government regulation

Is the Internet’s Future in Jeopardy?

by Ryan Radia on October 6, 2010 · 1 comment

in Tech & Telecom

Last week, I had the pleasure of discussing net neutrality with James Boyle, a Duke Law Professor and the co-founder of the Center for the Study of the Public Domain, and Paul Jones, the director of ibiblio, on WUNC’s The State of Things radio program. Our hour-long discussion touched on a number of important tech policy topics, and I highly recommend giving the show a listen (download the MP3 here) if you’re interested in hearing the insights of two very thoughtful scholars and critics of cyber-libertarianism.

I’m a big admirer of Boyle and Jones, who’ve both done a lot of excellent work studying copyright and public domain in the information age. While I don’t share their views on the merits of net neutrality regulation — or, perhaps, of government regulation in general — there’s much common ground between us on many issues, including intellectual property, free speech, and government surveillance.

For folks who don’t want to spend an hour listening to our discussion, I’ve typed up a brief summary of the questions we attempted to tackle in our discussion and the various arguments we raised. My apologies if I’ve mischaracterized any arguments or statements — if you want to know what was actually said, go listen to the whole interview!

  • What role should government play in regulating the Internet? I argue its proper role is to enforce voluntary arrangements (Terms of Service) and, when appropriate, enforce civil judgments against firms that have broken their promises. Boyle, on the other hand, argues that government should enforce not only contracts but also net neutrality rules because last-mile Internet service is a natural monopoly and consumers often don’t understand what they’re getting, which means that socially desirable contracts aren’t likely to emerge. I respond by citing Thomas DiLorenzo’s critique of the natural monopoly hypothesis and pointing out that government has obstructed ISP competition by allocating spectrum inefficiently and imposing excessive costs on wireline ISPs through burdensome rights-of-way and franchising rules.
  • Why did Google retreat on its commitment to net neutrality in joining with Verizon to exempt wireless services from neutrality? Boyle argues it’s because Google realized the future of communications is mobile and believed it needed to compromise with Verizon (America’s biggest wireless carrier). Jones points out that the Google-Verizon proposal isn’t a business agreement, but a compromise designed to address the conflicting interests of various stakeholders. I argue that Google recognized that government discrimination among competing business models and platforms is a greater danger to consumers than provider discrimination, and that innovation truly occurs when ‘walled gardens’ such as the iPhone co-evolve with open platforms like Android — the “Yin and Yang” of innovation, as Bret Swanson puts it). Boyle argues that proprietary platforms and exclusionary deals between content and service providers preclude disruptive innovation and digital generativity. He cites the financial crisis as an example of inadequate regulation resulting in poor outcomes that might have not have occurred had there been greater oversight.
  • Does collusion among large, powerful Internet corporations help or harm consumers and innovation? Jones cites Adam Smith’s The Wealth of Nations in arguing that, without government regulation, mega-corporations will collude and carve up the marketplace, hindering innovation and progress. I argue that leaving companies free to try to “carve up markets” actually spurs beneficial competitive responses and promotes destructive market entry, even if the process isn’t always pretty. I argue that the forces arrayed against today’s major companies–competitors, consumers, suppliers, downstream partners–make it impossible for any entity or group of entities to engage in any truly abusive practices without suffering harsh punishment.
  • Will entrepreneurs and innovators even be able to get off the ground if corporations have unlimited control over Internet applications and content? I argue that government policies, such as the DMCA’s anti-circumvention provisions, are a major part of the problem because they distort natural market outcomes and prop up bad business models. Boyle agrees that these provisions are seriously problematic, calling DMCA a “lawyers’ full employment act.” He points out that many of the most important innovations of the last couple of decades — Google, Facebook, Twitter, and so forth — came about precisely because of the Internet’s openness and dynamism. I argue that the openness that characterizes the Internet is indeed desirable in many ways, but that voluntary institutions can offer open platforms without being forced to do so by government. I point out that network operators who hinder the value of the content that traverses their pipes do so at their own peril, and that infrastructure and content companies actually have a symbiotic relationship, rather than an adversarial one. Jones argues that because many ISPs are also content companies, they have an incentive to privilege their own content at the expense of competing offerings. I point out that consumer demand for Internet video outlets (i.e. YouTube and Hulu) deters providers from slowing down Internet-delivered content. Boyle argues that the continued existence of the open Internet is crucial in ensuring that the ‘walls’ that enclose walled gardens don’t grow too tall.
  • Shouldn’t we treat the Internet like a public utility — a road on which all can travel? I argue that treating the Internet like a public utility, like we already treat roads, raises the dilemma of the tragedy of the commons. I point out that many private roads already exist today without the ‘tollbooths’ that neutrality advocates fear. Jones points out that the real tragedy is one of unregulated commons which lack adequate rules. Boyle argues that the economics of physical property (scarce goods) cannot readily be mapped to networks and calls the Internet a “comedy of the commons” (borrowing from Carol Rose). I argue that government-run commons have a poor track record, from highways to the wi-fi band, and that the success of network industries requires smart investment and innovation that government isn’t well-equipped to deliver. Boyle argues that not all resources must be owned if they’re to be efficiently utilized, citing the emergence of free trade with India and China in the 1700s and the subsequent collapse of state-chartered trading monopolies. Boyle argues that tomorrow’s “next great thing” may never emerge if the openness of today’s Internet isn’t enshrined in regulation.

