[Here’s an oped of mine that recently ran on Reuters.  Readers will recognize many of these themes and arguments since I have developed them here on the TLF many times before.]

Privacy Regulation and the “Free” Internet

by Adam Thierer, Mercatus Center at George Mason University

Would you like to pay $20 a month for Facebook, or a dime every time you did a search on Google or Bing?  That’s potentially what is at stake if the Obama administration and advocates of stepped-up regulation of online advertising get their way.

The Internet feels like the ultimate free lunch.  Once we pay for basic access, a cornucopia of seemingly free services and content is at our fingertips.  But those services don’t just fall to Earth like manna from heaven.  What powers the “free” Internet are data collection and advertising. In essence, the relationship between consumers and online content and service providers isn’t governed by any formal contract, but rather by an unwritten  quid pro quo: tolerate some ads or we’ll be forced to charge you for service.  Most consumers gladly take that deal—even if many of them gripe about annoying or intrusive ads, at times.

Nonetheless, calls for regulation persist, especially as advertising grows more sophisticated.  More targeted forms of online advertising hold the promise of better ads more closely tailored to consumers’ interests.  But that also raises anxieties among some Web surfers who fear their privacy might be undermined by increased data collection or “tracking.”

To address those concerns, the Federal Trade Commission (FTC) and the Department of Commerce have stepped-up activity in this arena and has suggested that new rules may be needed. Earlier this month, the FTC released a report endorsing a new regulatory framework, including a so-called “Do Not Track” mechanism to allow easier consumer opt-outs of online data collection and advertising.  Last Thursday, the Commerce Department followed suit with a new report calling for expanded oversight and a new Privacy Policy Office within Commerce.  Meanwhile, discussion continues in Congress about a new “baseline” privacy law.

The stakes in the debate are significant since regulation could fundamentally alter the nature of online commerce and the future of how digital content and services are provided.  Curtailing data collection and online advertising could be killing the goose that lays the Internet’s golden eggs.  Such regulation will likely have a particularly deleterious impact on small publishers and service providers, who depend almost entirely upon online advertising.  In turn, this could curtail new entry and innovation—and new forms of speech and culture.

Some regulatory advocates don’t hide their desire to move the U.S. in the direction the European Union has charted with its “data directives” and more stringent forms of privacy regulation.  But America’s refusal thus far to walk down that more regulatory path offers scholars the chance to evaluate Europe’s more restrictive approach and study whether America’s lead in the global digital marketplace might be tied to its more “hands-off” approach to online regulation. A recent study by Avi Goldfarb and Catherine Tucker found that “after the [European Union’s] Privacy Directive was passed [in 2002], advertising effectiveness decreased on average by around 65 percent in Europe relative to the rest of the world.” They argue that because regulation decreases ad effectiveness, “this may change the number and types of businesses sustained by the advertising-supporting Internet.” Regulation of advertising and data collection for privacy purposes, it seems, can affect the global competitiveness of online firms.

Regulatory efforts will be complicated by the fact that privacy is a highly subjective condition and definitions of consumer “harm” vary widely.  Many of us don’t much worry about data collection or advertising online; we merrily go along our way surfing free sites, services, and content.  But a handful of vocal pro-regulatory privacy advocates and organizations have successfully convinced many policymakers that the hyper-sensitive concerns of a small minority should trump all other considerations.

Ironically, many of those privacy advocates bash copyright law and claim it is an information control regime, yet privacy regulation would constitute a stronger information control regime by creating the equivalent of copyright for personal information (which would, in turn, conflict mightily with the First Amendment).  In essence, privacy regulations limit the right of people to talk about other people, or communicate facts about them.  This raises serious free speech concerns and has particularly troubling ramifications for press freedoms.  Restrictions on advertising could also have an effect on non-commercial speech, such as political ads or non-profit communication.

Some proposed privacy regulations, such as a “Do Not Track” mandate, would also require a re-architecting of the Internet and the potential regulation of every Web browser to ensure compliance.  If our experience with attempting to eradicate email spam through regulation proves anything, it’s that such schemes are unlikely to work given the Net’s borderless nature.

There is a better path to balancing privacy interests and economic growth than through an onerous privacy regulatory regime. Educating and empowering consumers with more, and better, privacy-enhancing tools can help alleviate much of the concern about data collection or advertising intrusiveness.  The most-downloaded add-on for both the Firefox and Chrome web browsers is AdBlock Plus, which blocks advertising on most sites. A host of other tools are available to block or limit various types of data collection, and every major browser has privacy control tools and anonymous surfing modes to help users limit data collection.

Again, because privacy is a subjective condition, not everyone takes advantage of these empowerment tools.  The crucial point, however, is that the tools exist and they need not be perfect to be preferable to government regulation, which, in this case, could decimate the “free” Internet as we know it.

