A Stitch in Haste

This really annoys me:

Herb Vest believes that true love should come with a criminal-background check. Vest is the chief executive of True.com, an online dating service that pledges to verify whether your dream date is a convicted felon or, worse yet, already married.
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This would be an engaging but otherwise unremarkable business plan, except for one twist. Instead of competing head-to-head with his rivals in the business world, Vest has veered into the political world by pressing for new laws that would put True.com's competitors at a severe disadvantage.

Vest has managed to convince legislators in states including California, Texas, Virginia, and Michigan to sponsor bills that would target rival dating sites like Match.com, Yahoo Personals, Spring Street Networks, craigslist and eHarmony.

Those sites would be required to stamp this stark warning atop every e-mail and personal ad, in no less than 12-point type:

"WARNING: WE HAVE NOT CONDUCTED A FELONY-CONVICTION SEARCH OR FBI SEARCH ON THIS INDIVIDUAL."
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True.com, of course, has ensured that it would be exempt from the warning requirement. So would any other Internet matchmaker -- not that any other company qualifies -- that "conducts a search for the person's felony and sexual offense convictions through a regularly updated database" that "contains more than 170 million criminal records and sex offender registries."

It used to be "build a better mousetrap." Now it's "buy a better politician."

But of course this is just new technology, not new tactics. Government-imposed barriers to entry (i.e., the politics of pull) are the quick and easy way to make a buck. Quality, variety, innovation and, of course, price cutting (i.e., capitalism) are the hard way. Go figure.

I've been somewhat silent and inactive on the whole topic of domestic trade barriers such as licensure and credentialing. If you want to learn about some other horror stories, the heroes at the Institute for Justice have plenty for you.

It's a sad point to concede, really. Licensing can, if implemented honestly, be an economically efficient operating framework within a jurisdiction. Consumers, in theory, not only know that the licensed practitioner has demonstrated a certain minimum quantum of education, training or competence, but also -- and this was why I was a holdout -- have easier recourse in the case of a dispute. If you're licensed, then the state knows where to find you (e.g., for service of process), making it easier for substandard practitioners to be sued, fined, barred, etc.

But I'm coming to the realization that these benefits are negated, by orders of magnitude, via the anti-competitive impact of reduced supply and innovation.

Oh well.

Hopefully this obnoxious maneuver by Vest will wither on the vine as its sheer stupidity, not to mention its fundamental unfairness, are exposed by the media and the blogosphere. If not, then perhaps some merry libertarian litigators will find the time to help all those looking for love -- non-felon or otherwise -- in cyberspace.

Hat tip to PrivacySpot.

"Gay white libertarian lawyer-banker; 38; literate, over-educated and rich with cute dog, seeks non-felon for..."

I rarely copy other bloggers' posts wholesale, but this one from Eclectic Econoclast is just too good not to:

Anti-trust in two easy lessons:

(1) you must compete;
(2) you must not win.

Here are three more lessons to learn about anti-trust economics:

--If you charge less than everybody else, it is called unfair competition.

--If you charge more than everybody else, it is called price gouging.

--If you charge the same as everybody else, it is called collusion.

Now apply these rules to Microsoft, which has been repeatedly harassed by Eurocrat antitrust regulators:

The European Union threatened Microsoft Corp. on Friday with new fines if the software company doesn't make it easier and cheaper for competitors to see the blueprints of its server software.
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EU antitrust regulators fined Microsoft a record 497 million euros ($665 million) when they ruled a year ago that Microsoft abusively wielded its Windows software monopoly to lock competitors out of the market. They ordered, among other things, that Microsoft share Windows server code with rivals so their products can better communicate on networks with machines that run Windows operating systems.
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Todd said the EU could impose prohibitive fines of up to 5 percent of the company's daily global sales if it refuses to better cooperate.

People tend to think "monopoly" is a bad word -- and it is, when it derives from government fiat. That has never, not once, been the case with Microsoft. Microsoft's products won in the past because they were better, cheaper or both. If that continues to be the case, then Microsoft will continue to win; if not, then Microsoft will fall from its perch.

