Alex Jones and the Bigger Questions of Internet Governance

Last week Facebook, Google, and Apple removed videos and podcasts by the prominent conspiracy theorist Alex Jones from their platforms (Twitter did not). Their actions may have prompted increased downloads of Jones’ Infowars app. Many people are debating these actions, and rightly so. But I want to look at the governance issues related to the Alex Jones imbroglio.

The tech companies have the right to govern speech on their platforms; Facebook has practiced such “content moderation” for at least a decade. The question remains: how should they govern the speech of their users?

The question has a simple, plausible answer. Tech companies are businesses. They should maximize value for their shareholders. The managers of the platform are agents of the shareholders; they have the power to act on their behalf in this and other matters. (On the other hand, if their decision to ban Jones was driven by political animus, they would be shirking their duties and imposing agency costs on shareholders). As private actors, the managers are not constrained by the First Amendment. They could and should remove Alex Jones because they reasonably believed he drives users off the platform and thereby harms shareholders. End of story.

For many libertarians, this story will be convincing. But others, not so inclined to respect private economic judgments, may not be convinced. I see two limits on business logic as a way of governing social media: free speech and fear.

Preparing for Peace? Or Just More War?

In yesterday’s Washington Post, George Will makes a familiar argument: “if you want peace, prepare for war.”

Drawing mostly on key episodes from the late Cold War period, Will suggests that Ronald Reagan’s military buildup was instrumental to bringing down the Soviet Union. He places particular emphasis, with an assist from John Lehman, on the importance of a massive naval buildup in the 1980s.

As it happens, I served in the Navy during this period. Lehman was the Secretary of the Navy when I was an NROTC midshipman at George Washington University. I witnessed what such a force could do when it was called upon to fight – not the Soviet Union, but rather Saddam Hussein’s Iraq in 1991. And that war was over in a matter of weeks.

But fast-forward to today, and the picture is more complicated. The issue is not whether we are preparing for war, to prevent war, but rather why we fight so many wars in the first place. We have a political class that engages in war, but with little consideration of the long term strategic benefits. War, in short, has become a matter of habit.

Will Trump’s Foreign Policy Matter for the Midterms?

In a recent piece at The Hill, I argue that Trump’s terrible approval ratings for his handling of foreign policy will matter more than most people think.

The basic argument consists of four points:

1. Trump has made foreign policy more important to Americans today thanks to his “America First” approach:

The genius of Trump’s “America First” slogan was the way it allowed Trump to connect foreign and domestic politics under a single populist and nationalist banner. When Trump says he’s protecting American workers, he could be talking about tax cuts, illegal immigration, “horrible trade deals,” or terrorism. Trump’s America First strategy has blurred much of the historical difference between foreign policy and domestic policy. All of this makes foreign policy more important moving forward.

2. Trump’s foreign policy has been historically unpopular:

Not only does Trump suffer lower approval for his handling of foreign policy than all presidents back to Ronald Reagan, but majorities of Americans oppose Trump’s calling card issues. Fifty-eight percent oppose building a wall along the Mexican border and 67% think that illegal immigrants currently living in the United States should eventually be allowed to apply for citizenship. Twice as many Americans (49%) think raising tariffs will hurt the economy as think it will help (25%)…

3. Foreign policy approval feeds into overall presidential approval:

… even though the impact of foreign policy is most obvious during a war or international crisis, it plays a key role in shaping the general narrative of a president’s performance while in office. One analysis, for example, found that public approval of the president’s handling of foreign policy has a larger impact on his overall approval rating than does his handling of the economy.

4. Trump’s net-negative presidential approval ratings signal big trouble for Republicans at the midterms:

Research suggests that Trump’s current 41% approval rating historically would typically result in about an 8-point national advantage in voting for Democrats…. Looking at data from each president’s first midterm elections going back to 1946, the four presidents who did not enjoy a net-positive approval rating saw their party lose an average of 49 seats in the House and 6.5 seats in the Senate.

The bottom line is that Trump’s handling of foreign policy hasn’t done Republicans any favors this year and is likely to be an even bigger problem for Trump himself in 2020.

Thanks to Hannah Kanter for the background research and contributing to the writing of the original commentary.

Demonizing Ride Hailing

Last week, a transportation consultant named Bruce Schaller published a report claiming that ride hailing was increasing traffic congestion. Since then, we’ve been innundated with wild claims Uber and Lyft were increasing traffic by 180 percent, and these claims are used to support arguments that that cities should tax companies like Uber and Lyft and use the revenues to compensate transit agencies for the riders lost to ride sharing.

