Wu’s Many Mistaken Metaphors

by on July 30, 2008 · 16 comments

In today’s New York Times, Tim Wu writes in favor new regulation of the Internet and uses a number of bad analogies to do so. Let us count the ways.

My colleague Adam Thierer has already noted that OPEC is a group of mostly government-run oil companies whereas U.S. broadband service providers are private companies operating in an intensely competitive environment.

Wu bungles another analogy between oil and bandwidth. Wu writes, “Americans today spend almost as much on bandwidth — the capacity to move information — as we do on energy….If we aren’t careful, we’re going to repeat the history of the oil industry by creating a bandwidth cartel” — implying that bandwidth prices, for lack of competition, are about to skyrocket.

But in the last decade, the nominal price of oil has risen by a factor of 12. In the same time period, the nominal price of U.S. residential bandwidth has dropped by a factor of five or more. Mobile phone bandwidth has dropped in price even more. Thus $10 worth of oil in 1998 now costs around $120. Ten dollars of residential bandwidth in 1998 now costs about $2 or less.

Wu could not have chosen a worse metaphor.

Oil prices are mostly governed by the Fed’s monetary policy (not OPEC, yet another Wu blunder), and we don’t know which way oil prices are headed. But we know for sure bandwidth prices measured in dollars-per-bit-per-second will continue falling dramatically. The imperial forces of Moore’s Law and the equally powerful innovations of fiber-optic, memory, and hard-disk storage technology assure it.

This isn’t to say broadband networks are cheap. No, they are very expensive. They will cost hundreds of billions of dollars over the next five to 10 years. It is to say silicon and optical technologies are massively productive and will deliver ever greater services at ever lower prices. As Wu states, Americans may actually spend more and more dollars on monthly communications services overall. But per bit, they will be spending dramatically less. All this means is communications is becoming a vastly more important part of our lives.

By all means, let us explore and develop “alternative sources of bandwidth” as Wu desires. Unlike natural resources such as oil, which, while abundant, are at some point finite, bandwidth is potentially infinite. The miraculous microcosmic spectrum reuse capabilities of optical fiber and even wireless radiation improve at a rate far faster than any of our macrocosmic machines and minerals. It is far more efficient to move electrons than atoms, and yet more efficient to move photons. Left unfettered, these technologies will continue delivering bandwidth abundance.

But Wu fools no one with his slight of hand — attacking a phantom bandwidth “OPEC” — when his real goal is to establish and further empower his own cartel of scarcity-rationing bandwidth bureaucrats.

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Bret Swanson / Bret Swanson is president of Entropy Economics, a research firm focused on technology and the global economy, and of Entropy Capital, a venture firm that invests in early-stage technology companies. For eight years he advised technology investors as executive editor of the Gilder Technology Report and later was a senior fellow at The Progress & Freedom Foundation. Today Swanson presents his “exaflood” research across the globe, writes a column for Forbes, and contributes to the editorial page of The Wall Street Journal on topics ranging from communications bandwidth to monetary policy. He studies innovation, globalization, China, Internet traffic, information theory, the stock market, and entrepreneurial economics. He is guided by the Laws of Say, Metcalfe, and Moore, the Theorem of Shannon, and the Curve of Laffer. His most pioneering and speculative research, however, concerns forces even more powerful and enigmatic — his four children nine and under.

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