Tag Archives: FCC

Living Constitution, Dying Liberty

14 Saturday Mar 2020

Posted by in Living Constitution, Originalism

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What would a “living Constitution” mean if the right wing “gave it life”, as it were? Your answer ought to reveal a truth you’ve probably overlooked if you’re a “living constitutionalist”.

The U.S. Constitution protects the rights of individuals against the coercive power of the state. It offers a thorough bulwark against that power not only by enumerating certain rights, such as the rights to free speech and free association, but also by recognizing the existence and sanctity of a complementary set of unenumerated rights. The Ninth Amendment states:

“The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” 

The nearly 250 years since the nation’s founding have seen a debate in judicial case law about whether the Constitution should be interpreted based on its original language, or whether modern social and technological realities should change the way it is interpreted. This pits constitutional “originalists” against advocates of a so-called “living Constitution”.

Antiquated? Or Inconvenient?

For example, there is disagreement about whether the Second Amendment right to bear arms is broad, or limited to certain very small arms, or whether it should permit no private ownership of arms at all. Another example: do modern sensitivities men that constitutionally unprotected “fighting words” now encompass opinions that are merely controversial? Do expressions of support for such policies as flexible wages really fall under the rubric of racism, “hate speech”, or fighting words? Here’s one more: does the (unenumerated) right to life allow the state (and so the law) to claim a greater interest in protecting the contentment of a healthy, but reluctant, prospective mother than in the life of her unborn child?

Three years ago, Randy Barnett asked a question about the living constitution amid the debate over the confirmation of Justice Neal Gorsuch, an avowed originalist. Barnett asked:

“Why would you possibly want a nonoriginalist ‘living constitutionalist’ conservative judge or justice who can bend the meaning of the text to make it evolve to conform to conservative political principles and ends? However much you disagree with it, wouldn’t you rather a conservative justice consider himself constrained by the text of the Constitution like, say, the Emoluments Clause?”

That question was followed-up recently by Glenn Reynolds: his thought experiment asks how a right-wing majority might fashion a “living Constitution”, an exercise that should chasten “living constitutionalists” on the Left. He first notes that efforts to fight terrorism can become a real threat to civil liberties. As such, they represent a form of living constitutionalism. Will your on-line behavior and your phone calls be closely monitored, perhaps searching for various keywords? Will formerly unreasonable searches and seizures be sanctioned by an anti-terror, living Constitution? We haven’t gone very far in that direction, even in the immediate aftermath of 9/11, but it’s easy to imagine a wave of support for such a revision under certain circumstances.

We’ve certainly witnessed erosions of civil liberties under the so-called “War on Drugs”. The courts have not always stood in the way of extra-Constitutional actions by law enforcement. A right-wing living Constitution might sanction certain searches, seizures, and confiscation of private property, to say nothing of the intrusion into the choices of individuals to use drugs privately. The same is true of the “War on Prostitution”.

Imagine a right-wing judiciary interpreting various forms of audio, video, and virtual reality content as violations of standards of “decency”. Imagine a case involving a restrictive FCC ruling of this nature, and the Court finding the FCC’s censorship constitutional at the federal level, not merely at a community’s level.

Imagine state legislation that forces the Court to weigh-in on whether federalism and states’ rights outlined in the Tenth Amendment outweigh the federal regulatory powers conferred by Article I’s Interstate Commerce Clause. Crazy? Maybe, but a conservative Court could decide that such an interpretation could permit state taxes, pollutants, or other restrictions on residents or businesses domiciled in other states.

Originalism? Or “Stretch” Originalism?

Reynolds mentions a few other possibilities, but without more detail, some of these examples seem muddled because the hypothetical interpretations could, conceivably, represent sound originalism, as opposed to conservative distortions of original intent. But perhaps these are all matters of degree, rather than kind. This includes the possibility of a conservative Court rolling back New Deal Court decisions related to price supports, wage supports, labor practices, and Social Security.

The same ambiguity applies to Reynolds’ brief discussion “one-man, one-vote” decisions of the 1960s, which leaned upon the Fourteenth Amendment’s Equal Protection Clause to effectively prohibit states from apportioning either congressional districts or state legislative districts in any way other than proportional representation. This can result in discrimination against certain interests in states having diverse geographies with dissimilar economies or cultures. A conservative court might well chip away at the one-man, one-vote principle out of deference to original intent. This might not be an unreasonable interpretation of the unenumerated powers of states contemplated by the Tenth Amendment.

Then there are so-called reproductive rights. The pro-abortion Left would be aghast, but not surprised, to see a conservative court reverse key decisions that have been made in their favor. The rights to “life, liberty and the pursuit of happiness” are mentioned explicitly in the Declaration of Independence, but not the Constitution. Nevertheless, they are presumed to be among those unenumerated rights recognized by the Ninth Amendment. Thus, with respect to abortion, the dividing line between original intent and living-constitutional overreach by a conservative Court is somewhat muddy. But in the view of the Left, a conservative Court might well reach radical decisions regarding the right to life.

Conclusion

The Constitution exists as a set of governing principles, but the founders’ intent was to  shield rights from fickle waves of majoritarianism, or even would-be despots. You might despise conservatism or statism, but this recognition should serve as a warning to heed the original text and its intent, not to view it as a mere nuisance to the interests of one’s agenda and fellow travelers.

I’ll close with Reynolds’ admonition to “living constitutionalists” of the Left:

“All of these [decisions] would be catastrophic for the left, and I’m sure I could come up with many more examples given time and space. Fortunately for the left, Judge Gorsuch appears to be devoted to interpreting the Constitution as it was understood by the Framers (in terms of its ‘original public meaning,’ to use the law professor definition), and not to embracing a living Constitution. … But my advice to those on the left attacking originalist approaches is this: Be careful what you ask for, because you won’t like it if you get it.”

Rural Broadband and Federal Intrusion

06 Tuesday Feb 2018

Posted by in infrastructure, Technology

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Rural telecommunications service is often inferior in speed and quality to what is available in urban areas. This is one basis of the so-called “digital divide” in the U.S., the gaps that exist between various groups in terms of access to broadband telecom service. The urban rural “divide” is actually much smaller than the gaps that exist within urban areas, but much of the attention in public policy debates seems to focus on rural broadband availability. Telecom infrastructure is far more expensive to provide in the hinterlands due to the distances and occasional natural barriers that must be traversed. This was true before the revolution in wireless technology and still is, though wireless has reduced the severity of the tradeoff. Given the cost differential, it strikes me as unreasonable for rural users to expect the same levels of service at the same cost as urbanites. They can either pay the higher cost of provision to receive high-end service, make do with service levels that can be delivered at rates they are willing to pay, or go without. Or, if a high level of service is critical and the user is unwilling to pay the cost, they can move to a place at which it is available at lower cost.

