What many people call government generosity Leonard Read called avarice.
Original Article: “To Avarice No Sanction“
In 2017, Republicans passed the Tax Cuts and Jobs Act, which cut taxes for the vast majority of Americans and simplified taxpaying by making modest reforms to, among other things, the system of itemized deductions. One of the most politically contentious reforms was a new $10,000 cap on the state and local tax (SALT) deduction. This revenue‐raising change was critical in offsetting the cost of the individual tax cuts, and without it, extending the tax cuts will be next to impossible.
Politicians representing high‐income congressional districts in high‐tax states, such as California, New York, and Illinois, have since campaigned on repealing the SALT cap. This same group of legislators is threatening to derail the Republican’s new economic tax package because it does not increase or eliminate the SALT cap. Democrats dealt with a similar dynamic on major legislation last year.
As the 2025 expiration of the 2017 tax cuts draws closer, members of Congress need to remember that a simpler tax code with lower tax rates must also limit or repeal special interest provisions, such as the SALT deduction. It’s much harder to cut tax rates without broadening the tax base.
Below is a refresher on why the costs of the SALT cap are overstated and why the cap is good policy in its own right.
Does the Cap Hurt?
Estimates show that more than 95 percent of taxpayers benefited from a tax cut in 2018 or saw no change in their tax bill. This leaves a small minority of taxpayers who could have seen tax increases. Higher taxes for some is a predictable outcome of any reform that attempts to limit special interest tax provisions that provide large benefits to a few taxpayers at the expense of others.
However, the problem of higher taxes due to the SALT cap is often overstated. In the hardest‐hit congressional districts in New York and California, with the largest share of taxpayers with estimated tax increases, 88 percent of taxpayers benefited from a tax cut or saw no change.
So why the disconnect? Even higher‐income taxpayers who face the new SALT limit likely saw a tax cut for three reasons.
First, the tax law doubled the standard deduction, so many people who previously itemized their taxes now take the larger standard deduction instead.
Second, tax rates were lowered for people at all income levels. The SALT cap increased some people’s taxable income, but lower tax rates mean most people still come out paying less in total taxes.
Third, the 2017 law raised the exemption for the alternative minimum tax (AMT), which denied 5 million higher‐income AMT‐paying taxpayers any SALT deduction. The AMT is a parallel tax system that generally applies to taxpayers with large deductions and certain types of income, requiring them to calculate their taxes twice and pay whichever tax is higher. For these taxpayers, the SALT deduction increased from zero to $10,000.
Why Cap SALT?
The SALT cap and other limits on itemized deductions make tax cuts possible, simplify taxpaying, and reduce subsidies for high‐income taxpayers and state governments.
Capping the SALT deduction is a crucial ingredient in the classic tax reform recipe of lower tax rates, offset with a broader tax base. The $10,000 SALT cap and other limits on itemized deductions raised $668 billion over ten years, one of the largest individual tax changes used to pay for lower tax rates.
Without the SALT cap and other revenue‐raising components of the 2017 compromise, the old tax rules will snap back in 2026, bringing back the old AMT, higher marginal tax rates, and smaller standard deduction. This is the counterfactual; it is not an option to eliminate the SALT cap in isolation. Without limits on itemized deductions, the rest of the tax cuts are unsustainable. Full SALT deduction for higher tax rates is a bad trade for almost all taxpayers—even those in high‐income coastal states.
The SALT cap also simplified taxpaying. The tax code offers taxpayers the choice of taking a flat standard deduction ($27,700 for a family in 2023) or the sum of a list of itemized deductions for specific expenses, including mortgage interest, state and local taxes, and charitable giving. In 2017, 30 percent of taxpayers used the more complicated itemized system. After Congress capped the SALT deduction, curtailed other itemized deductions, and doubled the standard deduction, 9.5 percent of taxpayers itemized their taxes. By one estimate, this saves taxpayers about 100 million hours of time that they would have spent filing their more complicated tax returns.
