But on economics, where Souter was more moderate, it will matter a lot: Souter was willing to occasionally overturn excessive punitive damage awards, and overturn state regulations that were preempted by federal law (like in Watters v. Wachovia (2007), where I filed a brief on behalf of economists and law professors). Some of his potential replacements, like Judge Sonia Sotomayor and especially Deval Patrick, will be less likely to do that.

Business will miss Souter, even though social conservatives won’t. Obama is more likely to nominate a justice hostile to taxpayers, business, and property owners, since he has expressed regret that the Supreme Court “didn’t break free” from legal constraints in order to bring about “redistribution of wealth” during the Warren Court.

Souter’s colleagues will probably miss the unassuming Souter, who did not (unlike some past justices, such as William O. Douglas) lord it over other people. He once lived in a waterfront apartment building in Washington, D.C.’s Southwest quarter right near my wife. We would sometimes see Souter quietly doing his own laundry. Unlike many limousine liberals, who live in wealthy, lily-white, gated communities (even as they advocate forced busing of working-class students between predominantly-black schools and predominantly-white schools), Souter chose to live in a middle-class, racially-mixed community.

A potential replacement for Justice Souter is Massachusetts Governor Deval Patrick, a vociferous advocate of censorship and racial quotas who helped spawn the mortgage crisis while serving in the Justice Department.

Another candidate for Souter’s seat is “Second Circuit judge Sonia Sotomayor,” who also avidly supports racial quotas. Sotomayor’s “shenanigans in trying to bury the firefighters’ claims in Ricci v. DeStefano triggered an extraordinary dissent by fellow Clinton appointee José Cabranes (and the Supreme Court’s pending review of the ruling).”

Yet another is the tax-and-spend former governor of Michigan, Jennifer Granholm, a big fan of racial preferences (forbidden by her state’s constitution) who helped drive her state’s economy into the ditch.

Two other candidates also are mentioned who may not be wacky enough to be considered by Obama, even though they both satisfy liberal litmus tests on abortion, affirmative action, and gay rights, and are both women (the conventional wisdom is that Obama will pick a woman, perhaps a Hispanic woman, as the next Supreme Court justice). Those two candidates are Seventh Circuit judge Diane Wood and Ninth Circuit judge Kim Wardlaw, a Hispanic. Neither of these two judges is unusually anti-business, or unusually prone to the “redistribution of wealth” Obama has applauded.

CNN’s political ticker also lists the veteran moderate Judge Jose Cabranes. I don’t think Obama is in any mood to pick a moderate male judge, even a well-respected Hispanic like Cabranes who is well-liked by his home-state Democratic senators, Dodd and Lieberman, and who would easily sail through the Senate. Cabranes may be pro-choice, pro-gay rights, and pro-voting-rights, but he is also anti-crime and pro-free-speech. And he was unwilling to use judicial shenanigans to bury the reverse-discrimination claim in the Ricci case, as Judge Sotomayor did (although it’s worth noting that even the Obama Justice Department reluctantly agreed with Cabranes in that case, urging the Supreme Court to remand the case back down to the lower courts for a proper reconsideration, rather than totally avoiding the issues raised by the aggrieved white employees).

Analysts’ forecasts, nonetheless, are a mixed bag.  Some analysts are calling the gold rush a bubble that can burst, as the dot-com and housing bubbles did, while others believe it can continue upward.

“Currencies are losing value and holders of currencies are losing confidence.  Gold may break through $1,000 and not look back,” says Ron Goodis, retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey, according to Bloomberg.  Read Gold Tops $1,000, Highest Since March, as Global Equities Slide

On the other hand, Przemyslaw Radomski, editor of Sunshine Profits, warns that Precious Metals and Corresponding Stocks may Fall in a Few Days.

“Since my previous essay on market timing was posted [Feb. 11], gold gained over $100 and silver gained over $2. These levels are substantially higher than when I suggested getting back on the long side of the precious metals market.  This rally has taken gold almost $200 higher within one month, so it is natural for one to expect at least a modest pullback from here,” Radomski said.

But as everything in economics, gold prices in a free market follow the forces of supply and demand.