So clearly the Eurocrats are not motivated by the best interests of consumers (those interests are, after all, better and cheaper products, are they not?). What else might the European regulators be after (besides the threatened shakedown of 5% of Microsoft's global sales)?

Antitrust is never about protecting competition -- competition never needs "protection." Only competitors need protection, and only the intrusive, competition-destroying power of government can provide that protection. It is basic "rob Peter to pay Paul" economics. The consumer simply does not factor into the political equation.

Antitrust sacrifices not only the successful competitor, but also the consumer, for the sake of the unsuccessful competitor. And that's not just bad policy, it's monstrous policy.

Class dismissed.

Related Posts:
E.U. to Force Microsoft to Sell a Product It Doesn't Make?
More on the "Evil Mega-Corporations"

It seems to us that this regulation is ... an attempt to free the profession, to as great an extent as possible, from all taints of commercialism.
--Williamson v. Lee Optical, 348 U.S. 483 (1955)

“An educated consumer is our best customer.”
--Syms clothing store

The Sixth Circuit Court of Appeals has upheld an atrocious Tennessee law that -- get this -- makes it illegal for an optometrist to actually practice in an eyeglass store.

The case, Lenscrafters v. Robinson, No. 03-5512 (PDF - 7 pages), is a direct and inevitable extension of the monstrous Lee Optical case quoted above, and not just because both cases involve eyeglasses. The core holding of Lee Optical, which has wreaked a half century’s worth of damage, is that protecting (hypothetical) gullible consumers from (hypothetical) “predatory” sellers (i.e., protecting them from themselves) is a “legitimate government interest.”

Now the (true) nature of a law such as this is fairly straightforward -- naked protectionism. The “gullible consumer” argument is always an insolent shibboleth that cloaks the real “legislative intent,” namely the Politics of Pull. Independent optometrists can’t compete with the convenience of one-stop shopping for eye exams and eyeglasses from a national chain (more on that below), so they simply petition the local hack politicians to outlaw that competition outright.

When that tactic is used by, say, an online dating company, it is (rightly) ridiculed. But throw in the magic word -- healthcare -- and suddenly the concept somehow starts making sense to anti-capitalists. Never mind that eyeglasses are hardly comparable to surgery, psychiatry or other branches of “healthcare” where mistakes can literally kill. Never mind that eyeglasses are, compared to other aspects of healthcare, relatively inexpensive. It’s “medical,” so of course it must for some reason be kept free of “all taints of commercialism.”

On the other hand, if “healthcare” is so important, then isn’t it worthwhile to make it as inexpensive as possible, both in terms of money and time? Whatever (hypothetical) costs there might be to the (hypothetical) gullible consumer who may occasionally succumb to the “taints of commercialism,” would those costs not be overwhelmed by the savings to every single eyeglass customer, as competition drives down prices, for both one-stop stores and independent optometrists? And what of the time savings of being able to make a single trip to an eyeglass chain that has an on-site optometrist? Completely blanked out by those who only see (sorry for the pun) the supposed benefits of their anti-capitalist maneuvers but not the costs. Or those who put the interests of the optometrists above the interests of customers.

And in the process they claim to be “public servants.”

Can there be a more obnoxious argument against the free market than the “danger” of goods being too easy to buy too cheaply?

It boggles the mind.

Hat tip to How Appealing.

I used the self-study product MicroMash to prepare for the Bar, so I guess I won't be seeing any money:

More than 300,000 lawyers and law students were each charged an estimated $1,000 extra for bar review courses, according to a complaint filed against BAR/BRI bar review and The West Publishing Corporation and Kaplan, Inc. in the U.S. District Court for the Central District of California in Los Angeles today.

West Publishing Corp., dba BAR/BRI, and Kaplan are joined as defendants in a class action lawsuit accusing the two companies of illegally dividing the highly lucrative LSAT and bar exam test preparation businesses. According to the complaint, executives of BAR/BRI and Kaplan secretly agreed to a per se illegal market division.

