Neither regulatory decision will help you. In fact, both directly target your well being. AT&T has had trouble for years and has lost market support for its spotty cell coverage relative to its competitors. To prevent the company from reinventing itself through a merger is very bad for consumers. And it is the same with the Apple/Google decision. This intervention takes away a software feature from people who want to use something other than Apple’s phone. Both decisions are blatantly harmful to consumers and to the cause of competition.

Who issued these rulings? The merger decision was handed down by the U.S. Justice Department. The Apple/Google decision was handed down by the U.S. International Trade Commission. If you don’t recall having been asked who should populate these bureaucracies or whether they should have jurisdiction over your technology, your memory is not failing you. Welcome to the U.S. version of regulatory central planning, replete with mandarins and apparatchiks that purport to have total control over the direction and pace of economic development. They serve special interests but do not serve the rest of us.

There was a time when this type of regulation was said to be necessary for the consumer. In fact, this is still widely believed. But look at what is happening here. The consumers are the ones who are being left out, denied the right to influence the direction of technological change. The bureaucrats are thwarting the desires of those who actually use cell phones in their daily lives.

The reason for the Apple victory against Google is fairly straightforward, though there is no way it could have been predicted in advance. Apple, the current industry leader, wanted to harm its main competition. It has a huge war-chest of patents and a fierce desire to use them to firm up a monopolistic status. The ruling is rather narrow and concerns the ability to use the content of one application to drive the behavior of another application, such as clicking on an address to open up a navigation tool. But what matters here are not the specifics but the power of Apple to enforce its claims. This is what chills pro-consumer development down the line.

Keep in mind that American consumers of the Android phone are already using the now-forbidden phone features. This is what gives lie to the claims of Apple that Android “stole” – a word used by the Apple spokesman – something or anything at all. When someone steals something from you, you no longer have it. The Android offering of this feature did not prevent Apple from using the same feature. Therefore, it cannot be theft.

At most, the similarity of software functioning it is a good example of the learning process that open market competition permits and encourages. In a thriving marketplace, everyone learns from everyone else, and each firm strives to be ever more excellent in the service of the public. Apple’s claims amount to a demand that no one else be permitted to compete using any features that it uses. This is a paradigmatic case of how patents are seriously harming economic development.

Software patents of this sort were nowhere known in the early years of the software industry. both Steve Jobs and Bill Gates have publicly reflected on how, In those days, they all learned from each other. They would watch the competition and emulate what succeeded in order to stay in the running, while striving to innovate constantly in order to gain the advantage. It was a free market and it gave birth to the modern world. But in the mid to late 1980s, the government started issuing patents that began the process of freezing development in place. Today, the entire sector has become a thicket of claims and counterclaims that only the most well-heeled companies can navigate.

The case of the AT&T merger with T-Mobile is even more interesting still for the layers upon layers of interest groups involved here. It was to be the bigger-ticket merger this year: $39 billion. Those kinds of numbers always have big institutions behind them. The choice partners here were J.P. Morgan and Morgan Stanley, along with others, who were to earn $150 million in accounting fees on the deal. It was a good bet for everyone involved. Market competition is difficult enough but there was always a very dangerous elephant in the living room: a government powerful enough to overrule the market process. This introduced the great uncertainty.

Left out of the deal completely was the influential mother of innumerable crony deals of late: Goldman Sachs. In this way, the defeat of this merger is a huge victory for Goldman because it slams its most direct competitors in the investment banking industry. The Wall Street Journal reports that the failure of the deal moves Goldman from #2 to #1 in the industry. Are we really supposed to believe that Goldman, which has massive influence within the Obama administration thanks to a well-documented revolving door between the two institutions, had no influence at all over this decision?

Two more beneficiaries include Verizon and Sprint, and carrier stock prices reshuffled very quickly in their favor as soon as the announcement came over the ticker. AT&T was slammed not only because its path to the future was blocked but also because it now owes $4 million in accounting fees to T-Mobile’s parent company, a charge that is going to further hurt its ability to invest and compete.