In addition to simplifying and cutting taxes, capping the SALT deduction was a good governance reform. The SALT deduction is a subsidy for high‐income taxpayers in high‐tax states, paid for by the rest of Americans. It created perverse incentives that limited the cost to states for increasing their taxes because higher‐income taxpayers could write off the tax on their federal return. As I’ve written elsewhere, before the 2017 cap, “the average millionaire living in New York or California deducted more than $450,000 worth of SALT; the average millionaire in Texas deducted only $50,000 and therefore paid close to $180,000 more per year in federal taxes.”
With an uncapped SALT deduction, middle‐class taxpayers are forced to subsidize millionaires who could use the SALT deduction to write off hundreds of thousands of dollars from their federal taxes. Without the cap, taxpayers with identical incomes pay different amounts in federal taxes based entirely on their state of residency.
The new federal tax code cut taxes for most taxpayers and flipped the incentives for state governments so that inefficiently high state taxes are no longer subsidized by taxpayers in more responsible locals.
A Path Forward
The SALT deduction is still distorting tax policy even in its limited form. For example, the poorly conceived temporary $4,000 bonus deduction proposed in the Tax Cuts for Working Families Act, part of the Republican economic tax package, is the result of SALT politics. The proposal attempts to give additional tax relief to taxpayers concerned by the SALT cap.
As initially proposed by House Republicans in the lead‐up to 2017, the correct policy is to repeal the SALT deduction entirely. The $10,000 cap was a political compromise necessary to get enough votes for the bill. Raising or lifting the cap significantly reduces revenue, making it harder to extend or expand the tax cuts when they expire at the end of 2025.
There’s been a lot of very loose talk recently from the press, politicians and think tank wonks about “decoupling”—that is, entirely eliminating trade, investment and migration—the United States and Chinese economies. Proponents of decoupling the two economies never grapple with the enormity of the task and thus it’s useful to consider what such an idea actually entails as well as the costs to the U.S. and global economies. In reality, a hard decoupling is not nearly as simple and painless as proponents argue. Washington bureaucrats and politicians one day flipping a switch and cutting off all economic ties between the world’s two largest economies is as unworkable as it would be economically disastrous.
Practically speaking, in order to operationalize a hard economic break with China, the U.S. would need to hire dramatically more customs agents as well as export control and investment monitors to police everyday transactions. Furthermore, as Adam Posen, president of the Peterson Institute for International Economics, recently noted in an excellent Foreign Policy essay,
A unilateral U.S. withdrawal from commerce with China would be partially offset by other economies taking up market share where the United States no longer operated. If anything, it would increase the arbitrage opportunities for other countries and for companies headquartered elsewhere to trade and invest where the United States ceased to do so.
[…] In order for such restrictions to succeed, the United States would have to become a commercial police state on an unprecedented scale. The United States would also have to monitor and prevent its own headquartered companies from moving activities abroad. Washington has done this, on a limited scale, on specific technology transfers. But scale matters, and current proposals would be an order of magnitude more ambitious and thus infeasible.
Even more daunting than the feasibility of administering such a regime, there are tremendous economic costs of a hard decoupling.
When the Trump administration levied extensive tariffs on imports from China—nearly 70 percent of all imports are now covered by an average tariff of 20 percent, up from about 3 percent before the trade war began—the results were predictably bad. According to the New York Federal Reserve, the tariffs cost the average American household an estimated $830 per year when accounting for direct costs and efficiency losses and led to a staggering $1.7 trillion loss in market capitalization for businesses due to slowed investments. My Cato colleague Scott Lincicome and I estimate that the tariffs effectively nullified about half the average household’s savings from the Tax Cuts and Jobs Act of 2017.
The tariffs likewise triggered inevitable retaliation from Beijing, which fell particularly hard on American farmers and ranchers, resulting in a massive taxpayer‐funded bailout program for agriculture producers who lost vital market access in China. Moody’s Analytics estimated that the trade war caused the loss of approximately 300,000 jobs. My Cato colleague Alfredo Carrillo Obregon and I recently documented some of the real‐world harms from the Trump‐Biden China tariffs, particularly the pain inflicted on a lot of small and medium‐sized businesses in the United States.