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University where he works with the Technology Policy Program. Thierer covers technology, media, Internet, and free speech policy issues with a particular focus in online child safety and digital privacy policy issues. The views expressed are his own.

[Note: This post is updated regularly as I discover relevant old or new material.]

“Regulatory capture” occurs when special interests co-opt policymakers or political bodies — regulatory agencies, in particular — to further their own ends.  Capture theory is closely related to the “rent-seeking” and “political failure” theories developed by the public choice school of economics.  Another term for regulatory capture is “client politics,” which according to James Q. Wilson, “occurs when most or all of the benefits of a program go to some single, reasonably small interest (and industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers).”  (James Q. Wilson, Bureaucracy, 1989, at 76).

While capture theory cannot explain all regulatory policies or developments, it does provide an explanation for the actions of political actors with dismaying regularity.  Because regulatory capture theory conflicts mightily with romanticized notions of “independent” regulatory agencies or “scientific” bureaucracy, it often evokes a visceral reaction and a fair bit of denialism.  (See, for example, the reaction of New Republic’s Jonathan Chait to Will Wilkinson’s recent Economist column about the prevalence of corporatism in our modern political system.)  Yet, countless studies have shown that regulatory capture has been at work in various arenas: transportation and telecommunications; energy and environmental policy; farming and financial services; and many others.

I thought it might be useful to build a compendium of quotes from various economists and political scientists who have studied the regulatory process throughout history and identified regulatory capture or client politics as a major problem.  I would greatly appreciate having others suggest additional quotes and studies to add to this list since I plan to update it frequently and eventually work all of this into a future paper or book. [ Note: I have updated this compendium over a dozen times since the original post, so please check back for updates.]

The following list is chronological and begins, surprisingly, with the thoughts of progressive hero Woodrow Wilson…

Woodrow Wilson, The New Freedom: A Call For the Emancipation of the Generous Energies of a People (1913) at 201-202:

“If the government is to tell big business men how to run their business, then don’t you see that big business men have to get closer to the government even than they are now? Don’t you see that they must capture the government, in order not to be restrained too much by it? Must capture the government? They have already captured it. Are you going to invite those inside to stay? They don’t have to get there. They are there.”

A. C. Pigou, Economics of Welfare, (1920), Ch. 20, Para. #4

“It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any public authority will attain, or will even whole-heartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure and to personal corruption by private interest. A loud-voiced part of their constituents, if organised for votes, may easily outweigh the whole.”

Anthony Downs, “An Economic Theory of Political Action in a Democracy,” 65 Journal of Political Economy 2 (1957), 135-150, at 136:

“…even if social welfare could be defined, and methods of maximizing it could be agreed upon, what reason is there to believe that the men who run the government would be motivated to maximize it? To state that “they should do so does not mean that they will.”

Ronald Coase, “The Federal Communications Commission” 2 Journal of Law and Economics (1959), 1-40, at 37. In commenting on the fact that many lawmakers bemoaned “the extent to which pressure is brought to bear on the [FCC] by politicians and businessmen,” Coase said “that this should be happening is hardly surprising.”  He continued on:

“When rights, worth millions of dollars, are awarded to one businessman and denied to others, it is no wonder if some applicants become overanxious and attempt to use whatever influence they have (political and otherwise), particularly as they can never be sure what pressure the other applicants may be exerting.”

Milton Friedman, Capitalism & Freedom (1962) at 140:

“the pressure on the legislature to license an occupation rarely comes from the members of the public . . . On the contrary, the pressure invariably comes from the occupation itself.”

Harold Demsetz, “Why Regulate Utilities?,” 11(1) Journal of Law and Economics (Apr., 1968), at 61.

“…in utility industries, regulation has often been sought because of the inconvenience of competition.”

Richard Posner, “Natural Monopoly and Its Regulation,” 21(3) Stanford Law Review 548 (Feb., 1969):

“Because regulatory commissions are of necessity intimately involved in the affairs of a particular industry, the regulators and their staffs are exposed to strong interest group pressures.  Their susceptibility to pressures that may distort economically sound judgments is enhanced by the tradition of regarding regulatory commissions as ‘arms of the legislature,’ where interest-group pressures naturally play a vitally important role.”

George Stigler, “The Theory of Economic Regulation,” 2(1) Bell Journal of Economics and Management Science, (1971), 3-21 at 3:

“…as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits.”

George Stigler, “Can Regulatory Agencies Protect the Consumer?” in The Citizen and the State: Essays on Regulation (1975), at 183:

“Regulation and competition are rhetorical friends and deadly enemies: over the doorway of every regulatory agency save two should be carved: ‘Competition Not Admitted.’ The Federal Trade Commission’s doorway should announce , “Competition Admitted in Rear,” and that of the Antitrust Division, ‘Monopoly Only by Appointment.’”

