That Sen. Elizabeth Warren, D-Mass., doesn’t know much about DNA testing or Cherokee heritage is well known. But then that’s fine, she’s not in the running to be leader of that nation, but of this one, which is where her lack of accurate information becomes more troubling. She is famously trying to break up Big Tech as that’s a part and a sign of the increasing concentration of the economy.
The problem with this is that it might be a good campaign pitch, but it’s terrible economics.
Economic concentration is diminishing and competition is increasing in the economy at the only level it makes any sense to worry about, at the only level that’s even conceivably important.
That it’s good politics is shown by the squeals of delight emanating from points to the left of us. That it’s bad economics comes from Princeton, with a nice explanation here from John Cochrane.
To put it at its simplest, we have fewer companies in any one line of business in the country as a whole. That’s increased concentration, less competition. But there are very few things indeed that are actually a national market — even gasoline isn’t that, there being different required blends for different states and groups of them. What matters is: How many potential suppliers of whatever does the average consumer have access to? That is, competition and concentration are local, so what is the current effect locally? We’re all gaining more people competing for our custom. The market where the market matters, to us as consumers, has less concentration and more competition.
Think gas supply again. We’d not be greatly happy with just the one company supplying all gas wholesale to the entire nation. We’d also realize that we’d be gouged if there were only one gas station within an hour’s drive of our ZIP code, however many wholesale suppliers there were. But those are different levels of concentration with different effects. We must distinguish between them.
Rather large chunks of the economy suffered since, well, forever, from local monopolies. The most extreme was the company town, but plenty of places have had the one or perhaps two grocery stores. It is this form of concentration that is weakening. It’s the only form of competition we’re really interested in too, for that’s nearly always been where any monopoly effects of us out here, the consumers being overcharged.
So far, just a detail of background economic reality. But come along now, this is an election policy proposal here. We know it’s going to be worse than just conflicting with reality. What this paper doesn’t talk about is the effect of the Internet, of that Big Tech, on exactly this sort of competition. For their data comes from looking at physical locations, which with order and delivery systems aren’t going to give the full picture.
Take that suburb with the two grocery stores. We can see and count that in the normal economic statistics being used here. What we don’t see is that Walmart will deliver into that ZIP code, adding another competitor. So, perhaps, will Target. So might Safeway. Just by this count, we now have five competing suppliers where we’re only recording two physical locations. That’s before we include Amazon — do we describe that as one store, or is Amazon Marketplace what it really is, tens of thousands of competing ones? Can we describe a website where tens of thousands of people can and will deliver near anything to the one ZIP code as an increase in supplier concentration, a decrease in competition, in the market?
No, obviously not. At the level that matters, what can people buy from whom, competition has obviously and clearly increased. We thus don’t have an increasing concentration that needs to be managed or curtailed. Given that it’s actually Big Tech that has brought this increased competition to us, that’s not something we need to break up either.
Do think this through just for a moment. Amazon’s Marketplace means that just about every supplier of anything at all now has a retail outlet right in your home. More stores than there used to be in the shopping malls of a great metropolis. So what concentration, what reduction in competition could there really be?
One step deeper, let’s recall what the basic pitch is from Warren and her ilk. Gather up all the clever people and put them in government to run the world for us. It’ll run better because of their technocratic competence, they’ll be able to plan and manage more efficiently than this messy markets stuff.
Their specific pitch is to be wrong about economic concentration, it’s decreasing, not increasing. Their solution is to break up Big Tech, a very cause of the increased competition we all enjoy for our spending. That is, we are seeing a claim of technocratic and managerial competence combined with a demonstration of a startling lack of it.
Seriously, why would we hand over the nation to the people who get their analysis wrong and thus propose the wrong solution, which they will them impose upon us all? Voters get to give their answer to that on Nov. 3, 2020, and it may do the country much good if they do so.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
