Minnesota Democratic Sen. Amy Klobuchar has her eyes fixed firmly on the White House, and, if President Joe Biden chooses not to run again, she’d like to take his place as the party’s nominee. Before she can do that, however, she first has to burnish her progressive credentials.
One way she’s trying is by going on the attack against Big Tech, an effort that’s winning her plaudits from both sides of the aisle. It’s not just those who think Karl Marx’s economic theories make more sense than those espoused by Milton Friedman but those who say they believe markets work who are helping push her attempt to give the Federal Trade Commission the ability to set rules about what the dominant platforms – her words – can sell online without behaving in a manner that is “discriminatory.”
Klobuchar’s been working hard to get her bill on the Senate floor before everyone goes home for the seven-week long August recess. Based on recent developments, it doesn’t look like she’s going to get what she wants, especially now that a group of prominent free marketeers has come out against what she is trying to do.
Among the 46 who signed the letter sent to congressional leaders on July 19 in opposition to her American Innovation and Choice Online Act are influential economists like Arthur Laffer, Richard Rahn and Stephen Moore as well as the leaders of influential organizations like Americans for Tax Reform, the Center for Freedom and Prosperity, the Small Business & Entrepreneurship Council and American Commitment. Their message is a clear one. Reject what’s embodied in the Klobuchar bill. It expands the size and scope of government and exacerbates the inflationary pressures on America’s families.
Most importantly, they say in response to charges leveled by Big Tech opponents on the right, there’s nothing in the bill that would do anything to address the issue of censorship on social media platforms. Instead, the letter reads, her bill “would worsen these issues by forcing targeted companies into a ‘mother-may-I’ relationship with the federal government” while suggesting the near-universal buy-in to what she wants proposes to do by progressive groups should be enough to arouse significant suspicion.
“Whatever so-called ‘improvements’ that the left has in mind for content moderation will certainly not work out in favor of conservatives’ free speech,” the letter goes on. “If conservatives are unhappy with the status quo, just imagine Big Tech targeting conservative speech on behalf of Biden bureaucrats.”
That’s an argument that should move those like Colorado GOP Congressman Ken Buck back to his senses. Buck is a key leader on the right among those in the U.S. House of Representatives who have endorsed or are flirting with what Klobuchar wants to do.
It’s an argument that has weight even as the reality of things flies in the face of what people are saying online. Even if some conservative leaders and groups have been temporarily or permanently “de-platformed,” an issue about which people routinely post, those who espouse conservative ideas can reach more people for less money today than they could in the days when there were only three national television workers (four with PBS) and The New York Times set the news agenda for everyone.
The organizers of the letter also clearly intend for their arguments to move those whose interest in expanding the Federal Trade Commission’s antitrust powers is motivated by economic concerns. The most influential of these would be Iowa GOP Sen. Chuck Grassley, a one-time chairman of the Senate Finance Committee and Klobuchar’s principal Republican co-sponsor.
Their argument that the bill, while it applies to only a handful of tech sector giants now, is a proverbial camel’s nose under the tent leading to “future government regulation based on the size of a company, a government cap on innovation” and other developments eventually bringing the most productive and innovative sectors of the U.S. economy “under the heavy hand of government control” should be persuasive.
Whether they will be is not certain, even if these companies have allowed new voices to join the national conversation and added considerably to U.S. GDP. A new study by Laffer and John Barrington Burke on the economic impact of the Klobuchar bill shows these firms “provide services at steadily lower prices to consumers.” That is exactly the opposite of what monopolies do, meaning there’s little justification for going after them for violating the existing rules on antitrust and adding weight to the charge that Klobuchar’s base motivations are political.
As she no doubt intended, her bill is winning her plaudits from progressives for the way it turns antitrust law on its head. For nearly 50 years, a period that not coincidentally aligns with the long boom that saw the size of the U.S. economy grow to $20 trillion, antitrust enforcement occurred only when it could be shown consumers were harmed as the result of tangible, measurable outcomes like higher prices, reduced innovation or lower quality. Under the Klobuchar legislation, S. 2992, America would adopt a European-style attitude toward antitrust that allows governments to routinely pick winners and losers and target politically disfavored companies with frivolous lawsuits. According to the signers of the letter, that means “Bureaucrats win, consumers lose.”