Theodore J. Lowi, The End of Liberalism: The Second Republic of the United States (2nd Ed., 1969, 1979) at 280:

“a considerable proportion of federal regulation, regardless of its own claim to consumer protection, has the systematic effect of constituting and maintaining a sector of the economy or the society. These are the policies of receivership by regulation.”

Alfred Kahn, The Economics of Regulation: Principles and Institutions (1971):

“When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls rather than on the unplanned and unplannable forces of competition.” (p. 12) “Responsible for the continued provision and improvement of service, [the regulatory commission] comes increasingly and understandably to identify the interest of the public with that of the existing companies on whom it must rely to deliver goods.” (p. 46)

Mark Green and Ralph Nader, “Economic Regulation vs. Competition: Uncle Sam the Monopoly Man,” Yale Law Journal 82, no. 5 (April 1973), 876

“a kind of regular personnel interchange between agency and industry blurs what should be a sharp line between regulator and regulatee, and can compromise independent regulatory judgment. In short, the regulated industries are often in clear control of the regulatory process.”

Richard B. McKenzie and Gordon Tullock, Modern Political Economy: An Introduction to Economics (1978) at 220:

“although regulation is begun with the good intentions of those who promote and pass the laws, somewhere along the line regulators may become pawns of the regulated firms.”

Milton and Rose Friedman, Free to Choose (1980) at 193:

“Every act of intervention establishes positions of power.  How that power will be used and for what purposes depends far more on the people who are in the best position to get control of that power and what their purposes are than on the aims and objectives of the initial sponsors of the intervention.”

Barry M. Mitnick, The Political Economy of Regulation: Creating, Designing, and Removing Regulatory Forms (New York: Columbia University Press, 1980), at 38:

“Much relatively recent research has argued that regulation was often sought by industries for their own protection, rather than being imposed in some ‘public interest.’ Although the distinction is not always made clear in this recent literature, we may add that regulation which is not directly sought at the outset is generally ‘captured’ later on so it behaves with consistency to the industry’s major interests, or at least has been observed to behave in this manner.”

Barry Weingast, “Regulation, Reregulation and Deregulation: The Foundation of Agency-Clientele Relationships,”44 Law and Contemporary Problems, (1981) pp. 147-77, at 151:

“Often, agencies are the vehicle for this endeavor. Agency heads and commission members, anxious to further their careers and goals (including large budgets) as well as completing their own of power and prestige pet projects and policy initiatives, depend upon service to interest their success groups and key committee members for their success.”

George Gilder, Wealth & Poverty (New York: Bantam Books, 1981), pp. 283:

“One reason for government resistance to change is that the process of creative destruction can attack not only an existing industry, but also the regulatory apparatus that subsists on it; and it is much more difficult to retrench a bureaucracy than it is to bankrupt a company. A regulatory apparatus is a parasite that can grow larger than its host industry and become in turn a host itself, with the industry reduced to parasitism, dependent on the subsidies and protections of the very government body that initially sapped its strength.”

Bruce Yandle,”Bootleggers and Baptists — The Education of a Regulatory Economist,” Regulation, Vol. 3, No. 3, (May/June 1983) p. 13:

“what do industry and labor want from the regulators? They want protection from competition, from technological change, and from losses that threaten profits and jobs. A carefully constructed regulation can accomplish all kinds of anticompetitive goals of this sort, while giving the citizenry the impression that the only goal is to serve the public interest.”

Thomas K. McCraw, Prophets of Regulation, (Cambridge, MA: Harvard University Press, 1984), p. 263 [recounting the history of the Civil Aeronautics Board up until the time of Alfred Kahn ascendency to chairman and its eventual deregulation and abolition.]

“Clearly, in passing the Civil Aeronautics Act [of 1938], Congress intended to bring stability to airlines. What is not clear is whether the legislature intended to cartelize the industry. Yet this did happen. During the forty years between passage of the act of 1938 and the appointment of [Alfred] Kahn to the CAB chairmanship, the overall effect of board policies tended to freeze the industry more or less in its configuration of 1938. One policy, for example, forbade price competition. Instead the CAB ordinarily required that all carriers flying a certain route charge the same rates for the same class of customer. […] A second policy had to do with the CAB’s stance toward the entry of new companies into the business. Charged by Congress with the duty of ascertaining whether or not ‘the public interest, convenience, and necessity’ mandated that new carriers should receive a certificate to operate, the board often ruled simply that no applicant met these tests. In fact, over the entire history of the CAB, no new trunkline carrier had been permitted to join the sixteen that existed in 1938. And those sixteen, later reduced to ten by a series of mergers, still dominated the industry in the 1970s. All these companies… developed into large companies under the protective wing of the CAB. None wanted deregulation.”

Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (1987) p. 8:

“The government’s regulatory agencies have created or sustained private monopoly power more often than they have precluded or reduced it.  This result was exactly what  many interested parties desired from government regulation, though they would have been impolitic to have said so in public.”

Jeffrey M. Berry, The Interest Group Society (1989) p. 151:

“The ties between interest groups and [regulatory] agencies can become too close. A persistent criticism by political scientists is that agencies that regulate businesses are overly sympathetic to the industries they are responsible for regulating.  Critics charge that regulators often come from the businesses they regulate and thus naturally see things from an industry point of view.  Even if regulators weren’t previously involved in the industry, they have been seen as eager to please powerful clientele groups rather than have them complain to the White House or to the agency’s overseeing committees in Congress.”

Jonathan Emord, “The Electronic Press and the Industry Capture Movement,” Chapter 11 from: Freedom Technology and the First Amendment (1991), p. 146 (discussing the early history of radio licensing):

“The minutes of the First National Radio Conference in 1922 reveal that even at this early date, industry leader clamored for government limits on the number of licenses issued; they sought protection against entry by new licenses. For its part, the government desired control over the industry’s structure and programming content. Certain members of Congress, joined by [Secretary of Commerce Herbert] Hoover, agreed with broadcast industry leaders that the system of broadcasting in the United States would be brought within the federal government’s control. The classic rent/content control quid pro quo soon developed: in exchange for regulatory controls on industry structure and programming content, industry leaders would be granted restrictions on market entry that they wanted. These restrictions would ensure monopoly rents for licensees and would provide the government with assurance that the broadcast industry would not oppose regulatory controls.”

David Schoenbrod, Power Without Responsibility: How Congress Abuses the People Through Delegation (New Haven, CT: Yale University Press, 1993), p. 13:

“Agency heads are usually not apolitical and, indeed, concentrated interests often prevail more easily in an agency than they can in Congress. Effective participation in agency lawmaking usually requires expensive legal representation as well as close connections to members of Congress who will pressure the agency on one’s behalf. The agency itself is often closely linked with the industry it regulates. Not only large corporations, but also labor unions, cause-based groups, and other cohesive minority interests sometimes can use delegation to triumph over the interests of the larger part of the general public, which lacks the organization, finances, and know-how to participate as effectively in the administrative process.”

Douglass North, “Economic Performance through Time,” 84 American Economic Review 3, (1994), 359-363, at p. 360:

“Institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to create new rules.”

P.A. McNutt, The Economics of Public Choice (1996), p. 105-6:

“The more successful the interest group becomes the greater the probability that it will be in a position to impact on the policy making process of successive governments. … Aspiring monopolists will retain lobbyists to assure a favourable outcome and devote resources to the acquisition of the monopoly right.  A government will more than likely grant monopoly privileges to various groups of politically influential people.  Cartels and anti-competitive behaviour will be maintained and politicians will react to the demands of the more vociferous and well organised interest groups.”

Andrew Odlyzko, “Privacy, Economics, and Price Discrimination on the Internet,” July 27, 2003, p. 12:

“It is now widely accepted that the passage of the Interstate Commerce Act of 1887 was not a pure triumph of the populist movement and its allies in the anti-railroad camp. The railway industry largely decided that regulation was in its best interests and acquiesced in and even encouraged government involvement. This is often portrayed as the insidious capture of the regulators by the industry they regulate. There is certainly much evidence to support this view.”

Lawrence Lessig,”Reboot the FCC,” Newsweek, December 23, 2008

“Economic growth requires innovation. Trouble is, Washington is practically designed to resist it. Built into the DNA of the most important agencies created to protect innovation, is an almost irresistible urge to protect the most powerful instead. The FCC is a perfect example. … With so much in its reach, the FCC has become the target of enormous campaigns for influence. Its commissioners are meant to be “expert” and “independent,” but they’ve never really been expert, and are now openly embracing the political role they play. Commissioners issue press releases touting their own personal policies. And lobbyists spend years getting close to members of this junior varsity Congress.”

Thomas Frank, “Obama and Regulatory Capture,” Wall Street Journal, June 24, 2009:

“There are powerful institutions that don’t like being regulated. Regulation sometimes cuts into their profits and interferes with their business. So they have used the political process to sabotage, redirect, defund, undo or hijack the regulatory state since the regulatory state was first invented. The first federal regulatory agency, the Interstate Commerce Commission, was set up to regulate railroad freight rates in the 1880s. Soon thereafter, Richard Olney, a prominent railroad lawyer, came to Washington to serve as Grover Cleveland’s attorney general. Olney’s former boss asked him if he would help kill off the hated ICC. Olney’s reply, handed down at the very dawn of Big Government, should be regarded as an urtext of the regulatory state: ‘The Commission… is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things. … The part of wisdom is not to destroy the Commission, but to utilize it.'”