Despite the tariffs, two‐way goods trade between the United States and China reached an all‐time high in 2022 on a nominal basis, perhaps owing a bit to U.S. inflation. (Real goods trade, meanwhile, was lower than in 2021, but still represented an increase from 2019 and 2020.) A total ban on trade, investment and migration between the United States and China would make the enormous costs of the Trump tariffs look rather quaint.
If the world economy were separated into disparate economic blocs—one led by the United States and one led by China—the global economy would suffer tremendously. Earlier this year, the International Monetary Fund (IMF) released a study on the economic impact of such a system. In an excellent essay for his own Substack, economist Bert Hoffman summarized the IMF paper’s findings,
[T]he costs of investment fragmentation could lower global GDP by 1 percent, and double that for GDP in China. Trade and technology fragmentation can be more damaging still: the cost to the global output from trade fragmentation could range from 0.2 percent in a limited fragmentation scenario to up to 7 percent of GDP (in a severe fragmentation/high‐cost adjustment scenario). With additional technological decoupling, the loss in output could reach 8 to 12 percent in some countries. […] These are massive costs.
Indeed, this is not trivial—it’s trillions of dollars on a yearly basis. Washington politicians, journalists and think tankers wouldn’t bear the brunt of such a policy; as the IMF report notes, “[T]he unraveling of trade links would most adversely impact low‐income countries and less well‐off consumers in advanced economies.” Meanwhile, economists at the World Trade Organization (WTO) estimate that such a fragmentation as envisioned by some members of Washington’s political class would decrease real incomes around the world by 5.4 percent on average. It takes an immense amount of arrogance to simply hand waive away the costs of a hard decoupling.
Perhaps these costs would be worth it if a ban on trade, investment and migration forced Beijing to make holistic changes to its economic practices, but that almost certainly would not be the case. Recent history suggests that China will not change its troubling economic practices due to Washington’s protectionism. In early 2018, on the eve of the trade war, other Cato scholars and I predicted that the tariffs would simply impose costs on Americans while doing virtually nothing to change Beijing’s course. Sadly, our warnings were prescient: China’s aggressive 21st‐century mercantilism continues apace. Are we really to believe that cutting off all economic exchange between the United States and China will stop, say, Beijing‐directed cyber hacking into U.S. commercial networks to steal trade secrets? Of course not.
While it is likely that some trade and investment between the United States and China will—and maybe should—decline in this era of strategic competition between near‐peers, the reality is that a lot of two‐way trade and investment is largely benign—and in no way “strategic,” i.e., at the nexus of technology and national security. Sabine Weyand, the European Union’s Director‐General for Trade, recently noted in an essay for Internationale Politik Quarterly that 94 percent of EU trade with China is “unproblematic” and that only about six percent is the result of a one‐sided dependency for EU member nations. A comparable analysis for the United States would almost certainly produce similar results.
To be clear, the Chinese Communist Party (CCP) is an increasingly illiberal actor: it is more aggressive on the world stage and repressive at home. Still, of the 1.4 billion people living in China, only about 100 million people have any connection to the CCP. The rest of China’s citizens are not responsible for their government’s relatively rapid and ill‐advised turn away from liberalism. The United States desperately needs a thoughtful response to Beijing’s economic practices, but mimicking Chinese protectionism and industrial policy is a recipe for stagnation. Last month, my Cato colleague Scott Lincicome and I released a policy analysis charting a better course to outcompete China in the 21st century—one that is much more practical to implement in a relatively globalized world.
This article appeared on Substack on June 22, 2023
The New York Times reports that multiple states are responding to the opioid overdose crisis by passing harsh new laws aimed at fentanyl:
In the 2023 legislative session alone, hundreds of fentanyl crime bills were introduced in at least 46 states, according to the National Conference on State Legislatures. Virginia lawmakers codified fentanyl as “a weapon of terrorism.” An Iowa law makes the sale or manufacture of less than five grams of fentanyl — roughly the weight of five paper clips — punishable by up to 10 years in prison. Arkansas and Texas recently joined some 30 states, including Pennsylvania, Colorado and Wyoming, that have a drug‐induced homicide statute on the books, allowing murder prosecutions even of people who share drugs socially that contain lethal fentanyl doses.
