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OpenMarket: Business and Government

  • Feds Double Down on Failed Affordable Housing Mandates

    August 21, 2015 12:44 PM

    Federal affordable housing mandates do little to increase homeownership rates, but they did help cause a devastating financial crisis in 2008 by encouraging risky lending.

    Yet the Federal Housing Finance Agency is doubling down on failure by ratcheting up those mandates. Its head, Mel Watt, was appointed by the President in 2013, even though the policies he promoted in Congress helped cause the financial crisis.

  • The FTC Targets Apple Music: Part III

    August 21, 2015 11:08 AM

    This is the third in a series of essays on the FTC’s investigation of Apple Music. In Part II of this series, we demonstrated that, even if Apple were to ban rival music services from offering iOS apps, competition in the smartphone market would significantly mitigate any threat to competition in the music streaming market. This section will ignore this effect and look instead at how Apple’s actual actions, unhindered by consumers’ ability to switch phones, would affect competition in the music streaming market.

    Recall from Part I that although Apple imposes several restrictions on rival music streaming services, these restrictions are largely illusory because they apply only to sales made through these services’ iOS apps. Any consumer can bypass them by simply purchasing their subscription through a service’s web site—or, for that matter, any channel other than its iOS app.

    As a result, these restrictions should affect only a small subset of music streamers—those who (1) discovered music streaming through a service’s iOS app, (2) rely exclusively on iOS for streaming, and (3) haven’t learned that they can bypass Apple’s restrictions through some other means. In other words, the only consumers who would pay a higher price or be “unfairly” pushed towards Apple Music are those whose sole exposure to music streaming has come through Apple devices. The question, then, is whether Apple should have an advantage among consumers whose sole exposure to music streaming has come through the ecosystem it developed.

  • The Government Makes a Terrible Boyfriend

    August 14, 2015 8:51 AM

    He’s from the government, and he’s here to help. That’s the comic premise of this summer’s best YouTube video series, “Love Gov,” from the Independent Institute. In this case, though, the protagonist is the government, personified. The story begins when Scott “Gov” Govinsky meets sweet college student Alexis, and quickly takes an interest…in every aspect of her life.




    The series has already racked up over 1.5 million views, with positive reviews from fine folks like San Francisco Chronicle columnist Debra Saunders and the Hayek Institute’s Barbara Kolm, who declared the videos “brilliant.”

    Episode 1 of the five-part series sees Gov giving Alexis some questionable advice about her rapidly accumulating student loan debt. Her best friend Libby tries to steer her back to the sensible path, but Gov’s pushy know-it-all attitude threatens to nudge Alexis in a foolish direction.

    Gov goes on to dig his fingers into Alexis’ small business, butt into her healthcare decisions, mishandle her home-buying plans, and spy on her phone calls and emails. Where will it all end? You’ll have to watch the full series to find out. 

  • Mount Vernon Cheers: A Song to Commemorate "I, Whiskey"

    August 13, 2015 1:15 PM

    Our Indiegogo campaign for CEI’s new documentary “I Whiskey” is closing soon. So far, we have raised almost $75,000, but it’s not over yet. Please donate now if you haven’t, and if you have, you can always do so again.

    You can get some great souvenir t-shirts from this rewards-based crowdfunding campaign. And CEI is also fighting to legalize equity crowdfunding , so that future entrepreneurs can legally offer profit-sharing from their projects, as well as souvenirs like t-shirts, if they choose to do so. So, this crowdfunding campaign is not just about whiskey, but the future of crowdfunding itself, as well as the future of freedom.

    Subtitled “The Spirit of the Market,” “I, Whiskey” will show the creative process involved in distilling whiskey and tell the stories of American entrepreneurs and risk-takers in the whiskey biz. And one of those entrepreneurs is none other than the father of our country, George Washington.

    After Washington left office as first president in the 1790s, he commissioned James Anderson, an immigrant from Scotland, to build a whiskey distillery on the grounds of Washington’s Mount Vernon estate. It soon became one of the largest distilleries in the country. I have written previously about Washington’s whiskey making and his other entrepreneurial feats that are often overlooked. The great news is that Mount Vernon Estate and Gardens, with support from the Distilled Spirits Council of the United States, recently rebuilt the whiskey distillery on its original foundation for visitors to see and is even marketing a new whiskey based on Washington’s recipe

  • William Faulkner Said it Best: "Civilization Begins with Distillation"

    August 10, 2015 11:43 AM

    A jaunt down Route 151 in Virginia’s Rockfish Valley breathes life into Faulkner’s observation. For decades it was known simply as the valley’s “Main Street”—a stretch of pavement skirting the base of the Blue Ridge winding through small towns named Greenfield or Nellysford. Then things changed. What started with a single vineyard has transformed the Rockfish Valley Highway from a sleepy thoroughfare into what locals now call “Alcohol Alley,” reflecting the presence of wineries, breweries, distilleries, and even a cidery. With fermentation came opportunity, prosperity, and an improved community. Today, visitors from all walks of life flock to the region to enjoy what nature has to offer (including nature’s other offerings of hiking, fishing and skiing).

