Over a week ago the Washington Post published an interview with Google’s Eric Schmidt to which I’ve been meaning to draw your attention. He’s reflecting on the relationship between Silicon Valle and D.C. days after his Senate testimony, and it’s incredibly candid, perhaps because as the Post noted, “He had just come from the dentist. And had a toothache.” Here are some choice quotes:
On getting told to testify:
So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. Okay? I mean, I don’t know how to say it any clearer. I mean, it’s fine. It’s their job. But it’s not like we raised prices. We could lower prices from free to…lower than free? You see what I’m saying?
And one of the consequences of regulation is regulation prohibits real innovation, because the regulation essentially defines a path to follow—which by definition has a bias to the current outcome, because it’s a path for the current outcome.
On the D.C. shakedown:
And privately the politicians will say, ‘Look, you need to participate in our system. You need to participate at a personal level, you need to participate at a corporate level.’ We, after some debate, set up a PAC, as other companies have.
On political startups:
Now there are startups in Washington. And these startups have the interesting property that they’re founded by people who were policymakers, let’s say in telecommunications. They’re very clever people, and they’ve figured out a way in regulation to discriminate, to find a new satellite spectrum or a new frequency or whatever. They immediately hired a whole bunch of lobbyists. They raised some money to do that. And they’re trying to innovate through the regulation. So that’s what passes for innovation in Washington.
There’s a real sense of exasperation that is almost absurd–that is, an exhausting attempt to find rationality in political decision making. Of course, there is rational decision making, it’s just on a different margin. Here is Schmidt on expanding H-1B visas:
I’m so tired of this argument. I’m tired of making it. I’ve been making it for twenty years. In the current cast of characters, the Republicans are on our side, our local Democrats support us because our arguments are obvious, and the other Democrats don’t—because they don’t get it. The president understands the argument and would like to support us, he says, but there are various political issues. That’s roughly the situation. That’s been true for twenty years, through different presidents and different leaders. It’s stupid.
The whole thing is worth reading.
On the podcast this week, David Robinson, a fellow at the Information and Society Project at Yale Law School, discusses his new paper, Following the Money: A Better Way Forward on the PROTECT IP Act. The bill, now being considered by Congress, targets “rouge” websites. Robinson discusses the different ways these websites host infringing content and sell counterfeit goods, as well as the remedies proposed in the bill. The measures involve two main consequences: cutting off information through the seizure of domain names by law enforcement, and cutting off financial gain by prohibiting payment processors like Visa and Mastercard from delivering profits to infringing website owners. Robinson discusses why he thinks the Act will better serve IP law if the flow of money is restricted, and not the flow of information. He goes on to discuss what he considers to be troubling about information control, including several constitutional implications.
To keep the conversation around this episode in one place, we’d like to ask you to comment at the webpage for this episode on Surprisingly Free. Also, why not subscribe to the podcast on iTunes?
While policymakers rush write new Net regulations to protect privacy, we keep suggesting the FTC use its existing authority more effectively to punish unfair and deceptive trade practices. The FTC has just sued FrostWire for designing their peer-to-peer software to trick users into oversharing:
FrostWire for Android… was likely to cause a significant number of consumers installing and running it on their mobile computing devices to unwittingly share files stored on those devices. The Defendants had configured the application’s default settings so that, immediately upon installation and set-up, many pre-existing files on the mobile device were designated for sharing. These files could be shared through the Internet, and through any given… WiFi… network… with other FrostWire for Android users… These shared files thus were available to other people in the consumer’s immediate vicinity and throughout the world to download and share further. Nothing in the installation and set-up process… adequately informed consumers of the immediate consequences of installing FrostWire for Android; nor could consumers be expected to know these consequences from any prior experience with other software.
