Regulation Games

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0:00:07.6 Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burrus.

0:00:09.9 Aaron Ross Powell: And I’m Aaron Powell.

0:00:12.0 Trevor Burrus: Joining us today is Peter Van Doren, senior fellow at the Cato Institute and editor of Regulation Magazine. Welcome back to the show, Peter.

0:00:23.3 Peter Van Doren: Thanks for having me.

0:00:24.9 Trevor Burrus: This is going to be a good Peter has been thinking about things and reading things episode, and he can teach me and Aaron about all these quantitative things and economics as he edits Regulation and reads his papers. I’d like to start with something you talked about a few weeks ago: Salmon. I like salmon, salmon’s very good, but there’s currently or there has been a long-​standing fight about GMO salmon going on.

0:00:52.2 Peter Van Doren: Yes, long standing since 1989. This goes back before I was at Cato and before you thought about coming to Cato, or no, you thought from the womb, so I guess that’s incorrect.

[chuckle]

0:01:10.4 Aaron Ross Powell: Trevor was thinking about it in elementary school.

[chuckle]

0:01:12.3 Trevor Burrus: Yes. Yes.

0:01:13.7 Peter Van Doren: So, basically, libertarian dilemma, which is, what do you do when the population is very suspicious of genetically modified organisms, even though the best science, and we can talk about what we mean by that, but then it’s like COVID, right? So science, and we’ve had discussions of science. So, here’s a… So, if libertarians are into letting people do what they want, it turns out they don’t want GMO salmon. And the political process basically reflects those views, and the minority of geeks and others that think that GMO salmon would provide high quality, low cost protein to a needy population in the planet, well, those people might as well try to swim up Niagara Falls. I mean, it’s…

0:02:14.2 Peter Van Doren: So, after a generation of discussion by the FDA and then various attempts by the Alaska Congressional Delegation to protect its regular salmon industry against GMO competition, GMO salmon has been officially approved by the FDA for the United States and has to be labeled, and we can talk about that, has to be labeled as genetically modified, which of course, the company did not want. Because knowing how the population is against Frankenstein food, they wanted to say, and argued scientifically, this is salmon, and it’s not different than native salmon, it’s just salmon that grows faster, and we do it in aquaculture, and therefore it’s cheaper, it’s not a luxury food caught on the line, it now can be mass-​produced.

0:03:17.1 Peter Van Doren: But the analysis that I gave in Regul… Or the article in Regulation said that basically all the prominent supermarket chains won’t sell this salmon. So, as libertarians, we have to respect the fact that they are reflecting vast consumer sentiment against this, and yet the science part of us is kind of saying, oh, this can’t be right, right? Can’t we do something so that people whose misguided preferences are driving this process can be dealt with somehow through the state? Well, then we’re… Uh-​oh, now we’re… See what I’m saying. So we… So I’ve spun and spun and spun my head around this trying to figure out a way out, and as best as I can tell there isn’t to be consistent with their views, which is, we respect people’s views, but what do we do if everyone’s view is crazy? And this is… [chuckle] So I’d actually like to hear what you folks think about this or whether there’s a way out that I haven’t thought about.

0:04:25.4 Aaron Ross Powell: Isn’t prices the way out of this? So, if you’ve got a new product, a novel product, I mean, it’s not that novel, but it’s novel to most people, and they’re a little bit worried about the risks, and so they would rather spend their money on what they see as comparatively risk-​free, non-​GMO salmon, the tad, you know, the full normal salmon lifespan or whatever. Wouldn’t the solution just be that the provider needs to get some people to take the risk on this to kind of prove that it’s not killing people or turning them into X-​Men or whatever in the marketplace, and so, you just lower the price of this alternative salmon until it hits a point where people are willing to take the risk, and then presumably when they don’t all die, then you can raise the price back up again, because now there is not kind of eggheads writing papers evidence, but like my neighbor ate this stuff and seems to be fine evidence?

0:05:23.2 Peter Van Doren: Yes. That’s the normal economic answer. I’ll throw in one stylized fact that I haven’t talked about yet, which is, most of the salmon we see at Whole Foods or anywhere is not wild caught, it’s not caught by those Alaska fishermen that were being defended by the Alaska Congressional Delegation. Instead, the competitor for this GMO salmon is aquaculture salmon grown in ocean pens, rather than… This GMO salmon would be grown in pens on land. Totally in land in Indiana, right? Just with salt water. Whereas now, most salmon that we buy in the supermarket is actually so-​called farm-​raised, but it’s in the ocean, and thus is natural and is cheaper than the luxury wild caught line or so-​called line caught salmon that you may see sometimes.

