TIME Economy & Policy

The Government Is a Hit Man: Uber, Tesla and Airbnb Are in Its Crosshairs

San Francisco taxi drivers show their opposition to Uber which taxi drivers say is operating illegally in San Francisco
San Francisco taxi drivers protest Uber, which taxi drivers say is operating illegally in San Francisco, July 30, 2013. Beck Diefenbach—Reuters

The real losers are not just the next generation of innovators but also customers who lose out on more ways of getting what they need or want.

What the invisible hand of free-market innovation giveth, the dead hand of politically motivated regulation tryeth desperately to take away.

That’s the only way to describe what’s happening to three wildly innovative and popular products: the award-winning electric car Tesla, taxi-replacement service Uber and hotel alternative Airbnb. These companies are not only revolutionizing their industries via cutting-edge technology and customer-empowering distribution, they’re also running afoul of interest groups that are quick to use political muscle to maintain market share and the status quo.

The battle between what historian Burton W. Folsom calls “market entrepreneurs” and “political entrepreneurs” is an old and ugly one, dating back to the earliest days of the American experiment. Market entrepreneurs make their money by offering customers a good or new service at a good or new price. Political entrepreneurs make their money the old-fashioned way: they use the government to rig markets and kneecap real and potential competitors. In his great 1987 book The Myth of the Robber Barons, Folsom discusses how the 19th century steamboat pioneer Robert Fulton quickly went from a market entrepreneur to a political one by securing a 30-year monopoly from the New York legislature for all steamboat traffic in the Empire State.

Especially in today’s sluggish economy, it’s more important than ever that market innovators win out over crony capitalists. Letting markets work to find new ways of delivering goods and services isn’t just better for customers in the short term, it’s the only way to unleash the innovation that ultimately propels long-term economic growth. After all, no country has ever regulated its way out of a recession.

Tesla has done the unthinkable not once but twice: First, it built an electric car that people actually want to buy despite a price tag north of $70,000 for its cheapest models. Second, it has the temerity to sell directly to its wealthy customers rather than subjecting them to the ritualized hell known as auto dealerships. But because auto dealers account for as much as 20% of state sales taxes, their wishes often become legislators’ commands. At the top of their wish list? Don’t let carmakers sell directly to customers. The most glaring example of protectionism just took place in New Jersey, whose legislature added even more burdens to rules that already banned the direct sales of cars to customers. Now Teslas effectively can’t be sold in New Jersey, reports the New York Times, all in the name of ensuring consumer safety and protecting competition. News flash: Anyone who can afford a $70,000 car doesn’t need much protecting. And if you’re ready to believe car dealers when they argue that incredibly complicated rules making it impossible for new companies to enter their market are about protecting competition, I’ve got an expensive undercoating package I want to sell you.

The app-driven car service Uber, which bills itself as “everyone’s car service” and connects drivers and riders in minutes, presents a similar threat to traditional taxi and ride services in the 30-plus U.S. cities in which it operates. Rather than fight for customers by cutting fares, increasing the number of cabs or improving services, taxi commissioners and city councils from San Francisco to New York are instead trying to regulate Uber out of business on the grounds that it provides unfair and unsafe competition.

Never mind that Uber riders get to instantly rate their experience in a way no cab passenger ever does (just as amazingly, drivers get to rate passengers!). At the state level, California has already instituted a bevy of regulations on Uber, Lyft and other new ride-sharing services. These include mandatory criminal-background checks for drivers, licensing via public-utilities commissions, and driver-training programs. Last year, Washington, D.C., officials unsuccessfully tried to squeeze out Uber with regulations on the types of cars that could carry passengers, what sorts of credit-card processing machines could be used and how the company’s app operates.

Airbnb, a website that allows people to rent everything from vacation homes to spare couches for short-term stays, works great for everyone but conventional hoteliers and cities trying to bilk travelers for tourist taxes. Operating in 192 countries and typically showing hundreds of thousands of offerings, Airbnb has faced stiff regulation in towns supposedly famous for their weirdness and openness to lifestyle experimentation, such as Austin, which charges hosts an annual licensing fee and limits the number of participants, and Portland, Ore., which has banned the service in residential neighborhoods. In New York City, rent-control advocates are teaming up with hospitality-industry heavyweights to try and shut down Airbnb and similar services.