The FTC has made a pretty good case that this qualifies as an unfair practice:
Under Section 5(n) of the FTC Act, an act or practice is “unfair” if it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or to competition
In particular, the FTC notes the potential harms caused by inadvertently sharing all the files on your phone: Continue reading →
Over the weekend, Janet Morrissey of The New York Times posted an excellent article on the U.S. government’s continuing crackdown on Internet gambling. (“Poker Inc. to Uncle Sam: Shut Up and Deal“) Ironically, her article arrives on the same week during which PBS aired the terrific new Ken Burns and Lynn Novick documentary on the history of alcohol prohibition in the United States. It’s a highly-recommended look at the utter hypocrisy and futility of prohibiting a product that millions of people find enjoyable. If there’s a simple moral to the story of Prohibition, it’s that you can’t repress human nature–not for long, at least, and not without serious unintended consequences. Which is why Morrissey of the Times notes:
And so the poker world now finds itself in a situation many liken to Prohibition. America didn’t stop drinking when the government outlawed alcoholic beverages in 1919. And, in this Internet age, it won’t be easy to prevent people from gambling online, whatever the government says. “It’s a game of whack-a-mole,” says Behnam Dayanim, an expert on online gambling and a partner at the Axinn Veltrop & Harkrider law firm. “They’ve whacked three very large moles, but over time, more moles will pop up.”
Exactly right (except that it should be “whac” not “whack”! There’s no K in whac-a-mole.) It reminds me of the paper that my blogging colleague Tom Bell penned back in 1999 for the Cato Institute with its perfect title: “Internet Gambling: Popular, Inexorable, and (Eventually) Legal.” As Tom noted back then: Continue reading →
TechFreedom, in association with the Family Online Safety Institute (FOSI), will host a lunch panel with a number of leading experts to discuss the FTC’s recently-proposed revisions to the Children’s Online Privacy Protection Act (COPPA). Opening remarks will be delivered by the Federal Trade Commission’s Phyllis Marcus, a Senior Staff Attorney at the Division of Advertising Practices. Afterwards, the panel will discuss the FTC’s proposals and what they mean for children, parents, Internet companies and innovation.
FOSI CEO Stephen Balkam will serve as master of ceremonies. The panel will be moderated by Berin Szoka, President of TechFreedom, and will include:
The event will take place at the Top of the Hill Banquet and Conference Center at the Reserve Officers Association (One Constitution Ave NE, Washington DC 20002) on Wednesday, October 12 from 12:30 to 2:30pm, and include a complimentary lunch. Space is limited so please click here to register.
In addition, you can let everyone else know you’ll be coming or watching the livestream (page will be updated when event begins) by joining the Facebook event page.
You can also keep up with the event by following the Twitter discussion at the #COPPA hashtag.
Yesterday’s Wall Street Journal’s story on the legal challenge to Net Neutrality regulation opens as follows:
Efforts by public interest groups to get a legal challenge to the Federal Communications Commission’s new “net neutrality” rules heard somewhere other than the U.S. Court of Appeals for the D.C. Circuit belly-flopped Thursday when the D.C. Court won the case in a random lottery.
I’ve responded with the following comment:
The first sentence of this article reinforces the common misconception that “public interest” groups support net neutrality regulations while only corporations oppose them.
In fact, many large corporations have supported these regulations, while a wide array of public interest, non-profit groups oppose the FCC’s net neutrality regulations. Those include a variety of free market groups such as TechFreedom (my own think tank), the Competitive Enterprise Institute, FreedomWorks and Americans for Tax Reform, but also left-leaning civil liberties groups such as the Electronic Frontier Foundation, which called the FCC’s rules a “Trojan Horse” for other regulation because they set a dangerous precedent that would give the FCC broad powers in other areas, such as content regulation or copyright.
If a Democratic FCC can invent the authority to issue Net Neutrality rules, an FCC Chairman appointed by a socially conservative president could implement the agenda of censorship advocates such as the Parents Television Council’s founder Brent Bozell—which might explain why those groups have supported the Net Neutrality regulation.
FCC Commissioner Robert McDowell demolished the idea that these Internet regulations would serve the “public interest” in a scathing dissent when the FCC issues these illegal rules. He emphasized that real net neutrality problems could be handled first through mediation processes and, if necessary, through consumer protection and antitrust laws.
[I am participating in an online “debate” at the American Constitution Society with Professor Ben Edelman. The debate consists of an opening statement and concluding responses. Professor Edelman’s opening statement is here. I have also cross-posted the opening statement at Truthonthemarket and Tech Liberation Front. This is my closing statement, which is also cross-posted at Truthonthemarket.]
