This isn’t the first time that I have written about regulatory creep, and it won’t be the last. Lacking the legislative majorities required to push through much of its agenda, the Biden White House is turning to regulators for help. It won’t be the first White House to rely on unelected bureaucrats in this way, but one — how to put this — distinctive aspect of the Biden approach is the way that regulators are, with, presumably, the administration’s connivance, extending their mandates to places they were never intended to go. It’s not pretty, but as a device to bypass the democratic process it can be startlingly effective.
And so, from March, we find this from the SEC:
The Securities and Exchange Commission’s Division of Examinations today announced its 2021 examination priorities, including a greater focus on climate-related risks . . .
“This year, the Division is enhancing its focus on climate and ESG-related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change…
“Our priorities reflect the complicated, diverse, and evolving nature of the risks to investors and the markets, including climate and ESG . . .”
And via Reuters in May:
The U.S. Securities and Exchange Commission (SEC) plans to propose a rule requiring that public companies disclose a range of workforce data as the agency steps up environmental, social and governance (ESG) disclosures, its new chair, Gary Gensler, said on Thursday.
Or via Reuters in June:
The U.S. Securities and Exchange Commission (SEC) may require public companies to publish data on a whole range of new areas, including greenhouse gas emissions, workforce turnover and diversity, as its new chairman looks to enhance the SEC’s disclosure regime.
There are plenty of other such news items to choose from. Thus it was a pleasant surprise to read a speech given earlier this week by SEC commissioner Hester Pierce. Before turning her attention to what she described as “the overflowing ESG bucket,” she cautioned, “before I go there, however, I better give my standard disclaimer, which is that the views I represent are my own views and not necessarily those of the SEC or my fellow Commissioners.” Given what followed, I’m not sure how necessary that disclaimer really was, but I’ll just add that Pierce is a Trump appointee.
As a reminder, ESG (the “E” stands for environment, the “S” for social, and the “G” for government) is rapidly becoming the dominant variant of socially responsible investing (SRI). One of the reasons it has caught on so quickly is that the elasticity of its definition has opened up an immense opportunity for grift (the other “G” in ESG: ESG has spawned a flourishing and highly profitable ecosystem).
Pierce explains how this ecosystem will shape the rulemaking to come. To take just one example:
The ESG consultants, standard-setters and raters who are now making a lot of money in producing, seeking to standardize, and assessing voluntary disclosure have an incentive to ensure that whatever rule gets written keeps that money flowing. Consultants have an incentive to argue that the rules apply to as large a pool of issuers as possible—including small public companies and large private companies.
ESG is also a mechanism for the accumulation of power. Whether through the actions of public (the SEC, say) or private regulators (a stock exchange, say), activist investors (a much wider category than they used to be, now that Wall Street has discovered the fees that are involved), or venal corporate managers who’d rather answer to ill-defined “stakeholders” than to shareholders, ESG has become the key to using corporate power and money to force through an agenda that once would have been the preserve of legislatures. The fact that E, S, and G can conflict with each other only adds some bleak amusement to this dismal spectacle.
Pierce:
Some issues are clearly ESG, such as carbon emissions, employee turnover, and dual class shares. . . . ESG readily expands, though, to include whatever the speaker or the news media are focused on at the moment. As more and more issuers and asset managers are grasping for the ESG label, they likely will press to expand the number of topics further to make it easier for them to justify calling themselves ESG . . .
ESG’s lack of a coherent unifying principle plays out in interesting ways. A recent Wall Street Journal article gave the example of a European company that is seeking to get a break on its interest rate for meeting certain ESG targets for increasing both women in management and the use of recycled plastic. I can imagine how such negotiations might go, “We’ll increase our recyclables to 13% and our women to 40%, and you decrease the interest rate by 20 basis points.” “No, if you increase recyclables to 20%, we’ll let you increase women to only 30%, and we’ll cut the interest rate by 15 basis points.” Not only are women being treated as interchangeable with one another for ESG purposes, but women are being treated as interchangeable with recycled plastic. Offense taken on both counts . . .
