Tech & Telecom

Iain Murray, Vice President for Strategy:
“The fact is: Today’s America is divided between those who work for government and those who don’t. Those who work for government have a job for life, guaranteed retirement and other benefits, and financial security,” said Murray. “Those who don’t, have uncertain prospects. They are at the mercy of an administration that is making their benefits more expensive and restricting their access to credit with more and more regulations. That is the true inequality in President Obama’s America.”

Ryan Young, Fellow:
“Given what reports suggest will appear in the president’s State of the Union address, we need to keep in mind three things. First: A higher minimum wage is not a free lunch, and will force some employers to reduce hours or fire workers. And, second, extending unemployment benefits will keep unemployment unnaturally high,” said Young. “The third thing is: If the president is truly concerned about the poor, he should support policies that would make the poor better off instead of focusing on income inequality. One of these policies could be a deregulatory stimulus that would make it easier to start a business and hire workers.”

Wayne Crews, Vice President for Policy:
“Ours is the era of big borrowing and big regulation — and big executive power, perhaps untethered by Congress or the Constitution. The latter will be a centerpiece of President Obama’s State of the Union address,” said Crews. “What America needs instead is a leaner government that rejects overspending and over-regulating. Leadership means unleashing the entrepreneurial sector from over-regulation, and allowing U.S. citizens their natural right to opt out of big, destabilizing government programs like the president’s health care law.”

Myron Ebell, Director of CEI’s Center for Energy and Environment:
“If President Obama were really committed to boosting the economy, he would tell Democratic Majority Leader Harry Reid to bring the pro-energy, pro-jobs bills passed by the House to the Senate floor for a vote,” said Ebell.” I would recommend the president announce his intentions to approve the Keystone XL Pipeline in the State of the Union address. However, he seems more determined to order new EPA regulations that will raise energy prices and impoverish Americans.”

Aloysius Hogan, Senior Fellow:
“An actual focus on jobs is sorely needed in America, but the president’s promises past and present haven’t borne fruit. Hiring is held back by ObamaCare, according to business surveys. Jobs are being killed by the administration’s regulatory policy such as those in the coal-mining industry. Financing of start-ups and expansion is hamstrung by Volcker Rule red tape,” said Hogan. “America’s labor-force participation rate is the lowest in more than a generation, and the president’s approach to jobs is not helping the situation.”

Ryan Radia, Associate Director of Technology Studies:
“I expect the president will echo his recent proposal to ‘reform’ the National Security Agency’s mass surveillance programs in his State of the Union address. His latest plan focuses on shifting the burden of collecting, storing and securing Americans’ phone records to telecom companies or another private ‘third party,’” said Radia. “The problem is the government will still be able to access privately held phone records without a warrant. What is worse: outsourcing bulk-data collection to America’s private sector would undermine trustworthy digital relationships, and with them, the nation’s enviable position atop the global information economy.”

John Berlau, Senior Fellow:
“Given the impact regulations have on our economy, I would like to see President Obama address some of the consequences we are seeing from the Dodd-Frank Act,” said Berlau. “We need a moratorium on issuing new Dodd-Frank regulations in order to allow for a review of the negative, unintended consequences of the current ones. Even Democrats, like Rep. Maxine Waters of California, are concerned about these overly burdensome rules and the suffering they are causing main street banks and credit unions.”

Post image for Target, Retailers Use Dodd-Frank to Skimp on Data Security

Chutzpah, thy name is the National Retail Federation!

In the wake of the recent credit and debit card breach at Target that may have compromised the data of up to 110 million consumers, the leading retail trade association argued in federal court on Friday that it should pay even less for fraud prevention and cleanup after fraud losses.

Joined by the National Association of Convenience Stores and the National Restaurant Association, the NRF claimed to the court that it is actually against the law for banks and credit unions to charge retailers for fraud losses in debit card processing fees. “The inclusion of fraud losses in the allowable costs recoverable … cannot be justified,” the groups maintained in a legal brief (page 20).