Yet the congestion claims are completely inaccurate. Schaller concluded that, because well under half of ride-hailing trips would otherwise have used private automobiles, ride hailing put “2.8 new vehicle miles on the road for each mile of personal driving removed.” He went on to say that this is “an overall 180 percent increase in driving on city streets,” but that would be true only if ride hailing removed 100 percent of private driving from the streets.

The report also said that ride hailing added “5.7 billion miles of driving annually in the Boston, Chicago, Los Angeles, Miami, New York, Philadelphia, San Francisco, Seattle and Washington DC metro areas.” That sounds like a lot, but Federal Highway Administration data show that it is only about 1 percent of driving in those metro areas. Since, by Schaller’s estimation, about a third of ride-sharing travel displaced private auto travel, ride hailing added a net of just two-thirds of a percent of driving in those metro areas.

Nor does even that two-thirds of a percent necessarily add to congestion. A disproportionate share of ride hailing takes place during off-peak hours, so only a small portion of that two-thirds of a percent actually contributed to rush-hour congestion.

Aside from being arithmetically challenged, Schaller is an unabashed opponent of auto driving. “Cities need less driving, not more,” he says, claiming that cities that allow too much auto driving will be “drained of the density and diversity which are indispensable to their economic and social well-being.” The reality is that low-density cities that emphasize driving, such as Dallas and Houston, tend to be more affordable and more socially and economically diverse than high-density cities that emphasize transit such as New York and San Francisco.

To promote transit and limit driving, Schaller advocates imposing fees on Uber and Lyft of as much as $50 per hour. Cities that are already charging such fees (though less than $50 an hour) are using them to compensate transit agencies that have lost riders to ride sharing, a policy Schaller would applaud but one that makes as much sense as taxing pocket calculators to save the slide rule industry.

Only transit, says the report, can “make possible dense urban centers with lively, walkable downtowns; a rich selection of jobs, restaurants, entertainment and other activities; diversity of population; and intensive and inventive face-to-face interactions that make cities fertile grounds for business and artistic innovation.” Has New York City resident Schaller ever been to Silicon Valley? It doesn’t have a dense urban center and it’s transit system carries less than 5 percent of commuters to work and only about 1 percent of local passenger travel. Yet it is one of the most creative and innovative places on earth.

The reality is that the ride-hailing industry is threatening the transit industry, and transit advocates are demonizing Uber and Lyft in order to protect their $50 billion in annual subsidies. Schaller’s report estimates that ride-hailing grew by 710 million trips in 2017, the same year that transit ridership declined by 255 million trips. If just 36 percent of ride-hailing trips would otherwise have taken transit–a number Schaller’s report would seem to support–then ride hailing is responsible for 100 percent of the decline in transit.

The truth is that transit was obsolete before Uber and Lyft were invented. Nearly 96 percent of American workers have cars and most of the 4 percent who do not don’t take transit to work. Outside of New York City, transit plays a minor role in urban transport, and outside of New York, Chicago, Philadelphia, Washington, Boston, and San Francisco, its role shrinks to insignificance. Given a choice between automobiles and transit, Americans have overwhelmingly chosen the former. Given a choice between ride hailing and transit, policy makers should also side with the mode that is faster, more convenient, and least subsidized.

Lighthouses in Economics

Tuesday was National Lighthouse Day and social media was abuzz highlighting lighthouses’ beauty and their important role in navigation. On August 7, 1789, in one of its first actions, Congress approved an Act that established federal administration and support for lighthouses, beacons, buoys, and public piers. Interestingly, though the Act established tax funding for lighthouses in the United States, the history of lighthouses in the United Kingdom took a very different path and has been a source of debate about public goods and the proper role of government.

Whitehead Light, Maine

Public goods, according to economists, are commodities for which it is impossible (or at least difficult) to restrict consumption to those who pay. Such goods are said to exhibit the free-rider problem. Economists from John Stuart Mill to Paul Samuelson argued that lighthouses were a textbook example of a public good because a private operator would have difficulty collecting payment from passing ships that use the light as a navigational aid. A lighthouse cannot pick and choose which ships view its light. Thus, a privately-owned lighthouse would raise no revenue. If government didn’t provide them through taxation, then no one would.

In 1974, Nobel Prize winning economist Ronald Coase examined the history of lighthouses in Britain and argued that, contrary to the traditional view, the service provided by lighthouses is excludable: passing ships need to dock somewhere, and when they do they can be charged user fees for the lighthouses they passed before docking. Coase showed that there were many privately owned lighthouses in 18th and 19th century Britain that were supported by user fees.