“In a free market, increasing demand and rising prices provide a significant incentive for producers to increase the supply of an item.  And that’s usually how it works.  But that’s not what is happening in the gold market.  Demand is certainly increasing.  According to the United States Geological Survey, the demand for gold reached 1,133 tons in 2008, an 18% increase from the previous year.  In dollar terms, this represented a 51% increase to an all-time record $31.8 billion, “writes Jon Herring in his article Peak Oil… What About Peak Gold?

Meanwhile, the global supply is limited.  The industry has only discovered one significant deposit in the last 15 years: that of Aurelian Resources—now owned by Kinross Gold Corporation (NYSE:KGC, TSX:K)—with its Fruta del Norte gold-silver discovery in the Cordillera del Condor, in Ecuador, also known as the “gold dinosaur.”  If investors deem gold to be king in this environment, then Ecuador may provide them with their T. Rex.

Skyrocketing gold prices have also ignited the stock values of the four largest gold producers at the time of today’s 4:00 p.m. close.  Newmont Mining Corporation (NYSE:NEM) gained 7.21%, Anglo Gold Ashanti Ltd. (NYSE:AU) was up 6.36%, Barrick Gold Corporation (NYSE:ABX) earned 1.23%, and Gold Fields Ltd. (NYSE:GFI), up 4.46%.

Another factor that can influence gold prices is that most new worldwide discoveries are made by junior exploration companies—those with funded through equity financing, sometimes with less than $50 million—that combined have poured $12.6 billion into global exploration activities in 2008, according to the Metals Economic Group.  42% of this investment was focused on gold discoveries.

Gold rose for a second straight day on speculation the recession will deepen, boosting the appeal of the precious metal as a haven asset.

In fact, from some investors’ perspective, the stimulus package won’t help the American recession.  As AP reported in its article Gold Prices Soar as Dow Takes a Dive:

If it stimulates anything, it’s going to stimulate gold, said Peter Schiff, president of Euro Pacific Capital, of the President’s plan.  As the government pumps billions of dollars into the financial system, analysts expect inflationary pressures to resurface.  The more inflation there is, the more attractive gold is, Schiff said.  Ultimately, you’re going to see much bigger upward moves in gold when the dollar starts to collapse.

Besides gold traders, or jewelry owners, gold producers are on the winning team, since their market capitalizations are valued according to the size of their deposits (million of ounces) multiplied by the current metal prices.  Gold mining companies, then, may flourish in 2009 while the Dow Jones continues to dive.

Inflation may be an unintended consequence of the President’s spending-focused plan, but investors’ opportunity to invest in the mining sector may just be a silver – or gold – lining in an otherwise cloudy setting.

But before I address why I think more proponents of neutrality regulation will be jumping ship this year, we should break down the neutrality debate into its constituent parts.  I think its most useful to think of net neutrality as three separate policy questions—one dealing with censorship, one addressing the issue of prioritizing traffic, and the other dealing with the physical architecture of the Internet.

Censorship

I’m of course sympathetic to the idea that ISPs (Internet Service Providers) and other network companies like wireless phone services shouldn’t be in the business of making judgments about content.  But history has shown us fairly decisively that no law or regulatory body is needed to make sure network providers stay neutral on content.

As Adam Thierer of the Progress & Freedom Foundation and a fellow blogger at the Tech Liberation Front points out in his post “Net Neutrality & the White Hot Spotlight of Public Attention,” even the appearance of non-neutrality toward content has been met with such an incredible backlash from the public that networks providers have already been forced by the court of public opinion into walking a fine line when it comes to content neutrality.

One example occurred in September of 2007 when Verizon denied the request of NARAL (the National Abortion Rights Action League) to send a “call to action” SMS message to members that had signed-up to receive them.  Verizon wasn’t picking sides, but was instead trying to avoid taking any side in the abortion debate, based on a company policy that disallowed such favorite-choosing.   But the denial of NARAL’s request wasn’t seen as Verizon staying out of the debate, but rather as an attack on the pro-choice movement.  The public outcry was met with a change in policy at Verizon (and the claim that the existing policy was misapplied), which quickly granted NARAL the ability to send it pro-choice messages via SMS and granted the same access to pro-life groups.