If mobsters were pulling these sorts of stunts, we’d recognize the attacks on new ways of doing business for what they are: protection rackets, with state regulators rather than professional hit men creating and enforcing rules to benefit well-connected businessmen. The real losers are not just the next generation of innovators but also customers who lose out on more ways of getting what they need or want.

Folsom’s study of political and market entrepreneurs also suggests that political entrepreneurs are ultimately unsuccessful. Indeed, Fulton claimed in 1817 that his monopoly meant no one could ferry passengers to New York City from neighboring states. A young Cornelius Vanderbilt was hired by a New Jersey businessman to challenge Fulton not in a court of law but on the Hudson River, ferrying passengers from Elizabeth, N.J., and Gotham. Vanderbilt cheekily flew a flag from his ship that read, “New Jersey must be free.” While evading capture, Vanderbilt lowered prices and changed the business climate.

It turns out that New Jersey must be free again — to sell Teslas. And New Yorkers should be free to rent out their rooms if they want to. And Uber to drive you where you want to go. The invisible hand of free markets shouldn’t have to spend so much of its time slapping away the dead hand of political entrepreneurship.

TIME Television

Obama Needles Ellen for ‘Cheap Stunt’ Selfie

The president cracked wise about the selfie that beat his election night record for the most retweeted Twitter post ever

President Barack Obama is giving Ellen DeGeneres some playful flack for her selfie-seen-round-the world.

“I heard about that. I thought it was a pretty cheap stunt, myself,” Obama joked during an interview on The Ellen DeGeneres Show airing Thursday, referring to the massive group selfie she sent when she hosted the Oscars earlier this month. “Getting a bunch of celebrities in the background, you feeding them pizza.”

The selfie beat Obama’s 2012 election-night victory Twitter posting for the most retweets ever, with more than 3.4 million retweets to date.

Obama’s interview came amid a last-minute publicity push to encourage Americans to sign up for health insurance under the new health care reform law, ahead of a critical March 31 enrollment deadline.

TIME

Morning Must Reads: March 20

Capitol
The early morning sun rises behind the US Capitol Building in Washington, DC. Mark Wilson—Getty Images

In the news: European leaders consider Russian sanctions; What Pakistan knew about Bin Laden; Markets respond to Janet Yellen's first meeting as Federal Reserve chairwoman; Boehner raises doubts on extending unemploymnent insurance; Bernie Madoff speaks; March Madness

  • “European leaders hold critical talks on Thursday about how to tighten the screws on Russia following its seizure of Crimea, how to support Ukraine’s stricken economy and how best to wean themselves off Russian oil and gas in years to come.” [Reuters]
    • “For President Barack Obama, Russia’s aggressive annexation of Crimea is testing central tenets of his foreign policy philosophy: his belief in the power of direct diplomacy, his preference for using economic sanctions as punishment and his inclination to proceed cautiously in order to avoid creating larger long-term problems.” [AP]
  • What Pakistan Knew About Bin Laden [NYT]
  • “Investors bristled after Janet Yellen emerged from her first meeting as Federal Reserve chairwoman with some unsettling signals about the central bank’s outlook for short-term interest rates.” [WSJ]
    • Markets Need Janet Yellen to Kick Them in the Pants [TIME]
  • “House Speaker John A. Boehner (R-Ohio) sought to raise doubts Wednesday about a new bipartisan deal to extend federal unemployment insurance, citing the concerns of state officials responsible for paying out benefits to out-of-work Americans.” [WashPost]
  • Bernie Madoff Speaks: Politics, Remorse and Wall Street [Politico]
  • “Australian authorities said Thursday they had found ‘credible’ evidence in satellite imagery of what may be debris from the Malaysia Airlines plane that has been missing for almost two weeks.” [TIME]
  • The Game That Saved March Madness [SI]
TIME Asia

10 Dead in Coordinated Attacks in Eastern Afghanistan

Afghan policemen remove the dead body of a Taliban insurgent from the site of a suicide car bomb attack in Jalalabad province, March 20, 2014.
Afghan policemen remove the dead body of a Taliban insurgent from the site of a suicide car bomb attack in Jalalabad province, March 20, 2014. Parwiz—Reuters

The Taliban has claimed responsibility for a series of coordinated, deadly attacks on a police compound in Jalalabad, just weeks before the presidential elections. The provincial governor said the attacks "will not weaken our morale"

Militants in eastern Afghanistan launched a brazen series of pre-dawn attacks on Thursday at a police facility in Jalalabad, leaving 10 officers dead.