The interchange fees that banks and credit unions charge merchants for debit card transactions — what retailers pejoratively call “swipe fees” — have been subject to price controls since the passage of the Dodd-Frank financial overhaul in 2010. Dodd-Frank’s Durbin Amendment, which came about as a result of heavy lobbying by Target, Wal-Mart and other big retailers, states that the debit interchange fees charged to retailers must be “reasonable and proportional to the cost incurred by the issuer [bank or credit union issuing the card] with respect to the transaction.”

CEI opposed the Durbin Amendment from the start, because we believe price controls are a violation of individual property rights and turn out to be impractical. But many who voted for the Durbin Amendment believed that the price-setting process would be similar to rate regulation of electricity and phone service, in that the fee set would allow for infrastructure and service costs plus what is judged as a “reasonable rate of return.”

What happened, though, was that ever since the Fed began implementing the provision, the retail lobby has argued that the provision not only bars banks and credit unions from profiting on the fees charged to retailers, only a very limited portion of costs could actually be recovered in the fee.

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Post image for The Loss of Net Neutrality Is Not a Detriment to Consumers

Last week’s announcement that the District Court of Appeals struck down the non-discrimination and no-blocking rules of the Federal Communication Commission’s (FCC) 2010 Order on “Preserving the Free and Open Internet” is great news for the Internet, in spite of what others are saying.

Critics of the decision have lamented that Internet service providers (ISPs) will now have the ability to cut off websites from their networks at will and that this will hinder innovation. This is quite debatable though, given that the FCC retained substantial regulatory power under Section 706 within the same court ruling. The court also retained a disclosure provision, requiring ISPs to inform their subscribers about any discriminatory pricing arrangements.

Either way, Wayne Crews has stated it best, “freedom to vary pricing and service in complex multimedia are essential to creating the next generations of networks, which can’t happen optimally without such fundamental property rights.”

The reason why net neutrality was bad was because it did not respect the ability of ISPs to implement pricing regimes as needed. Evidence has shown that Internet service has continued to improve without net neutrality being enforced.

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Post image for Obama Announces NSA Reforms Could Undermine U.S. Leadership in the Global Information Economy

President Obama outlined plans to “reform” the National Security Agency’s mass surveillance programs in a Friday morning speech at the Justice Department. To his credit, the president announced some positive changes that would reduce the programs’ invasiveness and improve their judicial oversight.

Unfortunately, his reforms would not end the indiscriminate and unwarranted bulk surveillance of Americans’ phone records, despite more than 100 members of Congress urging him to end the program. Instead, the president suggested shifting the burden of collecting, storing, and securing Americans’ phone records to telecom companies or another private “third party.” Simply moving all this data off the government’s servers—and presumably, off its balance sheet—does not transform an objectionable activity, like mass surveillance, into an acceptable one. The government will, after all, still be able to access privately held phone records without a warrant.

What is concerning is: if the administration succeeds in pressuring American telecom firms to serve as an extension of the U.S. intelligence community, why stop with phone records? The NSA is also authorized to collect Americans’ email records in bulk—but the agency stopped doing so in 2011, citing “operational and resource reasons.” Should phone companies take on this responsibility, strong-arming Internet companies to retain their users’ metadata is a logical next step. The unintended consequences and pitfalls of such a move are worth serious consideration.

In a world of data breaches and hackers, we need to be able to trust Internet providers whose services we rely on to communicate, transact, innovate, and create. When a company makes a promise to users about how it will use, collect, and store their information, it should be held to that promise, absent a specific and individualized reason to break it. Outsourcing bulk-data collection to America’s private sector would undermine trustworthy digital relationships, and with them, the nation’s enviable position atop the global information economy.

Have a listen here.

The D.C. Circuit Court decided against the FCC in the case Verizon v. FCC, striking down key provisions of the agency’s proposed net neutrality regulations. Associate Director of Technology Studies Ryan Radia argues that while the case looks like a victory on the surface, it still gives the FCC plenty of authority to enact similar rules.

Post image for Congressional Research Service Misinterprets Monetary History

Last month, the Congressional Research Service released a report on Bitcoin analyzing the structure of the network and its implications, if any, on monetary policy. The report was impressive in its accuracy describing Bitcoin’s technical aspects. The report correctly states how the network’s transactions are “pseudononymous” rather than anonymous due to Bitcoin’s use of a “public ledger,” known as the “blockchain,” which publishes all transactions using bitcoins. The report also describes how bitcoins are creating through what is known as “mining.” While the report accurately describes the infrastructure of the Bitcoin network, its criticisms were somewhat lacking.