A key focus of Pierce’s talk is the extent to which the SEC should mandate certain ESG disclosures. She comments that the more varied the ways in which ESG is understood, the more difficult it becomes to lay down what should or should not be disclosed. That is to take too optimistic a view of the direction in which the SEC appears to be going. The disagreement over what ESG is — or should be — not to speak of ESG’s underlying intellectual incoherence has created an opening for the agency to take a highly expansive view of the areas where it can or cannot mandate disclosure: For the SEC, it is a feature, not a bug. And it has every intention of exploiting it.
Pierce, by contrast, appears to believe that companies should (essentially) only be required to disclose what is “material” to an investor and that what is material ought to revolve primarily, whether directly or indirectly, around financial return. She’s right to think this and, as she notes, traditionally, this has been the SEC’s approach.
Pierce:
The Commission has looked to materiality as our guiding principle when crafting disclosure requirements because it is an objective standard by which we can exercise our statutory authority to decide what is necessary or appropriate in the public interest or for the protection of investors. Reasonable investors are not a uniform bunch, but they do share a desire for monetary returns on their investments. Mandating that issuers provide them with information that does not contribute to assessing the prospect for investment returns costs them in, among other things, bills for lawyers and consultants to prepare the disclosures; employee, management, and board time and attention; and potential litigation expenses. Why would we want to impose these costs on shareholders without providing them with the offsetting benefit of material information?
Put another way, why should investors who are looking solely for financial return be forced to accept that return being damaged by a politically driven disclosure regime that imposes higher compliance and other operating costs at the expense of the bottom line?
There’s an old phrase about taxation without representation that comes to mind.
The next section of Pierce’s speech comes with an interesting proviso (my emphasis added):
Even if we assume that Congress gave us the necessary latitude to require disclosure of any immaterial information of our choosing, why would we want to do so? And if not materiality, what would an alternative limiting principle be? If specific ESG metrics are material to every company in every sector across time, we can identify them one-by-one for incorporation in our rules, but throwing out materiality or stretching it to encompass everything and anything would harm investors.
However diplomatically Pierce may have phrased this, that is an implicit recognition that the SEC (and, to repeat myself, it is not the only regulator to be behaving in this way) is trespassing on grounds that ought to be the preserve of legislators, not the administrative apparat — the post-democratic state is what it is. It’s also a reminder that some corporate and/or shareholder lawyers need to be gearing up to push back.
One (major) complication for those objecting to the direction in which ESG and the closely linked notion of stakeholder capitalism are going is that that course is being set by a cabal that includes a number of major institutional investors. The idea of a small group of Wall Street oligarchs joining with a collection of corporate managers, foundations, activists, and elements within the state to shape social policy is deeply distasteful, yet as investors in the companies they hold should they not be entitled to vote “their” shares how they see fit?
Pierce (my emphasis added):
Some of the loudest voices in favor of ESG disclosures for issuers are asset managers who advise pension funds or fund complexes. Sometimes commentators classify asset managers as investors, but the fact that they work for investors does not make them investors. As fiduciaries to pension plans, institutions, or funds, these asset managers of course are obligated to put their clients’ interests first. Doing so may allow them to take ESG factors into account, but only if certain circumstances are met, including that the ESG factors have a clear link to risk-adjusted returns or to objectives that the client has chosen to override financial returns. Portfolio managers within a fund complex may have a diversity of views on ESG matters, given that each fund is an investor with its own tailored set of objectives. Yet, many fund complexes make voting decisions centrally and speak with a single voice on ESG issues, a voice that elevates ESG considerations. Professors Paul and Julia Mahoney point out that pension plan fiduciaries and fund managers—who are humans susceptible to pressure from peers, personally held values, employees, and others—may be making voting and investment decisions based on their own self-interest rather than in the interest of the funds they manage. Our disclosure rules should be designed to aid fiduciaries in focusing on issuer disclosures that are important to achieving their clients’ financial objectives. Mandating the disclosure of ESG metrics, to the contrary, could provide agents (whether corporate officers or fund managers) with an out if their performance lags.