The attack, which killed the district police chief and wounded 14 officers, began at about 5 a.m. when a car laden with explosives breached the gate of the police headquarters, the New York Times reports. After the initial blast, six bombers stormed the facility. Government officials said two were killed before they could detonate their explosives, but the others managed to ignite their devices. That kicked off a three-hour gun battle inside the compound.

The Taliban claimed responsibility for the attack that comes weeks before the presidential elections on April 5, which it has vowed to disrupt. Militants have carried out attacks against civilians in recent weeks, but government officials publicly insist they won’t be intimidated as candidates travel the country before the ballot. “Such attacks on our security forces will not weaken our morale,” Attullah Lodin, Nangarhar Province’s governor, told the Times. “I assure you that we continue to fight the enemies.”

Thursday’s attack underscores critical security issues ahead of the planned withdrawal of foreign forces at the end of the year. The United States has discussed keeping thousands of troops in Afghanistan, but Afghan President Hamid Karzai has refused to sign a bilateral security agreement and will leave it to his successor.

[NYT]

TIME 2014 Election

The Super PAC Wars Have Come to Alaska, And It’s Not Pretty

A close race for Sen. Mark Begich's seat has gotten into the mud

Sen. Mark Begich (D-Alaska) is one of the most vulnerable Democrats in the country and a key target for Republicans trying to take over the Senate this year. Conservatives have hit him with ads since at least last April, before former Alaska Attorney General Dan Sullivan even jumped in the race, surged to the top of the Republican money leader-board and received the endorsement of the influential conservative group Club for Growth. But over the past two weeks, Begich and an outside group have hit back with two ads bashing Sullivan and the wealthy industrialist Koch brothers.

In his campaign’s first TV ad, Begich tells the Koch brothers to “go home,” noting that they hired a Washington-area actress for their latest anti-Obamacare spot, misled the public on his carbon tax position (according to PolitiFact.com and FactCheck.org), and that they shut down an Alaska oil refinery. The ad mimics a spot last December by the pro-Begich super PAC Put Alaska First, which rips the actress in the Koch ad and supports Begich’s attempts to “fix” the health care law. A few days ago, the same group put up another spot attacking Sullivan for claiming to be Alaskan even though he purchased a non-residential fishing license in 2009.

Despite the railing against money from outside Alaska, Begich’s campaign, like those of his competitors, is fueled by these dollars. According to the Center for Responsive Politics, Begich, Tea Party candidate Joe Miller, and Sullivan all received more than 75% of their contributions from outside of Alaska last year. Mead Treadwell, the state’s Republican lieutenant governor who is also running, has raised only about 40% of Sullivan’s $1.2 million, but still got 45% of his contributions from outside Alaska. One reason why outsiders might want to look to Alaska as fertile ground for political spending is that it’s cheap: A general manager for an NBC affiliate in Fairbanks told TIME that a prime-time 30 second spot can cost up to $2,000, while an ABC account executive in New York said a comparable spot starts at $40,000 and can cost as much as $200,000.

The early mudslinging is typical of what’s sure to be an extremely close race, and one that’s critical to the overall battle for the Senate in 2014. And Begich’s latest on-air protests aside, the ads run by his supporters omit some key facts, too. Sullivan didn’t qualify for the in-state license because he was working in Washington in the Bureau of Economic and Business Affairs, and before that in the Marines and the White House. Sullivan has spent the past five years working for the Alaskan government, and he moved to the state about 16 years ago.