Tim Wu, The Master Switch: The Rise and Fall of Information Empires (2010), p. 308:

“Again and again in the histories I have recounted, the state has shown itself an inferior arbiter of what is good for the information industries. The federal government’s role in radio and television from the 1920s through the 1960s, for instance, was nothing short of a disgrace…. Government’s tendency to protect large market players amounts to an illegitimate complicity … [particularly its] sense of obligation to protect big industries irrespective of their having become uncompetitive.”

David J. Farber & Gerald R. Faulhaber, “Net Neutrality: No One Will Be Satisfied, Everyone Will Complain,” The Atlantic, December 21, 2010:

“When the FCC asserts regulatory jurisdiction over an area of telecommunications, the dynamic of the industry changes. No longer are customer needs and desires at the forefront of firms’ competitive strategies; rather firms take their competitive battles to the FCC, hoping for a favorable ruling that will translate into a marketplace advantage. Customer needs take second place; regulatory “rent-seeking” becomes the rule of the day, and a previously innovative and vibrant industry becomes a creature of government rule-making.”

Holman Jenkins, “Let’s Restart the Green Revolution,” Wall Street Journal, February 2, 2011, (regarding how misguided agricultural & environmental policies are hurting consumers):

“When some hear the word ‘regulation,’ they imagine government rushing to the defense of consumers. In the real world, government serves up regulation to those who ask for it, which usually means organized interests seeking to block a competitive threat. This insight, by the way, originated with the left, with historians who went back and reconstructed how railroads in the U.S. concocted federal regulation to protect themselves from price competition. We should also notice that an astonishingly large part of the world has experienced an astonishing degree of stagnation for an astonishingly long time for exactly such reasons.”

Bruce Schneier, Liars & Outliers: Enabling the Trust that Society Needs to Thrive (New York: John Wiley & Sons, Inc., 2012), p. 204.

“There’s one competing interest that’s unique to enforcing institutions, and that’s the interest of the group the institution is supposed to watch over. If a government agency exists only because of the industry, then it is in its self-preservation interest to keep that industry flourishing. And unless there’s some other career path, pretty much everyone with the expertise necessary to become a regulator will be either a former or future employee of the industry with the obvious implicit and explicit conflicts. As a result, there is a tendency for institutions delegated with regulating a particular industry to start advocating the commercial and special interests of that industry. This is known as regulatory capture, and there are many examples both in the U.S. and in other countries.”

Bruce Owen, “Communication Policy Reform, Interest Groups, and Legislative Capture” (Stanford, CA: Stanford Institute for Economic Policy Research, January 19, 2012), SIEPR Discussion Paper No. 11-006, p. 2. Owen argues that it is the legislative branch, not the regulatory agencies themselves, where regulatory capture takes root:

“It is rather legislative oversight and budget committees and their chairs that are (willingly) captured by special interests in the first instance. One could equally say that legislators capture the special interests, seeking campaign funding The behavior of regulatory agencies simply reflect the preferences of their congressional masters. Regulators generally seek to please their committees, not to defy them.”

Mark Zachary Taylor, The Politics of Innovation: Why Some Countries Are Better Than Others at Science and Technology (Oxford University Press, 2016), p. 213:

“political resistance to technological change can obstruct or warp otherwise ‘good’ S&T [science and technology] policy. Time and again, the losing interest groups created by scientific progress or technological change have been able to convince politicians to block, slow, or alter government support for scientific and technological progress. They support taxes, regulations, subsidies, procurement policies, spending, and so forth that obstruct progress in new S&T, and favor the status quo S&T. The losers and their political representatives have interfered with markets, public institutions and policies, and even the scientific debate itself–whatever they can to protect their interests.”

Additional readings:

