Kate Waldock and Luigi Zingales discuss the causes for the crisis, including subprime mortgages, investor fraud and an ill-advised speech from former President George W. Bush. Kate also tells about Luigi about her experiences as an intern at Lehman Brothers when it collapsed.

 

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