0:06:25.9 Peter Van Doren: So actually we have three kinds of salmon, we have GMO salmon, we have aquaculture in the ocean salmon, which has pollution issues, and they use antibiotics and all sorts of stuff, ’cause these salmon in aquaculture are densely raised, right, which has disease issues, etcetera, and then so-​called line caught. So, the GMO salmon has to… Its competitor isn’t really line caught, which is rare and expensive, its competitor is this aquaculture salmon, which is just labeled North Atlantic salmon in Whole Foods, it’s not labeled as… Again, people don’t… Not sure how much consumers, I haven’t… I don’t know, focus group evidence enough to know how much people focus on the line caught versus the name North Atlantic.

0:07:16.2 Trevor Burrus: I think they say, they say farmed salmon, you can see like that is part of the labeling, and that seems to matter to some people. But this whole question about the labeling is interesting because, as you said, the GMO company did not want to be labeled GMO, ’cause it’s just saying, just like we did with cows, we make them grow faster and bigger than they would be otherwise, and we don’t label this beef to be GMO beef, at least not always. So how do we feel about the labeling issue, because sometimes the label could actually hurt the company if it is not a relevant fact that the consumer needs to know in order to make a good purchase, right? I guess we just kinda don’t care, though, because if someone doesn’t want to eat GMO, then that’s sufficient, correct?

0:08:01.6 Aaron Ross Powell: Well, but let me just ask quickly, on the cattle thing, is it the case that the cattle that grows faster and meatier and so on, is GMO that we’re eating or is it that it’s been given hormones, which is not quite the same thing?

0:08:14.7 Peter Van Doren: Actually, the hormone discussion involves milk cattle, not beef, alright, so it’s actually stimulating milk production among dairy cows, and it is… Cows have this hormone, but there is an artificial version of the hormone that is given to cows, and this led to a labeling fight 25 years ago, in which, I call it the classic American compromise, and if you go to your supermarket and look carefully at milk, some you will see as labeled as not, the milk comes from cows, not given this artificial version of a normal cow milk hormone, and then by that statement is an asterisk which directs you to finer print elsewhere on the label which says, oh, by the way, there’s no scientific evidence that this matters at all for anything.

0:09:18.9 Peter Van Doren: And so to me, it’s a classic American compromise, which is to keep everyone happy, we have the label that organic milk producers can use, which says we don’t use this bad stuff, then there’s another part of the same label which says, oh, by the way, there’s no scientific evidence that any of this matters, but we want to make you feel like you’re in accord with your preferences, which are against this stuff, so we do it this way, we label it this way.

0:09:50.8 Trevor Burrus: Well, that’s like the dairy, or your family background in the dairy industry, but this salmon fight, which again, I would totally buy some GMO salmon if I could figure out where to buy some, but apparently it’s very difficult, at least with the grocery stores that are around here. But the salmon fight, food fights, quote-​unquote, food fights like this, regulatory food fights, are pretty knock down drag out. I know the dairy industry really likes to go after people who call themselves milk and people who call themselves organic and all this stuff, but it just seems like everyone has sort of skin in the game here, and they’ll fight it out at the…

0:10:26.4 Peter Van Doren: And a lot of it’s over language, that’s what’s interesting to people like us, it’s like, really? So if you go way back, remember, I mean, you’re too young, but the introduction of margarine threatened butter than the traditional dairy industry, and there were laws in Wisconsin that said that margarine could not be colored yellow, and that… Now we know that margarine actually was really… It really was harmful to human health, and we now know that the trans-​fat issue, and so that margarine’s kind of gone away as a sort of progressive… It used to be a cheaper alternative to butter and it was thought to be, again, help people of low income to have a butter substitute and all that, but there were coloring fights over butter.

0:11:19.8 Peter Van Doren: Yes, so we’ve had articles in Regulation where people with science backgrounds argue libertarians should not allow labeling if there’s no scientific basis for the label. And then other libertarians will say no, people have a right to know stuff and saying… And trying to say all salmon is the same, which has a scientific basis, which I believe, if other people don’t believe that, then you have people claiming they have a right to know this stuff and oh, my goodness, it just goes round and round and round.

