Mike Munger’s letter in today’s Wall Street Journal is important:
Sen. Elizabeth Warren (D., Mass.) called for the Biden administration to block Capital One’s acquisition of Discover (“Block Capital One’s Merger With Discover,” op-ed, March 8) because she believes that two firms are always better than one. But this is a misunderstanding of how competition works. One need only look at the broader industry—Visa, Mastercard and American Express control more than 95% of credit-clearing transactions—to realize the folly of the many-small-firms approach. If the deal is approved, there will be more competition in the industry, not less.
Competition in the market over the past three decades has streamlined technology and reduced costs to the point where credit-card acceptance is nearly universal. Providing a smaller network like Discover with the financial power of Capital One creates an environment where fees can fall and security can improve.
It’s time to put the Econ 101 definition of competition back on college blackboards and bring real competition to the financial-services industry.
Mike Munger
Duke University
[DBx: In the Econ 101 course that I regularly teach, I never describe competition as being a simplistic function of the number of firms in an industry (a surprisingly vague concept, btw). Instead, I teach competition as Mike here describes it: as rivalry among firms experimenting with different methods to better enable them to attract consumers – rivalry that is ultimately hampered only by government-imposed restrictions on the ability of businesses to enter different avenues of enterprise and to so experiment.]
The FTC, driven by Chair Lina Khan, is fixated on reengineering markets by, for example, breaking up Amazon and Meta, ignoring how customers have flocked to the large and successful companies that she seeks to shrink. Khan wants to make Amazon more like eBay, which saw a notable decline in its user base during the pandemic. Her fixation fails to acknowledge the vibrant ecosystem that drew millions of customers to Amazon while eBay shrunk. The story is similar with Facebook and Instagram, with the latter’s pre-acquisition struggles to create a functioning business model casting doubt on the wisdom of forcibly decoupling these two.
My Mercatus Center colleague Alden Abbott writes about antitrust and AI.
Writing in the Wall Street Journal, Bjorn Lomborg warns that, too often, “‘follow the science’ leads to ruin.” Three slices:
More than one million people die in traffic accidents globally each year. Overnight, governments could solve this entirely man-made problem by reducing speed limits everywhere to 3 miles an hour, but we’d laugh any politician who suggested it out of office. It would be absurd to focus solely on lives saved if the cost would be economic and societal destruction. Yet politicians widely employ the same one-sided reasoning in the name of fighting climate change. It’s simply a matter, they say, of “following the science.”
That assertion lets politicians obscure—and avoid responsibility for—lopsided climate-policy trade-offs. Lawmakers contend that because climate change is real and man-made, it is only scientifically logical that the world end fossil-fuel use. Any downsides are a mathematical inevitability rather than something politicians chose to inflict on constituents.
The Biden administration has set the goal of achieving a net-zero emissions economy by no later than 2050. President Biden has pushed costly yet ineffective programs such as the Inflation Reduction Act to reduce U.S. emissions. If you ask the president’s outgoing climate envoy, John Kerry, there is no alternative. He claimed only a couple of weeks ago that “nothing that we are doing, nothing that President Biden has sought to do, has any political motivation or ideological rationale. It’s entirely a reaction to science, to the mathematics and physics that explain what is happening.”
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A new peer-reviewed study of all the scientific estimates of climate-change effects shows the most likely cost of global warming averaged across the century will be about 1% of global gross domestic product, reaching 2% by the end of the century. This is a very long way from global extinction.
Draconian net-zero climate policies, on the other hand, will be prohibitively costly. The latest peer-reviewed climate-economic research shows the total cost will average $27 trillion each year across the century, reaching $60 trillion a year in 2100. Net zero is more than seven times as costly as the climate problem it tries to address.
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Careful science can inform us about the problem of climate change, but it can’t tell us how to solve it. Sensible public debate requires all the facts, including about the costs of our choices. Some of the most popular climate policies will have costs far greater than climate change itself. When politicians try to shut down discussion with claims that they’re “following the science,” don’t let them.
Bruce Yandle exposes some of the Biden administration’s hypocrisy. Two slices:
When I read of Energy Secretary Jennifer Granholm’s concern that consumers are being “bigfooted” with low-cost electric vehicles from China and that our government may step in and keep prices higher, I was taken aback. While the Biden administration’s protectionist trade stance has been fairly clear, officials have also been vocal about protecting ordinary shoppers from corporate America’s high prices. So, it’s remarkable to hear one choosing, apparently, to protect our taxpayer-subsidized manufacturing sector.
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If “bigfooting” means we consumers can enjoy a higher standard of living through greater access to the world’s goods, I say let him stomp on! You may feel differently, but we can still agree on the administration’s mixed message.
My intrepid Mercatus Center colleague, Veronique de Rugy, warns of Biden’s proposal to raise the corporate income tax. Two slices:
In the latest volley of policy proposals that seem more rooted in populist rhetoric than economic knowledge, President Joe Biden’s budget plan to hike the corporate income tax rate from 21 percent to 28 percent strikes me as particularly misguided. This move, ostensibly aimed at ensuring a “fair share” of contributions from corporate America, is a glaring testament to a simplistic and all-too-common type of economic thinking that already hamstrings our nation’s competitiveness, stifles innovation, and ultimately penalizes the average American worker and consumer.
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In addition, for all the concerns about fairness expressed by the administration to justify its tax hike, the corporate tax is quite unfair. Profits are already subject to taxation at the individual level when distributed as dividends or realized as capital gains. Increasing the corporate tax rate will exacerbate the issue of double taxation, distorting investment decisions and reducing economic efficiency, not to mention encouraging aggressive planning for more tax avoidance.
In last year’s college admissions case, Roberts warned schools that “what cannot be done directly cannot be done indirectly.” Today, however, that is not true, given the court’s refusal to hear the challenge to TJ’s blatant, because proclaimed, racial discrimination. Progressives’ thinly — very thinly — disguised racialist policies will multiply nationally until the court stops flinching from applying its precedents.
Arnold Kling explains where he stands on libertarianism.
Bob Graboyes is correct: “Happiness comes from doing something, not from being handed something.”