Fisking Paul Krugman

by Iain Murray on September 25, 2009 · 5 comments

in Economy, Energy, Environment, Global Warming, Sanctimony

In today’s New York Times, Nobel Laureate Paul Krugman preens about intellectual dishonesty while presenting the most intellectually dishonest case about the cost of climate change policies I have seen this side of Joe Romm.  It moved me to do something I have not done for some time, and Fisk the entire article.  Krugman’s words are in italics.

So, have you enjoyed the debate over health care reform? Have you been impressed by the civility of the discussion and the intellectual honesty of reform opponents?

If so, you’ll love the next big debate: the fight over climate change.

And Mr Krugman is about to demonstrate his level of civility and intellectual honesty in what only can be described as a pre-emptive strike.  Is this the Krugman Doctrine?

The House has already passed a fairly strong cap-and-trade climate bill, the Waxman-Markey act, which if it becomes law would eventually lead to sharp reductions in greenhouse gas emissions.

Sharp reductions? The Breakthrough Institute, which strongly champions action on global warming, says that the way the bill is structured “U.S. emissions in capped sectors could rise for much–if not all–of the next two decades.” Krugman protects himself against the accusation of outright lies by using the word “eventually,” but without disclosing the ineffectiveness of the bill over the next 20 years, Krugman is already being intellectually dishonest.

But on climate change, as on health care, the sticking point will be the Senate. And the usual suspects are doing their best to prevent action.

Some of them still claim that there’s no such thing as global warming, or at least that the evidence isn’t yet conclusive. But that argument is wearing thin – as thin as the Arctic pack ice, which has now diminished to the point that shipping companies are opening up new routes through the formerly impassable seas north of Siberia.

Krugman condenses a very complex argument over the nature of global warming into one statement and then dismisses it out of hand.  There are very few who deny the heat-trapping properties of greenhouse gases.  There are many who suggest that the influence of these gases on the climate as a whole has been significantly exaggerated.  For instance, I wonder what Mr. Krugman thinks of the recent research of Lindzen and Choi, published in August, which uses actual observations to find that climate sensitivity to greenhouse gases has been overestimated by a factor of six.

As for the Arctic, it has been melting since the end of the Little Ice Age two hundred years ago.  In fact, The Washington Post published a story on a government report that described “a radical change in climatic conditions,” “unheard-of temperatures in the Arctic zone,” and the melting of ice as long ago as November 2, 1922.  The fact that the North-East Passage, a holy grail for traders for hundreds of years, is now open might also warrant some balancing mention of its benefits.

Even corporations are losing patience with the deniers: earlier this week Pacific Gas and Electric canceled its membership in the U.S. Chamber of Commerce in protest over the chamber’s “disingenuous attempts to diminish or distort the reality” of climate change.

PG&E made an odd member of the Chamber of Commerce to begin with, as its profits come about not by commerce but by government regulation.  PG&E’s profits are “decoupled” from the amount of energy it sells.  There are suggestions, by the way, that companies are coming under pressure in the way of threats of activism directed against them if they continue to support the Chamber’s efforts to protect the interests of its members.

So the main argument against climate action probably won’t be the claim that global warming is a myth. It will, instead, be the argument that doing anything to limit global warming would destroy the economy. As the blog Climate Progress puts it, opponents of climate change legislation “keep raising their estimated cost of the clean energy and global warming pollution reduction programs like some out of control auctioneer.”