0:11:58.2 Peter Van Doren: So again, I want to hear what you guys, sort of as outside… You’re libertarian, but not really… Haven’t been active participants in thinking about this, and so libertarians, we always say, that if we just got the government out of the way, everything would work, and it’s like, well, this one… So who decides how things are labeled? Should we just have a what economists call a separating equilibrium in which there’s literally a food fight, where we just have label fights, and they go, you can’t label it that way, or it’s really not milk, it is milk, or…

0:12:34.9 Trevor Burrus: Well, it’s this old question of ex-​ante ex-​post to some extent. In pre-​FDA, pre-​modern regulatory food inspection regimes, it would have been illegal at common law to sell something that you said was beef that was not in fact beef, and you would develop that law… I mean, now you could get into the nuances of what, if it is a hormone infused cow or if it’s GMO salmon, can we call it that, but I feel like doing it with the public good in mind and say, do people actually care about this? Or is it just regulatory capture that’s creating this problem?

0:13:11.8 Peter Van Doren: How would you think that a tort would work? Let’s go back again. There’s no regulation, there’s just tort. Is labeling salmon as salmon, that it’s GMO salmon, and we know that, but in fact, the label doesn’t say that, is that mis… Could someone bring a common… In your view, would a common law suit that said mislabeling and win?

0:13:39.5 Trevor Burrus: Well, it’s like a fraud type of suit. Now, the question, again, I think is what a judge would do that in a common law situation is to focus on damages and whether or not the consumer really has an actionable claim because it didn’t say GMO salmon on them. So it’s going to be a similar type of situation, I guess, as the FDA, but it might be more consumer-​focused, that it would be prone to regulatory capture, which I think is a concern that we have when we have this ex-​ante regulatory environment.

0:14:07.9 Aaron Ross Powell: Well, that brings me to my general thought about this, which is this kind of food fight where you have new foods and you have consumer sentiments and you have competing producers and you have a regulatory regime, is that this seems like a perfect bootleggers’ and Baptists’ storm, in that you have… Obviously, you have the producers who want to corner the market and prevent competition, whether that’s higher quality competition or cheaper competition or whatever, but on the other side, on the Baptists’ side, food is so bound up in notions of purity and sanctity and wellness, and it’s a product. It’s one thing if I wear a t-​shirt, but this is something that I’m putting into my body.

0:15:00.4 Aaron Ross Powell: And all of the great religions have all sorts of weird rules about food because people get weird about this kind of stuff, and so the labeling, it’s not just about informing, but the very fact that you call this something different than what people are used to, weirds people out, and am I really going to… What is this thing I’m putting into my body? And that that gives… So then you can have these kind of panics about are GMOs really dangerous or not, or are they the kind of things that we should be eating, and the government can have an interest in that, either driven from a sense of the common good and wanting to protect people or from just my constituents are scared about this thing, I should do something, whether they’re right or not.

0:15:47.0 Aaron Ross Powell: But then you have all of these hooks then for the food industry and the legacy producers to… They know that even if it’s not dangerous, putting a label saying this is different can be enough to turn people off, because of the odd nature of food, and so this seems like it would be hard to set up a stronger example of all of these different actors with understandable sometimes and corrupt or nefarious other times motives playing off of each other.

0:16:21.7 Peter Van Doren: Correct. Yeah, I think that’s well put. And like I said… But go back to Trevor. So a basic thing like, is salmon salmon, or what is salmon? And I know there’s a fight now in the milk industry that the oat milk and the almond milk, the dairy industry does not want those products to have the word milk in it, they want it… These are weird plant-​based things, and this isn’t consistent with American heritage, that kind of thing, and so the fight over language… So what is milk? Can plant-​based milk alternatives use the word milk?

0:17:06.3 Aaron Ross Powell: Well, yeah, this is not new, this isn’t new. This was going on when you were in growing up too, not just with margarine, with everything.

0:17:13.4 Peter Van Doren: Technically, there are three kinds of salmon, there’s line caught, there’s aquaculture, and then there’s the new GMO stuff. So should they all just be called salmon or… Again, as libertarians, should we say, let them have at it and they can call it whatever they want and we’ll see what happens? I mean, is it right.

0:17:40.9 Trevor Burrus: I think I prefer that to the regulatory capture aspect to it, because as you… In the dairy industry in particular, no offense to your family, Peter, but if they were… If they were so respectable, they kind of just used the government as mafiosos who come to your house and with a pipe and say, hey, well, it would be a shame to have something happen to your dairy industry. For example, 1922, the Filled Milk Act of 1922 or ’23, filled milk was basically taking skim milk, which at that time was trash, it was not very common to drink skim milk, and then cutting it with usually some sort of extra fat, often like fish fat, and it was cheaper for poor people, and it was cannable, you didn’t have to have an ice box refrigeration to keep it, sort of like evaporated milk today.