Other famous (or perhaps infamous) examples of backlash to even accidental violations of neutrality have popped up just over the last few years.  Cox Interactive customers found in early2006 that they were unable to access Craigslist.  Users cried foul while pundits claimed Cox was blocking the online classifieds site to boost its own classifieds business amongst its Internet users.  Cox pointed the finger at Authentium—a company working with Cox to provide security software—and claimed the software was mistakenly blocking Craigslist.  The problem was corrected, but Cox took a serious beating in the press.  The negative publicity for the company did more damage than any fine from the FCC ever could.

Prioritizing Traffic

Perhaps the most contentious issue in the neutrality regulation debate is network management.  Since the Internet first became a commercial enterprise, networks have been much more than cables and routers.  A sophisticated process of prioritization of data has accompanied the Internet’s growth, allowing for dynamic responses to demand and helping to curtail abuses like spam email.

Proponents of network neutrality regulation believe that some network management techniques are unacceptable politically, claiming that they endanger free speech.  However, unlike the public square, the commercial Internet has always been a pay-to-play system with prioritization and other optimization built into its architecture.  It’s designed with functionality in mind, rather than political correctness.

That said, private enterprises still must abide by their own contracts and have an open, and honest relationship with their customers.

In mid 2007 it became evident that Comcast was using prioritization methods that it hadn’t made known to its customers.  It was discovered by users working  in conjunction with groups like the Electronic Frontier Foundation that Comcast was blocking the outgoing traffic from the popular file-sharing protocol BitTorrent.  BitTorrent is designed to allow people to rapidly download files, not from a central server, but from other BitTorrent users dispersed around the Internet.  To do this, BitTorrent users not only downloads file, but also upload or “seed” files to other users.  Comcast blocked this seeding during several hours of the day.

This policy of “traffic-shaping,” just like Cox & Verizon’s blocking of services, caused a blowout among opinion-leaders in the Internet Community and pundits in tech news.  Comcast responded by citing that BitTorrent was choking its network during its busiest hours.  Comcast was also quick to point out that  BitTorrent users were a very small minority of its users and that the vast majority benefited from Comcast curtailing this bandwidth-gobbling service during times of peak usage.

Despite all of these reasonable arguments for why its network management was necessary and even desirable, Comcast eventually stopped the practice and later partnered with BitTorrent to address the problem of network management.  Public pressure had been so great that they were forced to change their policy and instead adopted a 250 gigabyte monthly cap on traffic for all users.

Some cited this as a justification for neutrality regulations, but this is a clear example of neutrality being preserved by the free market and forces of public opinion.

Regulators claim that because the esoteric nature of high-technology services, regulations and government control is needed to protect consumers.  But history shows that consumers turn to trusted experts such as consumer product reviewers, technology journalists, and their tech-savvy friends and colleagues for advice on making purchases.  Its because Comcast lost the favor of these opinion-leaders that it had to change its policy.  Had it done otherwise, it risked losing a significant portion of its customer base.

Architecture of the Net

The Internet is physically constructed of many smaller, distinct networks.  These networks exchange data between each other to form the Internet—the network of networks.  Traffic traveling from one coast of the United States to another usually passes over a handful of networks including the Internet’s “core”—the interchanges between the largest networks such as AT&T, Verizon, Level3, Global Crossing, or Sprint.

This network-to-network model, however, has been augmented through what are commonly referred to as “short lanes” and “fast lanes.”

Short lanes are used by companies like Akamai and Google to provide better service by placing data closer to users.  By placing servers in the facilities of ISPs, content providers only have to transfer a given file across the country once.  Once that file—for example, an HD movie or software title—reaches a server at an ISP, a copy will be stored there.   Later requests can then be fulfilled by these nearby servers.  This means the core of Internet is only burdened by these large files once, rather than thousand or millions of times.

Fast lanes skip many of the Internet’s core altogether, further relieving congestion at interchanges most likely to become bottlenecks for data.  One such fast lane, LimeLight, provided the online video for the 2008 Beijing Olympics.  Its servers in Beijing sent data directly over its own global fiber optic network to servers at ISPs.  This not only represents a less traffic-intesive means of distribution, but much faster one, allowing users to watch the games as they happened.

Proponents of network neutrality regulations believe that such arrangement represent unfair advantages available only to the most wealthy companies.  While it’s true that it does take a significant amount of capital to afford such distribution, these distributions methods also benefit small companies and consumers.  By either reducing or removing traffic from the core of the public Internet, fast lanes and short lanes free up bandwidth, making Internet service faster for small businesses and consumers without any cost to them.