BAR/BRI agreed to close its Law School Aptitude Test (LSAT) preparation course from the market in which Kaplan was the dominant competitor. Kaplan, in turn, agreed not to enter the full-service bar review business, in which BAR/BRI was the dominant competitor. The two companies then entered into an agreement to work together "strategically" to enhance Kaplan's share of the LSAT market and to increase BAR/BRI's control of the bar review market.

The complaint is here (PDF - 23 pages). I've only glanced at it. Basic Clayton Act and Sherman Act type stuff, although I noticed some whining about the omnipresent claim that "BAR/BRI tears down other services' flyers" and the fact that they offer a scholarship with the ABA's imprimatur. And the class action allegations might make a good review for those taking Civil Procedure.

I didn't take antitrust in law school, but I did take Industrial Organization in grad school, and I'm an investment banker, so I'm literate in the basics. And of course as a libertarian I despise all antitrust regulation.

By what perverse reasoning can an agreement between two companies in unrelated fields saying "I won't enter your niche if you don't enter mine" possibly be illegal? How can not doing something be legal, then agreeing to continue not doing that same thing suddenly become illegal? It boggles the mind.

Of course, antitrust is never about protecting competition, but rather about protecting competitors, via the force of the government.

Suppose the lawsuit somehow succeeded, or is settled. What happens? The "lucrative" bar review market instantly becomes less lucrative, because prices are artificially forced downward. But if the market is less lucrative, then there is less reason for new competitors to enter that market. So, in order to "protect customers," you keep potential alternative providers out of the market. You entrench the very companies you claim have been "abusing" customers. Try reviewing that study material a few times.

Let's say BAR/BRI settles and agrees to lower its prices. Neat-o -- except that all the class actions in the world don't change the rule that "you get what you pay for." Does anybody really believe that every lost dollar in revenue comes only from profit and not from developing and maintaining the product itself? Is it such a victory if law students pay $1,000 less for their materials and the probability that they fail the bar increases by 5% because those cheaper materials are of a lower quality?

And here's the real kicker: Kaplan is owned by the Washington Post (bet you didn't know that); BAR/BRI is owned by Thomson Company -- Canadian, incidentally...shame on all you law students for not "studying American!" (just teasing). I'm fairly confident that the Washington Post and Thomson could merge tomorrow and not a single antitrust regulator would bat an eyelash, rendering the Kaplan-BAR/BRI "anticompetitive" agreement moot. Antitrust is supposed to make more sense at the subsidiary level than at the parent level? It boggles the mind.

I'm sure the blawgosphere will be all over this -- I'll try to provide updates as appropriate.

Hat tip to En Passant by way of Pejmanesque.

The (possible) housing bubble is having an unintended consequence: increased scrutiny of real estate broker commissions (WSJ - $) --

In a widening push to promote price competition in sales of residential real estate, government antitrust enforcers are preparing to sue the National Association of Realtors, alleging that its policies will illegally restrict discounting of sales commissions and put online competitors at a disadvantage.
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The Justice Department is expected to charge that the NAR, in a proposed 2003 bylaw, illegally adopted practices intended to stifle Internet-based rivals and discounters, according to lawyers close to the case. These competitors often charge commissions below the traditional 6% that is divided between buying and selling agents.
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The government is also targeting industry-backed efforts to get state legislatures and real-estate boards, which set licensing standards, to enact regulations that in effect protect full-service real-estate agents and their commissions. Some brokers offer fixed fee-for-service, or menu, pricing that can lower consumers' costs, and others rebate a portion of the commission.

The Justice Department and the FTC have warned several states in recent months that such laws hamper innovation and competition, and have formally objected to industry-supported proposals in Oklahoma and Texas.

Now on the one hand libertarians tend to distrust antitrust laws, but on the other hand we also distrust licensing and other occupational restrictions that keep would-be entrants out of a trade. So which one prevails here?