0:18:31.3 Trevor Burrus: And they put it, they went to Congress and they said, this is disrupting a vital national industry, the dairy industry, and it resulted… One of the things it resulted in is a Supreme Court case called Carolene Products, where they tried to sue on this question with famous footnote 4, but, yeah, the dairy industry has just long… You have the Milk Fund, they’re just the long sort of needed government regulation, or at least don’t know how to live without it, and they send the government after you if they don’t like what you’re doing.

0:19:00.9 Peter Van Doren: Well, my great-​uncle introduced pasteurized milk testing into northern New York, so he was very proud of that scientific achievement, but yes, the dairy industries, they’re always against government except for them. And William Proxmire, you remember, the Senator from Wisconsin, always had the Golden Fleece Awards back when I was young, and… He never once had a Golden Fleece Award for the dairy industry, because that was what Wisconsin was all about, and lots of upstate New York as well.

0:19:37.3 Aaron Ross Powell: How much do the regulations that would affect grocery stores factor into this, because if part of the problem is that the existing grocery stores are not willing to sell this stuff, the incumbents are not willing to sell this stuff, but new entrants might be willing to, especially if they think that they’re… They can brand as like, we are the future of food, just like there’s the astronaut ice cream you can buy at museum gift shops, and you bought it because it was weird, like maybe there’s a market for weird salmon. But are there regulatory barriers to new entrants into the grocery market?

0:20:15.4 Peter Van Doren: Not the grocery market, but the question of whether GMO food had to face regulatory hurdles before being introduced into the marketplace, that’s taken 25 years to resolve, and it was… They finally concluded that it should be governed by veterinary medicine statutes, and it was like… Anyway, and then there’s the whole nutrition labeling thing, which has been introduced in the… It’s standard, right, so if you read consumer reports of any conventional mainstream quasi left of center consumer rights sort of literature, they find our world of anyone can say anything about food to be so full of crap, it is just a monster that needs to be tamed, and thus we now have standardized nutrition labels, because Kellogg said Froot Loops are really good for kids, and it turns out if 90,000 grams of sugar in the morning aren’t, maybe aren’t so good for kids, and it gets them hopping around… The labeling people said, Kellogg can’t, ought not to say that stuff.

0:21:43.6 Peter Van Doren: And so whereas in our world, yeah, they can… You know what? It’s wonderful, chocolate Count Chocula, right, my favorite bad breakfast cereal.

0:21:54.0 Trevor Burrus: What was the one that was a ball of cookies? You remember that one, Aaron? There was one that was like literally a bowl of cookies. It was like chocolate…

0:22:00.0 Aaron Ross Powell: Cookie Crisp.

0:22:01.1 Trevor Burrus: Cookie Crisp, yeah.

0:22:02.5 Peter Van Doren: Well, ’cause, you know, kids like sugar, I mean, it’s obvious. Aaron has children, he knows that those kind of cereals will often keep peace in the morning, right. Even if it charges them up by 11 for great mischief.

0:22:16.6 Aaron Ross Powell: At that point they’re the teacher’s problem.

0:22:18.1 Trevor Burrus: Yeah.

0:22:19.3 Peter Van Doren: So anyway, just most people are not in favor of our chaotic a thousand ways of speech Bloom view of labeling, and think that the consumer needs to be aided into making, quote, better choices, but as you said, once you’ve got Baptists on the better side, then you’ve got the bootleggers trying to figure out how to label whatever it is they have so that it’s advantaged by this process.

0:22:49.2 Trevor Burrus: So moving in, we have a thousand different types of speech, as you mentioned, a thousand speech flowers blooming, and there’s another article you discuss, it was discussed in a recent Regulation about Section 230, the ubiquitous never going away Section 230 and how this is… We had Jeff Kosseff on the show a few weeks ago, who wrote the book, Twenty-​Six Words that Created the Internet to allow for moderation without liability. What is the paper you talk about, how do big tech firms or how do firms use this to their advantage?