Both decisions are bad on their own terms, but worse in terms of what they imply about the future of digital development. They make investors fearful, give unwarranted power to politically connected companies, and impose a general feeling of legal uncertainty about what is and is not possible in the great struggle to serve the consuming public. The decisions add a dangerous component of monopolization and stagnation in what should be a competitive and dynamic sector.

These are not going to kill progress in the digital marketplace but they distort its pathway, and with costs that are largely unseen. When your cellphone lacks features or your service provider’s coverage isn’t what it should be, whom do you blame? Most people will blame the business. They should be blaming the central planners – the real hidden hand that is working to dim the lights and make finding our way to a brighter future ever more difficult.

Regards,

Jeffrey Tucker

The Regulatory State Does Not Like You was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In the past, I realized our leaders were disingenuous when they spoke about “creating jobs” and “improving the economy.” Now, I have a slightly different take. After my experiences this year, and after giving this a lot of thought, I am adamant that our leaders have no business in the first place “creating jobs,” or “improving the economy,” or even claiming they have the ability to do so.

In fact, I have witnessed the loss of jobs as a direct result of regulations by unnamed and unelected bureaucrats, who are backed up by threats of prosecution from the government. Our government is stifling job creation.

Although I am not a conspiracy theorist, I am certain that if I wrote about my experience with specifics, the company for which I work would suffer retribution by our government. I do not have the right to put them in jeopardy. And if the legal department of my employer knew I was writing this, they would “lose it.” For these reasons, I feel it necessary to write anonymously and with some imprecision.

This fear of retribution, in and of itself, is a powerful statement about the sad conditions in which we live and do business in the United States.

So, here is the sanitized version of my story…

My employer makes very expensive pieces of equipment for use in an industry that has itself sustained undeserved attacks by our government and by unscrupulous so-called environmentalists.

In any case, our pieces of equipment (let’s call them “tractors”) use expensive components (let’s call them “engines”) made and sold by Americans. The engines are used by American workers in multiple states and they make more energy available for Americans. That fact alone attracts the ire of some. But the fact that our service is very valuable and produces large profits makes the industry and the service an irresistible target.

This year, I learned that one agency of the federal government has created and is enforcing rules that strictly limit the types and numbers of engines we can buy to make our tractors. They limit how many of each type of engine we can buy in a year, and they limit the grand total we can buy. This is offensive for many reasons — not the least of which is that we would hire more people if we were allowed to make more tractors.

I could make an endless list of the unseen and damaging effects of their nonsense. But here is a short list:

1.    Without these rules, we would hire more welders, assemblers, and accountants. This would result in the improvement of our local economy, because the new employees and their families would all need food, clothing, housing, entertainment, etc.

2.    To keep up with our increased demand for the tractor engines we need, the engine manufacturers, their employees, and their families would benefit.

3.    The companies to which we sell tractors would hire more operators. Their families and the places they shop at would benefit.

4.    The companies who request our product would become more profitable, resulting in expansions, bonuses, etc.

5.    And, last (and totally forgotten) are the American citizens. Each and every citizen would benefit from the larger supply of energy and the resultant lower prices.

Some people might say that it is good to limit the numbers of these engines in order to protect the environment. But that argument only holds water long enough for a ten-second sound bite. The reality is that this destructive government agency also has rules that permit smaller versions of the same engines. What that means is that we would be permitted to create 50 tractors using the (approved) smaller engines instead of 20 using the larger ones. It is true that the larger engine pollutes more than the smaller one. But using the smaller engines would require more tractors to be built and more fuel to bring them to the job sites. In other words, using fewer tractors with the larger (evil) engines produces fewer net emissions than more tractors with the smaller (approved) engines would.

So, who is causing all this, and why are they doing it?