Starting from first principles, if the NAR, qua private organization, wants to limit how its members operate as a condition for the benefits of membership, then that of course is their right. If the NAR becomes so good at what they do that they grow into a near-monopoly, then so be it; that's the good kind of monopoly and the antitrust authorities should butt out of it.

But the NAR leaders should stay in their offices and out of state legislatures and should not be allowed to invoke the Politics of Pull and lobby for laws that restrict the behavior of non-members or that require membership in the NAR itself. That's the bad kind of monopoly -- the kind that only arises via the heavy hand of government. As I've blogged previously, although licensing can, theoretically, serve an economic efficiency function, when it morphs into guilding then it becomes an unjustifiable affront to free markets.

With all due respect to the false god of federalism, if the only way to prevent state laws that impede free markets is by appealing to federal agencies that also tend to impede free markets, then so be it. The enemy of my enemy...

Marginal Revolution has a more economics-driven analysis.

Two quick tales of how monopolies really rise and fall:

ITEM: "If you have two airlines, decide now which one you love more" --

[A] law known as the Wright Amendment prohibits airlines at Dallas Love Field from flying beyond a seven-state perimeter. That means that Dallas-based Southwest, the main airline at the Dallas airport, can't sell flights from Dallas to Chicago or other cities in states that aren't adjacent to Texas, like Philadelphia or St. Louis.

The Southwest study ... shows that the restriction costs other cities $1.8 billion annually in lost flights and higher passenger costs.
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Last month two Texas congressmen introduced legislation to repeal the 26-year-old Wright Amendment, saying that the law lets government "play favorites" among airlines and airports.
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American Airlines, the other major Dallas-based airline, said in a recent statement that Southwest should seek flights to other states by opening gates at Dallas's other airport, Dallas-Fort Worth International Airport. "Repealing the Wright Amendment only serves to line the pockets of Southwest," the news release says. ... "It would weaken the DFW hub, and if you weaken the hub you hurt the community."

MY TAKE: Yes you read that last sentence correctly -- Dallas would be hurt by having two strong, diversified airports instead of one. By that logic, New York should shut down LaGuardia and Newark.

Two other quick observations. First, if the State of Texas had tried to pass this law, rather than Congress, it would likely have been unconstitutional on Dormant Commerce Clause grounds and perhaps federal pre-emption grounds.

As a federal law, champions of federalism can ask what business it is of the federal government to regulate, not air travel safety, but air travel competition, especially in a single local market. I thought we scrapped the Civil Aeronautics Board.

(FUN FACT: The Airline Deregulation Act passed in 1978, the Wright Amendment in 1979. Connect the dots. Oh and that's "Wright" as in, not Orville and Wilbur, but in then House Speaker Jim Wright of -- you guessed it -- Fort Worth, Texas. It is so very hard to remain calm sometimes.)

Second, as Hit & Run notes, for American Airlines to lament that repealing the law would "line Southwest's pockets" when what they really mean is that their own pockets would no longer be lined by an artificial, government-imposed monopoly, is the height of arrogance.

POST SCRIPT: I presume readers understand the "which one you love more" reference. If not, see here.

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ITEM: Revenge is a beer best served cold --

Brewery bosses on Tyneside are locked in a legal battle with Eurocrats for the right to still use the name Newcastle Brown Ale -- despite shifting production to Gateshead.

Scottish & Newcastle had originally celebrated gaining specialist European status for the famous beer -- which stops it being brewed anywhere else.

But the firm has since been trying to have the status revoked, after announcing plans to move production to the Federation Brewery in Gateshead.

MY TAKE: In other words, Scottish & Newcastle, which was literally brewed in Newcastle, got a law passed that prevented any beer not brewed in Newcastle from using the word "Newcastle" in its name. And now they want to move out of Newcastle. Oops. The economics gods have a sense of humor. Hat tip to Reason Magazine by way of Daily Pundit.

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Folks, always keep the following in mind regarding Industrial Organization (i.e., the economics of monopoly):

--Monopolies are almost always created by government fiat rather than by cutthroat competition. And the politicians and bureaucrats doling out those barriers to entry are rarely motivated by the "public interest." It is all about the Politics of Pull.