If the estimated costs rise, that is because people like the bloggers at Climate Progress keep persuading politicians to go for more ambitious programs, which of course cost more. Auctioneers only respond to bids, and it is the bidders who are out of control.

It’s important, then, to understand that claims of immense economic damage from climate legislation are as bogus, in their own way, as climate-change denial. Saving the planet won’t come free (although the early stages of conservation actually might). But it won’t cost all that much either.

Here we are getting to the nub.  Having succeeded in chilling the speech of those who are doubtful about the effect of greenhouse gases on the climate, Mr. Krugman now wants to make it unacceptable to say that policies designed to raise the cost of energy will have any detriment to the economy.

How do we know this? First, the evidence suggests that we’re wasting a lot of energy right now. That is, we’re burning large amounts of coal, oil and gas in ways that don’t actually enhance our standard of living – a phenomenon known in the research literature as the “energy-efficiency gap.” The existence of this gap suggests that policies promoting energy conservation could, up to a point, actually make consumers richer.

Well of course there is waste involved in generating energy.  If there wasn’t so much regulation of energy generation right now, which has the perverse effect of locking in old technology, then we’d actually be a lot more efficient than we are.  However, being more energy efficient does not mean we use less energy.  Mr. Krugman’s own newspaper just recently published an excellent story about the Jevons Paradox, first formulated in 1865, which states, “It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.”  This really is Energy 101.

Second, the best available economic analyses suggest that even deep cuts in greenhouse gas emissions would impose only modest costs on the average family. Earlier this month, the Congressional Budget Office released an analysis of the effects of Waxman-Markey, concluding that in 2020 the bill would cost the average family only $160 a year, or 0.2 percent of income. That’s roughly the cost of a postage stamp a day.

Once again, Mr. Krugman is being economical with the truth.  The government studies most emphatically did not find that the bill will cost a postage stamp a day in 2020.  They can only arrive at that figure of $160 a year by discounting twice.  They took the nominal cost – the actual out-of-pocket cost – of the increases in energy prices and worked out what that would be in today’s dollars.  Then they discounted back to find the present value of that figure.  In other words, $160 a year is what you’d have to lock away in a bank account with a guaranteed interest rate today in order to pay your bills in 2020.  If you didn’t do that, the figure from the EPA’s study in today’s dollars (ie not accounting for inflation) is above $2700 a year for a family of four.  The CBO study, meanwhile, admits that it did not attempt a comprehensive study of lost income.

Mr. Krugman also ignores polling evidence that finds that only 10 percent of respondents would be willing to pay more than $100 a year to achieve the supposed benefits of the Waxman-Markey bill.  So even if the cost was just a postage stamp a day, people would still find that cost expensive.

By 2050, when the emissions limit would be much tighter, the burden would rise to 1.2 percent of income. But the budget office also predicts that real G.D.P. will be about two-and-a-half times larger in 2050 than it is today, so that G.D.P. per person will rise by about 80 percent. The cost of climate protection would barely make a dent in that growth. And all of this, of course, ignores the benefits of limiting global warming.

The same argument can be made about global warming itself.  Even with all the supposed dramatic effects of global warming, the United Nations Intergovernmental Panel on Climate Change finds that people all over the world – even in the poorest countries – will be many times richer than they are today as a result of the economic activity sustained by fossil fuels. This demonstrates that a warmer-but-richer world is better off than a cooler-but-poorer world, and we will in fact be best off in the warmest world.  Krugman’s argument here in fact suggests that we shouldn’t do anything about emissions at all.

So where do the apocalyptic warnings about the cost of climate-change policy come from?

Are the opponents of cap-and-trade relying on different studies that reach fundamentally different conclusions? No, not really. It’s true that last spring the Heritage Foundation put out a report claiming that Waxman-Markey would lead to huge job losses, but the study seems to have been so obviously absurd that I’ve hardly seen anyone cite it.

The Heritage Foundation has updated its report and recently defended its methodology in a panel of other modelers, who did not raise significant objections to it (so much for its obvious absurdity).  If Mr Krugman hasn’t seen it cited it is the same way that Pauline Kael didn’t know anyone who voted for Nixon.  But the Heritage Report is not the only one.  The American Council on Capital Formation found job losses of 1.8 to 2.4 million in 2030.  The research of the left-leaning Brookings Institution has found that “Achieving reductions in greenhouse gas emissions is a costly endeavor.”  Once one strips away the discounting tricks, even the government studies demonstrate the truth of this statement.