This approach is deeply misguided. Rather than further criminalizing fentanyl, federal and state governments should legalize it, along with all other opioids (and all other illegal drugs).
Most overdoses from illicit drugs result from accidental consumption of excessively potent or adulterated versions, since quality control is difficult in an underground market. That reflects the Iron Law of Prohibition.
In a legal market, fentanyl would be widely available, but in clearly marked dosages, allowing users to consume without risk of overdose. That is what occurs now for other legal but potentially dangerous products, such as alcohol or over‐the‐counter medications like acetaminophen (Tylenol). Overdoes occur for legal “drugs,” but they are rare and reflect deliberate excessive consumption.
Governments almost always try to fix society’s problems with more government. When the original problem resulted from too much government, that approach is especially unfortunate.
You might rightfully wonder: How can a bank, like the neighborhood bank down the street, “create money out of thin air”?
To answer that question, we must enter the magical kingdom of “fractional-reserve banking,” where deposits are turned into loans, loans are turned into money, and so on. For every old dollar that goes in, nine new dollars come out, created with the stroke of a pen or the click of a mouse. As you may be aware, general deposits are loans by the bank depositor to the bank. However, banks can spin new loans out of old loans, creating a wheel of fortune by lending the same dollar to nine different customers—a feat that, to the uninitiated, is equally quite amazing and frightening!
This financial alchemy is perfectly legal and is in fact carried out with the aid and assistance of central banks everywhere, including our own Federal Reserve. If this wheel of fortune should hit a bump in the road and suddenly fall off its axle, causing the bank to crash, don’t worry because a central bank can do what no one else can legally do: counterfeit new money to set things right, a feat that “all the king’s horses and all the king’s men” cannot do!
Let’s take a closer look at how fractional-reserve banking works. Customer A deposits $10,000 in a checking account at First Bank. First Bank records the cash in its books and credits customer A’s account. The cash is an asset of the bank (a credit), which is offset by the liability to customer A (a debit). First Bank now has cash to lend, subject to government reserve requirements. Reserve requirements, which are established by the Fed, specify the amount (expressed as a percentage of deposits) that a lending institution must hold in reserve, either as vault cash or on deposit with a Federal Reserve bank, in order to guarantee payment of customers’ deposits. The reserve requirement for “reservable” deposits greater than $36.1 million (as of January 3, 2023) at any lending institution has been traditionally 10 percent. As a result, First Bank is free to lend $9,000 of the deposited money, keeping $1,000 in reserve.
Customer B comes into First Bank seeking a car loan. First Bank agrees to lend customer B $9,000. First Bank credits customer B’s checking account for $9,000 and debits an asset account called “loans receivable.” As you will recall, bank loans to customers are “investments” and, therefore, are assets—not liabilities.
At the completion of these two transactions, First Bank’s statement of financial condition would look like this (for simplicity, I have assumed no other transactions).
Table 1: Statement of financial condition of First Bank, December 31, 2022
Assets
(Credits)
Liabilities and equity
(Debits)
Cash
$10,000
Loans receivable
$9,000
Deposit liabilities
$19,000
Reserves
$1,000
Bank equity
$1,000
Totals
$20,000
$20,000
Notice that the bank has deposit liabilities of $19,000 and cash on hand of $10,000. Let’s assume that the loan to customer B is for three years, payable with interest in monthly installments. The demand deposits (checking account balances) include the original deposit of $10,000 from customer A plus the proceeds of the loan to customer B of $9,000. Presumably, customer B will spend the loan money on a car in the next few days. Where did the loan money credited to customer B’s checking account come from? Out of thin air!