--In those rare cases where monopoly or near-monopoly does arise naturally (e.g., Microsoft), it arose because the company was successful. And what does it mean to be successful? It means providing the greatest satisfaction to the greatest number of customers. This is somehow bad?

--It is never the goal of a monopolist to charge the highest possible price. Rather, the monopolist seeks the highest possible profit. And, most often, maximum profit is achieved by lowering prices, thereby increasing volumes and spreading fixed costs across as large a base as possible.

--In the absence of government insulation from competition, today's monopoly will only be tomorrow's monopoly if it continues to do what it did to become a monopoly in the first place: continue to satisfy customer needs. If the monopolist ceases to be the best, then it will also cease to be a monopolist. Would you give even half a damn if the market for vacuum-tube, black-and-white, non-cable-ready televisions was a monopoly?

In introductory economics classes, instructors and textbooks sometimes use the small-town newspaper as (perhaps the only viable) example of a true "natural monopoly" (i.e., one that is not the result of government-imposed barriers to entry).

The idea is that with relatively high fixed costs (e.g., printing presses) and relatively low demand (i.e., readers), two or more competitors simply couldn't operate profitably. It's either one monopolist or no service at all.

Few would argue, especially in the Internet age, that this particular example of natural monopoly represents any real threat to either readers or to freedom of the press, or that such an innocuous, and strictly local, phenomenon needs to warrant the attention of the federal government.

Few, but not none:

Nevada's largest evening newspaper, The Las Vegas Sun, has agreed to be folded into its much larger morning rival, the Las Vegas Review-Journal.
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The plan must get the Justice Department's O-K because the two papers have a joint operating agreement allowing them to share some business operations. The new arrangement would allow the Sun to keep its liberal editorial voice.

Circulation has slipped by a-third at the Sun over the last two years, and lags far behind the editorially conservative Review-Journal.

"Slipped" is putting it mildly: the Review-Journal reports that the Sun's circulation is a puny 28,000. It would almost certainly have gone out of business before long.

The Review-Journal, meanwhile, is not owned by one of the major newspaper conglomerates, but rather by the relatively minor Stephens Media Group.

And still the federal government has to get involved.

Between the Antitrust Division of the Department of Justice, the Federal Trade Commission, state regulators and whatever industry-specific bureaucracy may assert jurisdiction (e.g., the FCC for media mergers), it's astounding that any companies ever get to merge. (And of course, if Europe gets involved, then the probability of obtaining approval sinks like a stone.)

It's one thing to investigate, punish and undo misconduct regarding business combinations (but keep in mind that "misconduct" is defined obscenely broadly under U.S. antitrust law). And if matters of national security are concerned (e.g., consolidations in the defense industry), then perhaps some government scrutiny might be warranted.

But a (quasi-)merger of two local newspapers? Give me a break.

As the saying goes, when all you have is a hammer, everything starts to look like a nail. Antitrust jurisdiction, to the extent it should exist at all, should obviously be subject to an automatic exemption for de minimus transactions like this.

What a nice headline that would make.

To review, the Supreme Court heard oral arguments Monday in a case, Leegin Creative Leather Products v. PSKS, that challenges a longstanding antitrust rule banning any and all "retail price maintenance" as constituting an illegal "anticompetitive" practice.

To libertarians, this rule -- known as the "Dr. Miles rule" from the 1911 case that the Court is now being asked to overturn -- is facially befuddling, and even damnable. Two private parties -- a manufacturer and a retailer -- ought to be able to enter into a private contract for mutual benefit. If a consumer has a problem with it, then she is perfectly free to have no part of it (i.e., to harrumph at home to her heart's content). End of discussion.

But freedom of contract -- "economic substantive due process" -- has been dead ever since the New Deal (and even before that in the case of antitrust law). Instead, the government -- both legislatures and courts -- take a utilitarian/consequentialist view. Infringing economic liberties, they reason, is perfectly hunky-dory if it can be argued -- not proven, but merely argued -- that "consumers" (arbitrarily defined) might -- not will, but might -- benefit (somehow).