Subsequent scholarship has challenged Coase’s view. David van Zandt found that though many English lighthouses were privately owned, they needed permission from the government to build a lighthouse, enjoyed monopoly privileges, and earned government mandated and collected fees.

Market purists may be disappointed, but van Zandt’s findings add some nuance to discussion about public goods. He created a continuum of possibilities between pure private and full governmental provision:

1. private provision with government enforcement of property and contract rights;
2. private provision with government rate setting and revenue collection, and monopoly concessions;
3. government provision with only user fees as revenue;
4. and government provision with only taxpayer support.

While Coase argued that, historically, some lighthouses fit into the first category, van Zandt found that lighthouses were always in categories 2, 3, or 4. But both agree that dependence on user charges eliminates the budgetary excesses found with government provision of infrastructure, especially when it is funded from general revenues.

During the last few decades, many countries have privatized railroads, airports, energy companies, and postal services, even though governmental provision of them has been widely thought to be appropriate. As my colleague Chris Edwards has discussed, the United States has lagged other countries in this transformation. Lighthouses continue to be supported by tax dollars in the United States and through user fees in the United Kingdom. 

Lighthouses are not only beautiful reminders of our seafaring past. They also have played an important role in the intellectual history of economics, the economics of public policy analysis, and discussions about the proper role of the state.

Update 8/13/18: David Skarbek sent me this recent paper by Rosolino Candela and Vincent Geloso that discusses lightships in the United Kingdom. They examine the history of the famous lightship at the Nore and find that it was originally privately owned and able to operate profitably without government collection of payments, meaning that it fit into the first category of van Zandt’s continuum. However, the Nore and other privately owned lightships were opposed and crowded out by the main public lighthouse authority and, thus, the lack of private lighting services is a government failure, not a market failure.

Written with research assistance from David Kemp.


Towards a New North American Free Trade Agreement (in Principle)

After a brief hiatus during the run up to the recent Mexican elections, negotiations on the North American Free Trade Agreement (NAFTA) are in the news again, with hints of an agreement by the end of August. We have heard talk of an imminent agreement before and the chances of an agreement within the month may not be very high, and even if it does happen it may be more of an “agreement in principle” with many details still to be worked out. Nevertheless, with the renewed interest, we thought it was worth breaking down some of the key remaining issues (there are a lot of them, which helps illustrate the amount of work still left to do!).

Rules of Origin (RoO) for Autos

This is the focus of the current talks taking place between the U.S. and Mexico (Canada does not appear to be actively involved, perhaps because it does not have strong feelings about some of the outcomes here). In essence, the Trump administration wants to tighten the requirements for having trade in autos benefit from zero tariffs. In this regard, the U.S. wants to increase the percentage of content that must be from North American sources (currently the figure is 62.5%; the U.S. proposed raising it to 85%, and press reports suggest that 75% is the figure being discussed now). It also wants a percentage of the autos to be made by workers who make above a certain hourly wage (reports suggest that the current U.S. proposal is that 40% of light-duty vehicles and 45% of pick-up trucks are to be made by workers that make as least $16 an hour).


New Release: Monetary Policy in an Uncertain World

Ten years after the 2008 financial crisis we are again facing the possibility of economic turmoil as the Fed and other central banks exit their unconventional monetary policies by raising interest rates and shrinking their balance sheets. Although central banks will move gradually, unforeseen circumstances could trigger a flight to safety and a collapse of asset prices that had previously been stimulated by near-zero interest rates and large-scale asset purchases, popularly known as “quantitative easing.”

This book brings together leading scholars and former policymakers to draw lessons from the decade of unconventional monetary policies relied upon to stimulate the global economy in the aftermath of the financial crisis. The articles included in this book combine historical perspectives and forward-looking views of the Fed’s exit strategy and monetary normalization, along with the arguments for a rules-based monetary policy both at the domestic and international levels.

Kevin Warsh, a former member of the Board of Governors of the Federal Reserve System, reminds us in his article that, although the economy has improved since the crisis, the tasks facing the Fed are still large. “So we should resist allowing the policy debate to be small or push aside ideas that depart from the prevailing consensus. The Fed’s job is not easier today, and its conclusions are not obvious.” The contributors to this volume meet Warsh’s challenge by questioning the status quo and offering fresh ideas for improving monetary policy.