0:23:27.0 Peter Van Doren: Well, just a little background, most… I think most lay people think of antitrust policy as the little government, certainly not libertarians think of that, but they think of… And in David versus Goliath terms, government is often portrayed as having six hands tied behind its back and big corporations need to be brought to heel because of their bad behavior. Well, this article by Tom Lambert in Regulation said, reminds the reader that there’s lots of private antitrust suits, the antitrust laws allow private actions, and those private actions are just full of what we call bootlegger and Baptist mischief, a bootlegger, right, but very little Baptist.

0:24:16.5 Peter Van Doren: And I was fascinated, I did not know the details of these kinds of struggles, and I’ll give you… So basically, it’s firms that… Well, Google and Facebook and these Section 230-​exempt platforms that… Just for our listeners, right, Section 230 of the Telecommunications Act says that if you’re operating an internet platform and you don’t… And you have user-​generated content, the normal legal liabilities of publishers regarding libel and lying and things like that, that a publisher would be held responsible for, the operator of a platform is not. And that many people believe, including Cato, that Section 230 allowed the internet to flourish because it just allowed lots of people to interact with others.

0:25:14.3 Peter Van Doren: One problem… Well, some things people interact with others, though, are illegal and/​or nasty and/​or whatever. The one where we first had intervention was child sex trafficking, that certainly we would say is not a good thing, and so how do you hold the platform, how do you stop that kind of transaction from occurring on a platform? Oracle and IBM lobbied extensively for that modification to Section 230, which in fact was the first, it did come into law in, I think, 2017-2018. And it turns out the reason that Oracle and IBM are for these things is because they compete with Google and Amazon for cloud computing services. They operate a competitor to Google and Amazon for the cloud, but they don’t operate platforms.

0:26:19.7 Peter Van Doren: So if you want to raise your rivals’ costs, if you want to divert a firm’s attention away from something they compete with with you, divert their attention on to sex trafficking, ’cause that doesn’t bother Oracle and IBM, etcetera, etcetera, etcetera. And IBM also is into artificial intelligence, and you remember the Watson computer that beat people on Jeopardy over and over again a while ago, there are now versions of that that help platforms monitor for child sex trafficking and child pornography, and thus, IBM sells a product whose demand would be increased by this provision amending Section 230.

0:27:05.4 Trevor Burrus: What is this general rule on… Just maybe taking a step back, ’cause we talked about it in terms of salmon and dairy, and now talking about it with the tech industry, libertarians say this a lot, that big businesses like regulation or they’re not necessarily averse to it, and that… When people say, oh, we’re going to bring big business to heel with this regulatory environment and the big business will be fighting tooth and nail to not be regulated, why is that so often not true in the big picture?

0:27:38.9 Peter Van Doren: A lot of regulatory compliance involves what economists call fixed costs, and if you’re bigger, then the fixed costs of compliance of any given regulation are lower as a percent of your revenues or your profits, the bigger you are. So small firms have to face the same fixed cost for compliance, and thus that can put them under and sometimes out of business. So some examples of the European privacy initiatives regarding the tech things like Google and Facebook, people are now aware that there’s things called cookies, cookies gather information about your browsing habits, that information goes to help digital advertisers target which people to… Who should receive digital advertising.

0:28:40.7 Peter Van Doren: And so from an advertising point of view, digital advertising is much more efficient, because the set of consumers likely to react to it are very targeted, whereas normal newspaper and television advertising just goes to everybody, most of it’s wasted, etcetera, etcetera, etcetera. So from an advertising standpoint, cookies are very useful for targeting. The European privacy initiative, some of which is leaking over into the United States as well, that made… The normal ways in which Google and Facebook gathered information, and also all other web advertisers through cookies, it made that much more difficult to… You had to opt in to all of this, and there was language that said you didn’t have to ask consumers so much if you had a regular interaction with them.

0:29:39.3 Peter Van Doren: So Google and Facebook do have regular interactions with the users of Google and Facebook, and therefore the hurdle for them to comply, not only were they bigger, but the language was written in such a way that they would have lower regulatory compliance. So the economists have studied the digital advertising market in Europe and found that the share occupied by Facebook and Google actually went up after the imposition of these regulations. So that’s sort of example of how existing firms really don’t resist regulation in the way that it’s often portrayed in the media; for some firms it actually can benefit them, and that would be an example.

0:30:23.3 Aaron Ross Powell: What is the consumer harm in all this, though, particularly in this space? Because if we’ve… We have a set of regulations that the people pushing for them think are protecting people in meaningful ways, I.e., like businesses left unregulated are going to do these things that are harmful to people so we’re going to regulate them. And one effect of this is that if it takes five lawyers to deal with the details of a new regulation, five lawyers, Facebook already has them on staff, or hiring them is a drop in the bucket versus the new start-​up hiring five lawyers, it’s a substantial cost to them. But especially in the tech space these companies seem to be, it’s not just that there is a single incumbent large firm and the only competition is small firms, but there are big firms that can all afford those five lawyers competing with each other, and it does seem like a lot of these large firms are quite innovative.