For many years, however, public policy has been premised on the notion that rural telecom users deserve subsidies from the general user population, or from taxpayers, in order to promote equal access to basic telephony and, more recently, broadband access. The Universal Service Fund, to which telecom users pay a fee on their bills every month, is based on this premise. Its extension to broadband is a classic example of first-world luxury made necessity, now asserted to be an obligation owed by society to every individual. It is the philosophical underpinning for a huge allocation of federal funds for rural telecom spending that is now expected as part of President Trump’s infrastructure plan. 

Broadband Availability

The quality of telecom service includes speed and other factors (such as latency, which refers to data delays). Here, I’ll confine the discussion to the speed at which data can be downloaded (upload speeds are always a bit slower). Minimum speeds of 5 – 8 Mbps are required to stream HD video, according to the FCC. Higher speeds are necessary for heavy users with several devices or “running more than one high-demand application at the same time.”

Broadband speeds vary tremendously across the U.S., but it’s important to remember that speeds are increasing dramatically over time. Small towns are undoubtedly concentrated at the lower end of the distribution of speed availability at any point in time. Today, the gap between the availability of speeds in urban and rural areas is minimal up to about 10 Mbps, but it widens above that level. In fact, the speeds available via certain wireline technologies can vary significantly even within one small town (to say nothing of the significant variation within urban areas). Away from town, the availability of wireline broadband is much more limited. Fixed wireless broadband service (point-to-point) can often be deployed at speeds comparable to wireline service, and those speeds and their availability will increase with the rollout of new (5G) wireless technology. Still, that might not be an option in many isolated communities and remote locales without additional facilities like relay stations. Satellite service is often available at speeds up to 25 Mbps, in-town or out, but like wireless, it has some reliability issues.

Nevertheless, to one degree or another, broadband service is often available in rural areas, or can be available if customers are open to a range of alternative technologies (and again, available speeds are increasing). Obviously, some technologies are better suited to reaching particular areas, depending on distances and terrain. Many rural communities are finding affordable solutions that combine technologies that best leverage existing infrastructure and the natural features of the landscape.

Alms or Unfettered Choice

A reality of life in a hard-to-serve location is that broadband service will be costly… for someone. Enter the interventionists, who view “rurals” with paternalistic sympathy. Rural customers, and certain solutions for broadband delivery discussed above, are already subsidized by the federal government in some instances. And again, the Trump Administration is ready to throw more federal money at rural telecom infrastructure. These subsidies are questionable from a public finance perspective because they presume that rural areas are “underserved” on a cost-benefit basis, a case that is often dubious.

The biggest rub is that most people who live in rural areas do so by choice, a point recently articulated by Nick Gillespie. He recounts the experiences of his ancestors, who came from poor European villages to America to seek a better life. By comparison, today’s American rural population is highly privileged. Few are mired in circumstances beyond their control, contrary to the popular view. Gillespie notes that rural median income is only about 3.5% less than urban income (including suburbs), while rural homeownership rates are higher and poverty rates are lower than in urban areas. Indeed, it’s no secret that many urban elites purchase rural property to escape congested city life. Those are some of the would-be recipients of federally-funded rural broadband infrastructure.

In the end, Americans tend to live where they do by choice. Alternatives not acted upon generally reveal a preference for staying put. Some people prefer the amenities of small town or country life for any number of reasons, including a generally low cost of living. They accept the disadvantages of a rural life such as the lack of proximity to advanced emergency treatment facilities and, at least historically, less connectedness to media. Obviously, city dwellers tend to prefer urban amenities and accept the disadvantages of city or suburban life, like congestion. Those who wish to move from country to city, or vice versa, are free to do so, but they must pay the cost of the move. Likewise, it’s reasonable to expect that those desiring to transform the amenities of a place to their liking should pay the cost. Bringing almost any form of broadband infrastructure to areas with low population density is a costly proposition, but today’s rural consumers have more choices than ever before, and the speed and quality of broadband will continue to improve there without federal intervention.

Rural vs. Urban Adoption Gaps

The rural population is older on average, and it is less educated on average, so rural adoption rates are always likely to be lower. This point has been emphasized by Brian Whitacre, who has stated that the urban-rural “digital divide” might always exist to some extent. But this phenomenon is not unique to rural areas. Adoption rates within urban areas are highly variable, and the intra-urban broadband gaps by race, age, and income dwarf the urban-rural gap. That too is unlikely to change any time soon.

Federal Cash for Cronies & Conferees 

Last year, FCC Commissioner Michael O’Reilly warned of the dangers of direct federal involvement in broadband infrastructure investment. These include the market distortions caused by picking winners and losers among providers based on non-market assessments, the graft that such a process invites, discrimination in favor of high-cost fiber technology, poor coordination across government bureaucracies, and insufficient oversight leading to chronic overpayments. Sadly, however, even Ajit Pai, Chairman of the FCC and a man whose opposition to network neutrality I have applauded, has proposed more federal spending on rural telecom infrastructure. The big telecom recipients of the buildout funds don’t mind the subsidies, of course. The rural recipients of new services at artificially low cost can’t mind too much. But federal taxpayers and broadband ratepayers should question this activity. I’m hopeful that there will be a silver lining: it is likely to be private infrastructure.

5G Wireless: The NSA Wants You On Its Plan

30 Tuesday Jan 2018

Posted by in infrastructure, National Security, Privacy, Uncategorized

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Please no, Mr. President, do not even flirt with putting the federal government in charge of building and operating a new 5G wireless network! Sure, you’ll hate to disappoint the hawks on the National Security Council (NSC), but please let this remain outside the scope of your infrastructure plan!! For one thing, the private sector already has it underway, and the task is not straightforward. Excessive government involvement would almost surely botch the job. Let’s face it: while shrill calls for central planning of one form or another are constantly heard from leftists and populists, the government is really lousy at it. But then good central economic planning is impossible, given the impossibility of knowing and tracking the vast and dynamic information flows necessary to get it done, not to mention knowing and executing the appropriate responses to that information. There is a better tool for that called “markets”.

Scott Shackford reports that the chairman of the FCC, Ajit Pai, reacted with swift condemnation to the 5G discussions taking place within the NSC. Do read the whole Shackford piece. Apparently, there are some in the NSC who imagine government being good at building, maintaining, and securing a wireless network. This despite the antiquated nature of the federal government’s information systems and, as Shackford notes, their poor security. There is also the potential threat that communications over such a network would be subject to monitoring by nosey law enforcement and other public officials. If national security always implies state control, I’ll take less, but I don’t believe that’s the case for a minute.

The government tends to be a poor custodian of infrastructure — really public assets in general, and there is a reason: incentives are lacking. Private communication networks keep improving thanks to private incentives, like the prices and profits that promote efficient behavior and the market pressures to offer data plans that private users value. The government, on the other hand, struggles even to maintain the interstate highway system, which is simple technology by comparison. But statists tend to view the lack of private incentives as a feature: it’s free! And as a consequence, it is over-utilized and under-maintained. Ultimately the taxpayer is on the hook for capital costs and any upkeep that can be mustered, not the user, but the user suffers the degraded quality of those assets. A nationalized wireless network and its users would suffer the same fate.