You can answer that question for yourself by discovering who benefits from the regulations. The list includes the politicians who use these issues to their advantage regardless of the truth. It includes the government bureaucrats who want more power to justify their own salaries and positions. It also includes reporters who can’t wait for the next “breaking news” about an “environmental threat,” or “dire emergency.” And it includes university professors and other academic elites who come in to petition for huge government grants and to get paid to speak as “experts.” The dark irony is that all these supposed protectors are really engaging in a self-serving round robin of deceit.

The truth is they are horrifically destructive to the prosperity and well-being of all Americans. But because their public faces hide the despicable truth, they have been able to get away with it.

Our only hope is to get these people out of business — literally and figuratively. I’ve got to be honest, though. It won’t be easy. They are fighting for their livelihoods, too.

Regards,
A Manufacturer
Whiskey & Gunpowder

May 27, 2011

The Government Is Actually Destroying Jobs was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I think Linda got most of it right the other day. This bill is definitely a test of strength for the government. And I even think the term “Nicotine Nazis” perfectly describes the group doing this. But, I think she missed one point…

It’s not all about governments suppressing its citizens… at least not in this case. The reasons behind this bill are twofold:

First, smoking bans and taxes have actually helped incumbents remain seated — no matter what the level of government. Therefore, a huge federal bill restricting it – “to save the children from those damn luring flavors” – is the obvious step for liberals looking to stay in power.

Second, and here’s where true greed takes over, it’s the tobacco industry itself. Why do you think the largest U.S. cigarette manufacturer supported this legislation? It helped write it!

I’ve been following the tobacco industry pretty close as of late… not just because I’m a 2-pack-a-day smoker, but because as the resident income guy, I know how these companies can be cash cows. Many kick off huge dividends. It’s bills like this that brought me to a tobacco play outside the U.S.

In that research, one thing became painfully obvious: the U.S. market is drying up. Apparently, and quite to my surprise, those Truth.com ads are actually working. Just in the first quarter of this year, Philip Morris USA sold nearly 6 billion less cancer sticks than Q1’08. It even saw its enormous market share slip a few basis points.

You can say the same about its largest competitor RJ Reynolds. These two giants are in a lose-lose situation. They have to deal with a shrinking customer base and still battle with smaller competitors like Newport – my brand.

Newport, owned by Lorillard, is the country’s best selling menthol. The two big players were starting to lose to this small-time operation and they didn’t like it. This bill will give the FDA the power to both ban menthols AND stop new competition.

The FDA will have the authority to deny any new tobacco product that doesn’t “demonstrate health benefits to society as a whole.” What kind of tobacco product would “benefit society as a whole” according to the FDA. This is the same federal agency that picks and chooses which drugs should be sold in this country depending on which pharmaceutical company put the largest bribe in its pocket.

Even if you do get approval for a new product, you sure as hell can’t market it. The marketing restrictions in this bill are just as astounding.

Regardless of Linda and my rants, the bill did pass. Obama is signing it. It is law. Now what?

Well, I may be an income guy that’s long international tobacco, but I’m also a penny stock guy too. I like to gamble from time to time. Here’s an easy way to take advantage of the probable ban on menthol:

98% of Lorillard’s sales come from Newports [49.5% of all Newport sales were to blacks according to the 2005 National Survey on Drug Use and Health —ed]. That means, 98% of the company’s revenue will disappear overnight – the minute FDA Commissioner Margaret Hamburg decides to ban menthol cigarettes. Lorillard, which otherwise would be a great long opportunity, is now a perfect short play.

You can either do that, or pick up some put option contracts. It’s hard to say when the ban will come, but as a gambler, I’d say by the end of this year. The Lorillard January 2010 $60 puts (LTOML.X) look like one way to play it. Depending on where you stand, you can check out various contracts with different strike prices and expiration dates here…

Most of these have very little volume. So, be careful. And if you are a smoker, my best advice is “smoke ‘em if you got ‘em!”

Regards,
Jim Nelson

June 22, 2009

Big Tobacco and Government Collude was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.