0:31:28.1 Aaron Ross Powell: Facebook and Apple and Google are always putting on these big presentations of look at this cool new stuff we’re working on that’s groundbreaking, and we’re changing everything we’re doing, to the point of Facebook changing its entire name and corporate branding because it wants to pivot into something radically new. So is this a problem, should we either as libertarians or just generally people who care about a well-​functioning market and consumers in that market care much about this?

0:32:02.8 Peter Van Doren: Well, I’ve gone back and forth on this in my own head. I mean, a year ago, I had a conversation with our colleague, Matt Feeney, in which I said, after thinking about this, I said the market of… Internet services that are provided for free are not market goods, so we should not talk about the market for social media services or whatever, but there is a market for advertising. So then I said to Matt in a kind of flip way, I said, well, who the F cares about what… Are we going to have antitrust cases over whether the advertising market is more or less efficient? I said, is that… Is that where this is headed?

0:32:45.4 Peter Van Doren: And it turns out, yes. And I was flip and I kind of dismissed it, but now, the more I’ve read, the more I realize efficient advertising reduces entry barriers for other businesses to sell stuff. And so the New York Times, to its credit, has actually interviewed a bunch of small businesses in which the… It’s sort of a kind of a discontinuity experiment, in which Facebook and Google changed some of their privacy settings, not because of any of the regulatory things we’re talking about, but just because it turns out American consumer, American users have been hepped up about this because of the European rules, so lots of Americans on their own now worry about privacy.

0:33:38.4 Peter Van Doren: Subtle changes in the way Google and Facebook have dealt with defaults in their interaction with users have led to some… I mean, the Times easily found small businesses whose sales dropped dramatically because the advertising for those firms was no longer easily available because of the lack of cookies that those small firms used in the targeting of their advertising. I said, well, okay, there’s… So it’s kind of… That’s why it might matter, which is the entry of small sellers that use targeted digital advertising to sell very niche products to consumers, that that appears to have been impeded or may be impeded by these kinds of privacy initiatives.

0:34:29.3 Trevor Burrus: Yeah, that seems a pretty big effect because if you… I see people all the time, Etsy, or you create a little bit of a bigger business making some very, as you said, niche product. And the only… Specialization is limited by the extent of the market, as we know, but so if you make a… I had a friend who used to make guitars out of turtle shells, for example, not endangered turtle shells or anything, but it’s a very niche market, so his targeted advertising would have been great, but if he gets hamstrung in that it would be very hard to start that business ’cause there might be 37 people in the world who want to buy one of these, but that… He needs to talk to all 37 of those people to make his business go.

0:35:11.1 Peter Van Doren: ‘Cause these kinds of small businesses have flourished only in the largest urban settings traditionally, before the internet, in other words, they just… There’s a weird store selling something in Manhattan, that’s why cities exist, because once the population gets large enough, you can have one of these sellers to serve 10 million people. What the internet does is allow all sorts of merchants that aren’t in urban areas to have internet traffic for similarly narrow or weird goods of the sort that you’re describing, and as best I can tell, there’s some evidence that privacy concerns and then the change in targeted advertising, or at least of increase in the expense of targeted advertising, inhibits entry of those kinds of firms outside of large cities that depend on, in the old traditional foot traffic kind of way.

0:36:09.7 Peter Van Doren: And they could use mail order, again, we had Montgomery Ward and Sears that had catalogs, and the internet is just a way to update… From my country upbringing, it’s just mail order updated, so it’s certainly possible to have mail order, but the traditional postal system and its costs are much, much higher than sending things electronically, where the cost approaches zero.

0:36:37.3 Aaron Ross Powell: When you mentioned that Europe changes the rules to block a certain kind of targeted advertising and that up-​ends the market, prevents easier entry for new people, and so on, my immediate thought was, so I just did some quick Googling, and this number sounds roughly right, that Apple owns 53% of the smartphone market, which means that an extraordinary number of people who are accessing anything that has ads in it online are doing it through their iPhone. And Apple recently changed the way that the operating system that runs the iPhone handles essentially third-​party tracking and changed the rules of you want to get in Apple’s App Store to block… The main one was the little tracking cookies that are in… When someone sends you a marketing email, there’s a little piece of code in there that lets them know I’ve sent X number of them and Y number of people have opened it, and Z number of people have clicked links and so on.