If the SEC were truly interested in investor protection, it would be directing its attention toward the behavior of these investment-management firms (and, in certain cases, the FTC might like to examine the concentration of power they represent). There is nothing wrong with these businesses’ customers consciously choosing to invest in a way that involves accepting that they will give up some return in exchange for the fulfilment of social and political objectives. The more choice offered to investors the better. On the other hand, the way things are going, which is effectively to force investors to put their money to work in, financially, a sub-optimal way is, to borrow a word from the woke, problematic. The claim that ESG offers the possibility of doing well by doing good is questionable in the short-term and almost certainly impossible over the long term (partly, but only partly, because the potential for outperformance will quickly be priced in).
Much of the later part of Pierce’s talk is devoted to questioning the ability of the SEC to set ESG standards. Running through it is her dismissal of the idea that ESG can be measured in any truly objective way.
Some examples (there are plenty more to choose from):
If the SEC in the name of standardizing terminology were to start evaluating whether an adviser’s or fund’s interpretation of ESG matched the SEC’s conception of ESG, it would raise questions we have no business asking or answering. Are funds that avoid fossil fuels ESG, while those that include companies working to replace wood and coal fuel in developing nations with natural gas not ESG? Should short positions offset the carbon footprint of long positions? How should synthetic positions be treated? Does a fund that concentrates on reducing carbon footprints qualify as an ESG fund even if its portfolio companies rank poorly with respect to working conditions or water usage?
. . . Individual metrics spark controversy too. Treating ESG metrics as if they are on par with standard accounting metrics and susceptible to financial-type audits, as some would like us to do, ignores the messier reality. Scope 3 emission disclosures are common, for example [For a discussion on Scope 3, go here], but there is still uncertainty about how to calculate them accurately and without prohibitive cost. Treatment of carbon offsets is another area about which there is not consensus.
The SEC is not particularly well-suited to make judgments about which climate metrics should be reported by whom. Agencies authorized by Congress to act in these areas are better at making these judgments and, indeed, are already doing so. The Environmental Protection Agency (“EPA”), for example, runs the Greenhouse Gas Reporting Program (“GHGRP”), which requires “reporting of greenhouse gas (GHG) data and other relevant information from large GHG emission sources, fuel and industrial gas suppliers, and CO2 injection sites in the United States.” Do we need another disclosure regime specifically designed for GHGs? The EPA only requires GHG emission data at the facility level from the largest GHG emitters, but some are advocating that the SEC require GHG emission data from every single U.S. company, public or private. What does the SEC know about emissions that the EPA does not?
And Pierce does not shy away from the challenge to democracy that the SEC’s ESG initiatives may represent:
Many advocates of ESG disclosure mandates are concerned about even immaterial political spending by corporations, yet ESG mandates would place political issues front and center at corporations, and the SEC along with them. Congress and state legislatures, with their direct accountability to the American people, and civil society institutions are the proper venues for deciding political and social issues . . .
To date, Congress has not granted authority to the SEC to address ESG issues for the purpose of promoting goals unrelated to the federal securities laws. Serious democratic legitimacy concerns arise when an independent agency expands its own authority. These concerns increase significantly when the agency delegates to one or more unaccountable third-party standard-setters the authority to establish disclosure requirements for an ever-expanding list of politically and socially sensitive subject matters.
Democracy may die in darkness, but it can be regulated away too. Mind you, the latter is merely one example of the former.
Read the whole of Pierce’s speech. It matters.
The Capital Record
We released the latest of a series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 27th episode David hosted Rob Arnott, the founder and chairman of Research Affiliates, a global asset manager advising on $166 billion of global capital. Rob and David discuss the unique components of fundamental analysis involved in a discerning approach to capital risk and reward, but also dive headfirst into a range of subjects impacting the macroenvironment of the day. You could say it is a couple of portfolio managers “geeking out,” or you could say it is two freedom lovers discussing the needs of the day. Either way, it will have something for you.
And the Capital Matters week that was . . .
Infrastructure
President Biden said today that infrastructure spending could help prevent inflation. This is odd for a few reasons.
First, the White House has been insistent that any inflation we’ve seen recently is “transitory,” that it won’t result in higher long-term inflation. So, preventing higher long-term inflation isn’t a goal of the White House since, by their account, there is no risk of it. Why entertain the thought?
Second, the justification doesn’t make sense. As NR’s Zachary Evans wrote, “Biden contended that investments in infrastructure such as roads, bridges, and broadband would eliminate economic ‘chokepoints’ that currently raise prices on goods.” There are indeed chokepoints that raise the prices on goods. Crowded highways full of semi-trucks, ports operating at maximum capacity, and packed freight terminals at airports are all costly.
