Can Biden increase his electoral stock value?

The issue: Can Biden raise his electoral stock value in face of a Warren advance? is reporting that the lowest price traders are being offered for purchasing a “yes” contract on Joe Biden‘s chances of winning the Democratic nomination is $.26.  This means that if the elections were held today and a trader purchases a yes contract and wins, they have a maximum gain of $.74 on the contract since a winning payout is one dollar.  With twenty-three other candidates in the hunt for the nomination, Mr. Biden’s chances and “yes” contract price should climb as more candidates drop out of the running.

One candidate who may not be on that drop out list is U.S. Senator Elizabeth Warren, Democrat of Massachusetts.  Ms. Warren has been climbing in the polls within the past couple months, with a Predictit “yes” contract now selling at $.20 at the time of this writing.  She has passed Senator Bernie Sanders, Independent of Vermont, for second place in the political prediction markets.  Mr. Sanders’ “yes” contract is currently selling at $.17.

Can Mr. Biden increase his electoral capital enough to ward off the challenges, particularly those offered by populists like Mrs. Warren and Mr. Sanders?

What Biden faces and what he has to do ….

Writing for Yahoo! News, Sahil Kapur and Emma Kinery cite data from a Economist/YouGov poll of South Carolina voters showing Joe Biden ahead of Elizabeth Warren by ten percentage points (26% to 16%), while Mr. Sanders comes in at 12%.  Among black voters, Kapur and Kinery note that Mr. Biden is polling at 50% while Mr. Sanders comes in second at 10%.  Mrs. Warren is back in a cloud of dust at 4%.

Nationally, Mr. Biden shouldn’t rest on his laurels.  In the political market place, Mr. Biden still has to make the argument why the electorate should release their vote in exchange for his narrative.  Political narrative becomes sound currency if backed up by solid policy or an argument for solid policy.  Writing for The New Yorker, John Cassidy argues that Mr. Biden has to dispel the notion that the former vice-president is an out-of-touch centrist riding the nostalgia of first black American and a very popular president’s coattail.  Mr. Biden also has to offer more detailed economic packages notes Mr. Cassidy, and explain how he would address underlying problems with American democracy.

Meanwhile, Elizabeth Warren is driving up her electoral stock value with a personal narrative that seeks to connect with middle America while attempting to present complex policy prescriptions in a clear manner.  Mrs. Warren, according to Mike Allen and Jim Vandelte, provides specific liberal ideas.  They note that she has the ability to unite the progressive wing of the Democratic Party and should she lose the Democratic Party nomination to either Mr. Sanders or U.S. Senator Kamala Harris of California, she would still be in play to be king or queen maker given her increased populist clout.

Mr. Biden has to protect the nostalgia element of his candidacy.  So far, according to Politico’s Holly Otterbein, the rest of the Democratic field have been pretty much hands-off when it comes to the Obama-Biden years, fearing that any attack on policy or failure to enact policy during those years will bring the ballot booth wrath of Obama fans.

But, according to Ms. Otterbein, Mr. Biden’s many years in Washington also give his Democratic opponents a target rich environment at which to take aim.  Taking Mr. Biden back to his past policy mistakes may put him in a least progressive or worse, mildly conservative light.

Conclusion …

It is tough to predict so early in the race for the Democratic nomination whether attacks on Mr. Biden’s political performances prior to becoming vice-president will cause him to lose the nomination. At a minimum, he will have to take ownership of the negative optics of any less than progressive behavior prior to becoming Mr. Obama’s vice-president while providing a clarity of action plans equal to those being offered by Mrs. Warren.





Elizabeth Warren’s anti-trust approach to internet companies disregards the autonomy of making a market

Last March, U.S. Senator Elizabeth Warren, Democrat of Massachusetts, made an argument for dismantling three of the internet’s biggest portal companies: Amazon, Facebook, and Google. Ms. Warren asserts that these companies have too much power over the private lives of Americans as well as over the economy.  Through their economic and political behavior, Amazon, Facebook, and Google have, according to Ms. Warren, have stifled the ability of smaller players to enter and innovate in the internet markets.

Elizabeth Warren’s Argument

Ms. Warren asserts that Amazon, Facebook, and Google use two strategies to create dominance on the internet.  The first strategy is the use of mergers by large internet portals to effectively eliminate competition.  Under this strategy, Amazon, Facebook, and Google buy out their competition, at times, according to Ms. Warren, at a discounted price.

The second strategy used by internet portals is to create proprietary marketplaces to limit or eliminate competition.  Under this scenario, a portal like Amazon creates a competitive product for sale on its website and uses its scale to price out a competitive product that is also offered for sale on Amazon’s website.