The Alaska race is bound to get dirtier, as Democratic polls show a Begich lead and Republican polls show higher support for Sullivan and Treadwell. The nonpartisan Cook Political Report calls the race a “toss-up,” one of seven in the country, and with Republicans needing to pick up a net of six seats to seize control of the Senate, one can expect more misleading—and yes, fishy—ads to come.

TIME Malaysia Airlines Flight 370

Obama: Finding Missing Plane a ‘Top Priority’

Malaysian Airlines missing aircraft
A family member of missing relative on Malaysia Airlines flight MH370 from China breaks down as she speaks to the media at Kuala Lumpur International Airport, Sepang, Selangor, Malaysia March 19, 2014. Azhar Rahima—EPA

The U.S. is in close cooperation with Malaysian officials in the search for the missing Malaysia Airlines 777, President Obama said Wednesday

President Barack Obama said Wednesday that finding missing Malaysian Airlines flight 370 is “a top priority.”

“We have put every resource we have available at the disposal of the search process,” Obama told Dallas news station KDFW. “There’s been close cooperation with the Malaysian government,” Obama said. “Anybody who typically deals with anything related to our aviation system is available.”

The comments were the president’s first public statements on the ongoing mystery surrounding the disappeared flight.

“We want to send out our thoughts and prayers to all the families that have been affected but particularly our American families. I can only imagine what they’re going through,” Obama said.

TIME elections

Democrats and Republicans Unite to Push Digital Campaigns

Operatives from both parties agree that TV is giving way to online and other viewing, and that it's time for ad budgets change with the times

Democrats and Republicans are battling it out across the country ahead of the midterm elections, but for three-and-a-half hours this week in a darkened office suite across the Potomac from the Capitol, party operatives united behind a common message: Digital campaigns are the future.

Armed with fresh survey data and live streams of two focus groups being conducted in drab conference rooms in Des Moines and Charlotte, a bipartisan group of pollsters and digital operatives presented data that more and more voters are abandoning traditional television for streaming, smartphone, and tablet viewing, and argued for an increased role for technology and new media in campaigns.

The results were part of an “Off the Grid” survey sponsored in part by Google, which, like the digital firms hosting the event, has every interest in helping shift campaign ad dollars from television to the web.

Asked to describe how tech has changed since he was 18, one twenty-something Iowa focus group participant answered swiftly: “Mobile, fast, and efficient.”

“I haven’t watched live TV in years,” chimed in another. Almost 30 percent of those surveyed said they had not watched live television other than sports in the last week—a figure higher for target voters—and more said they are headed in that direction.

Over Cosi sandwiches and beers, 30 reporters, campaign operatives, and Google employees listened as former Mitt Romney pollster Neil Newhouse and Democratic pollster Julie Hootkin painted a sobering picture for those in the traditional political ad business. They chuckled as voters said they look to Wikipedia or candidate websites for information about who to vote for, bypassing cable networks and newspapers that have traditionally monopolized the space. Many

“They try to avoid all political ads,” Newhouse said, summarizing the 800 telephone surveys and two focus groups that were conducted, saying campaigns must now ask themselves: “Given that behavior, how do you still get your message across?”

It is hardly a new insight, tracking the results of a half-dozen similar surveys and pollster’s two prior polls on the subject. The Obama campaign, in particular, made a priority of reaching out to voters through nontraditional means, from YouTube to BuzzFeed ads. But many campaigns, especially Republican ones, have been slow on the uptake.

Zac Moffatt, the co-founder of Targeted Victory and Mitt Romney’s former digital director, took aim at the “flat-earth society” of candidates and general consultants who are focused solely on television ads. The event is the latest sign that digital firms find themselves competing not across the aisle, but against traditional media hogging campaign budgets—and they’re working hard to get the word out that times are changing.

“Before hundreds of millions of dollars are spent in the fall,” Moffatt said, “it is vital that campaigns are aware of the realities of voters going off the grid or time shifting their media consumption instead of stubbornly believing that 1,000 gross rating points of broadcast will solve all issues.”

TIME public health

Colorado Won’t Raise Legal Age to Buy Cigarettes

Cigarettes
Daniel Acker / Bloomberg / Getty Images

The state narrowly rejected a proposal to raise the legal age from 18 to 21. The move comes as cities and corporations across the U.S. are making cigarettes less accessible—or are being pressured to do so.