But those are not $3.5 trillion problems, and they don’t have anything to do with free universal preschool, free community college, or any of the other items on the progressive wish list in the Democrats’ “infrastructure” plan . . .
Within the August recess imminent, the congressional Democrats are desperate to spend huge sums of other people’s money, and “infrastructure” is as useful a rhetorical vehicle for that purpose as any. With their innumerable constituencies’ long wish lists hardly a secret, an infinitely elastic definition of “infrastructure” is a virtue born of necessity, one manifestation of which, simultaneously amusing and revealing, is the proposed “infrastructure” expansion of Medicare to include dental, vision, and hearing coverage. This “infrastructure” sleight of hand applies a fortiori to the “green” demands of environmentalist pressure groups; after all, “infrastructure” traditionally means roads, bridges, airports, water projects, and other such public investments in physical capital assets almost always opposed by left-wing environmentalists.
I shunt aside here the deeply dubious “crisis” description of the physical state of U.S. public infrastructure, and the issue of whether such investments ought primarily to be a federal or state/local responsibility. Suffice it to say that traditional infrastructure spending is classic political pork, the benefits of which are substantially local while the costs are spread across current and future taxpayers writ large. Nor is it necessary to delineate the division of such green provisions between the “bipartisan” $1.2 trillion (of which $579 billion is new spending) bill to be passed with 60-plus votes in the Senate, and the $3.5 trillion (at last count) “reconciliation” bill intended to be passed with 50 Democratic votes, plus the tiebreaker from Vice President Harris. (Note that these dollar figures almost certainly are underestimates driven by assumptions ranging from dubious to dishonest.) What is fascinating is that the dollar figures have been delineated by the various politicians and reported by the journalists with great specificity, while the “green” provisions themselves are a mystery. No one — not the drafters of the bill, not the negotiators, not the congressional leadership, not the Biden administration — knows what those provisions are or will be, or what they will cost, after the sausage machine is done grinding and then departs the Beltway . . .
“President Biden’s infrastructure deal will rebuild thousands of bridges,” says the official White House Twitter account.
Almost one month after the bipartisan infrastructure deal was announced, we still only have the same fact-free fact sheet from the White House from June 24. The little information we have tells us that the “roads, bridges, major projects” section of the bipartisan infrastructure deal is for $109 billion. Let’s say for sake of argument (since we don’t know the specifics) that the $109 billion is split equally between roads, bridges, and major projects. That means $36 billion for bridges.
That’s 3 percent of the $1.2 trillion bipartisan framework.
But remember, that’s the smaller of the two bills the White House wants. They also want a $3.5 trillion package. So we need to look at $36 billion as a percentage of $4.7 trillion, the total spending that the White House is advocating.
That’s 0.8 percent for bridges . . .
As Democrats race toward squandering another $4.1 trillion — perhaps with some Republican help — we are being told over and over how the biggest stumbling block is figuring out how the new spending will be “paid for.”
There are technically two different bills being negotiated. One is a $3.5 trillion reconciliation bill that includes a wide range of liberal priorities. And the other is an infrastructure bill that would introduce an additional $600 billion in spending that a group of Republicans, for some reason, are still pursuing. But Democrats have indicated that if the bipartisan deal fails, that spending will end up being added to the reconciliation bill anyway, bringing the combined total to $4.1 trillion.
It should be noted that this may even be charitable. The way Democrats have structured the reconciliation package is to set expiration dates for certain policies with the hope that once enacted, they would be hard to eliminate, and they would thus become permanent parts of the budget. According to an analysis from the Committee for a Responsible Federal Budget, the true cost of the reconciliation plan could be as high as $5.5 trillion (not including the additional spending from the bipartisan package) . . .
Biden last night at the CNN Town Hall:
“No, look, here’s the deal: Moody’s, today, went out — a Wall Street firm, not some liberal think tank — said if we passed the other two things I’m trying to get done, we will, in fact, reduce inflation. Reduce inflation. Reduce inflation — because we’re going to be providing good opportunities and jobs for people who, in fact, are going to be reinvesting that money back into all the things we’re talking about, driving down prices, not raising prices.”