That’s backed up by the Laffer/Burke study, which says that over the last decade, the high-tech sector has been the most instrumental in holding inflation down. Overall prices may have risen by 22 percent, but the cost of tech products and services has fallen by at least 16 percent.
Not all that long ago, Democrats and Republican leaders in Washington both believed a vigorous, powerful, intrusive federal government that made critical decisions about the direction of the nation’s economy was good for America. The GOP may have promised to run things more efficiently and at a lower cost than the other party but there was barely a dime’s worth of difference between them. Then the Reaganites came, bringing with them a flurry of new ideas that produced then-record job creation, price stability and economic expansion.
Some in the GOP have lost sight of that, even if they were part of it when it happened. In the post-Trump era, some leaders are more open to the idea of using federal power to regulate business to punish those they perceive to be hostile or unfair to conservatives. This is not okay. Chief Justice John Marshall famously wrote, “the power to tax is the power to destroy.” He might have said the same thing about the power to regulate – which some conservatives who ought to know better are talking about giving the federal government more power to break up the companies that make up “Big Tech” based on their size alone, their annual revenues or the perception, valid or not, that they are unfair to the right.
A significant portion of the $751.7 billion spent annually on K–12 education is used to purchase non-public goods and services.
In a recent tweet, journalist Nikole Hannah-Jones, creator of the 1619 Project, recycled a common refrain against school-choice programs, noting that “they funnel public dollars into privately run institutions.” Similar talking points are being used in Michigan, Texas, and other states to block policies that give families access to their students’ education dollars and more opportunities for their kids.
This argument is misguided and ignores the fact that public education wouldn’t exist without the private sector. The reality is that much of the $751.7 billion spent annually on K–12 education is used to purchase non-public goods and services.
The wheels of commerce are spinning well before the morning bell rings, with public schools spending over $27 billion annually on transportation services. Manufacturers such as Blue Bird — a publicly traded company that recorded $1.019 billion of sales in 2019 — supply the nation’s 480,000 yellow buses, and about one-third of school districts outsource bus services to private contractors, saving public schools millions of dollars each year.
Without these companies, millions of students would be stuck at home, but that’s only the start. School districts also partner with private entities to build the schools, playgrounds, and athletics facilities they rely on each day.
Nationwide, spending on capital consumes roughly 10 percent of all K–12 education dollars each year, totaling $76.3 billion in 2019 alone. Districts finance much of this spending by issuing municipal bonds, which require private-sector assistance from investment banks, attorneys, and ratings agencies and are purchased by investors such as money managers and insurance companies.
For their part, public-school advocates — including teachers’ unions and other school-choice opponents — almost always support bond referenda, despite the cadre of private actors that profit from them.
Once bonds are approved, school districts hire architecture, engineering, and construction companies to do the work. For example, construction giant Balfour Beatty contracts with districts across the country from Texas to California and has completed over $500 million in projects for the public schools in Wake County, N.C., alone.
Inside classrooms, a similar story unfolds. While nearly half of all education dollars are spent on employee salaries, benefit expenditures for things such as pensions and health insurance account for 21 percent of spending. This includes teacher retirement contributions that are made each year to massive pension funds that invest in equities, real estate, and other financial vehicles that help fund managers diversify risk and hit performance targets. Teachers have a vested interest in U.S. economic growth and benefit from the success of corporate giants such as ExxonMobil, Amazon, and Berkshire Hathaway.
Schools are also increasingly reliant on technology companies to supply computers, tablets, and software solutions that support instruction, and it’s estimated that $26 billion to $41 billion is spent each year on education tech. Similarly, states depend on private firms to administer statewide exams, such as the $388 million in contracts Texas awarded to Pearson and Cambium Assessment.