• RegBlog – “A Resource List on Regulatory Capture and Reform” (2016)
• Frédéric Boehm, “Regulatory Capture Revisited – Lessons from Economics of Corruption” (2007)
• Ernesto Dal Bo, “Regulatory Capture: A Review,” Oxford Review of Economic Policy (2006)
• William W. Bratton & Joseph A. McCahery, “Regulatory Competition, Regulatory Capture, and Corporate Self-Regulation,” North Carolina Law Review 73 (1995), 1861.
• Slavisa Tasic, “Are Regulators Rational?” Instituto Bruno Leoni (October 2010)
• Michael E. Levine and Jennifer L. Forrence, “Regulatory Capture, Public Interest, and the Public Agenda: Toward a Synthesis” 6 Journal of Law, Economics, and Organization (1990), 167-198.
• William A. Jordan, “Producer Protection, Prior Market Structure and the Effects of Government Regulation,” Journal of Law and Economics 15, no. 1, (April 1972), 151-176.
• David Martimort, “The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs,” Review of Economic Studies 66, no. 4 (October 1999), 929-947,
• J.J. Lafont & Jean Tirole, “The Politics of Government Decision-Making: A Theory of Regulatory Capture” 106 Quarterly Journal of Economics 4 (Nov. 1991) 1089-1127.
• Fred S. McChesney, “Rent Extraction and Rent Creation in the Economic Theory of Regulation,” Journal of Legal Studies 16 (1987) 101-118.
• Horace M. Gray, “The Passing  of the Public Utility Concept,” Journal of Land & Public Utility Economics 16, no. 1 (February 1940), 8-20.
• Jeffrey T. Macher, John W. Mayo, and Mirjam Schiffer, “The Influence of Firms on Government,” The B.E. Journal of Economic Analysis & Policy, 11, no. 1 (2011).
• Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (1963)
• Lawrence G. Baxter, “Understanding Regulatory Capture: An Academic Perspective from the United States, in Stefano Pagliari, ed., The Making of Good Financial Regulation (2012), p. 31-39.
• an essay of mine from Jan. 2015 highlighting a particularly vivid example of capture at the FAA
• Ambrose Bierce’s satirical Devil’s Dictionary definitions of… Politics: “A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.” Legislator: “A person who goes to the capital of his country to increase his own; one who makes laws and money.”
• Finally, down below I’ve embedded a funny Tom Toles cartoon about regulatory capture that appeared in the Washington Post on January 20, 2011:

This is a response to Nick Carr’s recent piece, “The Attack on Do Not Track,” in which he goes after me for some comments I made in this essay about the trade-offs at work in the privacy and online advertising debates.  In his critique of my essay, he argues:

What the FTC is suggesting is that the unwritten quid pro quo be written, and that the general agreement be made specific. Does Thierer really believe that invisible tradeoffs are somehow better than visible ones? Shouldn’t people know the cost of “free” services, and then be allowed to make decisions based on their own cost-benefit analysis? Isn’t that the essence of the free market that Thierer so eloquently celebrates?

My response to Nick follows.

Nick…  Did I anywhere suggest that “invisible tradeoffs are somehow better than visible ones?” I can’t remember saying that anywhere, so perhaps you can point to where I did.  I don’t think you’ll find anything when you conduct your search since I know for a fact that I have never suggested such a thing.

That being said, strict contracting and consent models are not always possible in a free market economy, even if they are ideal.  In essence, much of the history of advertising and marketing is built on the sort of “unwritten quid pro quos” you deride in your essay.  Are you against radio or television advertising on similar grounds? Print ads? Direct mail?  Billboards?  There are steps you can take to avoid advertising and marketing in those contexts, but few of us would expect any sort of formal contact and consent form to be delivered to our attention beforehand.  And opt-ing out of them entirely is very difficult.  So, while I agree that, generally speaking, “people [should] know the cost of ‘free’ services, and then be allowed to make decisions based on their own cost-benefit analysis,” let’s understand that such ideal textbook models of perfect information and informed consent aren’t always possible.

I will admit, however, that the difference with online advertising is that personal information may be collected about the consumer of the advertising in question.  That did not always occur as part of those previous advertising “quid pro quos.”  Understandably, this raises the blood pressure of those who want to “property-tize” personal information and, in essence, apply a copyright-like permissions-based regime to any collection or reproduction of such information.  Such an information control regime will be challenging to enforce, especially in light of the significant amounts of personal information that we voluntarily place online about ourselves.  [See my earlier essay, “Privacy as an Information Control Regime: The Challenges Ahead” for further discussion.]

Nonetheless, an ideal world would be one in which trade-offs were more visible and consent / contracting was easier, whether we are talking about privacy, copyrighted material, or anything else.  For example, in the context of online child safety and potentially objectionable media content, I have long argued that:

The ideal state of affairs, therefore, would be a nation of fully empowered parents who have the ability to perfectly tailor their family’s media consumption habits to their specific values and preferences. Specifically, parents or guardians would have (1) the information necessary to make informed decisions and (2) the tools and methods necessary to act upon that information. Importantly, those tools and methods would give them the ability to not only block objectionable materials, but also to more easily find content they feel is appropriate for their families.

My former colleague Berin Szoka has applied this same ‘ideal world’ model to privacy in this filing to the Federal Trade Commission:

In an ideal world, adults would be fully empowered to tailor privacy decisions, like speech decisions, to their own values and preferences (“household standards”).  Specifically, in an ideal world, adults (and parents) would have (1) the information necessary to make informed decisions and (2) the tools and methods necessary to act upon that information.  Importantly, those tools and methods would give them the ability to block the things they don’t like—annoying ads or the collection of data about them, as well as objectionable content.