That’s not what Moody’s said. Here’s how its report accurately summarizes its actual conclusion about the effect of this federal spending on inflation: “Worries that the plan will ignite undesirably high inflation and an overheating economy are overdone.” It also says that these worries “cannot be dismissed.”
At no point does the report suggest that passing Biden’s spending plans will “reduce inflation,” no matter how many times Biden repeats the false claim . . .
The bipartisan bill, if it comes together, could also easily gain enough momentum to break its bond with the Democrats’ reconciliation bill. If, as looks likely, the next phase of this process involves Republican senator Rob Portman negotiating directly with the White House on remaining details, then the president will be all the more invested in the outcome, and it will be only more difficult for Nancy Pelosi to insist that the resulting bill can only get a vote after both houses have passed the Democrats’ partisan reconciliation bill. If the bipartisan infrastructure bill passes, Joe Manchin will pocket the win but still have as much leverage as ever over the reconciliation process. He has much less to lose than Bernie Sanders or Chuck Schumer do from that process breaking down.
That strikes me as the real story this week. The Democrats will ultimately pass a budget for next year, and they will almost certainly do it in the form of a reconciliation bill. It could still be the big Bernie Sanders bill they are now struggling to formulate. But their strategy for getting there has gotten all tangled up now, as the realities of a tied Senate have yielded up a remarkably traditional kind of cross-partisan policy bargaining process.
That doesn’t mean everything has broken down for the Democrats. I’ve learned over the years that when it comes to a contentious legislative process like this, success and failure feel exactly the same while they are happening. They feel like a chaotic series of near-death experiences. The fact that the Democrats’ legislative strategy now has that feel to it doesn’t mean it won’t work. But I do think that both as a matter of substance and as a matter of strategy, the bipartisan infrastructure process makes sense for Republicans.
We are out of the habit of grasping how legislative achievements could be desirable for a minority party in Congress, and so the first instinct of a lot of conservatives is to treat any form of cross-partisan cooperation as a failure. But I don’t think that’s right. For those of us who want to see some recovery of Congress’s capacity to serve as an arena for bargaining and accommodation, the sight of members compelled by complicated political circumstances to negotiate across party lines ought to be welcome. Now let’s see what they come up with.
President Biden has found a new favorite report to use in support of his infrastructure plans. During his town hall with CNN yesterday, the president asserted that the report — written by Mark Zandi and Bernard Yaros Jr. from Moody’s Analytics — says that “if we pass the other two things I’m trying to get done, we will, in fact, reduce inflation.”
As Ramesh already pointed out today, the Moody’s report does not, in fact, say that.
Biden also made a point of mentioning that the report is from “a Wall Street firm, not some liberal think tank.” The idea that Wall Street is full of a bunch of right-wingers is not really true, and if lead author Zandi’s campaign donation records are any indication, he leans left. That doesn’t mean he’s a bad economist or that his report can’t be trusted. It just means that Biden’s suggestion that this report represents some kind of hostile perspective doesn’t hold up . . .
Economic Policy
In the 1980s, the inventive rock band Devo put forward the theory that mankind was experiencing de-evolution — that by destroying the planet, we were on a path to take the earth back to its roots. The subsequent decades were certainly less cataclysmic than the group had expected, but the idea that things could be unlearned and progress could be reversed will always be with us. That idea is especially relevant now as one considers the de-evolution of economic thinking among many on the left. One might even say that a significant fraction of the Democratic Party no longer practices economics when formulating policy, but instead commits itself to de-economics. Frankly, it’s the only explanation for the ridiculous arguments that abound today . . .
The Federal Reserve injects $120 billion of Quantitative Easing into the financial markets monthly. At the same time, the Fed is withdrawing even more money from the markets through financial transactions called reverse repurchase agreements (RRPs), because otherwise investors would receive negative interest rates; they would have to pay for someone to take their funds.
The absurdity of the Fed’s pumping money into the economy with one hand, while draining it with the other, recalls boxer Roberto Duran. Like the champion in a rare loss at the end of his career, the U.S. economy can’t take any more debt and is gasping, “No mas, no mas.”