One key criticism against the network was its deflationary nature. Bitcoin is design to have a fixed supply of total bitcoins (21 million BTC), and as demand for bitcoins increases so will their individual values. This increase in the value of the currency will result in falling prices, relative to the Bitcoin currency in question. The argument is that this will result in hoarding, as people wait for lower prices instead of spending bitcoins now.

It should be noted that deflation is not necessarily a bad aspect of bitcoin’s structure, especially since the report itself notes that a key benefit of Bitcoin is its ability to circumvent dollar inflation. The Friedman Rule was a rule designed by economist Milton Friedman which utilized a built-in deflationary slant to guide Federal Reserve monetary policy.

Within the section on Bitcoin’s deflationary nature was the following passage:

The perils of an inelastic currency were evident, for a period from about 1880 to 1914, when the United States monetary system operated under a gold standard. At this time the deflationary bias of an inelastic supply of gold led to elevated real interest rates, caused periodic banking panics, and produced increased instability of output. The Federal Reserve was created in 1913 to provide an elastic currency.

This time frame, known collectively as the Gilded and Progressive Eras, had two key “panics” (now known as recessions), the Panic of 1893 and the Panic of 1907. In A Monetary History of the United States, 1867-1960, authors Milton Friedman and Anna Jacobson Schwartz discussed these two panics in greater detail.

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Post image for Is FCC Chairman Tom Wheeler for or against Net Neutrality? Yes

In what the Washington Post referred to as Federal Communications Commission (FCC) Chairman Tom Wheeler’s strongest endorsement yet of net neutrality, he said:

Public policy should protect the great driving force of the open Internet: how it allows innovation without permission…. This is why it is essential that the FCC continue to maintain an open Internet and maintain the legal ability to intervene promptly and effectively in the event of aggravated circumstances.

Other outlets regard Wheeler’s recent pronouncements as being more ambiguous. Does he favor the right to offer variations in prices and services, or not?

I see matters opposite from the proponents of net neutrality; I think variations in pricing and service are essential, as is the creation of future generations of networks, which can’t happen optimally without such fundamental property rights. (Yes, property rights.)

I recently cosigned with a group of economists a letter of congratulations to Wheeler in which we stressed:

The economic evidence…is clear: in all but a few areas, communications networks no longer have the characteristics of natural monopolies, and should no longer be regulated as public utilities. Indeed, the convergence of the communications sector into the dynamic, intensively competitive Internet ecosystem is now virtually complete.

Whatever happens with Verizon’s challenge to the FCC’s December 2010 Order on “Preserving the Free and Open Internet” in the United States Court of Appeals for the D.C. Circuit, the “openness” doctrine will persist, potentially holding competitive networks (yes, plural) and critical infrastructure advances down to the speed of government.

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In a speech at a 2012 Google Zeitgeist event, British journalist Matt Ridley gave an evocative illustration of the power of connectivity, reminiscent of CEI’s short film version of Leonard Read’s classic essay, I, Pencil.

“Counter-intuitively,” he said, “we’ve become more prosperous as we’ve moved away from self-sufficiency. The more we work for each other, the better off we are. The more we rely on our own efforts, the poorer we are. That’s why we call it subsistence. Self-sufficiency is indeed another word for poverty.”

In his talk, Ridley, the 2012 winner of CEI’s Julian L. Simon Memorial Award, exalts human progress by contrasting a computer mouse with a primitive weapon used by homo erectus. Both tools are the same size, built to fit snugly in the human hand. The difference, besides hundreds of thousands of years and the Industrial Revolution, is that many parties made the computer mouse while only one hand molded the primitive weapon.

And that’s precisely the point. No one person can make a computer mouse. No omniscient brain determines where technology or industry may go, as the invisible hand of the market guides where a single brain does not. Technology is brilliant because of the many hands that mold the parts, not because of some guiding master mind.