The wheel turns again when the car dealer deposits the $9,000 proceeds in his bank, Second Bank. Now Second Bank, like First Bank, is free to make loans, subject to the 10 percent reserve requirement. When the wheel finally stops turning, loans of $90,000 have been created on a cash base of just $10,000. As we have seen, that cash is itself a chimera—nothing more than debt wrapped inside more debt.
Table 2: Fractional-reserve banking
Bank
Deposits
Reserves
(10 percent)
Loans
First
$10,000
$1,000
$9,000
Second
$9,000
$900
$8,100
Third
$8,100
$810
$7,290
Fourth
$7,290
$729
$6,561
Fifth
$6,561
$656
$5,905
Remaining
banks
$59,049
$5,905
$53,144
Totals
$100,000
$10,000
$90,000
The table above demonstrates that banks can expand the money supply by a factor of ten when the reserve requirement is 10 percent. Historically, the United States reserve requirement has been 10 percent on transaction deposits, such as checking and negotiable order of withdrawal accounts (M1) deposits, and 0 percent on time deposits, such as deposits into savings accounts and certificates of deposit. The 0 percent reserve requirement on time deposits enables banks to expand the money supply by more than a factor of ten.
Some would argue that banks are not really “insolvent,” just at times illiquid—not always having ready cash when needed. However, that’s true only if we consider just one or a few banks at a time. Any bank having a temporary shortage of cash could always borrow the needed funds to make up for the temporary cash shortage. The problem, however, is that all banks are illiquid and, when pricked by some general financial shock, can easily slip into insolvency.
When the reserve ratio is 10 percent, total deposits are reduced by ten dollars for every dollar withdrawn from the banking system. Banks then have to call in loans or sell securities to cover their depositor’s demands for money. This “liquidity crisis” is the reason behind most financial “panics,” bank runs, and similar economic disturbances. It’s “debt on the way down,” but this time on a grand scale!
Effective March 26, 2020, the Federal Reserve reduced bank reserve requirements, get this, to zero! Even prior to this change, reserve requirements only applied to transaction accounts, nonpersonal time deposits, and Eurocurrency liabilities. Everything else was “jokers are wild.” Thus, banks could create as much funny money as the traffic would bear. When reserve requirements are zero, the ability to create money is infinite!
The Fed’s money manipulation is the root cause of our economic problems. Bubbles in housing prices, United States Treasury notes and bonds, and cryptocurrencies—to give but a few examples—and the recent failures of the Silicon Valley, Republic, and Signature banks can all be traced to our monetary policies.
The fundamental issue for most banks is that they are forced to invest “long” but borrow “short,” something no prudent finance manager would ever do. Checking and other demand deposits are short-term liabilities of the bank. Bank loans, such as car loans, are intermediate-term investments. Mortgage loans are long-term investments. Banks also invest in government securities to balance their investment loan portfolio. Investing “long,” however, subjects the bank to interest-rate risks because the value of their investment loan portfolio is inversely related to changes in interest rates. A thirty-year mortgage loan yielding 2 percent is only worth a fraction of a similar loan yielding 6 percent. To be more precise, a $100,000 investment in such an instrument would be worth only $44,280 if interest rates were to rise to 6 percent. If interest rates rise to 8 percent, the value would fall to $31,768, according to the bond price calculator.
Therein lies the trap that Silicon Valley Bank (SVB) fell into—with disastrous results. It’s the trap set by the very nature of fractional-reserve banking:
Over a period of just two days in March 2023, the bank went from solvent to broke as depositors rushed to SVB to withdraw their funds, resulting in federal regulators closing the bank for good on March 10, 2023.
SVB’s collapse marked the second largest bank failure in U.S. history after Washington Mutual’s in 2008.
That money created out of thin air should one day evaporate before our eyes should surprise no one, except perhaps Paul Krugman and his fellow court jesters at the New York Times. The endless cycles of boom and bust are a direct result of government manipulation of the money supply. It’s really that profound and that simple.
Ryan and Robert Aro take a look at the Fed’s unconvincing explanation of why it has chickened out on interest rate hikes. This only makes sense if the economy is much weaker than the Fed claims.
