Month: April 2018

If you want understand the Facebook hearings it’s useful to think not about privacy or  technology but about what politicians want. In the Peltzman model of regulation, politicians use regulation to tradeoff profits (wanted by firms) and lower prices (wanted by constituents) to maximize what politicians want, reelection. The key is that there are diminishing returns to politicians in both profits and lower prices. Consider a competitive industry. A competitive industry doesn’t do much for politicians so they might want to regulate the industry to raise prices and increase firm profits. The now-profitable firms will reward the hand that feeds them with campaign funds and by diverting some of the industry’s profits to subsidize a politician’s most important constituents. Consumers will be upset by the higher price but if the price isn’t raised too much above competitive levels the net gain to the politician will be positive.

Now consider an unregulated monopoly. A profit-maximized monopolist doesn’t do much for politicians. Politicians will regulate the monopolist to lower prices and to encourage the monopolist to divert some of its profits to subsidize a politician’s most important constituents. Monopolists will be upset by the lower price but if the price isn’t lowered too much below monopoly levels the net gain to the politician will be positive. (Moreover, a monopolist won’t object too much to reducing prices a little since they can do that without a big loss–the top of the profit hill is flat).

With that as background, the Facebook hearings are easily understood. Facebook is a very profitable monopoly that doesn’t benefit politicians very much. Although consumers aren’t upset by high prices (since Facebook is free), they can be made to be upset about loss of privacy or other such scandal. That’s enough to threaten regulation. The regulatory outcome will be that Facebook diverts some of its profits to campaign funds and to subsidize important political constituents.

Who will be subsidized? Be sure to watch the key players as there is plenty to go around and the money has only begun to flow but aside from campaign funds look for rules, especially in the political sphere, that will raise the costs of advertising to challengers relative to incumbents. Incumbents love incumbency advantage. Also watch out for a deal where the government limits profit regulation in return for greater government access to Facebook data including by the NSA, ICE, local and even foreign police. Keep in mind that politicians don’t really want privacy–remember that in 2016 Congress also held hearings on privacy and technology. Only those hearings were about how technology companies kept their user data too private.

The Washington Monthly, a magazine of ideas from the liberal-left, has a profile of me and my paper with Nathan Goldschlag, Is regulation to blame for the decline in American entrepreneurship? The profile ups the “libertarian says regulation not responsible for bad thing!” angle. My earlier paper, finding that more guns leads to more suicides, was also given the “even a libertarian says” angle. In both cases, I was treated fairly and well and since I wrote the papers to be read, I am happy for the publicity. But I am uncomfortable with these takes.

After all, I am not surprised that my research is not biased by partisanship. Why should other people be? Should I not be insulted? Moreover, I don’t think that I am special in this regard. I think that most academic research in economics is not biased by partisanship. Thus, while it’s nice to receive plaudits on twitter for honesty and bravery, they are undeserved. This is normal. Normal for me and normal for other economists. The public perception to the contrary likely comes from two failures–a failure to distinguish partisan commentary from academic research and a failure to consider that ideology influences topic more than findings.

Economic commentary in the media often does come from political partisans but that is a completely different role than publishing peer-reviewed research. Papers published in mainstream economics journals have passed a high bar and are much less likely to be infused with partisan bias–this is true even when the research leads to a blog post or op-ed that may be of partisan interest.

An economist’s ideology probably does influence the topics they choose to research. I’ve written on bounty hunters, privateers, and the private provision of public goods, topics surely influenced by my interest in how markets solve problems usually thought solvable only by governments. Choice of topic, however, does not necessarily determine the outcome. In the aforementioned three cases, my research can be read as broadly supportive of private solutions. The topics of dynamism and regulation, firearms and suicides, and private cities in India were probably also influenced by ideology but in these cases the research can be read as somewhat less supportive of private solutions.¹ Let the chips fall where they may. I’ve learnt something in both sets of cases. My academic ideology, “a demand to know the truth,” trumps any narrow political ideology.

There’s another problem with praising a “libertarian”, or any researcher with strong beliefs, for honesty when their research conclusions don’t fit narrow priors. It puts their research that does fit narrow priors under a cloud. But only people with strong beliefs are put to this test. No one gets suspicious when a moderate democrat produces lots of research that fits moderate democrat priors. Why not? Do you assume reality is moderate?

I also wonder whether the people lauding me for my honest research–for which I thank them–will draw the correct conclusion. Namely, they should now be more receptive to my work on bounty hunters, privateers, and the private provision of public goods. Fingers crossed.

Let me conclude on a lighter note. There are many reasons why regulation could be costly outside of its effects on dynamism. Thus, for my friends who think that I have gone all-squishy, n.b.:

Not that Tabarrok himself has become a booster for regulation. He doesn’t think much of government’s ability to spark innovation through setting standards; the first thing he did when he last bought a new shower head, he said, was remove its federally mandated flow restrictor.

Read the whole thing.

Addendum 1: I have also written many papers like Would the Borda Count have Avoided the Civil War? and Patent Theory versus Patent Law where the topic was driven out of some non-ideological interest or simply because I had an idea. Publish or perish!