Of course, in an age of paleo diets and buying local, a primitive weapon screams CHARM! and BRING WEAPONS BACK TO OUR ROOTS! Equally charming, though, is clicking on that perfect Etsy item or finding the newest episode of Portlandia with a computer mouse made by many hands.

Post image for Target Breach — Are Dodd-Frank “Swipe Fee” Price Controls to Blame?

Target wants  you to know it is oh-so-sorry for any inconvenience its data SNAFU (as OpenMarket is a family blog, please look up the acronym) has caused, and as a token of its concern, it offered customers a whooping 10 percent discount this weekend!

In the meantime, who is cleaning up the mess from Target’s breach that has affected as many as 40 million credit and debit card accounts? The nation’s banks and credit unions — big and small. In East Tennessee, for instance, Citizens National Bank canceled and reissued 1,000 credit and debit cards potentially affected, but took the step of calling each customer beforehand.

This is just the latest incident in which banks and credit unions that issue credit and debit cards have had to step up to the plate after a retailer’s customer data is compromised. As noted by Wisconsin Credit Union League CEO Brett A. Thompson, upon a data breach at Michaels craft stores in 2001, the financial institutions “had to determine which states were involved, monitor potentially compromised accounts, manually reduce limits for both ATM and PIN transactions, monitor ATM transactions in the affected states, notify debit card holders of potential fraud on their accounts, issue new debit cards to those whose accounts were compromised and refund money to fraud victims.”

Yet how do retailers repay banks and credit unions and their own customers? By complaining about how much the have to pay in credit and debit card “swipe fees” and lobbying for price controls, such as the Durbin Amendment of the 2010 Dodd-Frank financial “reform,” which limited what retailers can be charged for debit cards to 21 cents per swipe (a level a judge has now ruled is not draconian enough in a pending court case!).

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Post image for Busybodies in Congress Prepared to Re-Prohibit Voice Communications During Flight

After two decades with a ban on the books, the Federal Communications Commission is set to consider allowing transmitting mobile devices on aircraft. On Thursday, the FCC will vote on whether or not it will begin allowing transmitting mobile devices in flight. The European Commission recently approved 3G and 4G transmissions aboard commercial flights with some limitations and leaving the decision to permit voice communications up to individual airlines. Recent research has found that there is little risk of aircraft instrument interference from passengers’ portable electronic devices, which led the Federal Aviation Administration to recently end its prohibition on use of non-transmitting devices below 10,000 feet.

Airlines can still decide individually if portable electronic devices are allowed during all flight phases, but most if not all will soon permit their customers to use their devices in airplane mode gate to gate. The airlines would have the same discretion to permit or prohibit transmitting mobile devices if the FCC decides to reform its current policy. Some airlines may wish to allow their customers to engage in voice communications during flight, others may not.

But some in Congress wish to outlaw this choice. Bill Shuster, R-Pa., who chairs the House Transportation and Infrastructure Committee, is set to introduce a bill that would “prohibit an individual on an aircraft from engaging in voice communications using a mobile communications device during a flight of that aircraft in scheduled passenger interstate or intra-state air transportation.”

“For passengers, being able to use their phones and tablets to get online or send text messages is a useful in-flight option. But if passengers are going to be forced to listen to the gossip in the aisle seat, it’s going to make for a very long flight,” Shuster said in a statement. “For those few hours in the air with 150 other people, it’s just common sense that we all keep our personal lives to ourselves and stay off the phone.”

Another Republican, Lamar Alexander, Tenn., is considering whether or not to introduce a similar bill in the Senate. “Stop and think about what we hear now in airport lobbies from those who wander around shouting personal details into a microphone: babbling about last night’s love life, bathroom plans, next week’s schedule, orders to an assistant, arguments with spouses,” Alexander said in a November statement. “Imagine this noise while you travel, restrained by your seatbelt, unable to escape.”

According to the Red Team/Blue Team media narrative, the Republicans are supposedly skeptical of regulation while the Democrats enthusiastically embrace it. Yet here we have a proposed arbitrary political intervention coming from these supposed skeptics on Team Red — who have charted out a more pro-regulatory course than European socialists.

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