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Washington's 'Knowledge Problem' About Innovation, Technology and Google

Frequent antitrust interventions into the economy have thankfully been out of fashion in recent years. However, about once a decade Washington uses government’s biggest hammer against industry, antitrust law, in an effort to smash a disfavored company. This is one of those years. 

Antitrust law in the United States is not one law but rather several federal and state laws. One of those is the Sherman Act of 1890, which was designed to prohibit the abuse of monopoly power. Other notable parts are the Clayton Act of 1914 and the Federal Trade Commission Act of 1914. 

Successful innovation brings market success, and so the unfortunate pattern of antitrust is to punish successful innovators. In the 1970s government went after AT&T, in the ‘80s IBM, in the ‘90s Microsoft. Today some are threatening to break apart Google. This disturbing attack, which uses the Sherman Act as its excuse, has little but populist resentment going for it.

In 2012 the FTC went after Google along the same lines, ultimately determining that there was nothing there. As IPI wrote then, “At issue is whether the company is influencing Internet users to use preferred-company services, and if it is, whether such efforts hurt its competitors.” Further, “Just as competitors lobbied to have the government restrict Microsoft in the 1990s because of supposed ‘desktop dominance,’ others are now lobbying to hurt Google by trying to convince the iron hand of government to squeeze the company and limit its competitive abilities.” 

The complaints against Google were brought by companies that wanted Google’s same economic position without having earned Google’s success in the marketplace. But now populism has taken over, with the fires stoked by lobbyists, and attention seeking politicians taking the lead. But as hearing after hearing has shown, Congress has no better grasp of the technological issues at play than it did before. Instead, CEOs are summoned to Capitol Hill for political theatre rather than as a means of gaining understanding. 

This is mostly unsurprising. Antitrust reviews are the worst form of policymaking, with the government picking winners and losers, deciding what is “too big,” and otherwise carving up industry as if government has any understanding of business, innovation or even the effects of antitrust actions.  

The core assumption is that government knows best how to direct innovation.  Yet, even the market experts, the companies themselves, have a hard time determining what the public wants next. 

As IPI wrote of government antitrust efforts in 2019, “…they step squarely into F.A. Hayek’s famous ‘knowledge problem,’ arrogantly assuming that they know in advance what a particular market should look like, how many competitors there should be, what the results of a particular business transaction will be, etc.  The fact is that no government official or group of government officials has enough information or big enough brains to be able to do any of that, and it also overlooks the likelihood that intervening will almost surely result in harmful unintended consequences… Humility, then, compels the proponent of markets to allow consumers and businesses to freely make decisions in the marketplace with minimal interference from government, and to act only when there is evidence of harm.” 

Humility from Washington, DC? Now that would be an innovation.