Instead, the campaign against saving the planet rests mainly on lies.

Thus, last week Glenn Beck – who seems to be challenging Rush Limbaugh for the role of de facto leader of the G.O.P. – informed his audience of a “buried” Obama administration study showing that Waxman-Markey would actually cost the average family $1,787 per year. Needless to say, no such study exists.

Once again, Mr. Krugman is being economical with the truth.  He is correct only in so far as the recently revealed documents simply summarize the real effects of the other studies that have been disguised using economic trickery.  Here is what the Treasury documents say will be the effect of the President’s policies:

Given the administration’s proposal to auction all emission allowances …a cap-and-trade program could generate federal receipts on the order of $100 to $200 billion annually. … Economic costs will likely be on the order of 1% of GDP, making them equal in scale to all existing environmental regulation. …One advantage of auctioning allowances is the potential for generating large revenues (perhaps $300 billion annually). … Domestic policies to address climate change and the related issues of energy security and affordability will involve significant costs and potential revenues, possibly up to several percentage points of annual GDP (i.e., equal in size to the corporate income tax).

These documents are available for viewing here.  The fact that the Treasury initially redacted the most embarrassing sentences suggests strongly that they wanted to hide this.  That sounds like burying the truth to me.

But we shouldn’t be too hard on Mr. Beck. Similar – and similarly false – claims about the cost of Waxman-Markey have been circulated by many supposed experts.

The claims are the claims of the US Treasury Department, available now for all to see.  We show, while Mr. Krugman tells.

A year ago I would have been shocked by this behavior. But as we’ve already seen in the health care debate, the polarization of our political discourse has forced self-proclaimed “centrists” to choose sides – and many of them have apparently decided that partisan opposition to President Obama trumps any concerns about intellectual honesty.

So here’s the bottom line: The claim that climate legislation will kill the economy deserves the same disdain as the claim that global warming is a hoax. The truth about the economics of climate change is that it’s relatively easy being green.

Mr. Krugman is hoist by his own petard.

Is the DoJ Killing Yahoo?

by Ryan Lynch on October 31, 2008 · 1 comment

in Precaution & Risk, Tech & Telecom

The Yahoo-Google ad deal looks like it’s dead.  The deal announced in June, would have allowed Google ads to appear on Yahoo search results.  Yahoo estimated an $800 million profit during the frist year of the Google ad partnership and would have allowed Yahoo to continue its transion from search to content provider, making it a much more competitive company.

What has likely killed the deal?  As stated in a Reuters article:

The two Internet companies have so far failed to reach an agreement with the U.S. Department of Justice on implementing their search advertising partnership.

Why doesn’t the DoJ approve the non-exclusive agreement?  Becuase of concerns over competition, that this will reduce competition in the internet marketplace.  Anyone following Yahoo, however, knows that Yahoo is becoming less and less competitive as a search provider, but it’s attempts to become more competitive and focus on providing content, something it is much better at than google, are being stymied by government regulation.

What Are Markets For?

by Iain Murray on September 29, 2008 · 2 comments

in Bailout Watch, Economy

There are all sorts of people today who normally talk about free markets but who have got themselves into a tizzy over the failed bailout. We need to get one thing straight – the bailout was the wrong answer to the wrong question. To begin with, the plan was merely postponing the inevitable, as a letter in the Wall Street Journal pointed out this morning:

The lesson of past financial inflection points is that we must let the markets reallocate capital from less efficient to more efficient uses. The sad fact is that we need to go through a brutal process of resizing down our financial and real-estate industries. Actions to try to recapitalize doomed financial companies only postpone the day of reckoning, which will make matters worse as the Japanese learned in the 1990s.

Secondly, we have to ask how to protect future viable assets and investments, not just what we should do about past failed assets and investments. The bailout plan is exactly the wrong approach. It puts in them in jeopardy because not only does it tread down the policy road that led to the Great Depression, as Martin Hutchinson powerfully argues, but because real capitalism provides strict disciplines that actually provide better protection than government regulation. We will not succeed in protecting our children from a future financial meltdown if we merely put in place the exact parameters for it to happen again.

Markets are all about the efficient allocation of capital. As has been demonstrated on this page repeatedly, government caused the market to misallocate badly. If we go further and have government misallocate the capital by design, then we will have made one of the biggest missteps in economic history, worse than FDR and co, because we will have completely ignored the lessons of the great depression. A market correction is, in a very real sense, necessary. Government cannot bring that about.