Private infrastructure like wireless networks is best encouraged by eliminating regulatory roadblocks to private construction and operation of those assets. That includes the welcome rollback of the stifling network neutrality rules. Low taxes also help, not to say special incentives for wireless carriers.

Slam the Damn Brakes on the Regulatory Potentate

28 Saturday Oct 2017

Posted by in Regulation

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The stock market’s recent gains have at least three plausible explanations: corporate earnings growth, the prospect of tax reform, and deregulation. Tax reform and deregulation are stated priorities of the Trump Administration and have the potential to lift the economy and generate additional earnings. Investors obviously like that prospect, though regulation itself is a tool used subversively by crony capitalists to stifle competition in their markets. Conceivably, some of the large firms that dominate major stock indices could suffer from deregulation. And I have to wonder whether the economic threat of Trumpian trade protectionism is not taken seriously by the equity markets. Let’s hope they’re right.

It’s no mystery that high taxes and tax complexity can inhibit economic growth. Let’s face it: when it comes to productive effort, we can all think of better things to do than tax planning, crony capitalist or not. The same is true of regulation: the massive diversion of resources into non-productive compliance activities stifles innovation, growth, and even the stability of the status quo. Regulation creates obstacles to activities like new construction and the diffusion of telecommunications services. And it discourages the creation of new products and services like potentially life-saving drugs and slows their introduction to market. The sheer number of federal regulations is so spectacular that one wonders how anything productive ever gets done! Patrick McLaughlin of The Mercatus Center and several coauthors tell of “The Impossibility of Comprehending, or Even Reading, All Federal Regulations“.

Regulation is more than a mere economic burden. It is the product of an administrative apparatus that is not subject to the checks and balances that are at the very heart of our system of constitutional government. That is a threat to basic liberties. Barry Brownstein offers an instructive case study of “The Tyranny of Administrative Power” involving violations of property rights in New Hampshire. The case involves the administrative machinations surrounding an installation of high-power lines.

Governmental efforts to spur innovation ordinarily take the form of spending on research, subsidies for certain technologies or favored industries (e.g., alternative energy), and large government programs dedicated to the achievement of various technological goals (e.g., NASA, DARPA). Together with regulatory rules that influence the allocation of resources, these governmental efforts are called industrial policy. An unfortunate recent example is Trump’s decision to retain the renewable fuel standard (RFS), but on the whole, industrial policy does not seem central to Trump’s effort to stimulate innovation.

It’s clear that a deregulatory effort is well underway: the so-called “deconstruction of the administrative state” hailed by Steve Bannon not long after Trump took office. First came Trump’s 2-for 1 executive order (also see here) requiring the elimination (or modification) of two rules for every new rule. In the Wall Street Journal, Greg Ip writes about changes at the FDA and the FCC that could dramatically alter the pace of innovation in the pharmaceutical and telecom industries. (If the link is gated, you access the article on the WSJ’s Facebook page.) Speedier and less burdensome reviews of new drugs will greatly benefit consumers. An end to net neutrality rules will support greater investment in broadband infrastructure and access to innovative services. There is a new emphasis at the FCC on enabling innovative solutions to communications problems, such as Google’s effort to provide cell phone service in Puerto Rico by flying balloons over the island. The Trump Administration is also reining-in an aggressive EPA, the source of many questionable rules that weaken property rights and inhibit growth. (Again, the RFS is a disappointing exception.) Health care reform could offer much needed relief from overzealous insurance regulation and high compliance costs for physicians and other providers.

But deconstructing the administrative state is hard. Regulations just seem to metastasize, so deregulatory gains are offset by continued rule-making. This is partly from new legislation, but it is also a consequence of the incentives facing self-interested regulators. With that in mind, it’s impressive that regulation has not grown, on balance, thus far into Trump’s first year in office. According to Patrick McLaughlin, zero regulatory growth has been unusual going back at least to the Carter Administration. In quoting McLaughlin, The Weekly Standard says that Trump might well earn the mantle of “King of Deregulation“, but he has a long way to go. Brookings has this interactive tool to keep track of his deregulatory progress. One item on the Brookings list is the President’s intention to withdraw from the Paris Climate Accord. That represents a big save in terms of avoiding future regulatory burdens.

I can’t help but be wary of other avenues through which the Trump Administration might regulate activity and undermine economic growth. Chief among these is Trump’s negative attitude toward foreign trade. Government interference with our freedom to freely engage in transactions with the rest of the world is costly in terms of both foreign and domestic prices. With something of a history as a crony capitalist himself, Trump is not immune to pressure from private economic interests, as illustrated by his recent cow-tow to the ethanol lobby. Nevertheless, I’m mostly encouraged by the administration’s deregulatory efforts, and I hope they continue. The equity market apparently expects that to be the case.

Net Neutrality: Degradation For All

20 Tuesday Jun 2017

Posted by in Net neutrality, Regulation

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The FCC recently voted to reverse its earlier actions on so-called net neutrality, which would have treated internet service providers (ISPs) as “common carriers” and subjected them to detailed federal regulation of their services, pricing, and profits. Many believe net neutrality would ensure a sort of fairness and nondiscrimination on the internet, but it is actually a destructive regulatory regime under which certain firms are allowed to extract economic rents from the efforts of others. Warren Meyer has a nice take on this at Coyote Blog:

“Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like…. What [it] actually means is that certain people … want to tip the balance in this negotiation towards the content creators ….  Netflix, for example, takes a huge amount of bandwidth that costs ISP’s a lot of money to provide. But Netflix doesn’t want the ISP’s to be be able to charge for this extra bandwidth Netflix uses – Netflix wants to get all the benefit of taking up the lion’s share of ISP bandwidth investments without having to pay for it. Net Neutrality is corporate welfare for content creators.“

I made the same point almost three years ago in “The Non-Neutrality of Network Hogs“. Meyer emphasizes that in the net-neutrality fight, the primary tension is between content creators and ISPs (and transport providers), but it is like any other battle to capture the gains from a vertical supply chain. Think of suppliers of goods versus shippers, for example, or traditional publishers versus delivery services, or oil extraction versus refining. Ultimately, all of the various parties must cover their costs in order to survive, and obviously each would like to capture a larger share of the value from its stage of the production process. In a series of arms-length transactions, one might assume that their shares would correspond roughly to the value they add to the final product, but things are more complicated than that. Much depends on the competitive state of the market and on the cost structures faced by different parties.

While the ISPs are often said to exercise monopoly power, there are few if any local markets in which that is actually the case, even in rural areas. Almost everywhere in the U.S., local internet markets could be better described as oligopolistic: there are at least a couple of rival firms (and alternatives for consumers), even if the technologies are sometimes radically different, so some competition exists. The same is true of the internet backbone.

Obviously, content providers compete with one another in a large sense, but many popular forms of content are unique and consumers demand access to them through their ISPs. Therefore, some content providers exercise a degree of monopoly power. And they might also require a lot of bandwidth.