0:37:43.0 Aaron Ross Powell: And Apple has blocked a lot of that, so they’ve kind of blown up that marketing industry. And Apple is not a state, they’re not Europe, but if they control 53% of the market for… Like they have that influence, they basically have a regulatory power over 53% of the market for advertising on smartphones, does that mean that we should also be concerned about Apple kind of pulling the rug out in the same way that we’re concerned about Europe doing it?

0:38:10.2 Peter Van Doren: Well, as always, Aaron is very good, eventually in our episodes at making Ralph Nader arguments, and then, we have threatened to tell the Cato authorities about this, but, and anyway, the reason Ralph Nader isn’t totally crazy is because, Aaron, I mean, that’s why, which is when large firms can be large enough to engage in mischief, and that’s why the American people every now and then go back to an ancient statute and worry about antitrust.

0:38:50.1 Peter Van Doren: So I’ve said before, I think, in our discussions, at least in the hallway, if not on these podcasts, that in theory, libertarians maybe should be for antitrust, because a lot of our beliefs, hinge on there being choice, which hinges on there being enough competition. So can we think of settings in which there’s not enough competition and maybe we should do something about it. Now, if Jeff Miron were here, he would slap me in the face and say, Peter, we believe… And again, but this is empirical, this isn’t theory, which is… Most settings in which there’s corporate power, there’s some sort of government regulation behind it, which in effect restricts entry in some way and doesn’t allow the choice that Aaron was describing.

0:39:39.6 Peter Van Doren: In terms of smartphone entering and smartphone use, I mean, Apple has a good product and people use the iPhone and there’s fringe competition from the Android, the Google system competitors that are much, much, much, much cheaper. And so the question is whether that competition is enough, right, and that’s an empirical… It’s in the end a judgment call, and I can’t quote any, even though you say I read a lot of papers, I do, but I haven’t seen a paper that deals directly with your question in a way, but I think there will be papers on that question, because Apple is… Well, libertarians don’t know how to… Do we declare it to be powerful or not? I mean, is that a word where Aaron was hinting that we ought to…

0:40:35.8 Trevor Burrus: I bet they feel pretty powerless would be my guess to… Well, this is the thing, you’re obviously correct that there are, of course, rapacious businesses who will cut corners and don’t really care about a lot of things in terms of safety or things like this, but in this world, I feel like Apple, things can change really quickly. In five years from now, Apple could lose 50% of its market share. That could easily happen, like very, very easily, and that would seem to be the biggest concern of that. So that kinda gets to my question about antitrust more broadly, it’s like one of the libertarian lines is that usually if you wait just a little bit longer from the moment that they start bringing antitrust suits, you’ll probably see this company disappear and your pretend monopoly is gone, and that that’s usually the best way.

0:41:29.5 Peter Van Doren: I think the evidence for that is stronger in the Facebook sense, which is that younger people think of Facebook as only for older people. I think… Stuff I’ve read about Facebook is they’re very worried about quote their dominance of the social interaction, social media market, however, whatever word you want to use to describe it. On the Apple side, I mean, Apple’s been pricing itself very high for a long… Right, when was the iPhone? ’05, ’06, are we now…

0:42:03.5 Trevor Burrus: I think it was ’08, right?

0:42:06.9 Peter Van Doren: Fifteen? Okay, ’08. So we’re in year 13, and Aaron gave us a number. And so the kind of Android low price competition has nibbled away, what, half, half of what it started out with, which is 100%, and I don’t know enough… Do you know enough about the trends to know what’s going on… Is that enough competition?

0:42:34.6 Aaron Ross Powell: Well, Apple didn’t, I mean, Apple never had 100% of the market. That’s been whittled down. There was… They came into a market that had Nokia and others, and there were smartphones at the time that Apple entered the market, and they happened to make one that got a large share because it was worlds better than the other smartphones, and they took market share away from a lot of the incumbents, but I do think one difference here is… So Apple, if you ask Apple why they changed these settings, what they say is not, we wanted to pull the rug out from under digital advertising, but that one of the reasons people buy our products is because they trust us to keep their privacy safe online, and we unlike our competitors are not in the market ourselves and selling advertising, and so we want to protect you from having your data vacuumed up and people tracking you and so on, and so we’ve changed this for the regard of our consumer.