In some cases, school districts even pay private-school tuition for students they can’t serve. The National Association of State Directors of Special Education says that about 1.5 percent of public-school students with disabilities are placed by their districts into private schools. This practice helps families obtain specialized services and means that public-school districts are already doing exactly what school-choice opponents fight against — sending public dollars to private schools. The only difference is that district bureaucrats, not parents, are the ones calling the shots.
Of course, not all these examples of private-sector partnerships are wise investments or the best use of scarce resources. After all, K–12 transportation is in desperate need of reform, and construction projects can be wasteful. The real issue that opponents such as Hannah-Jones have with school choice isn’t with public dollars going to the private sector, but with competition for students and their per-pupil funding. The public-school monopoly gets weaker when parents can access their education dollars and use them for the private services that they choose, and that’s a good thing.
America’s high national living standards lead us to consider things like abundant access to clean water, comprehensive cellular service, and a reliable electric grid commonplace. Much of the rest of the world regards them as luxuries unavailable to many people.
Consequently, we tend to think about these things only when they don’t work. Cloudy water creates a crisis. A cell phone outage leaves us stranded. Failures in the power market leave us, literally and figuratively, in the dark about what to do.
The critics of how the market allocates the distribution of electric power allege competition would lead to more brown- and blackouts. Despite abundant evidence they are wrong, they don’t trust the competitive market system to keep the lights on. Even now they’re waging a campaign to upend the market structure in places like my home state of Virginia, where competition has overall helped maintain reliable and affordable electricity.
Electricity generators in the United States operate under different structures, dictated by state and the federal governments. Historically, utilities have been integrated vertically, creating geographic monopolies on the production and sale of electric power. Unified ownership of the different parts of the supply chain – generation, transmission, and distribution of power – by a single producer/distributor creates exclusive service territories with captive customers.
Economics teaches that monopolies are bad, even at the state level. Dependence on a single source for anything leaves customers without the freedom to decide what’s best. Competition is the consumer’s friend. Just look at the explosion in services offered by the telephone companies thanks to the competition created by the breakup of Ma Bell.
The explosion in content creation driven by the internet is analogous to what might happen to power generation if competitive pressures were introduced to the generation of electricity in states currently lacking choice. There are nuances of course but, in general, the restructuring of power markets would end the distribution monopolies. Existing utilities would maintain control on distribution networks, but in most cases will be separated from the generation of power.
Currently, there are seven Regional Transmission Organizations (or RTOs) and Independent System Operators (or ISOs) in the United States that run competitive wholesale power markets. They facilitate open access to power transmission and operate the transmission system independently of, and foster competition for, electricity generation among wholesale market participants.
In short, they replace the cost-based regulatory model with a market-based competitive model, functioning as “power pools” from which multiple independent utilities can draw and share reserves to make power cheaper for you and me. Over time, they have evolved to optimize generator output over wide geographic regions – again, generally reducing consumer costs.
According to U.S Energy Information Administration data, between 1997 and 2017, increases in retail electricity prices in states with competitive electric markets and monopoly states were about the same, while customers in monopoly states saw a slightly higher percentage increase in rates. A Retail Energy Supply Association found that customers in states that still have monopoly utilities saw their average energy prices increase nearly 19 percent from 2008 to 2017, while prices fell 7 percent in competitive markets over the same period.
In competitive markets, electricity is purchased at market-determined wholesale prices. Customers, you and me, can choose a provider rather than be required to purchase our electricity from our local utility. The monopoly system, equally or more expensive from a price perspective, is often tainted by political corruption and scandal. In the last year or so, scandals involving utilities seeking to influence legislation or secure taxpayer bailouts led to the toppling of the top lawmaker in both the Ohio and Illinois House of Representatives.
“Pick a year, and you will find some scandal among monopoly utilities. The corruption shows no sign of slowing down. Instead, the breadth, depth, and cost of such scandals only seem to multiply,” the Conservative Energy Network notes.
It’s time to pull the plug on the old system. Competition in the electricity market produces cost savings for customers, improves service and reliability, and encourages innovations leading to environmental benefits. The drive to gain new customers that comes once a restructured, competitive wholesale market for electricity is introduced – and which several states are in the process of creating – empowers customers, reduces costs, and keeps the lights on.