A Market for Neutrality, Not Neutrality by Regulation

Ultimately, the death-nil of neutrality regulation will result from the win-win scenarios that non-neutral architectures represent, and the acknowledgment that the court of public opinion is a much swifter and fairer judge than any hearing called by the FCC.

It’s already the case that some supporters of neutrality are falling away from the cause. Though a recent Wall Street Journal piece claiming that Google was building its own fast lane online was debunked (its really a short lane), there was some truth to the other parts of the story.  Aside from the technical inaccuracies about Google’s current project, the Journal was very astute in noting that many of the billion-dollar supporters of neutrality—Microsoft, Yahoo!, and Amazon—have changed their tune.  Many of these firms are forming partnership or making other arrangement with ISPs to deliver their content more efficiently.

Moreover, even intellectual leaders like Harvard Professor Lawrence Lessig have said that “There are good reasons to be able to prioritize traffic.” Lessig endorsed Mr. Obama and many in his former home of California urged him to run for Congress.  He’s a person with much political clout who may be bellweather in this debate.

Mr. Lessig’s statement also bring up another important point.  Lessig’s definition of “good reasons” might be much different from mine.  Some might say this is reason to have a definition enshrined into law, but I think it means quite the opposite.

That’s because regulation won’t be as flexible and therefore not allow for the most robust Internet as would letting the pro-neutrality market continue along with a less ridged definition of neutrality.

Any regulation would have to be defined in (inevitably misinterpreted and distorted for political gain) legal terms, rather than being defined by the ever-shifting ideas of what acceptable network management looks like.  As new technologies emerge, technologists, tech reporters, pundits, think-tankers, and others will judge them as either good or bad for the Net.  Consumers will vote with their feet by either staying with the providers they have or switching to the more neutral provider.

Some Good Policy Changes

If anything, public policy needs to focus on ensuring that there are more places for consumers’ feet to go.  Increasing competition in broadband markets through loosening the restrictions on the wireless spectrum would be a good start.   Through either expanding the commons or (preferably) creating private ownership of large swaths of the spectrum we could see robust, viable alternatives to land-line broadband emerge.  Taking a federal wrecking ball to state and municipal franchising agreements that block outside competition would also increase competition tremendously.

Hopefully the Obama administration and Congress will do the opposite of what history shows politicians usually do.  Most often, politicians would address the concerns about corporate power caused by regulation (ISP duopolies) by making a whole new set of regulations with a new set of problems.  If this temptation is resisted, we may be able to roll-back the regulations that have limited competition to begin with and see the Internet grow as a consequence.

But again, this is probably just wishful thinking.

Americans used to get exorcised any time the federal government considered bailing out private interests. When Chrysler got a $1.5 billion loan in 1979 (about $4.25 billion in today’s dollars), there was an outcry. When the Clinton administration bailed out Wall Street bankers in 1994 with a bailout of the Mexican peso, it was scandalous.

But as 2008 wound down, we got bailouts so large and in such rapid succession that we never had time to catch our breath.

Unfortunately, there’s probably more to come.

For more on bailouts, see the site (co-sponsored by CEI) BeyondBailouts.org.

Happy New Year!

This is not going to happen.

For a start, it looks like US policy is going to concentrate on getting a domestic settlement in place before agreeing to any international action other than the traditional “agreeing to agree.” Secondly, with the world in financial chaos, governments are going to look askance at any possibility of deep emissions cuts in the short term because they know how costly that will be (the recent EU agreement - in actuality an agreement for just 4% cuts by 2020 - is a great example). This will make the drastic emissions cuts supposedly necessary in the medium-term well-nigh impossible to achieve. Finally, developing countries have consistently stated that they will not take on any emissions reductions, demanding the developed world move first. Yet even if the developed world reduces its emissions to zero by 2050, the developing world will have to keep its emissions at around today’s levels to meet just a 50% global reduction by 2050. That represents a reduction from expected developing world emissions of 57%. To meet the 80% reduction demanded by most scientists will require a severe reduction in emissions from today’s levels that represent widespread energy poverty.

So despite the optimism, a genuine international agreement looks some way off. Copenhagen will doubtless be sold as a triumph, but in reality the world will be no closer to a genuine, binding international agreement than it was in 2001.