0:43:37.6 Aaron Ross Powell: And that that sounds a lot like the reasons that, say, Europe passes the laws limiting this stuff, like Apple’s coming to the same sort of conclusion, but they, because they control the platform, they don’t need to put it to a vote and they can just make the change and whoever updates iOS gets, is now in this new pseudo-​regulatory regime. But I think the difference… One big difference is, we talk about the powers of voice and exit as checks on government, and it is… Even if Apple has 50% or whatever it is of the smartphone market, it’s a lot easier to exit Apple than it is to exit Europe.

0:44:23.0 Aaron Ross Powell: I had an iPhone for years, and then a few years ago switched to a Google phone and it was… It was easy and it wasn’t, and I could switch back again if I wanted to, and I think that that is a big difference here, is that if it turns out that there is a market for whatever this kind of tracking advertising enables, people can switch, whereas it’s hard to move out of Europe if you want a different… You can do it, but it costs more than buying a Google Pixel.

0:44:55.0 Peter Van Doren: Yes, political change is not nimble, I think your point is. Our usual claims about antitrust is exactly what you say, which is, yeah, there’s some nastiness going on out there, but governments can’t change very fast, and by the time antitrust cases get solved, the product they’re worried about is no longer important, right?

0:45:16.0 Trevor Burrus: In the tech sphere, especially. But it always struck me as we are doing some of this antitrust analysis, where you kinda have to make some metaphysical assumptions about what the market is, what consumer welfare is, who is competing against who, because if you were talking about some antitrust case against, say, a movie theater, like a local movie theater, you could have that movie theater competing against other movie theaters, or it’s competing against going to the park or staying home and watching TV, it’s competing against the entire market for entertainment, and I think that’s even true. People could maybe say that smartphones are some sort of necessity, but it’s even truer, like what is Apple competing against? They’re competing against other consumer electronic goods that people could spend money on, so it just seems to me at the end, it’s just really difficult to…

0:46:07.3 Trevor Burrus: I know that you probably know, Peter, that there’s a bunch of economists who get paid a lot of money at the Federal Trade Commission and who get paid by private firms to do these big analyses of whether or not something is hurting competition, but does the whole thing strike you as much more difficult than it often is portrayed to figure out?

0:46:27.0 Peter Van Doren: No, you’ve hit the… I mean, what you need to know is the cross-​elasticities of demand and supply, given that… So if the price of an iPhone changes in an upwards direction, what happens to the prices of… And then you need to fill in the blank, a fancy way of just saying what you said, which is how do you fill in the blank of after of. And if you could limit it to other little weird things held in your hand, right, or you could say, wow, you could… What if it turns out people think of going to the movies or watching sports or doing, or baking cakes as possible substitutes for an overpriced phone, d then you’d have to actually estimate those elasticities, but you’d have to first conceptually think of what are the possible substitutes, and the answer to that isn’t empirical, right, it’s theory, right?

0:47:32.1 Peter Van Doren: So you’re back to the sky is the limit, then we don’t know what to do, but you’re right, economists have second and third and fourth homes paid for by the antitrust consulting business. Whenever… This is a side bar, whenever I try to get people, economists, to write about antitrust in Regulation, and I ask them to make the text a little punchier, they don’t, they do not want to do this because you never know who your next consultant is, or your next consulting gig’s going to be for, so they are very, very careful about trying to sort of be above the fray and say the truth, but actually not say anything. Anyway.

0:48:16.3 Trevor Burrus: So it’s good to be skeptical about antitrust, but as you said, it’s not… I agree with you in the sense that… So that I can… In every instance of antitrust, I can say I oppose or use of antitrust laws I oppose, I can imagine some real monopolies, but more often than not, they kind of disappear.

0:48:35.9 Peter Van Doren: The problem is people… They may not… There’s a tension between what constituents are worried about, and often antitrust is a kind of vessel in which all sorts of fears get put and they’re not well thought out and not well… They’re not analytically coherent from our point of view, or any point of view, but politics isn’t, politics is people worried about stuff, and they want the legislators to show that they care about something that constituents are worried about, and so antitrust suits can be a very useful way to kind of coalesce all that and still not do much and win elections, which is in the end what politics has to be about.

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0:49:34.6 Aaron Ross Powell: Thanks for listening. If you enjoy Free Thoughts, make sure to rate and review us in Apple Podcasts or in your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about libertarianism, visit us on the web at lib​er​tar​i​an​ism​.org.