Again, this would move us close to an explicit contracting / consent regime for the media content in question in both cases.  Is it desirable? You bet.  Is it possible?  Likely not.  Can we strive to get closer to the ideal state?  Yes, but not without costs. And that’s the key point I was trying to get across in my earlier essay on Do Not Track.  The trade-offs here are real and could be quite profound for online content and culture.   If we move toward a more rigorous information control regime to restrict personal information flows in the name of protecting privacy, we should not be surprised when that trade-off becomes more explicit–and expensive.

One final point.  You argue that “the suggestion that people shouldn’t be allowed to make informed choices about their privacy because some businesses may suffer as a result of those choices is ludicrous and even offensive.”  Again, I’ve already said that we can strive for more and better informed consent models, but you are pretending here it’s far simpler than it is in reality.  And I’ve already noted that the important point here is not protecting businesses, per se, but rather understanding that online content and culture is currently primarily subsidized by advertising business models that will be forcibly broken by regulation, and that we should consider the trade-offs that entails.  Finally, is there any role for personal responsibility in your view?  After all, there are steps that websurfers can take to address unwanted advertising and data collection techniques. Here’s a short list of privacy solutions that my former PFF colleagues put together.  If we expect consumers to exercise some personal responsibility to avoid unwanted content or communications in the free speech / online child safety context, why not here in the privacy context as well?

The comic geniuses at CollegeHumor.com have really hit the nail on the head with this musical romp through the (mostly ad-supported) web, a take-off on “Maria” from the musical West Side Story.  Besides showcasing a number of great ad-supported services, the clip really hits the nail on the head by acknowledging that “There is No Free Lunch“: The quid pro quo of advertising supports the plethora of online content and services Internet users take for granted.

Pandora, I just found a website called Pandora… Pandora! type it in and there’s music playing watch the ads and it’s almost like paying

I’m tempted to show the clip at our upcoming PFF Capitol Hill briefing on July 10: “Regulating Online Advertising: What Will it Mean for Consumers, Culture & Journalism?“

The advocates of regulation pay lip service to the importance of advertising in funding online content and services but don’t seem to understand that this quid pro quo is a fragile one:  Tipping the balance, even slightly, could have major consequences for continued online creativity and innovation.

Who is this handsome young man and why does he have “Mr. Yogato Stamped Me!!!” on his forehead? More importantly, why does he look so darn happy?

Flashback: Earlier this week, my partner Michael (pictured) and I visited Mr. Yogato, a frozen yogurt shop in Washington’s Dupont Circle neighborhood which describes itself as “the FUNNEST yogurt experience you’ll ever have.”

Apart from serving exceptionally tasty frozen yogurt and letting customers play a vintage Nintendo, Mr. Yogato is famous for the eight “Rules of Yogato,” which offer discounts if users achieve certain feats, including:

• Answering devilishly difficult trivia (10% off—or extra if you fail)
• Reciting the Stirling battlefield speech from Braveheart in a great Scottish accent (20% off)

But the best discount, which Michael does every time (unless I’m there to help identify, say, countries that end in ‘L’), is offered for wearing the Yogato stamp on your forehead. Being stamped is, of course, almost as much fun as singing along to “Mr. Roboto” if you’re lucky enough to hear that played while you’re in the shop (10% off).  But the real fun is in engaging passersby on the street about the icy-sweet joys of Yogato. It’s also, of course, probably the most effective advertising Mr. Yogato could ever want.

So, the next time you hear Adam Thierer and I talk about the benefits of advertising, especially online, just remember that while there is no free lunch (nor free frozen yogurt), there is discounted frozen yogurt.  It’s a simple, obvious quid pro quo:  10% off in exchange for spreading the Gospel of Yogato.

The most obvious example of a  quid pro quos is the use of discount cards in grocery stores: Users receive discounts in exchange for having their purchases tracked, which allows advertisers to target advertising to them and the grocery store to better manage its inventory. Online, Microsoft’s Live search engine (now Bing) pioneered the use of rewarding users with “cashback” for purchases made through the search engine.