    Making whiskey is but one piece of the Great Story of Spirits. The Big Picture is the story of incremental progress, of continual innovation by degrees and accidents. It’s the story of how something of value is perfected by many without being planned, organized, or controlled. 

    It’s a story focused on tradition. The essential distilling process has gone largely unchanged over centuries. I've seen it up close throughout Speyside and Islay and other Scottish regions, and of course along the Kentucky Bourbon Trail.

    It is also a story of globalization and exchange. Distilling technology has traveled as peoples have migrated and settled in new places. At times, government intervention forced distilleries out of one region, only for them to spring up elsewhere to meet demand. James Anderson, driven from England by Parliament’s Scottish Whisky ban, immigrated to America, where he assisted George Washington in creating the renowned—and recently revived—Mount Vernon Distillery.

  • Why Thieves Hate Free Markets

    August 4, 2015 9:47 AM

    Don Boudreaux over at Café Hayek has just given a 2015 boost to a smart 2012 video from Learn Liberty on social cooperation in a free society. It’s worth spending another 3 minutes with, even if you’re one of the 1,394,608 people who have already seen it.

    In this video, Prof. Aeon Skoble of Bridgewater State University highlights one of my favorite themes: a market economy involves not only economic competition, but also an impressive degree of voluntary cooperation, even between entities one would assume to be direct rivals.

    For more great videos, check out the Learn Liberty channel on YouTube, and discover why Prof. Skoble can be heard admitting “to be perfectly honest, I’m not as sexy as Hugh Jackman.” 

  • The FTC Targets Apple Music: Part II

    August 3, 2015 2:14 PM

    This is the second in a series of essays on the FTC’s investigation of Apple Music. Part I discussed the reason for the FTC’s investigation as well as the facts behind the allegations levied at Apple. This part will look at the situation from an economic perspective and examine the extent to which competition in the market for smartphones would mitigate any threat to competition in the music streaming market arising due to Apple’s supposedly anti-competitive actions.

    Before we consider the competitive effects of Apple’s actions, it’s important that we investigate the extent to which the severity of Apple’s actions is even relevant. Consider the following thought experiment:

    Assume that Apple were to unilaterally ban all music streaming companies from offering iOS apps, thereby granting itself a monopoly in the market for iOS music streaming. Would this pose a significant threat to competition?

    The instinctual answer is, ”Yes! Obviously the act of outlawing competition is a significant threat to competition.” In reality, however, the question is more complicated. Although Apple has monopoly power in its iOS ecosystem, its need to compete with Android devices in the overall smartphone market limits the extent to which it can exploit this power.

    Consider the “Apple Tax,” which, as mentioned in part I, is the 30 percent “tax” Apple imposes on all purchases made through its App Store or through any iOS apps. At the moment, this tax is significant but not unreasonable. But imagine what would happen if Apple were to begin raising it, to 50 percent, 70 percent, 90 percent. As it grew higher and higher, app creators would spend less and less time making apps for iOS, and any paid apps made would become progressively more expensive. Consequently, consumers would increasingly switch to competing smartphone brands (presumably those running Google’s Android operating system).

    The extent to which a change in the price of one good can lead to a change in the demand for another is referred to as the cross elasticity of demand and is critical to understanding our earlier hypothetical. Here, we are interested in the extent to which an increase in the total cost of ownership of an iPhone—realized as an increase in the price of music streaming apps on iOS—would drive consumers to switch to competing smartphone brands. A greater cross elasticity of demand would indicate higher consumer willingness to switch and, thus, would suggest that Apple’s actions in our hypothetical are less likely to pose a significant threat to competition.

  • The FTC Targets Apple Music: Part I

    July 29, 2015 9:07 AM

    When launching a new product, the goal is to create excitement, as any company will tell you. But Apple’s newly launched music streaming service, Apple Music, may be generating more excitement than desired. According to a report in The Washington Post, the Federal Trade Commission has launched an investigation into Apple’s treatment of competing music streaming apps sold in its mobile App Store.