On Wednesday, a Colorado House committee voted 7-6 to kill a proposal that would have raised the minimum age for buying cigarettes to 21 across the Rocky Mountain State. The bipartisan bill, which had already passed one committee hurdle, would have made Colorado the first state to set the minimum at the same age for drinking—and, in that state at least, the legal purchase of marijuana. The current legal age for buying cigarettes in Colorado is 18.

There have been similar but less sweeping moves from state and local officials, all intended to curb cigarette use among young people. Four states — Alabama, Alaska, New Jersey and Utah — have pushed the minimum to 19. In November, then-Mayor Michael Bloomberg signed a bill raising the minimum for buying smokes in New York City to 21. Some counties in New York have since followed suit, and a dozen smaller towns in Massachusetts had raised the minimum age above 18 by the end of last year, many of them setting the bar at 21.

Debates about the issue often pit health advocates against business owners, who argue that such a ban could hurt their bottom lines and curtail the legal rights of citizens. But with major corporations like CVS pulling cigarettes off their shelves, sacrificing $1.5 billion to be more in step with public opinion, the tide seems to be turning against the capitalistic argument for permitting broad sales. After CVS’s announcement in February, nearly 30 state attorneys general called on five more giant corporations to also stop selling tobacco in stores that have pharmacies.

TIME 2016 Election

Clinton Calls Russia’s Actions in Crimea ‘Illegal’

The potential 2016 presidential candidate warns that other neighboring countries could suffer a similar fate as Ukraine

Former Secretary of State Hilary Clinton warned late Tuesday that other countries near Russia could be in danger if Vladimir Putin’s intervention in Crimea goes without consequences

Clinton, whose comments on foreign policy are being closely watched as she mulls a possible 2016 presidential bid, described Russia’s annexation of the disputed territory from Ukraine as a violation of international law, the Associated Press reports. Speaking at an event in Montreal, she recommended sanctions against Russia and more support for Ukraine’s new government.

“If [Putin's] allowed to get away with that, I think you’ll see a lot of other countries either directly facing Russian aggression or suborned with their political systems so that they are so intimidated that in effect they are transformed into vassals, not sovereign democracies,” Clinton said.

Clinton also said Europe needs to decrease its dependency on Russian oil and gas by utilizing alternative energy sources. She described Russia’s actions as symptomatic of a “clash of values” and “an effort by Putin to re-write the boundaries of post-WWII Europe.”

[AP]

TIME 2016 Election

Cruz Supporters Launch 2016 Super PAC

U.S. Senator Ted Cruz speaks at the Network of Iowa Christian Home Educators state Capitol day event, on March 18, 2014, in Des Moines, Iowa.
U.S. Senator Ted Cruz speaks at the Network of Iowa Christian Home Educators state Capitol day event, on March 18, 2014, in Des Moines, Iowa. Charlie Neibergall—AP

Supporters say they'll raise money and collect signatures to help the Tea Party favorite run for president in 2016

Texas Republican Sen. Ted Cruz is getting a new super PAC dedicated to helping the Tea Party favorite win the presidency in 2016.

Draft Ted Cruz For President launched its website Wednesday, citing a goal of collecting one million signatures this year to “lay the groundwork for the kind of grassroots army of volunteers, donors, and early-primary voters that is needed to win in 2016.”

The super PAC, which can raise unlimited sums to bolster a possible presidential bid by the Lone Star State Republican, filed organizing paperwork with the Federal Election Commission in January. Its treasurer, Paul Kilgore, is a former aide to Newt Gingrich who also served as treasurer for a super PAC supporting Texas Gov. Rick Perry’s 2012 presidential bid. The new group devoted to boosting Cruz has not yet filed any financial disclosures.

The effort was announced on the conservative website Redstate.com by Raz Shafer, a regional director for Cruz based in Texas. “I’ve never spoken to Ted about him running for president and I honestly don’t know if he will do it,” Shafer writes, “but I do know he won’t succeed unless freedom-loving Americans like you and me begin organizing this effort now.”

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