Since the last week of April, the Fed has purchased $311 billion of securities to stimulate the economy, but during this same period, the Fed has absorbed $750 billion from the financial markets, so over $400 billion net was removed from the economy. There is no conceivable economic benefit from these combined actions . . .
Inflation
Given today’s market, it seemed appropriate to turn to “Dr Doom,” and, writing for Project Syndicate, Nouriel Roubini doesn’t disappoint, anticipating a combination of stagflation and debt crisis. Everyone is free to come to different conclusions about the likelihood of that. (For example, at least one of the supply shocks — that supposedly posed by an aging population — that he identifies seems, in my view, exaggerated, at least in developed economies.)
But for me, the most interesting part of Roubini’s argument revolved around the trap in which the Fed and other central banks now find themselves . . .
The pandemic has been more compressed and sharper than the 2008 crisis, but the pattern is similar of plunging inflation followed by sharp above-trend increases. Following the crisis, inflation reverted to its steady 40-year downtrend. The dollar’s foreign-exchange value and the durable-goods sector’s production difficulties are both subject to reversals, which indicates today’s high inflation figures may do the same. Recent CPI data notwithstanding, the markets view of future inflation is restrained, and the Fed’s benign long-term outlook is likely correct.
ESG
The Biden-era Securities and Exchange Commission, led by Chairman Gary Gensler, has a lot on its plate, including potential action on everything from cryptocurrency to special-purpose acquisition companies. The agency’s moves on climate and related environmental, social, and governance (ESG) topics, however, will almost certainly end up being the most legally significant and financially important.
The commission is poised to propose new rules that would mandate disclosure of information related to climate change by public companies, and it will likely follow those up with regulations on a wider array of ESG-related topics as well. While we don’t know exactly what those rules will look like yet, on March 15, then–acting chair Allison Herren Lee published a list of 15 wide-ranging questions for public comment.
That public-comment solicitation floated several possibilities, including the creation of industry-led standards, varying expectations for different market sectors, adding new disclosures to the SEC’s existing Regulation S-K or Regulation S-X, and incorporating external standards from organizations such as the Task Force on Climate-Related Financial Disclosures or the Sustainability Accounting Standards Board (recently renamed the Value Reporting Foundation). The questions also hinted at a clear desire to push the boundaries on the SEC’s traditional authority, asking how the agency might apply climate-disclosure requirements to private — rather than publicly traded — companies, and whether climate data should simply be a part of a “broader ESG disclosure standard.”
When the SEC does roll out its eventual proposed rules, it will almost certainly be the biggest development in this area in over a decade, next to the previous climate disclosure guidance adopted by the agency in 2010 . . .
Space
Herewith, a friendly reminder that Jeff Bezos and Richard Branson owe you nothing. That’s right: Nothing. Nada. Zip. Zero. Nil. Bubkes.
In the last two weeks, both Branson and Bezos have each been flown into space by the private exploration companies they own. Since then, I have read complaint after complaint about their endeavors. It’s grotesque! It’s selfish! It’s narcissism!
“Why don’t they fix the problems on earth?”
Sure, they could do that, if they want to. But if they don’t? That’s fine, too. The thing is — and this seems to be the part that far too many people seem to struggle with — it’s their money. It’s not your money; it’s theirs. And you don’t get a say in how they spend it . . .
Yes, this is a vanity project by rich men. So what? It’s their money. Rich men’s vanity projects have a long history in this country, a history that often led to progress and to public benefit. Who owns your local sports team? Who commissions works of art? Who slapped their names and fortunes on museums and universities?