Professor Edelman’s opening post does little to support his case. Instead, it reflects the same retrograde antitrust I criticized in my first post.
Edelman’s understanding of antitrust law and economics appears firmly rooted in the 1960s approach to antitrust in which enforcement agencies, courts, and economists vigorously attacked novel business arrangements without regard to their impact on consumers. Judge Learned Hand’s infamous passage in the Alcoa decision comes to mind as an exemplar of antitrust’s bad old days when the antitrust laws demanded that successful firms forego opportunities to satisfy consumer demand. Hand wrote:
we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.
Antitrust has come a long way since then. By way of contrast, today’s antitrust analysis of alleged exclusionary conduct begins with (ironically enough) the U.S. v. Microsoft decision. Microsoft emphasizes the difficulty of distinguishing effective competition from exclusionary conduct; but it also firmly places “consumer welfare” as the lodestar of the modern approach to antitrust:
Continue reading →
[I am participating in an online “debate” at the American Constitution Society with Professor Ben Edelman. The debate consists of an opening statement and concluding responses. Professor Edelman’s opening statement is here. I have also cross-posted this opening statement at Truthonthemarket.]
The theoretical antitrust case against Google reflects a troubling disconnect between the state of our technology and the state of our antitrust economics. Google’s is a 2011 high tech market being condemned by 1960s economics. Of primary concern (although there are a lot of things to be concerned about, and my paper with Geoffrey Manne, “If Search Neutrality Is the Answer, What’s the Question?,” canvasses the problems in much more detail) is the treatment of so-called search bias (whereby Google’s ownership and alleged preference for its own content relative to rivals’ is claimed to be anticompetitive) and the outsized importance given to complaints by competitors and individual web pages rather than consumer welfare in condemning this bias.
The recent political theater in the Senate’s hearings on Google displayed these problems prominently, with the first half of the hearing dedicated to Senators questioning Google’s Eric Schmidt about search bias and the second half dedicated to testimony from and about competitors and individual websites allegedly harmed by Google. Very little, if any, attention was paid to the underlying economics of search technology, consumer preferences, and the ultimate impact of differentiation in search rankings upon consumers.
So what is the alleged problem? Well, in the first place, the claim is that there is bias. Proving that bias exists — that Google favors its own maps over MapQuest’s, for example — would be a necessary precondition for proving that the conduct causes anticompetitive harm, but let us be clear that the existence of bias alone is not sufficient to show competitive harm, nor is it even particularly interesting, at least viewed through the lens of modern antitrust economics.
Continue reading →
Federal Communications Chairman Genachowski previewed the universal service reform plan the commissioners are discussing in a speech today.
The speech offers a masterful summary of the myriad inefficiencies created by the current universal service subsidies and intercarrier compensation payments. Most of the examples highlight plain old-fashioned waste. The universal service program collects billions of dollars from telephone subscribers, then simply wastes a goodly portion of it by subsidizing telephone competition in places where unsubsidized service from cable or satellite already exists, subsidizing multiple mobile wireless competitors, and subsidizing local phone companies that have little incentive for cost containment because they are still subject to rate-of-return regulation. The intercarrier compensation system uses per-minute charges to collect billions of dollars from telephone subscribers and hands it to phone companies that sometimes charge as little as $8 a month for phone service. There’s also a race to game this system as the companies that benefit seek new ways to inflate the regulated charges they collect, and the companies that pay seek clever ways to avoid paying.
It’s a powerful brief for reform. Never thought I’d live to see the day whan an FCC chairman would say so many things that are substantiated by economic research.
Nevertheless, a few parts of the speech give me cause for concern about the solutions the FCC commissioners may be discussing.
First, the chairman claims that 18 million Americans live in areas without access to broadband — up from the 14 million estimated in the National Broadband Plan. The size of this figure suggests to me that the FCC is still over-estimating the number of people without access by defining “broadband” as a speed fast enough to exclude 3G wireless, many small rural Wireless Internet Service Providers, and satellite. Absent an adjustment in the definition of broadband, the subsidy program will be larger than it needs to be, and so telephone consumers will pay excessive universal service charges. Continue reading →