101 Economists Tell Regulators to Back Off on Google Anti-Trust Actions

By Peter Bernstein May 08, 2012

Here is an old joke. A chemist, a carpenter and an economist are ship-wrecked on a small island. A can of beer without a pop top washes ashore.  The chemist says, “If I only had the right ingredients I could create an acid that would burn through the top.” The carpenter says, “All I would need is a screwdriver.” The economist says, “Assume a can opener!”

I relate this because of the press release from the self-purported non-partisan/bi-partisan National Taxpayers Union (NTU) that discusses a letter sent to the U.S. Federal Trade Commission (FTC) and other key policymakers that was signed by 101 leading economists. These notables “Agree that the federal government’s latest anti-trust enforcement push – aimed most intensely at Google – does not focus on real consumer problems, while threatening economic damage and reduced freedom for individuals and businesses.” I think they are being prematurely alarmist. 

It also seems, given the toxic U.S. political climate with the clear lines between different perspectives on the role of government, the language in both the press release and letter are inflammatory. They assume/presume a lot.

I was particularly struck by the statement attributed to NTU executive vice president, Pete Sepp. He is quoted as saying, “It is not an exaggeration to say that free speech on the Internet and consumer choice are at stake in this FTC investigation of search engine practices…When competition is so evident, there is no strong basis for such a probe in the first place. But the tremendous toll on technological innovation, our liberties online, and on the Information Age economy, only make this regulatory rampage more reckless.” 

You have to love the gentle nature of the last four words. While everything that follows below is my personal opinion, I personally believe this looks like a trial where a verdict has been rendered without the benefit of evidence being presented. The FTC probe is hardly the Spanish Inquisition and making it sound like a Star Chamber proceeding seems disingenuous.

Let the chips fall where they may

Let me begin with the following observation. I use, some say could not function without, a variety of Google services — search, Chrome, Google +, Google Maps, Google Docs, Google Alerts, Google Play for my mobile apps, etc. I view all of the terrific capabilities they provide as indispensible personally and professionally. It is my hope that as the famous saying from the original Star Trek TV show goes, Google should “Live Long and Prosper!”

However, my appreciation of their value does not negate the delicious irony that the NTU press release came out on the same day that Google was found guilty of infringing on Oracle’s patents.  There is a clear distinction that can and should be made between providing useful products and services and engaging is behavior that is less than desirable or legal. 

Making such determinations is why we have investigations and due process in the U.S. The possibility of illegal tie-ins, violations of privacy laws and a host of other activities that Google has already been fined for, or are being investigated for around the world, are hardly trivial. 

Here is a piece from the economists’ letter that is worth a read:

America’s business landscape is scarred with numerous antitrust enforcement actions that have: deprived consumers of choices, stripped entrepreneurs of their freedom to innovate, denied workers and shareholders opportunities to build wealth, enriched competitors whose key attribute is political clout, drained “defendant” companies of capital due to legal expenses, and thwarted potential growth in the economy...

 Whether they have afflicted traditional manufacturers or high-tech firms, antitrust policies have too often failed to recognize the proper limits of government’s role in overseeing competition. The result is an arbitrary, conflicted message to the risk-takers who are crucial to our nation’s economic dynamism at home and abroad: be productive and creative, but not so productive and creative that competitors and bureaucrats find it in their interest to undermine you...

 Google, with its popular online search engine, is the latest target of regulators claiming to be acting in consumers’ interests, even though barriers to entry into the search market are exceedingly low and Google’s competition is but one click away for online users.

The first paragraph is a gross simplification and distortion of the history, especially as it related to technology. I wonder how those economists feel about such events as the breakup of AT&T, the unbundling of Internet Explorer, or the successful case against IBM. Pardon me, but monopoly leveraging and illegal tie-ins have been a greater threat to stymieing innovation, consumer choice and competition than turning a blind eye. Indeed, think of all the consumer choices that would have been stifled if the dominant player either had not been pursued or had prevailed. 

As to the language regarding chocking entrepreneurialism, building wealth, and enriching competitors whose key attribute is political clout, this would be laughable if it was not presented with such earnestness. Have those economists looked at Google’s stock appreciation over the years, its hiring “rampage,” and their ability to influence the outcome of things like SOPA and CISPA? Plus, the recent two for one stock split that gave shareholders new shares but left the founders with majority voting control has drawn significant fire on several fronts as well. It is hardly time to take up a collection for Google or its management team.

Singling out search because it is supposedly competitive goes back to what I said earlier about presumption without a presentation of evidence. It makes for a nice straw man argument to buttress the hyper-ventilation, but appears problematic.  For instance, just because a competitor is a click away does not mean they and we are not suffering from the consequences of a business model that may have the practical impact of thwarting people from clicking or advertisers from paying a premium to play that they might not have to if markets were determined to need better policing to ensure fairness.   

The presumption of innocence

I am not saying Google is doing anything wrong. In fact, quite the contrary, what I am saying is that these are issues that government has every reason and a right to investigate. Otherwise why have anti-trust laws? If economic Darwinism is the way we’d like to go, then maybe the NTU and its economists rather than just highlighting specifics regarding Google should send a letter to Congress and the Obama Administration asking for legislation to eliminate all anti-trust statutes.  Given their statements, I believe this is not an absurdist interpretation. 

 I would like to close by saying it would be a true pity if government over-reach and zealotry denied all of us access to the best of Google, and as importantly stifled the innovation of the growing Google-centric ecosystem. After all the blame game is bi-directional.

History is filled with the drama that goes along with trying to figure out how to allow dominate actors to maximize their skills and talents in a market while assuring a level playing field for those who would like to challenge them. Yes there are significant adverse impacts if governments micro-manage markets, but there needs to be recognition that history says the losers when companies have over-stepped and used their dominance to kill competition and not been held accountable has almost always in the end been consumers. One would have thought that was a lesson learned from the financial crises. 

However, it seems 101 economists disagree that vigilance and diligence have a rightful place in assuring consumer choice. I am in favor of transparency and listening rather than assuming. In Economics 101 in college, I learned about the need for the balancing of market forces in “free markets” is the best way to produce market vibrancy, choice and profits. Is it a coincidence that 101 was the number NTU chose for this exercise? Theirs is hardly an introduction to economics text.

Fortunately, I don’t need to assume a can opener. I have a Swiss army knife. You would be well-advised to have one too. Cheers!

Edited by Brooke Neuman
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