It’s no secret European bureaucrats aren’t fans of American Big Tech. Now, some American lawmakers are crossing party lines to steal pages from their playbook. Sens. Chuck Grassley (R-IA) and Amy Klobuchar (D-MN) recently reintroduced the American Innovation and Choice Online Act, which revises a 2022 bill that stalled in the Senate. Like the European Union’s Digital Markets Act, it purports to stop large digital platforms like Amazon, Meta, Google, and Apple from harming consumers and the businesses that use their platforms to reach them. Instead, AICOA would police many conventional business practices that generally benefit both consumers and business users.
U.S. antitrust law already punishes “monopolization,” or a firm’s abuse of its market power to exclude competitors and harm consumers. Since some practices that improve products or lower costs can also “exclude” a firm’s competitors, antitrust courts apply the “rule of reason” by weighing the pros and cons of a practice in each case before penalizing defendants. This has created legal precedents that give businesses clarity about whether they are likely to face antitrust litigation or liability under some general “standards.”
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America’s world-leading tech sector emerged from vigorous competition and innovation under laws that generally favor commercial experimentation instead of punishing firms for their size, efficiency, or success. Europe has struggled to produce leading technologies and platforms despite its skilled and educated populace. Burdensome regulations that leave small and large tech firms in the dark without concomitant benefits don’t help. Just half of European startups actively use artificial intelligence today, compared to almost two-thirds in America. Importing their policy failures isn’t just unwise. It’s un-American.
While the world’s three dominant memory chipmakers—Micron, Samsung and SK Hynix—are working to expand production, America’s permitting morass makes that harder. Consider Micron’s massive fabricator project in upstate New York, which it announced in October 2022. “With the CHIPS and Science bill I wrote and championed as the fuse, Micron’s $100 billion investment in Upstate New York will fundamentally transform the region into a global hub for manufacturing,” New York Sen. Chuck Schumer boasted.
The 2022 Chips Act provided some $53 billion, plus a 25% investment tax credit, to subsidize U.S. chip-making. We warned this industrial policy would result in a political misallocation of capital, and here we are. Mr. Schumer brought home a chunk of the bacon even though Micron’s upstate site wasn’t ideal.
Once complete, Micron’s project will consume more power than the entire state of New Hampshire. That means major transmission upgrades will be required. Because New York is forcing natural gas power plants to shut down, energy regulators must ensure Micron won’t strain the grid.
Congress in 2024 passed a law exempting some semiconductor projects from the National Environmental Policy Act’s stringent environmental reviews. But the exemptions don’t apply to Micron’s project. Congress also didn’t pre-empt state environmental rules.
Mr. Schumer has described Micron’s site as “open fields,” but it includes hundreds of acres of wetlands and forestland that are nesting areas for endangered bats. This makes permitting and building more complicated. Trees can only be chopped down when bats aren’t nesting—i.e., from November to March.
To obtain federal and state permits, Micron committed to spend $1 million to protect the bats and install 10 “bat houses.” The manufacturer also agreed to provide on-site child-care for workers and enter into project labor agreements with unions in return for $6 billion in federal largesse.
Construction was supposed to start two years ago, but tree clearing didn’t begin until this past January owing to laborious environmental reviews. New York’s draft environmental impact statement numbered more than 700 pages, plus 22,000 pages of supplemental material. Environmental groups sued in January to stop the project, so who knows when it will be complete?
Alan Greenspan, who died Monday at age 100, is being hailed in the press as a great central banker with the flaw that he didn’t endorse enough financial regulation. That narrative obscures the real success and failure of the man who presided as Chairman of the Federal Reserve from 1987-2006.
The paradox of Greenspan’s career is that he presided over the best and worst modern eras of the Fed. Appointed by Ronald Reagan to replace the great Paul Volcker, Greenspan kept the Fed on the policy path of disinflation. This became known as the Great Moderation as inflation was largely contained while the U.S. economy grew in robust fashion.
This was the era when Greenspan, supported by fellow Fed Governor Wayne Angell, followed a de facto price rule in setting monetary policy. The Fed focused on actual prices in the economy, including commodities, and Greenspan told us more than once that he even kept a wary eye on the price of gold.
Along the way he helped prevent various financial panics from becoming more serious—most notably, the stock market plunge of 22.6% on a single day in October 1987 that became known as Black Monday. The Greenspan Fed pledged to provide adequate financial liquidity, and the panic abated. He is also rightly praised for recognizing that the 1990s productivity boom gave the Fed leeway not to raise interest rates amid faster economic growth.
The bad turn came in the 2000s after 9/11 and the dot-com bust. Influenced by then Fed Governor Ben Bernanke, Greenspan became preoccupied with the risk of deflation. In June 2003 Greenspan cut the fed funds rate to 1% and kept it there for a year, though the second Bush tax cut had passed Congress in May and the economy had begun to surge.
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Greenspan’s worst moment came amid the financial panic, after he had retired from the Fed, when he blamed the financial meltdown on others. “Those of us who have looked to the self interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief,” he told Congress in October 2008.
That comment, which received enormous publicity, let the political class off the hook and fed the belief that the panic was a crisis of capitalism that needed more regulation. Greenspan never admitted the failure of monetary policy or of the regulators at the time who had allowed Citigroup and other banks to create the off-balance-sheet vehicles that failed.
The tragedy of this career finale is that it marred what was otherwise Greenspan’s keen lifelong understanding that government can’t fine-tune the economy or create wealth. The press called Greenspan the “maestro.” But he always knew that neither he nor anyone else in Washington conducted the U.S. economy.
GMU Econ alum Romina Boccia identifies “the hidden driver of Social Security’s fiscal crisis.”
My Mercatus Center colleague Rebecca Lowe weighs in on why AI isn’t going to ‘take all the jobs.’
Speaking of AI and jobs, here’s the abstract of a new paper by Lukas Althoff and Hugo Reichardt: (HT Scott Lincicome)
Artificial intelligence (AI) reshapes workers’ comparative advantage by altering the tasks they perform and the skills those tasks require. We develop a dynamic task-based model to quantify the general-equilibrium effects of task-specific technical change. Workers have multidimensional skills, choose occupations, and accumulate skills on the job; occupations combine tasks, and productivity depends on how workers’ skills match task requirements. We develop a computationally efficient procedure to estimate the model using panel data and a new database of task-level skill requirements. We apply the model to AI, allowing it to augment, automate, and simplify tasks. We find that AI narrows wage inequality and raises average wages across scenarios ranging from slow to rapid AI progress. The key equalizing force is simplification: by lowering tasks’ skill requirements, AI lets lower-skill workers compete for previously inaccessible jobs. Adoption costs, highest for lower-skill workers, dampen but do not eliminate the decline in inequality.