Ms. Warren believes this dominance can be addressed by by taking two steps.  First, portals such as Amazon, Facebook, and Google would be designated as platform utilities.  This means that Facebook would have to divest itself of a service provider that competes with other service providers that use Facebook’s platform to connect to its consumers.

The Problem with Ms Warren’s Approach

Ms. Warren’s approach is similar to the regulatory approach used in the 1990s where local telephone companies that wanted to provide toll services beyond their local areas had to set up separate subsidiaries.  The two differences between the telecom scenario of the 1990s and Ms. Warren’s platform utility model is that telecoms didn’t have to divest these companies, but operated them separately.

More important, these telecom companies were still utilities exercising monopoly control of local service areas.  Until 1996, their local rates were still regulated and they still needed permission to add certain local services.  Their monopoly power resulted from the inefficiencies that would occur from multiple firms trying to provide the same telecommunications services in limited geographic space. Monopoly power granted by the state to these firms was the response by the State to the problems occurring from congestion.

The Open Internet Eliminates Monopoly Power

Amazon, Facebook, and Google, for all their dominance in the e-commerce space operate in the open internet.  In the open internet, any firm or other association of individuals with the right search algorithms, expert technical knowledge, and adequate capital, can set up servers almost anywhere in the world, and start a competing service or carve out a niche portal service.  The internet’s technical openness is rivaled only by its global nature.  Amazon, Facebook, Google may be dominant in the American e-commerce market, but constant regulatory threats by the European Union and hostility to them from China reduces their perceived dominance.  Ms. Warren has not shown how these firms can dominate a global network of 100,000 interconnected computers that operate on an open architecture.

Internet Portals are Not Utilities

It should also be mentioned that the internet itself is not a utility.  In 2015, Federal Communications Commission member Michael O’Rielly made this point during a speech.  Mr. O’Rielly said the following:

“It is important to note that Internet access is not a necessity in the day-to-day lives of Americans and doesn’t even come close to the threshold to be considered a basic human right. … People do a disservice by overstating its relevancy or stature in people’s lives. People can and do live without Internet access, and many lead very successful lives.  It is even more ludicrous to compare Internet access to a basic human right. In fact, it is quite demeaning to do so in my opinion.”

When we think of utilities, we think of monopolies that, due to their efficient delivery of vital services such as water and energy, are granted an exclusive market within which to provide those services.  As alluded to earlier, because of the open nature of the internet and its global reach, it is near impossible for one firm to have an exclusive market, unless a government decides to grant it, and that move would be irrational because government exclusivity would block the very cross-border data flows facilitated by an open internet.

Acquisition of Apps and Brick and Mortar Stores by an Internet Portal Does Not Create Monopolies

The second step Ms. Warren would take to squelch internet portal dominance would be to designate regulators that would prevent Amazon, Facebook, or Google from merging with other firms and thus eliminating competition.  She provides a couple examples: Facebook and WhatsApp; Google and Waze; Amazon and Whole Foods.  There are two problems with her examples and the conclusion that these “mergers” are not competitive.

First, these were not mergers but acquisitions. Two information portals, Facebook and Google, acquired two information assets.  Given the services these assets provide, Facebook and Google made the business judgment that adding these services to their portfolios made sense from a services and revenue perspective.  Amazon, first and foremost an online retailer, added a retail food service from which Amazon’s subscribers could purchase groceries at a discount.

Ms. Warren failed to argue how Facebook’s ownership of a messaging service keeps other firms from developing their own messaging service.  She failed to explain how Google’s acquisition of Waze keeps other technology firms from creating an app that provides drivers with directions. Ms. Warren also fails to show how Amazon is keeping, say Kroger, from creating its own grocery delivery service.

It would be one thing to say that these firms monopolized physical infrastructure to the point where other firms would see increasing costs of entry, but the internet’s openness, combined with access to technical talent and expertise and cheap capital means that the assets purchased by Amazon, Facebook, and Google are themselves subject to competition.

Conclusion: Internet Openness and its Global Nature Keeps Monopoly Power in Check

The open and global nature of the internet combined with access to expertise, talent, and cheap capital works to mitigate monopoly behavior.  As technology evolves and entrepreneurs innovate, the services rivaling WhatsApp, Waze, or even Facebook will emerge.  Given the current make-up of the Congress and the low probability of Elizabeth Warren winning the Democratic nomination, the likelihood of her proposals being enacted via law or administrative fiat is close to zero. This does not mean that internet portals concerned about this type of overreach should stay less than vigilant in preparing to push back against them.