In 1853, Cornelius Vanderbilt constructed one of the largest steamships in the world, the North Star. It was larger than any steamer in the U.S. Navy at the time. Vanderbilt used it as a personal yacht to sail across the Atlantic. Steamboats had come swiftly to dominate the developed world’s rivers and harbors in the four decades since Robert Fulton’s time, and they had made Vanderbilt’s fortune, but they were still seen as risky for ocean crossings. This was still the age of the clipper ship. Vanderbilt was already the nation’s preeminent business magnate; at the time of the North Star‘s launch, Scientific American (which covered the voyage closely) noted that Vanderbilt “probably gives employment to more hands than any other one man in America.” Vanderbilt designed the North Star himself. Crossing the Atlantic in such a gaudy personal vessel and visiting England, Russia, Denmark, France, Spain, and Turkey, among others, made a great impression in the monarchical capitals of Europe. Observers were impressed not only by America’s rising ingenuity but also its remarkable social mobility. Vanderbilt, after all, was a self-made man (he never entirely learned to spell properly), not the scion of aristocracy — a fact much noted by the British press in particular. The ship was studied by engineers and shipbuilders everywhere he went. Vanderbilt himself would continue improvements in steamship construction and commerce for the next decade, building on what he learned. His next big leap forward, the Vanderbilt, was constructed in 1855; he ended up “selling” the ship, which cost nearly $1 million in 1855 dollars to build, to the Navy in 1862 for $1 to aid the Union in the Civil War. The Union and Confederate navies both considered this a great asset to the Union, as the ship could outrun the famous Confederate raider the CSS Alabama, and it was used to protect convoys.
Vanderbilt was the Jeff Bezos of his day, and perhaps then some; he was a cold-eyed, ruthless businessman who amassed a fortune too large to know what to do with it all. The public never loved him. But American readers still thrilled at tales of his yacht’s voyage, and it paid dividends to American seamanship, commerce, national pride, reputation, and, ultimately, national defense. All because one really rich guy wanted to sail a big boat across the ocean for his own enjoyment.
Rarely has stunning human achievement been greeted with as much churlishness as when Richard Branson and Jeff Bezos managed to fly or launch themselves into space.
There may be all sorts of legitimate grounds for criticizing billionaires, but attaining suborbital flight under their own power doesn’t seem one of them.
Branson and Bezos were mocked and criticized for not paying enough taxes, for being selfish and wasteful, for ignoring problems here on Earth, and so on.
Even by contemporary Twitter-driven standards, all of this is exceptionally stupid. It speaks of a contempt for human endeavor as such, and a casual disregard for a hugely promising new model of space exploration . . .
Tax
The capacity of left-wingers to find new ways for the government to take care of us is inexhaustible.
Last week, the tax-preparation company Intuit announced that it would no longer be offering a free version of TurboTax through the IRS program for those making less than $72,000 (though it promises to create a more effective site for low-income Americans). “With this move,” writes a perturbed Binyamin Appelbaum in the New York Times, “the company is making clear what has always been true. Intuit and the rest of the tax prep industry want Americans to pay to file their taxes.”
So he wants the government to develop its own free-file program . . .
Antitrust
Alden Abbott & Andrew Mercado:
Anyone without a law degree or an intimate familiarity with the nuances of antitrust statutes would be forgiven if the words “Section 5 of the FTC Act” or “unfair methods of competition” did not sound particularly significant. Those who are more accustomed with the federal regulatory and statutory landscape, however, would understand their importance. And, had those folks — consumers and businesses alike — tuned into the webcast of the Federal Trade Commission’s July 1 open meeting, they would have felt the hairs on the back of their neck stand up at the biggest result of the meeting: the revocation of the FTC’s “Section 5 policy statement.”
That statement was a bipartisan document adopted by the agency in 2015. Four of the five commissioners who ran the FTC agreed to it, including all three Democrats. Section 5 of the FTC Act forbids “unfair methods of competition,” giving the agency a broad — and largely undefined — enforcement power. The statement effectively says that the FTC will not challenge business behavior as “an unfair method of competition” unless it imposes harm on competition that outstrips benefits to consumers — consistent with the legal doctrine of “antitrust rule of reason.” Promoting consumer welfare, which the Supreme Court has established as the goal of antitrust, is another guiding principle of the statement.
In effect, the policy works much like bumpers in a bowling lane: It pushes an FTC investigation in a certain direction. Since it was adopted, it has ensured that potential cases have been thoroughly thought out and reasoned before they’ve been filed by the FTC.
Revoking that statement, then, is like removing the bumpers. It may lead to the same result as before, but if you aren’t careful, one wrong throw could break the pin-setting machine . . .
The water around major tech companies is getting warmer, and the heat may reach a boiling point sooner, rather than later. Lina Khan is looking to take action against Amazon and Facebook, leading to corporate frets about “prejudging.” Republican Senate hopefuls have taken aim at the tech conglomerates in a pledge to restore power to the American people. Now, the Biden administration is tapping Jonathan Kanter, another progressive antitrust advocate, to the top antitrust post at the Department of Justice.