The nature of the costs faced by ISPs and content providers is quite different. The latter have a much lower proportion of fixed costs than ISPs, who must invest in network capacity. Ultimately, the costs of providing that capacity must be priced. At first blush, it seems natural for users of capacity to be billed proportionately, but allocating those costs over customers and over time is a complex undertaking. Like all problems in economics, however, network usage involves a scarce resource. A large increment to demand can lead to network congestion and higher costs, not only directly to the ISPs but to users experiencing a degradation in the speed and quality of their service. ISPs have traditionally had the flexibility to negotiate with large content providers, reaching mutually agreeable terms. That’s what brought us to the state of today’s internet, and most observers would say that it’s pretty damn good!

It is the network that makes all of these wonderful services possible. The ISPs provide and maintain that network, and they must provide for expansion of that network as traffic grows. It is important that ISPs have adequate incentives to do so. However, the form of regulation to which so-called common carriers are subjected is known historically for its failure to provide good incentives. That history goes back as far as 130 years in transportation and about 80 years in telecommunications. This is why many analysts, and FCC Chairman Ajit Pai, contend that common carrier status for ISPs, and “net neutrality”, would lead to shortfalls in network capacity and a deterioration in the quality of service. It would also reward large content providers (think Netflix) in the short term at the expense of ISPs, essentially giving the former access to the existing network at less than cost. That’s the whole idea for industry advocates of net netrality, of course. But in the end, net neutrality is a shortsighted goal, even for the content providers.

The content providers have made every effort to propagandize the public, stoking fears that the ISPs are treating certain kinds of traffic unfairly. Without net neutrality, would ISPs unfairly discriminate against certain kinds of content? Or against certain types of users? Price discrimination is one of the primary criticisms of the presumed behavior of ISPs in the absence of net neutrality. Economist Bronwyn Howell points out that price discrimination is not unusual, however, and is not necessarily undesirable. Indeed, consumers of internet, telephone, mobile, and cable TV services seem to prefer certain forms of price discrimination! Consumers with heavy usage who purchase flat rate monthly internet access pay a lower charge per Gb than light users. Consumers who purchase “bundles” of internet and voice service may benefit from price discrimination relative to those who choose not to bundle their services. Strictly usage-based pricing would prevent price discrimination on this basis, but few would advocate the abolition of bundled offers, which provide benefits in terms of flexibility of use and predictability of cost, yielding net welfare gains for many consumers at no incremental cost to others. Like all voluntary trade, these are positive sum transactions: consumers capture more  “surplus” value while ISPs earn a greater contribution to the fixed costs of the network.

When ISPs charge a data rate based on usage, consumers face a positive marginal cost on incremental data. As usage increases, its marginal value to the consumer declines; the consumer will not use data beyond the point at which its value equals the data rate they pay. That places a cap on consumer surplus (the area above the price and below the consumer’s demand curve). When the consumer faces a zero marginal cost (an unlimited data plan), their usage rises to the point at which its marginal value is zero. The total amount of “surplus” in that scenario is larger, and it is possible for an ISP to split the gain with the consumer by offering a price for unlimited usage. Thus, as long as the network capacity is in place, both parties are made better off! If not, the practice can lead to congestion, but competition for users often dictates that such packages be offered.

Especially in the presence of positive network externalities, it makes no sense for the ISPs, as a group, to price users or traffic out of the market, unless they are punished for doing otherwise at below cost. As always, pricing is an exercise in balancing costs with the benefits to potential buyers. It should remain a private and unfettered exercise ending only in trades that are mutually beneficial.

And what of network capacity and the big content providers? At the “price discrimination” link above, Howell says:

“… available bandwidth allowed Netflix to happen, not the other way around. But now, as Netflix comes to dominate existing bandwidth, leading to higher costs, it is causing externalities (delays) and higher costs (ISP fees are now rising in real terms in some markets) to pay for new capacity.“

Should the ISPs charge all customers higher rates in order to manage growth in traffic and fund new capacity? How can they allocate costs to the cost-causers? Usage-based data rates are one simple alternative. Tiered rates would act to minimize the extent to which light users are penalized. ISPs have also negotiated with individual content providers directly, reaching agreements to compensate ISPs for access to their customers. Tim Wu, the Columbia Law professor credited with coining the term “net neutrality”, was quoted at the last link bemoaning these types of deals:

“‘I think it is going to be bad for consumers,’ he added, because such costs are often passed through to the customer.“

Well, yes! Netflix charges its customers, and it will attempt to recover these payments for network capacity. Streaming is an integral component of the service they offer, and they cannot do it without the ISPs. Would Wu propose that the pipes be provided at less than cost?

Some have said that it is more economically efficient for ISPs to charge users directly for incremental short-run network “externalities” caused by large data demands. (Conceptually, it is better to think of these costs as long-run marginal costs of network expansion.) It may be that a tiered rate structure can approximate the optimal solution, and packages are often tiered by download speed. Nevertheless, passing costs along to large content providers is a viable approach to allocating costs as well.

Another argument is that small content providers cannot afford these payments. However, if they don’t generate a significant amount of traffic, they probably won’t have to negotiate special deals. If they grow to require a large share of the “pipe”, it would indicate that they have passed a market test. Ultimately, their customers should pay the costs of providing the capacity in one way or another.

Net neutrality and regulation of ISPs is the wrong approach to encouraging the growth and value delivered by the internet. It would stifle incentives to provide the needed capacity and to develop new network technologies. We certainly didn’t get here by treating the ISPs like public utilities. Rather, the process was facilitated by the freedom to experiment technologically and contractually. ISPs are well aware that the value of their networks are enhanced by ubiquity. Affordable access to a broad share of the population is in their best interest. In the end, consumers are sovereign and should be the sole arbiters of the value offered by ISPs and content providers. Regulators will promise to protect us, but the inevitable result will be a market hampered by rules that degrade the network, leading to substandard service and a less vibrant internet.

Now, What About Trump?

25 Wednesday Jan 2017

Posted by in Trump Administration

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This guy I voted for… Hoo boy! I’m tellin’ ya’, this guy’s a real beaut! But now, it’s time for me to make an accounting of the good and the bad I see in a Donald Trump presidency. I’ll cover a number of policy areas and how well I think, at this point, the Trump Administration will match my preferences, which are generally libertarian. In posting this list, I’m reminded of a wonderful quote of the late guitarist Jerry Garcia on his ideas for a new project: “I’m shopping around for something to do that no one will like.” I certainly don’t expect many to agree with the entirety of my “scorecard”, but here it is. But before getting to it, a few preliminaries:

First, I’ve had mixed feelings about Trump since he first announced that he’d seek the republican nomination. A basic concern was the difficulty of knowing his real philosophy about the role of government and fundamental constitutional rights. Trump has a history of contradictory positions on big issues like taxes, health care, and gun rights. It was a gamble to count on him to follow any particular idealogical course, and some of it remains unclear even now. My misgivings about Trump’s inclinations as a whirligig were discussed on Sacred Cow Chips in “Trump Flaunts Shape-Shifting Powers” in 2015. Uncertainty still colors my views, though his cabinet picks and other alliances have served to clarify the direction of policy. My discussion below reflects this uncertainty. Also, Trump shows every intention of moving fast on a number of fronts, so I hope the relevance of this post isn’t too perishable.