    The controversy stems from Apple’s requirement that any company selling digital goods through iOS, its mobile platform, use Apple’s In-App Purchase interface (IAP), which restricts sellers’ offerings in several important ways. Apple Music, however, is exempt from these restrictions. Therefore, while Apple Music and rival music streaming services are on equal footing when competing for users of desktop computers, laptops, and Android smartphones, these services play by different rules within Apple’s iOS ecosystem.

    Although a number of Apple’s rules have come under scrutiny in recent weeks, the most controversial is the “Apple Tax,” a 30% cut that Apple takes from all purchases made through its App Store—or through any iOS apps offered in its App Store. In other words, whenever an Apple Music competitor sells a subscription through its iOS app, it owes 30% of its revenue to Apple. Consequently, any competitor to Apple Music wishing to sell subscriptions through its iOS app must choose between charging the same $10/month fee as Apple Music and putting itself at a financial disadvantage or charging a greater fee and putting itself at a competitive disadvantage. In practice, high costs have led most to choose the latter option; rival services Spotify, Rdio, Rhapsody, and Tidal have all raised the price of subscriptions sold through their iOS apps by 30 percent, from $10/month to $13/month.

    Users of these services can still pay the normal, $10/month price if they purchase their subscription on the service’s web site instead of through its iOS app. But Apple’s prohibition against apps “that link to external mechanisms for purchases or subscriptions to be used in the App” has made it difficult for rival services to inform their users that these alternative methods of purchase exist.

    Spotify, the market leader in music streaming, recently struck back, sending its iPhone customers an email PSA explaining that they can save money if they set up their payments through instead of through iTunes. Whether this move will counter the “Apple Tax” by informing users of other payment options remains unclear.

  • Bastiat Society Rallies Business Leaders Together

    July 27, 2015 11:06 AM

    My venerable colleague Fred Smith and I just returned from the Hoosier State, where we were honored to be guests of the Indianapolis chapter of the Bastiat Society. Our event featured a few dozen local business leaders: executives, attorneys, and entrepreneurs, as well as a few elected officials. We all gathered to discuss the role that businesspeople can play in defending the free market and reviving an appreciation for the virtues of capitalism.

    It may be surprising to some, but not every business owner is a Hayek-quoting ideologue who has a photo of Ayn Rand on his desk. The majority are focused overwhelmingly on their customers, employees, and the day-to-day work of running their company. We have found that most business people spend very little time on politics in general, much less the intellectual arguments over the morality of capitalism and the ideas of classical liberalism.

    At the same time, we have also found that it’s difficult for think tank types and academics to defend the enterprise of capitalism without at least a few actual capitalists speaking up as well. Fred, in his essay “Countering the Assault on Capitalism,” explains this dynamic and its history quite well. The late economist Joseph Schumpeter theorized this conflict as far back as the 1940s – most business leaders would stick to what they know best, and leave the public debate over morality and economics to others. With discussions of the proper role of government dominated by groups with little sympathy to private enterprise, the rise of big government was easy to predict.

    Fortunately, we now have a robust cadre of scholars as well as a growing network of free market professionals, including the members of the Bastiat Society around the globe, as well as members of groups like the Adam Smith Society and Benjamin Rush Institute. With events like our dinner this week, we’ll be working to bring those two groups together to stand up to the ever-increasing expansion of the regulatory state.

  • The Persistent Truth of Income Mobility

    July 17, 2015 3:52 PM

    There’s a lot being written these days about income (and wealth) inequality, and how a free market economy allegedly exacerbates the divide between the rich and the poor. Statistical measures of inequality look at income groups in the aggregate, though—they don’t tell us which people are in those low and high income groups, or how the composition of those groups change over time. As the George Mason University’s Tyler Cowen wrote in The New York Times earlier this year:

    Income inequality and economic immobility are often lumped together, but they shouldn’t be. Consider the two concepts positively: Income equality is about bridging the gap between the rich and the poor, while economic mobility is about elevating the poor as rapidly as possible. Finding ways to increase economic mobility should be our greater concern.

    And as it turns out, there is a great deal of mobility between income groups in the United States. Today in MarketWatch, Prof. Steve Horwitz of St. Lawrence University reminds us that, because of the dynamic nature of a capitalist economy, anyone can end up at the top of the income scale:

    What economists call income mobility continues in this country over the course of any individual’s lifetime and across generations. Being poor at any specific point in time, or being the child of poor parents, does not mean people are unable to move up the income ladder. In the same way, there is no guarantee that those at the top will stay there.

    The usual rhetoric about income inequality focuses on how the share of total income held by the top 20% has grown while that held by the bottom 20% has fallen over the last few decades. That’s true, but it ignores the question of whether the same people are in the top and bottom from year to year.


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