Be sure to follow the Fed Watch Podcast at Mises.org/FedPod.
Recently, the Irish Data Protection Commission halted the launch of Google’s new artificial intelligence (AI) product, Bard, over concerns about data privacy under European Union (EU) law. This follows a similar action by Italy following the initial launch of ChatGPT in the country earlier in 2023.
Debate continues over whether potential regulation is needed to address concerns about AI safety. However, the disruptive nature of AI suggests that existing regulations, which never foresaw such a rapid development, may be preventing consumers from accessing these products.
The difficulty of launching AI products in Europe shows one of the problems of the use of static regulation to govern technology. Technology often evolves faster than regulation can adapt. The rapid uptick in the use of generative AI is the latest example of the increasingly fast adoption of new technologies by more consumers. But regulations typically lack the flexibility to consider such disruption, even if it might provide better alternatives.
The General Data Protection Regulation (GDPR) is an EU law that created a series of data protection and privacy requirements for businesses operating in Europe. Many American companies spent over $10 million dollars each to ensure compliance, while others chose to exit the European market instead. Furthermore, the law led to decreased investment in startups and development of apps in an already weaker European tech sector.
But beyond these expected outcomes stemming from static regulations, the requirements of GDPR have raised questions about whether new technologies can comply with the specific requirements of the law. Stringent and inflexible technology regulations can keep us stuck in the past or present rather than moving on to the future. At the time, much of this concern was focused on blockchain technology’s difficulty in complying with GDPR requirements, but now the disruptive nature of AI is showing how a regulatory and permissioned approach can have unintended consequences for beneficial innovation. A static regulatory approach impedes the evolution of technology, which, if permitted to develop without such restrictions, could potentially rectify the very deficiencies that the regulations originally aimed to prevent.
Unlike market‐based solutions or more flexible governance, such a compliance‐focused approach presumes to know what tradeoffs consumers want to make or “should” want to make. Ultimately, it will be consumers who lose out on the opportunity and benefits provided by new technologies or creative solutions to balancing these concerns.
While there may be privacy debates to be had over the use of certain data by the algorithms that power AI, regulations like the GDPR presume privacy concerns should always win out over other values that are significant to consumers. For example, more inclusive data sets run afoul of calls for data minimization in the name of privacy but are more likely to respond to concerns about algorithmic bias or discrimination.
Europe has long seemed set on continuing a path of heavy‐handed regulation over a culture of innovation, and the growing regulatory thicket is starting to result in regulations that contradict one another on issues such as privacy. As the U.S. continues to consider any data privacy regulations and any regulatory regimes impacting AI, policymakers should carefully watch the unintended consequences the more restrictive approach in Europe has yielded.
As geopolitical tensions rise, the Chinese political leadership tells the US government to desist pushing its “color revolutions.”
Original Article: “China Calls Out the USA for Instigating the Infamous Color Revolutions“
All too often, unscrupulous businesses weaponize the United States’ antitrust laws—which are only supposed to be utilized to protect consumers against higher prices and other consequences of monopoly power—for their own self-serving purposes. Professor Thomas DiLorenzo explained this problem more than a third of a century ago in a piece titled “The Rhetoric of Antitrust.” He wrote that “In theory antitrust regulation promotes competition in the marketplace but in reality its results are often anticompetitive. It is routinely used by businesses having problems competing.”
A key to understanding the difference between competition as a process benefiting consumers and competition as a misnomer for protecting those who are (or are afraid of) being outcompeted for consumer favor was revealed in an open letter on antitrust protectionism during the Clinton administration. The letter, signed by 240 professors across the country, made it clear that “consumers did not ask for these antitrust actions—rival business firms did.”
Although over twenty years have come and gone, this problem hasn’t gotten any better; antitrust protectionism has continued into the present day. The scrutiny the Federal Trade Commission (FTC) is currently giving the merger between Microsoft and game developer Activision is a testament to this sad reality.