Second, it’s worth noting that Trump’s policy statements and predilection to “keep-’em-guessing” are probably a by-product of his instincts as a negotiator. His bellicosity may be something of a ploy to negotiate more favorable compromises in international affairs, trade and domestic issues. Still, I can’t know that. Should I evaluate all those statements at face value as policy positions? I have to make some allowance for the reasonability of a bargaining position, but I’ll try to be consistent in my approach.

Third, revelations during the campaign of Trump’s past remarks about women, and some in-campaign remarks like his attack on Megyn Kelly, were highly offensive. I’ve heard plenty of “locker-room talk” over my years, but some of Trump’s statements were made well outside the locker room and well beyond the age at which “youthful indiscretion” could be taken as a mitigating factor. Trump has plenty of female defenders, however, and he has a record of placing women in key roles within the Trump organization and for paying them well. While I do not condone the remarks, and I doubt that complete reform is possible, he cannot change his history and he is now the president. Evaluating his policy positions is now an entirely separate matter. I only hope the exposure has taught him to be more respectful.

Finally, I do not buy the narrative that Trump is a racist. This “Crying Wolf” essay on Scott Alexander’s Slate Star Codex blog demonstrates that Trump’s rhetoric and behavior during his campaign was not racist when viewed in the broader context of his record of denigrating anyone who opposes him. He seems to be an equal opportunity offender! In fact, Trump made strong attempts to appeal to minority voters and succeeded to some extent. His positions on border security and immigration were boisterous, but they were not truly about race or ethnicity. Instead, they were rooted in concerns about illegal immigration and public safety. Efforts by the left to characterize those points as de facto evidence of racism are simply not credible. Nor are claims that he practiced racial discrimination at his apartment buildings early in his career. Today, I would call those cases garden-variety disparate impact actions, as when a business is challenged on the use of screening criteria that might be correlated with race, such as credit rating. A legitimate business purpose is generally a valid defense, though Trump did agree to settle out of court.

So what about Trump from a policy perspective? Here is what I expect of his administration thus far:

I’m Pretty Sure of the Following, Which I Rate As Bad

Trump is a protectionist. He is extremely ignorant of trade principles and favors import duties to punish those who wish to purchase goods from abroad. This would raise both domestic and import prices and directly harm employment in import-dependent industries. It would also discourage innovation by domestic producers, who would face less competition. I cover these protectionist tendencies here as an unqualified negative, but I have a more mixed view on his opposition to certain government-negotiated trade agreements (e.g., the Trans-Pacific Partnership ), which are covered below.

Trump is likely to be a drug warrior. He could do much to restore order in inner cities by ending the drug war, but he will not. He will thereby encourage activity in the black market for drugs, which produces both violence and more dangerous varieties of drugs. He might well interfere with the rights of states to determine their own policies toward relatively benign substances like marijuana, including medical marijuana, by choosing to enforce destructive federal drug laws. The possible appointment of marijuana legalization advocate Jim O’Neil to head the FDA looks decreasingly likely. That might be a game changer, but I doubt it will happen.

Big public infrastructure outlays. This is distinct from private infrastructure, to be discussed below. The latter is motivated by private willingness-to-pay. Rushing into a large public construction program with questionable economic justification will bring waste, and it will probably be sold as an economic stimulus package, which is unnecessary and dangerous at a time when the economy is finally operating near capacity. The decrepitude of American infrastructure is greatly exaggerated by those with a private interest in such projects, and the media eats it up. The breathless promotion of massive but noneconomic projects like high-speed rail is also greeted with enthusiasm by the media. And politicians love to boast to constituents of their efforts to secure federal funds for big local projects. We also know that Trump wants to build a massive border wall, but I’m convinced that border security could be achieved at lower cost by leveraging surveillance technology and other, less costly barriers.

Deficits: Increased defense outlays, a big infrastructure package, a “great” wall, tax credits and lower tax rates will almost certainly add up to ballooning federal deficits in the years ahead. That fiscal combination will be unsustainable if accompanied by higher interest rates and could very well have inflationary consequences.

Trump favors public and private eminent domain and believes it should be treated as a hallowed institution. He truly thinks that a “higher-valued use” is a superior claim to existing ownership of property. This is perverse. I have trouble accepting eminent domain action even for a public purpose, let alone a private purpose; it should only be motivated by the most compelling public interest, as a last resort, and with handsome compensation to the existing property owner. We can only hope that Trump’s public and private infrastructure programs do not lead to many takings of this kind.

Industrial policy. This is the essence of government central planning, picking winners and losers by granting tax and loan subsidies, lenient reviews, and other advantages. The most obvious example of Trump’s amenability to industrial policy is his penchant for trade protectionism, but I fear it will go much deeper. For some reason, Trump believes that manufacturing activity creates private and public benefits far beyond its market value. Moreover, manufacturers require far fewer workers now than they did in his youth, so the sector is not the job engine it once was. His appointee for Commerce Secretary is Wilbur Ross, an investor with a history of trading on prospects for government assistance. This article provides disturbing background on Ross, along with this quote: “We ought, as a country, to decide which industries are we going to really promote — the so-called industries of the future.” Trump’s plan to meet regularly with leaders of giant corporations is a sure sign that corporatism will be alive and well for at least the next four years… as long as they tow The Donald’s line.

Restricting Legal Immigration. I’m all for securing the border, but legal immigration is a major driver of economic growth. Many industries rely on a flow of skilled and unskilled workers from abroad, a need that will be more intense given Trump’s plan to tax outsourcing. Moreover, the country will face a low ratio of workers to retirees over the next few decades; short of massive entitlement reform, immigration is perhaps the only real chance of meeting public obligations to retirees.

Endangered Privacy Rights: As a “law and order” guy, Donald Trump might not be a reliable defender of the privacy protections enshrined in the Fourth Amendment. He has expressed a willingness to repeal the USA Freedom Act, which restricts the bulk collection of metadata and provides other privacy protections. Trump also has expressed an interest in forcing technology companies to enable “back doors” into the devices and programs they sell to the public. I’m concerned that we’ll see the creation of security databases with an excessively broad scope. As a likely drug warrior, Trump will support the sort of privacy violations in law enforcement that have become all too common.

