The villagers are marching with their torches and pitchforks. Big tech companies are in trouble.

The government is coming to regulate them.

Someone leaked a draft of an executive order from President Trump. It calls on various agencies to use all current laws to look into possible anticompetitive practices by Facebook and Google.

In fact, the EU already fined Google $5 billion in July for “abusing the market dominance of Android.” And now they’ve set their sights on how Amazon uses customer and seller data.

Elizabeth Warren wants to force Amazon to choose between providing a platform for sellers and selling goods. Echoing European Union regulators, she says Amazon has an unfair advantage by competing against the same sellers it collects information from on its platform.

Governments use antitrust laws to break up businesses that resemble monopolies. The government can call just about anything an “anticompetitive” practice. The Sherman Antitrust Act of 1890 gives the US government sweeping powers to regulate almost any business behavior.

And there’s plenty to choose from:

• Google gets the vast majority of search engine users.
• Facebook is the go-to social media website.
• Together, Google ads and Facebook ads capture 90% of new advertising spending. They get 71% of all ad dollars in Europe.
• The left says Facebook’s lax data policies helped win Trump the election. The right claims Facebook targets conservatives for censorship.
• Google favors it’s own results, and censors certain news.
• Amazon collects almost half of all online retail sales in the US.

But much of the criticism misses the mark.

A Bloomberg article called Tech Giants Spend $80 Billion to Make Sure No One Else Can Compete, offers a perfect example of misplaced criticism:

How can a company hope to compete with Google’s driverless cars when it spends $20 billion a year to ensure it has the best laser-guided sensors and computer chips?

Wait… so Google ensures it’s self-driving cars have the best laser guided sensors and computer chips that money can buy. And that is a bad thing?

Would it be better if the technology was poorly made, but other, inferior companies with worse technology could compete? Sure maybe the death rate for the first fleet of driver-less vehicles is huge, but at least smaller companies could compete!

The alternative is that Google spends all the money developing the best technology. And then other companies copy them.

If Google has a patent or intellectual property that protects their tech, that means government is enforcing, not stopping, their monopoly.

Another example we’ve discussed is Bernie Sanders’ Stop BEZOS Act. This bill would tax companies to cover the cost of any of there workers who receive welfare. It basically blames successful companies for the circumstances of their workers, regardless of whether those workers are full time, or have skills needed for higher pay.

The government does not address the real problems with Amazon and Bezos, like the $600 million per year CIA contract or surveillance technology sold to law enforcement like Palantir and Rekognition.

We all know Google can track everything we do with their technology. In China, we can see that kind of data put to sinister use. Google helps the Chinese government censor web results. And their data will undoubtedly factor into Chinese citizens’ “Social Credit Scores.”

These are scores assigned by the Chinese government for things like patriotism and civic responsibility. These scores can be affected by online behavior, as well as reviews from neighbors, friends… or enemies. And a bad score means being banned from living in certain places, working certain jobs, and traveling on public transportation.

Facebook has also cozied up to the Chinese government, trying to open up a new market for the platform. They have no problem censoring whatever they need to in order to get the Chinese government on board. And they have indicated their willingness to share data and information with authorities.

It’s not hard to understand why people are calling on the government to take these monoliths down a notch. There are obvious problems with these companies.

But why would the government regulate away its own benefits from the tech companies?

Clearly, China is not going to prohibit Google and Facebook from providing them with incriminating information on citizens.

Is the CIA going to make sure the money they give Bezos doesn’t influence the Washington Post, which Bezos owns?

Are elected officials going to get Facebook out of elections, or are they going to make sure Facebook helps them win the next election?

Is the government going to protect your privacy from Google, when the government is only too happy to subpoena incriminating evidence against you from the search giant?

The government already teamed up with these companies!

And that’s, like, most of the problem!

The government is going to focus on regulating the wrong things.

They are going to punish Amazon for being successful. For hiring poor workers. For providing a platform to sellers, and for selling cheap goods and services.

The government won’t stop Google or Facebook from informing on their users. But they will interfere in free speech by labeling it hate speech. And they’ll probably force the big tech companies to turn over more and more user data without warrants.

And some regulation will benefit the big tech companies.

This is how the government works. They allegedly aim their regulations at the big guys. But somehow all the little guys get caught up in the drag net.

The big companies can afford to deal with regulations, or pay the fines when they break them.

The little no-name tiny competitors cannot.

For example, under European Union rules, platforms can now be fined for what their users post. So Youtube might get a giant fine. But they can afford to pay it.

But suppose a competing video service like Real.Video fails to remove “hateful” content quick enough. The fine could bankrupt the new company.

So the regulation allegedly aimed at Youtube actually takes out the competition, leaving only Youtube.

That’s how they did it with the banks.

The Government Regulates the Banks

“We need to hold banks accountable!” The people clamored. So Congress passed the Dodd-Frank overhaul of the finance sector.

Sovereignman gives a good example of this problem:

Dodd–Frank limits the amount of debt a bank holding company can take on.

The regulations are supposed to be aimed at the big banks. But this can hurt small banks that need to take on more debt in order to get off the ground.

Dodd–Frank exempted small bank holding companies from the debt rule. The limit was set at half a billion dollars, and later increased to include banks with $1 billion of total assets.

That might sound like a lot. But Bank of America and JPMorgan Chase, the two largest bank holding companies in America, are worth over $2 trillion each.

There are 124 bank holding companies in the USA with assets totaling more than $10 billion each.

$1 billion is actually a pretty low threshold for exemptions from debt limitations. This gives bigger bank holding companies an advantage over small competitors, who aren’t allowed to take on the amount of debt required to get going…

The problem with Dodd–Frank is that is kills the little guy. Big banks really don’t care about the rules they have to follow. They will find a way around them. Or sometimes they just break the rules, and pay a fine much smaller than the profit they made breaking the rules.

Dodd–Frank might mean more hassle for big banks, but it is worth it to them to kill their little competitors.

The little guy can’t afford an army of lawyers to find loopholes and perform corporate sleight of hand. Small banks are therefore more affected by the rules, because if they break them, the fines are ruinous.

In other words, Wells Fargo doesn’t care it it pays a $1 billion fine, as long whatever fraud they got fined for made them more than $1 billion.

And it is the same for big tech.

So let’s not have the fox guard the hen house.

There is an alternative to government regulation.

The market does have the power to regulate the tech giants. And it doesn’t mean completely abandoning and boycotting the platforms.

We’ll get into that tomorrow.