This is what passes for enlightened statecraft in the Twenty-First Century.

And yet, even by that haphazard divining process, retail price maintenance should still be allowed, or at least presumptively allowed. There are powerful economic arguments explaining why allowing retail price maintenance can benefit consumers. But at least one of the Justices, Stephen Breyer, arrogantly dismissed "counting economists" as invalid folly.

Ironically, Breyer's pompous position contradicts another disturbing trend by judges, including at the Supreme Court: the increasing prevalence of excessive judicial deference (abdication?) in the form of both substituting rational basis review for heightened scrutiny and, worse, redefining rational basis review into a new policy of absolute deference to the legislature (whether Congress or a statehouse).

This is an untenable contradiction: Why should judges be so willing to defer to legislators but not to the market? If legislators are the "experts" on matters of public policy, then aren't capitalists the "experts" on matters of economic policy? Who is better equipped to determine what maximizes "consumer welfare"? Politicians (most of whom have never been businessmen and have little or no economics training), or entrepreneurs -- whose very existence is perpetually dependent precisely on maximizing consumer welfare (i.e., by giving the customer what he wants, in order to maximize his own profits)?

No single person, and no assemblage of people, can know the market better than the market knows itself. No policy can maximize consumer welfare more than letting those people who are creating consumer welfare go ahead and create it. If "judicial deference" is the proper orientation, then so be it -- defer to the market, not to Congress and not to the archaic and repudiated reasoning of a century-old precedent.

More thoughts at SCOTUSblog, Distributed Intelligence, Truth on the Market.

Totally overshadowed by the race-based cases yesterday was another minor victory at the Supreme Court, in the case of Leegin Creative Leather Products v. PSKS, No. 06-480 (June 28, 2007). The Court reversed -- although "revised" might be the better term -- the standard of review for antitrust cases involving so-called "retail price maintenance."

In RPM, a manufacturer or wholesaler on one side of a contract requires the retailer on the other side of the contract to charge a minimum price to final consumers. For almost a century, any and all RPM agreements were deemed illegal under the antitrust laws -- see Dr. Miles Medical Co. v. John D. Park and Sons, 220 U.S. 373 (1911).

Now the Court has "overturned" Dr. Miles and held that RPM, while not necessarily permissible in all contexts, is to be subject to the so-called "rule of reason," which just means that antitrust regulators now need to go through the motions of evaluating RPM contracts and deciding -- somehow -- whether such contracts are -- somehow -- "bad."

Hardly reason for libertarians to dance in the streets.

It's quite simple really: Private parties (i.e., manufacturers and retailers) should be free to enter into voluntary contracts amongst themselves regarding how their products are to be sold. Consumers, meanwhile, are free to accept or reject the price offered, just as in any other context. The notion that consumers, through their regulatory henchmen, have a pre-emptive right to block a contract, to which they are not even a part, is preposterous and insolent. How the price on the shelf came to be is not the customer's concern. Stated differently, how I run my business is none of your business. You have no more right to pry into my warehouse than you do my bedroom. The price is the price -- take it or leave it.

How nice it would have been if just a smidgen of economic substantive due process (i.e., the right to freedom of contract) could have wedged its way back into Supreme Court jurisprudence via this case. Sadly, no. The opinion is strictly "antitrust is still perfectly hunky-dory -- just be 'reasonable' about it." As if "reasonable antitrust law" were not an oxymoron.

The right to enter into voluntary contracts (a corollary of the right to be free from coercion) is one of the two most fundamental human rights, along with the right to own property (which, incidentally, is also abrogated by RPM restrictions -- the right to own presumes the right to sell). To suggest that these basic human rights should be subject to any restriction -- even one obnoxiously labeled a "rule of reason" -- is a disgrace in a supposedly free economy.

More thoughts at Truth on the Market.