I’m Pretty Sure of the Following, Which I Rate As Good

He’s not Hillary Clinton, and he is not a statist in the mold of Clinton and Barack Obama, though he does embody some statist tendencies as described above.  I thought I would vote for Gary Johnson, but he made crucial mistakes, such as choosing Bill Weld as his running mate and fumbling at attempts to explain libertarian philosophy. At some point, my distaste for Clinton’s criminality and her advocacy of big government in so many aspects of life convinced me she had to be defeated, and that Trump was the only real possibility. But whether he can actually reduce the resources that the federal government absorbs is hard to say, as he has his own spending priorities.

Trump favors deregulation generally, as it places an enormous burden on society’s ability to improve well being. This covers aspects of the Affordable Care Act and reducing the role of the federal government in education. He opposes the costly Paris Climate Accord and other intrusive federal environmental measures, such as wetlands regulation.

Obamacare repeal and replacement with market-oriented delivery of health care, insurance with broad choices, and equalized tax treatment across the employer and individual market segments via refundable tax credits. There is a chance that Trump’s preferred alternative will assign excessive responsibility to the federal government rather than markets, but I’m optimistic on this point.

Entitlement reform is a possibility. Social Security and Medicare are insolvent. Ideas about how future retirees might take advantage of market opportunities should be explored. This includes private retirement accounts with choices of investment direction and greater emphasis on alternatives like Medicare Advantage.

Tax reform of some kind is on Trump’s agenda. This is likely to involve lower corporate and individual tax rates and some tax simplification. It is likely to stimulate economic growth from both the demand and the supply sides. In the short-run, traditional demand-side macroeconomic analysis would suggest that upward price pressures could arise. However, by encouraging saving and investment, the economy’s production capacity would increase, mitigating price pressure in the longer run.

Trump favors border security. No mystery here. My enthusiasm for this is not based on a physical wall at the border. That might come and it might be very costly. I favor a liberalized but controlled flow of immigration and vetting of all immigrants. The recent order of a temporary hold on refugees from a short list of countries will be of concern if it is not short-lived, and it remains to be seen what “extreme vetting” will entail. Nevertheless, I support enhanced integrity of our borders and our right as a nation to be cautious about who enters.

Education reform and school choice. Increased spending on public education, especially at the federal level, has made no contribution to educational productivity, and the country is burdened with too many failing schools.

Encouraging private infrastructure. This relies on private incentives to build and finance  infrastructure based on users’ willingness to pay, thereby avoiding stress on public funding capacity.

Deregulating energy: This includes encouraging zero-carbon nuclear power, deregulation of fossil fuels, and lower energy costs.

Deregulating financial institutions. Repeal of the burdensome Dodd-Frank Act, which has imposed costs on both banks and consumers with little promise of a benefit in terms of financial stability.

Unabashed support for Israel. I strongly favor repairing our damaged ties with Israel and the proposed move of our embassy to West Jerusalem, which has been a part of Israel proper since its founding. Israel is the only real democracy in the middle east and a strong ally in an extremely dangerous part of the globe.

Trump supports Second Amendment rights. This is fundamental. Private gun ownership is the single-best line of self-defense, especially for those with the misfortune to live in areas rife with black market drug activity.

States’ rights and federalism. On a range of issues, Trump seems amenable to transferring more responsibility to states, rather than asserting federal supremacy on issues that are unsettled from region-to-region.

Ending federal funding for abortion. Tax dollars should not be used for a purpose that is morally abhorrent to a large segment of the population. This is not the same as the “right” to abort a child, as settled by Roe vs. Wade.

Putting the screws to the UN. This organization is not aligned with U.S. interests, yet the U.S. foots a large part of the bill for its activities. Sharp reductions in funding would be a powerful message.

Reduced federal funding for the arts. I’ve never been comfortable with allowing the federal government to disburse funds in support of the arts. Lower levels of government are less objectionable, where there is greater accountability to local voters. Dependence on federal purse strings creates a powerful line of influence that usurps authority and may conflict with the desires of local taxpayers. Individuals pay for art voluntarily if they find it of value, and people give privately to support the arts for the same reason. Federal taxpayers certainly have other valued uses for the funds. Art is not a “public good” in a strict sense, and its external benefits, to the extent they exist, do not justify a federal role.

Reversing the FCC’s net neutrality rules. Trump has appointed Ajit Pai as the new chairman of the FCC. Pai is no fan of net neutrality, a policy that rewards heavy users of network capacity and is likely to discourage the growth of network infrastructure.

I’m Not Sure How To Rate the Following

Foreign policy reset. I welcome several likely foreign policy initiatives from the Trump Administration, such as deemphasizing our role in the UN, restoring our relationship with Israel, and taking a harder line on nuclear development by Iran. I also favor greater scrutiny of outlays for foreign aid, much of which is subject to graft by recipient governments. However, I would not welcome a continuation of foreign policy designed around U.S. strategic interests that are, in fact, private investments.

Defense build-up. Our armed forces have suffered a decline in their ability to defend the country during the Obama years. I favor some restoration of the defense budget, but I am concerned that Trump will go on a defense binge. I’m also concerned about how aggressively he’ll wish to project American power overseas. Let’s not go to war!

Upending Trade Partnerships. I am a free-trader, and I abhor Trump’s belligerent talk about erecting trade barriers. So how could I be “unsure” about anything that promotes trade? Formal trade partnerships between nations are an aggravation to me because governments don’t trade… people do! And they do because they reap unambiguous benefits from trade. I’d much rather the U.S. simply eliminated all trade barriers unilaterally than get entangled in complicated trade agreements. These agreements are rats nests. They stipulate all sorts of conditions that are not trade related, such as environmental rules and labor policy. I therefore view them as a compromise to sovereignty and a potential impediment to economic growth. To the extent that trade agreements can be renegotiated in our favor, I should not complain. And to the extent that we’ll never see a government allow completely free and open trade, I should probably hope for agreements that at least reduce trade barriers.

The Keystone pipeline. I am happy with Trump’s decision to approve completion of the pipeline on its merits for energy delivery, and also because it is environmentally less risky than rail, barge and container ships. And yes, it is private infrastructure. But I am unhappy about the heavy application of eminent domain against landowners in the path of the pipeline. The Standing Rock Sioux tribe’s opposition is suspect because the path does not cross its tribal land, and the tribe originally gave its consent to the project. The tribe’s recent position could be an effort to extract rents from the process.

Executive authority. I am somewhat wary of Trump’s aggressiveness thus far. He seems eager to take actions that are questionable under existing law, such as seizing wire-transfer remittances by undocumented immigrants. Granted, he is busy “undoing” some of Obama’s actions, but let’s hope he doesn’t get carried away.

Summary

What we have here is a very mixed bag of policies. On the whole, I’m still pleased that Trump was elected. I believe he favors a smaller role for government in most affairs. But while the balance of considerations listed above seems to be in Trump’s favor, the negatives have the potential to be disastrous. He certainly wants to spend. My biggest fears, however, are that Trump will not respect the Constitution, that he will govern as a cronyist, and that he will succumb to the notion that he can actively manage the economy like a casino build.