As Joost van Dreunen from New York University’s Stern School of Business described the merger, “virtually no one opposes the deal, except Sony.” In other words, consumers are not against the merger. However, the biggest, most dominant firm in the video game industry wants it challenged. Why? This is because Sony would have its dominant position in video game platforms undermined by better and more flexible options for gamers that the Microsoft-Activision merger would make possible. Sony doesn’t even have to bear the costs of challenging the merger because the FTC is doing that for the company. As Tahmineh Dehbozorgi wrote in National Review: “Unfortunately, in this case, the FTC seems more interested in defending Sony’s dominant market position than in allowing a transaction that would enable Xbox to compete. Consumers that would gain access to new games from big and small developers, are getting hurt in the process.”
In other words, the FTC’s opposition doesn’t increase or maintain competition; it just keeps a rival to Sony (the largest firm in the video game industry) from getting closer to its scale in an industry where economies of scale are significant. When a larger (merged) rival becomes more efficient than when it was smaller, Sony would have no choice but to compete effectively with its more able rivals. That would increase competitive industry pressures and better serve gaming consumers, not harm them. That’s one of the many reasons why a slew of organizations and countries—including the European Union (which is not typically an ally of US businesses in the antitrust arena), Japan, Brazil, Chile, Serbia, and Saudi Arabia—have already approved the Microsoft-Activision merger. These groups and countries also ostensibly recognize that the deal would benefit consumers by adding a great deal of value to Microsoft’s Game Pass subscription service.
Game Pass—especially if it includes Call of Duty and other Activision games—can be cheaper and more flexible for many consumers, who would no longer have to buy each video game individually or purchase multiple consoles to get access to exclusive games. It would also allow consumers to try out games they are not sure they would like at a lower cost (as part of a bundle) than having to buy them up front.
Further, the proposed merger would create a new large-scale entrant into mobile gaming, giving Microsoft “a toehold in mobile gaming—where most people game and where Microsoft’s Xbox currently has virtually no presence.”
While Sony and the FTC continue to portray a “sky is falling” narrative about the Microsoft-Activision deal, Dehbozorgi noted that when Microsoft acquired Mojang, the company that developed Minecraft, nine years ago, none of the concerns came to be:
Since the acquisition, Minecraft has become one of the best-selling video games of all time. . . . The merger enabled Mojang to access greater resources and reach a wider audience through Microsoft’s distribution channels. Consequently, Minecraft became available on more platforms and cross-platform play became possible, breaking down barriers and fostering greater innovation in the industry. Microsoft has continued to invest in the game, adding new features and expanding its reach to new platforms.
Alas, the belief that monopoly abuses will follow in the wake of the Microsoft-Activision merger is more imaginative than proven. Even postmerger, Microsoft’s share of the market will be too low to give it that much power. Sony will remain the largest player in the market. While antitrust rhetoric often involves the “little guys” being abused by large firms, it is hard to see how Microsoft’s supposed efforts at abuse would work against a substantially larger firm that has dominated the gaming market for two decades.
Even what Sony is “selling” as the greatest competitive threat from the merger—making video game titles exclusive to Microsoft’s system—is difficult to take seriously, as Sony has done far more of that than any other console maker. If it would be monopolistic for Microsoft to utilize exclusivity, isn’t it worse that Sony—which has a far larger market share—has done exactly that? As legislators like Senator Kevin Cramer and others have noted, perhaps Sony should be the company in the FTC’s crosshairs, not Microsoft. Microsoft has even offered ten-year contracts as proof that it will not engage in these Sony-esque practices.
The Competitive Enterprise Institute’s Iain Murray has also noted several other important problems with the assertion that the Microsoft-Activision merger would be used to facilitate consumer harm. For instance, he has collected several public comments on the merger in the United Kingdom that deserve consideration. They include the following:
it is unlikely that Microsoft would make Call of Duty exclusive due to its multiplayer nature. Making Call of Duty exclusive to Xbox would only create a gap in the market that could be filled by a rival cross-platform shooter game; . . .
