Always be wary of the name given to a legal entity. It does not accurately describe the effect of issuing an invoice. In fact, laws are often the opposite of what their name suggests.
The bill, dubbed the American Innovation and Choice Online Act, was introduced by Sen. Amy Klobuchar, D-Minn. Take it. While everyone likes more choice and innovation, this bill stifles both because it imposes higher costs on consumers. Indeed, a more appropriate name for Klobuchar’s bill would be the Anti-Consumer and Thrift Act of 2022.
The bill, part of a recent push to expand antitrust regulation, would allow government bureaucrats at the Federal Trade Commission and the Justice Department to oversee regulations intended to make the economy’s booming tech sector less regulated and larger companies. A “big” organization is serving consumers. The economics of this proposition are all wrong.
Big tech success stories targeted by Klobuchar
The targets of these legislative efforts are some of the most successful companies in our nation’s history, including Apple, Google, Facebook, Amazon, and Microsoft. Klobuchar and company want to break down these entrepreneurial successes into smaller companies, without considering the benefits that all consumers get from vertical integration. Vertical integration is when a company owns several levels of production. When competing for customers, firms buy or sell different standards to achieve maximum efficiency. To put this fact in perspective, popular services like Amazon Prime and Google Maps are the result of vertical integration and are prohibited by the new law.
Let’s look at some basics. Nobel laureate economist FA Hayek observed, “Economic planning, regulation, and intervention open the way to tyranny by building a power structure that is inevitably taken over by the most power-hungry and unscrupulous.”
Too high risks to allow bureaucrats to control economic growth
It is economically and politically dangerous for unelected bureaucrats to extend power over companies that drive economic growth. The danger of the government abusing this power by forcing companies to submit to the interests of organized interest groups, including the ruling government, is very great. The continued suppression of decision-making based on profit and loss leads to inefficiency and stagnation.
One does not need to believe that the market produces perfect results to understand that government cannot be much superior to private enterprise. Political decisions are not driven by any market signals, profit motive or consumer preferences. These decisions are political in nature, suffer from serious cognitive problems, and are often tied to any accountability system when they fail. Government often favors big, successful companies that offer new technology that lawmakers often don’t understand well, but that consumers love. This is why government often fails, and this policy is no exception.
Active antitrust intervention has support from both parties, but for all the wrong reasons. Progressives push for intervention out of a desire for free markets, an instinctive itch to make companies submit to government power rather than making choices for consumers. Some national conservatives, on the other hand, resent “Big Tech’s” discrimination against conservatives. These conservatives misinterpret their anger as reason enough to attack successful tech companies. Any elected official who favors small government and respects the free market should strongly oppose these ideas.
Bill would cost consumers $300 billion in the long run.
The cost to consumers from this bill will be severe. An October 2021 study by NERA Economic Consulting estimated that such a proposal would cost consumers $300 billion because it would “consolidate online platforms and marketplaces into shared service providers, structural segregation and trade restrictions.”
Encouraging federal bureaucrats to assume the market-tested decision-making processes of some of the most successful companies in history is bad economic policy. Some in Congress have sided with both parties in resisting their colleagues’ challenge to target private-sector entrepreneurs. Sen. Rand Paul, R-Ky., wrote on Fox News: “These proposals to downsize the tech giants would instead preserve the dominance of these companies and deprive consumers of the technological innovation that only a free market can offer.” Competition can deliver.” Paul explains how the benefits of vertical integration and “winner” competition allow companies to achieve greater growth—and if—a company “continually rewards its customers with superior products and innovations.”
In fact, the lack of heavy-handed regulation in the US technology sector has led to unprecedented economic growth and high living standards. We should be suspicious of those in Congress who claim to do better by destroying what works well.
Veronique de Rugy is the George Gibbs Chair in Political Economy and a senior fellow at the Mercatus Center at George Mason University.