FCC Net Neutering Vs. Technological Potency

11 Friday Dec 2015

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A court challenge to the FCC’s “net neutrality” rules may go a long way in preventing inflated costs, degraded service, stifled innovation and abridgment of freedoms that the rules would foist on the public. The rules are based on treating internet service providers (ISPs) as common carriers under the Title II provisions of the Telecommunications Act of 1934. The uncertain and potentially severe regulatory environment this creates has already led to reduced capital investment by service providers, limiting capacity needed to accommodate the usage demanded by consumers and businesses. The first arguments in the case, U.S. Telecom Association v. FCC, were heard last week in the U.S. Court of Appeals for DC.

A primary argument of proponents of net neutrality is their objection to unrestricted pricing of Internet traffic. The fear is that big carriers will discriminate against smaller users and content providers, shutting them out, despite the fact that the diffusion of internet services throughout society has taken place at a breakneck pace, and despite the existence of network externalities benefitting ISPs that encourage diffusion. In fact, some of the largest content providers have pushed for net neutrality with designs on avoiding the long-run marginal costs of network expansion required by their services, thus to gain a cost advantage over smaller competitors. This is a typical regulatory play: an entrenched private interest seeks to protect its market position, and its technologies, against new and potentially more innovative competitors via supplication to government rule-makers.

L. Gordon Crovitz discussed the U.S. Telecom case in the Wall Street Journal in “Obamanet Goes To Court” (gated — but Google it). Already, the FCC has cast a watchful eye on a competitive, “zero-rating” video service from T-Mobile under its “general conduct rule”. Zero-rating services are of great value to consumers who prefer low-cost access to specific internet features, like video streaming (see this Newscopia piece). Corvitz says:

“T-Mobile’s Binge On benefits consumers by giving them low-priced unlimited access to 24 video services, including Netflix, HBO and ESPN. This package is aimed at cost-conscious people who don’t have broadband. Net neutrality absolutists hate the idea, known as ‘zero rating.’ Susan Crawford, a former Obama special assistant for science, technology, and innovation policy, has written that it ‘is pernicious; it’s dangerous; it’s malignant.’”

Say what? Are consumers no longer capable of judging value against price, as they typically must in their day-to-day affairs? Do we need Big Brother to hem-in competitors in the marketplace who desire more than anything to meet a need in the market, thereby attracting buyers?

Crovitz discusses the legal issues facing the Court, most importantly the FCC’s authority to decide what is “fair” and “reasonable” under the Telecommunications Act of 1996:

“… the agency’s new ‘Internet conduct standard’ is so vague it exceeds the agency’s authority; … the White House’s intervention violated separation of powers and the notice period for new regulations; and the rules violate First Amendment protections for free speech by letting regulators decide what content broadband providers can and can’t make available…. in its rush to adopt Obamanet, the FCC failed to conduct even a cursory review of the costs of treating the Internet as a utility.“

Make no mistake, many of the complaints received by the FCC are from commercial interests attempting to strong-arm other players. “BlackBerry even asked regulators to force Netflix to stream videos on its unpopular phones.” Net neutrality amounts to a vehicle for croney capitalists to seek rents at each others’ expense through government regulatory action. That’s not how the internet has grown to become the tremendous communication, entertainment and transactional apparatus that it is today.

Rep. Marsha Blackburn (R-TN) is a vocal critic of the FCC’s rules, leads a group of 22 legislators who filed a brief in the case “arguing that Congress never granted the FCC the statutory authority to reclassify an industry on its own.” She is also one of 50 cosponsors of the Internet Freedom Act, which would make explicit the FCC’s lack of statutory authority to regulate the internet under Title II rules.

Blackburn believes that net neutrality rules represent a first move by the federal government to control content on the Internet. That could include political speech as well as central direction of internet resources, redirecting opportunities to favored “winners” (content and service providers, technology developers, and geographies) and away from players less favored by the political class.

Another consequence of the FCC’s new rules is likely to be the imposition of a “Backdoor Internet Tax” on users. That is the universal service fee that eventually would amount to $7.25 per month at today’s average broadband bill. Many younger users have no experience with that tax, having rejected landline telephone service in favor of wireless technology and voice-over-internet.

The cartoon at the top of this post is inaccurate in one important respect: it doesn’t come close to indicating the dead weight that government regulation will impose on the future development of the Internet. The FCC was not needed to promote the amazing growth we have witnessed to date. Its intervention is already creating burdens on providers and users. The likelihood of restricted choice and other freedoms, and distortions to an otherwise healthy market mechanism for allocating technological resources, should not be tolerated. We will never know the true potential of the internet if we allow the it to be tampered and hampered by a government bureaucracy.

Netflix: Oops… No, Let’s Not Regulate The Internet

10 Tuesday Mar 2015

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Netflix was heralded only recently as a strong supporter of net neutrality, but the company has changed its position in the wake the the FCC’s decision to reclassify broadband ISPs as common carriers. The link goes to a Google search page. The top article listed there should be ungated, from L. Gordon Crovitz in the Wall Street Journal. I have posted a number of times on the misguided policy of net neutrality (see here, here, here, and here). While I hesitate to post on the topic again, I think a short description of the Netflix flip-flop, or should I say its “evolving position“, is worthwhile, and especially with a few quotes from the Crovitz article.

Crovitz notes that Netflix videos “take up one-third of broadband nationwide at peak times.” The company’s support for so-called neutrality seemed grounded in its frustration at the prospect of having to negotiate for massive use of resources controlled and sometimes owned by the ISPs. Here’s Crovitz:

“Today Netflix is a poster child for crony capitalism. When CEO Reed Hastings lobbied for Internet regulations, all he apparently really wanted was for regulators to tilt the scales in his direction with service providers. Or as Geoffrey Manne of the International Center for Law and Economics put it in Wired: ‘Did we really just enact 300 pages of legally questionable, enormously costly, transformative rules just to help Netflix in a trivial commercial spat?‘”

Indeed! But the powers at Netflix have had a revelation:

“Net-neutrality advocates oppose ‘fast lanes’ on the Internet, arguing they put startups at a disadvantage. Netflix could not operate without fast lanes and even built its own content-delivery network to reduce costs and improve quality. This approach will now be subject to the ‘just and reasonable’ test. The FCC could force Netflix to open its proprietary delivery network to competitors and pay broadband providers a ‘fair’ price for its share of usage.

There’s no need for the FCC to override the free-market agreements that make the Internet work so well. Fast lanes like Netflix’s saved the Internet from being overwhelmed, and there is nothing wrong with the ‘zero cap’ approach Netflix is using in Australia. Consumers benefit from lower-priced services.”

I will leave you with my favorite part of the Crovitz piece:

“Last week John Perry Barlow, the Grateful Dead lyricist-turned-Internet-evangelist, participated in a conference call of Internet pioneers opposed to the FCC treating the Internet as a utility. He called the regulatory step ‘singular arrogance.’