. . . the Merger will push Sony to innovate, such as by improving its subscription service or creating more games to compete with Call of Duty;
. . . the Merger is a reaction to Sony’s business model for PlayStation, which has historically involved securing exclusive content or early access to popular cross-platform gaming franchises . . .
. . . the Merger is pro-competitive in the mobile segment because it will create new options for mobile gamers and allow Microsoft to compete against Google and Apple, which are the two dominant mobile platforms.
Murray added:
Mobile gaming is a growth area. Microsoft/Xbox has virtually no presence in mobile gaming, while three quarters of Activision’s userbase, not to mention a sizeable portion of its revenue, derive from that area. This is most likely at the heart of the acquisition. Going from two large companies in the field to three is hardly a threat to competition.
As if these concerns with Sony and the FTC’s claims aren’t enough, Renata Geraldo has reported still more problems. She wrote that, while “The FTC is concerned Microsoft plans to withhold Activision titles, including Call of Duty, from Sony and other competitors,” Microsoft argues “it is not financially viable to remove Call of Duty from PlayStation.” Indeed, more profits are to be made from serving a rapidly growing market than from trying to squeeze its current customers. As Microsoft lawyers have argued (and Activision has echoed), “Paying $68.7 billion for Activision makes no financial sense if that revenue stream goes away . . . Nor would it make sense to degrade the game experience and alienate the millions of Call of Duty players who play together using different types of consoles.” While Sony turned down Microsoft’s offer of a ten-year guarantee against that very fear (Microsoft making Call of Duty an exclusive to its console), Microsoft has already completed such an agreement with Nintendo.
There are so many holes in the FTC and Sony’s opposition to the Microsoft-Activision merger that an analogy to Swiss cheese is in order. In fact, as Nate Sherer has summarized, the results are more likely to be 180 degrees from the imagined bogeyman: “the deal could well be a major victory for consumers and gamers alike, who are likely to benefit from expanded access, a greater selection of games, and lower prices.” So, we should leave it to gamers to decide which firms and combinations of offerings they prefer, rather than government antitrust regulators who may be carrying out their “Call of Duty” for powerful corporate rivals threatened with competition rather than for the consumers who would benefit from it.
Mental health practitioners have long known that cigarette smoking is prevalent among people with schizophrenia. Research estimates as many as 88 percent of people with schizophrenia smoke cigarettes, a rate much higher than in people with other psychiatric disorders and almost three times the rate of the general population. The heavy smoking rate causes many people with schizophrenia to develop smoking‐related illnesses, from cardiovascular disease to cancer, significantly lowering their life expectancy.
Recent studies suggest that nicotine normalizes cognitive deficits, called “hypofrontality,” in people with schizophrenia. There is evidence that nicotine improves short‐term memory in schizophrenic patients. Nicotine’s beneficial effects on schizophrenia have led many researchers to suspect that people with this disease are self‐medicating.
Today in Filter, journalist and filmmaker Helen Redmond unveiled a new short documentary film that she and her colleague, Marilena Marchetti, produced profiling a multicenter trial underway called the Genesis Trial, led by Dr. Pasquale Caponetto of the University of Catania, to see if nicotine‐containing e‑cigarettes can successfully help schizophrenic patients who are long‐term smokers to quit tobacco. The study is a 12‐month randomized, double‐blind, smoking cessation trial that compares the effectiveness of 5 percent nicotine and 1.5 percent nicotine vaping devices.
The filmmakers flew to Sicily to interview several trial participants at two psychiatric residential facilities. Watch the video “Switch: A Documentary About Smoking and Schizophrenia” here.
Lawmakers and policymakers in the United States and around the globe seek to make it more difficult for adults to obtain nicotine‐containing e‑cigarettes, especially those with flavors, even while research shows tobacco quitters prefer flavored vaping,
Harm reduction advocates have long argued that nicotine e‑cigarettes are helpful smoking cessation tools and more effective than nicotine patches or gum. When it comes to smokers with schizophrenia, nicotine vapes may reduce cognitive dysfunction at the same time.