Kanter is an antitrust lawyer from the University of Washington in St. Louis who has spent his career representing companies that rival Apple, Google, Facebook, and Amazon. He founded his own legal boutique, the Kanter Law Group, which focuses specifically on antitrust advocacy. His clients have argued that Google engages in monopolistic behavior, and he’s worked directly on antitrust issues in other arenas.
Kanter, if confirmed, will enter a Department of Justice that was already ready to scrutinize the tech industry. Donald Trump’s appointee, Makan Delrahim, backed new measures to make mergers and acquisitions more difficult for large technology companies. Kanter has said he believes we have the laws in place to break up trusts but have yet to properly enforce them. However, despite increasing bipartisan support for regulation, we should still be careful that we don’t cede kingmaking power to the regulators . . .
Cuba
As protests continue to spread throughout Cuba, much of the world waits with bated breath.
Last week, more than 60 years after Fidel Castro seized power, the communist regime appeared to be in jeopardy, as thousands of Cubans flooded the streets in the largest demonstrations the nation had witnessed in decades. Then the Cuban government struck back, killing at least one protester, arresting journalists, and blocking Facebook, Instagram, and other social-media sites that protesters had been using to communicate.
Despite initial claims from the U.S. State Department that the protests stem from a “concern about rising COVID cases/deaths & medicine shortages,” an abundance of video evidence suggests that poverty and a desire for political freedom are the real root of the unrest . . .
We may be witnessing the end of Communism in Cuba. On July 11, thousands of Cubans took to the streets to protest the island’s appalling political and economic conditions. Some media outlets are trying to spin these as “COVID protests” rather than a general rejection of government domination. The cries of “Freedom!” and “Enough!” and the prevalence of American flags put that narrative to rest. Cubans long to be free, and now they may get the chance.
The island nation of 11 million is a political and economic basket case. Its government is a brutal dictatorship with an appalling record of human-rights abuses. Freedom of speech and assembly are heavily curtailed, and in response to the protests, the regime has restricted Internet access. Cuba’s economy is largely bereft of private ownership. Government-run enterprises are the rule, not the exception. Most workers are employed by the state. On the Heritage Index of Economic Freedom, only two countries rank lower: Venezuela and North Korea.
These are not separate problems. Political and economic tyranny are symptoms of the same malady. We must not fall into the trap of blaming only one kind of repression. In Capitalism and Freedom, Milton Friedman warned against thinking “any kind of economic arrangement can be associated with any kind of political arrangement.” We aren’t free to choose political and economic systems a la carte. Genuine democracy requires free enterprise, and vice versa . . .
Inequality
Cale Clingenpeel and Tyler Goodspeed:
For years, Democrats have told us that inequality is the most pressing problem facing our nation. National media outlets have regularly echoed this point, often blaming Republican policies as major contributing factors. But you might have noticed that it has been a while since anyone mentioned any actual, recent facts about inequality. That is because we have learned when inequality statistics are not worth mentioning: when those statistics show Republican policies reducing inequality.
To be sure, inequality itself is still mentioned all the time. In recent testimony before the Senate Finance Committee, Treasury secretary Janet Yellen suggested that the administration’s unprecedented spending spree — along with the deficits and higher tax burden proposed to fund these plans — is necessary to address the “destructive forces” of our time, inequality chief among them.
But if this is the paramount concern, Democratic policymakers should be considerably more curious about a glaring fact: In the four years through 2020, real wealth inequality among American households declined, according to the Federal Reserve’s Distributional Financial Accounts . . .
The Olympics
With the Olympic Games starting today in Tokyo, all eyes will be on the performers. But behind the scenes, the pressure has been squarely on officials. The Games, as a rule, need special facilities that must be constructed with care, a task that is even more challenging during the pandemic. Stadiums, living facilities, excess infrastructure, and more all cost enormous sums of money that leave cities financially devastated.
Despite patriotic sentiments, American cities should avoid hosting future Olympics at all costs, because of the cost. Tokyo offers one of the most severe cautionary tales in recent memory . . .
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