In 1996 Mr. Barlow’s ‘Declaration of the Independence of Cyberspace’ helped inspire a bipartisan consensus for the open Internet: ‘Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather.’“

The FCC’s Net Brutality Order

03 Tuesday Mar 2015

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Supporters of so-called net neutrality do not understand the contradiction it represents in promoting implicit subsidies to heavy users  of scarce internet capacity. And supporters fail to understand the role of incentives in allocating scarce resources. Last week the FCC voted 3-2 to classify internet service providers (ISPs) as common carriers under Title II of the Communications Act of 1934, henceforth subjecting them to regulatory rules applied to telephone voice traffic since the 1930s. With this change, which won’t take place until at least this summer, the FCC will be empowered to impose net neutrality rules, which proponents claim will protect web users with a guarantee of equal treatment of all traffic. ISPs would be prohibited from creating “fast lanes” for certain kinds of traffic and pricing them accordingly. The presumption is that under these rules, small users would not be shut out by those with a greater ability to pay.

Like almost every progressive policy prescription, this regulatory initiative insists on biting the hand that feeds. It reflects a failure to properly identify parties standing to gain from such regulation. The distribution of internet usage is highly unequal: less than 10% of all users account for half of all traffic, and half of users account for 95% of traffic. Data origination on the web is also highly unequal: “Two companies (Netflix and Google) use half the total downstream US bandwidth”.

The neutrality rules will assure that those dominating traffic today can continue to absorb a large share of capacity at subsidized prices. Price regulation may require that high-speed streaming of films and events be priced the same as lower-speed downloads of less data-intensive content. So-called “smart” technologies and the “internet of things” will be degraded or fail to reach their potential, and could possibly be of compromised safety, without always-open, dedicated data lanes, as would medical applications that would receive priority in a sane world. Without price incentives:

  1. conservation of existing capacity will not take place in the short-run;
  2. growth in capacity will languish in the short- and long-run;
  3. development of new applications and technologies will be stunted; and
  4. rationing via slowdowns, outages and imposition of usage caps may be necessary. Will these rationing decisions be “neutral”?

The unregulated development of the internet is an incredible success story. FCC commissioner Ajit Pai, who is a critic of net neutrality, makes this point forcefully. In a strong sense, internet development is still in its infancy. New and as yet unimagined web-enabled functionalities will continue to be embedded into everyday objects all around us. This process can only be impeded by government regulation, particularly of a form intended to control one-dimensional services offered by monopolists (i.e., public utilities). Competition in broadband access is growing, and it is enhanced by the ability of providers to co-mingle applications with the so-called “dumb pipe.”

The growth in uses and usage must be enabled by growth in network infrastructure. For that, incentives must be preserved through pricing flexibility and the ability of ISPs to negotiate freely with content providers and application developers. On this point, Pai says:

“The record is replete with evidence that Title II regulations will slow investment and innovation in broadband networks. Remember: Broadband networks don’t have to be built. Capital doesn’t have to be invested here. Risks don’t have to be taken. The more difficult the FCC makes the business case for deployment, the less likely it is that broadband providers big and small will connect Americans with digital opportunities.”

Pai also asserts that horror stories about greedy ISPs restricting the ability of small users to access the Web are largely a fiction:

“The evidence of these … threats? There is none; it’s all anecdote, hypothesis, and hysteria. A small ISP in North Carolina allegedly blocked VoIP calls a decade ago. Comcast capped BitTorrent traffic to ease upload congestion eight years ago. Apple introduced Facetime over Wi-Fi first, cellular networks later. Examples this picayune and stale aren’t enough to tell a coherent story about net neutrality. The bogeyman never had it so easy.”

Then there is the small matter of potential content regulation (see the first link on the list), which some fear could be enabled by the FCC’s action. This would be an obvious threat to an open and free society, and the advent of such rules would discourage growth in internet applications by giving would-be prohibitionists a new way to tie and gag those of whom they disapprove.

Net neutrality and the FCC’s “Open Internet Order” serve the interests of large content providers who would rather not have to pay the long-run marginal cost of the network capacity tied up by their end-users. It represents a distinct form of rent-seeking in data transport services. Allowing ISPs to negotiate with significant content providers allows the transport cost of individual services to be “unbundled”, thereby promoting economic efficiency and avoiding cross-subsidies from lighter to heavier users and uses. As new, intensive applications are introduced, the economic costs and benefits can then be weighed more accurately by prospective customers.

Can Federal Regulation Enrich Your Web? What?

05 Thursday Feb 2015

Posted by in Net neutrality

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Do you really believe that government regulation of the internet will keep it “open”, fast and innovative? Really? Then you will be happy with today’s FCC decision to reclassify broadband internet service providers (ISPs) as “common carriers.” (The link above will take you to a Google search page with another link to “Washington Conquers the Internet“.) This puts the ISPs on the same regulatory footing as land-line and wireless voice services. The FCC’s action is a legal move that will pave the way for regulation of rates and service rules with the supposed aim of “net neutrality”.

The FCC chairman, Tom Wheeler, has recently argued that because the wireless carriers have enjoyed tremendous growth under the common carrier rules, there is no reason to fear that the broadband industry would suffer under the reclassification. However, as Peter Suderman explains, the common carrier rules applied only to wireless voice services, not to rapidly growing wireless data services. Wheeler’s argument is therefore misleading:

“... it suggests that Wheeler wants to pursue reclassification not because the wireless sector has been successful under Title II, but because of the service that has been successful without it.”

The FCC would almost assuredly reclassify wireless data as well as broadband as common carrier services.

Net neutrality is a misnomer, as Sacred Cow Chips has noted in the past here, here, and here. These posts cover shortcomings of so-called net neutrality such as mis-pricing of services, subverting incentives for network maintenance and growth, massive non-neutral subsidies for network hogs, the potential threat to free speech, and a negative impact on the poor. Warren Meyer at Coyote Blog expresses his dismay at the utter naivete of those who think that “net neutrality” sounds appealing:

“Here is my official notice — you have been warned, time and again. There will be no allowing future statements of “I didn’t mean that” or “I didn’t expect that” or “that’s not what I intended.” There is no saying that you only wanted this one little change, that you didn’t buy into all the other mess that is coming. You let the regulatory camel’s nose in the tent and the entire camel is coming inside. I guarantee it.”

Today’s FCC decision will also expose unsuspecting internet users to federal and local fees and taxes averaging about $49 per year. According to this calculation, that’s an increase in average broadband cost of about 9%. I believe that the estimate of the negative impact on subscribership given at the link is mistaken and too large (even in the update at the bottom), but there will certainly be a negative impact that could run into the millions of subscribers.

Finally, there is little doubt that FCC Chairman Wheeler felt strong pressure from the White House (another link at a Google search page) to reclassify ISPs as common carriers. President Obama is one of those souls who find “net neutrality” appealing, but I’m cynical enough to think that he merely finds the politics of “net neutrality” appealing. Big government can’t wait to control your “open internet”.

Postscript: This video is a lighthearted take on what the FCC is getting us into.