But the more significant quid pro quo online is indirect: users receive “free” content and services in exchange for seeing advertising and sharing data about their browsing habits, which makes advertising significantly better targeted, more effective for advertisers and therefore more profitable for online content publishers and service providers. As Adam and I noted in response to the FTC’s recently-released self-regulatory guidelines for “behavioral advertising” (now likely to be superseded by pre-emptive “privacy” legislation):

The advocates of regulation pay lip service to the importance of advertising in funding online content and services but don’t seem to understand that this quid pro quo is a fragile one: Tipping the balance, even slightly, could have major consequences for continued online creativity and innovation. [FTC] Commission Harbour talks about companies competing on privacy as a “non-price dimension”-and that is clearly a positive thing. In traditional economics, there are three primary variables that are considered when discussing industry competition and efforts to regulate market structures: price, quantity, and quality. But in the context of the Internet, where digital economics have relentlessly driven prices down to zero, and where advertising support has become the only viable business model for most providers of content and services, the price variable has largely been removed from the picture. This means-unless industry could somehow find a way to make pay-per-use, pay-per-view, or subscription-based models work in the future-that regulation of online advertising would have its most dramatic impact on the quantity and quality of content and services provided. Depending on how regulation is structured, therefore, it is possible that new privacy mandates would severely curtail the overall quantity of content and services offered-and greatly limit the ability of new providers to enter the market with innovative offerings. Alternatively, or perhaps additionally, companies would change the character of their offerings and water-down sophisticated services that cater to consumer demand; in other words, the quality of service would deteriorate. Bottom line: Something must give because there is no free lunch. Regulation is a giant game of economic whack-a-mole: Attempting to control one of the primary variables of price, quantity, or quality inevitably results in non-optimal adjustments in the other two variables. The absence of price as a variable in this context means there is one less variable for the government to control in the first place. Simply stated, stifling the evolution of the online advertising marketplace will likely result in fewer free online services and less content, less high-quality online services and content, or some combination of both…. Apart from a hardcore fringe who embrace the Marxist dogma that advertising is inherently deceptive and wasteful, most participants in this debate at least pay lip service to the economic importance of online advertising. One might therefore be lulled into a false sense of complacency that “sensible” regulation (or government-led co-regulation) would surely avoid crippling this dynamo. This widespread assumption calls to mind the famous quip of Chris Patten, last British Governor of Hong Kong, who paraphrased those who dismissed his concerns about the potentially negative effects of a Chinese take-over of the British colony in 1997, as follows: “It is unimaginable that the Chinese would kill such a goose.” To this, Patten responded, “Yet we wouldn’t need the metaphor of golden eggs and geese if history weren’t full of dead geese.” The dangers of regulation to the health of the Internet are real, but the ease with which government could disrupt the economic motor of the Internet (advertising) is not widely understood-and therein lies the true danger in this debate.

I think Mr. Yogato would understand this. Let’s hope Chairman Boucher and the folks on the Hill who seem to be so adamant about regulation do, too.

This week I was pleased to join a diverse collection of think tanks and public interest groups in submitting joint comments to the FCC opposing the proposed content filtering mandate that would be part of a future AWS-3 auction. That’s the proposed auction that would create a “free” nationwide wireless broadband service. As part of the deal, the company would need to need to take steps to provide a “clean” Internet connection by filtering content. This joint filing points out why that is a bad idea:

• the reach of the filtering mandate is extraordinarily broad, and would attempt to censor content far beyond any content regulation regime that has been previously upheld in the face of constitutional challenge.
• even if the scope of the filtering mandate were more narrowly focused, it would conflict with the First Amendment analysis that the Supreme Court applied to Internet access in the seminal Reno v. ACLU decision.
• even if the Commission were to require filtering on an “opt out” or “opt in” basis, the Constitutional problems would not be avoided. Opt-out filtering would impose an unconstitutional burden on listeners and recipients of Internet communications, and both opt-out and opt-in filtering would violate the First Amendment rights of speakers and other content providers on the Internet. Simply put, the First Amendment does not allow a government mandated “blacklist” of websites to be blocked.
• would also violate the terms and intent of two federal statutes – 47 U.S.C. § 326 (which prohibits the Commission from “interfer[ing] with the right of free speech”) and 47 U.S.C. § 230 (which promotes user control over content and limits burdens on service providers).
• would also limit what people could do online using the free AWS-3 service so dramatically that the usefulness of the service would be radically reduced.
• would also certainly lead to legal challenges that would delay the implementation of the proposed access service. The reason I believe this fight is so important is because, ultimately, it represents an effort by the FCC to begin treating wireless broadband more like broadcast spectrum. That is, regulators want to create the classic regulatory quid pro quo: We’ll rig the wireless allocation process to make it easy for you to get spectrum, and you’ll be a good little boy and clean up the Net for us! This is the game the FCC has been playing for 70 years in the broadcast television and radio licensing space. And not they want to extend that nonsense to wireless broadband. As Commander Jean-Luc Picard would say: “The line must be drawn here!” We don’t want the Internet regulated like broadcasting.

Many thanks to John Morris of CDT for coordinating this filing and asking me to sign on. The comments can be found on the CDT website, and I have also embedded them down below as a Scribd file. Also, Leslie Harris of CDT has a short editorial about the issue over at ABC News.com.