revolution – Technology Liberation Front https://techliberation.com Keeping politicians' hands off the Net & everything else related to technology Thu, 03 Apr 2025 23:20:10 +0000 en-US hourly 1 6772528 AI Eats the World: Preparing for the Computational Revolution and the Policy Debates Ahead https://techliberation.com/2022/09/12/ai-eats-the-world-preparing-for-the-computational-revolution-and-the-policy-debates-ahead/ https://techliberation.com/2022/09/12/ai-eats-the-world-preparing-for-the-computational-revolution-and-the-policy-debates-ahead/#comments Mon, 12 Sep 2022 23:52:26 +0000 https://techliberation.com/?p=77039

[Cross-posted from Medium.]

The Coming Computational Revolution

Thomas Edison once spoke of how electricity was a “field of fields.” This is even more true of AI, which is ready to bring about a sweeping technological revolution. In Carlota Perez’s influential 2009 paper on “Technological Revolutions and Techno-economic Paradigms,” she defined a technological revolution “as a set of interrelated radical breakthroughs, forming a major constellation of interdependent technologies; a cluster of clusters or a system of systems.” To be considered a legitimate technological revolution, Perez argued, the technology or technological process must be “opening a vast innovation opportunity space and providing a new set of associated generic technologies, infrastructures and organisational principles that can significantly increase the efficiency and effectiveness of all industries and activities.” In other words, she concluded, the technology must have “the power to bring about a transformation across the board.”

Expanding Our Skillset

Thus, AI (and AI policy) is multi-dimensional, amorphous, and ever-changing. It has many layers and complexities. This will require public policy analysts and institutions to reorient their focus and develop new capabilities.

Mapping the AI Policy Terrain: Broad vs. Narrow

Beyond talent development, the other major challenge is issue coverage. How can we cover all the AI policy bases? There are two general categories of AI concerns, and supporters of free markets need to be prepared to engage on both battlefields.

Confronting the Formidable Resistance to Change

Finally, free-market analysts and organizations must prepare to defend the general concept of progress through technological change as AI becomes a central social, economic, and legal battleground — both domestically and globally. Every technological revolution involves major social and economic disruptions and gives rise to intense efforts to defend the status quo and block progress. As Perez concludes, “the profound and wide-ranging changes made possible by each technological revolution and its techno-economic paradigm are not easily assimilated; they give rise to intense resistance.”

]]> https://techliberation.com/2022/09/12/ai-eats-the-world-preparing-for-the-computational-revolution-and-the-policy-debates-ahead/feed/ 3 77039 Running List of My Research on AI, ML & Robotics Policy https://techliberation.com/2022/07/29/running-list-of-my-research-on-ai-ml-robotics-policy/ https://techliberation.com/2022/07/29/running-list-of-my-research-on-ai-ml-robotics-policy/#respond Fri, 29 Jul 2022 12:51:54 +0000 https://techliberation.com/?p=77020

[last updated 4/3/2025 – Check my Medium page for latest posts]

This a running list of all the essays and reports I’ve already rolled out on the governance of artificial intelligence (AI), machine learning (ML), and robotics. Why have I decided to spend so much time on this issue? Because this will become the most important technological revolution of our lifetimes. Every segment of the economy will be touched in some fashion by AI, ML, robotics, and the power of computational science. It should be equally clear that public policy will be radically transformed along the way.

Eventually, all policy will involve AI policy and computational considerations. As AI “eats the world,” it eats the world of public policy along with it. The stakes here are profound for individuals, economies, and nations. As a result, AI policy will be the most important technology policy fight of the next decade, and perhaps next quarter century. Those who are passionate about the freedom to innovate need to prepare to meet the challenge as proposals to regulate AI proliferate.

There are many socio-technical concerns surrounding algorithmic systems that deserve serious consideration and appropriate governance steps to ensure that these systems are beneficial to society. However, there is an equally compelling public interest in ensuring that AI innovations are developed and made widely available to help improve human well-being across many dimensions. And that’s the case that I’ll be dedicating my life to making in coming years.

Here’s the list of what I’ve done so far. I will continue to update this as new material is released:

2025

2024

2023

2022

2021 (and earlier)

]]> https://techliberation.com/2022/07/29/running-list-of-my-research-on-ai-ml-robotics-policy/feed/ 0 77020 DIY-Bio, Biohacking & Evasive Entrepreneurialism https://techliberation.com/2020/05/26/diy-bio-biohacking-evasive-entrepreneurialism/ https://techliberation.com/2020/05/26/diy-bio-biohacking-evasive-entrepreneurialism/#comments Tue, 26 May 2020 15:08:28 +0000 https://techliberation.com/?p=76740

DIY medicineMargaret Talbot has written an excellent New Yorker essay entitled, “The Rogue Experimenters,” which documents the growth of the D.I.Y.-bio movement. This refers to the organic, bottom-up, citizen science movement, or “leaderless do-ocracy” of tinkerers, as she notes. I highly recommend you check it out.

As I noted in my new book on Evasive Entrepreneurs and the Future of Governance, “DIY health services and medical devices are on the rise thanks to the combined power of open-source software, 3D printers, cloud computing, and digital platforms that allow information sharing between individuals with specific health needs. Average citizens are using these new technologies to modify their bodies and abilities, often beyond the confines of the law.”

Talbot discusses many of the same examples I discuss in my book, including:

  • the Four Thieves Vinegar collective, which devised instructions for building its own version of the EpiPen;
  • e-nable, an international collective of thirty thousand volunteers, designs and 3-D-prints prosthetic hands and arms (and which has, more recently, distributed more than fifty thousand face shields in more than twenty-five countries.);
  • GenSpace and other community biohacking labs; and
  • Open Insulin and Open Artificial Pancreas System.

I like the way Talbot compares these movements to the hacker and start-up culture of the Digital Revolution:

The D.I.Y.-bio movement, which emerged in the early two-thousands, seems almost evolutionarily adapted to its historical moment,” she argues. “It echoes aspects of startup culture, especially the early days of personal computing, with its garage-based origin stories. First came the hardware, then the software; now even the wetware of life can be created in people’s homes. D.I.Y. bio reflects popular skepticism about professional authority and gatekeeping, but it is not skeptical about learning or expertise.

She also quotes others on this point, like John Wilbanks, a health technologist at the research nonprofit Sage Bionetworks:

when new biotech companies fail, they tend to sell off their equipment for a discount, and community labs and biohackers scoop it up. Wilbanks told me, “D.I.Y. bio is very similar to the home-brew, hacker-club culture of the late seventies in Silicon Valley. If you’ve not gone on eBay to shop for a DNA sequencer that they can ship to you in twenty-four hours, check it out—there’s a massive secondary market.”

Perhaps the most interesting thing about this bottom-up citizen-science movement is that it run the political gamut. It includes “anarcho-libertarians” to those “steeped in social-justice activism,” Talbot says. But they are all generally unified by a commitment to the widespread dissemination of scientific knowledge and transparency in health-related matters. “D.I.Y. biologists often have a greater commitment than their professional counterparts do to making their work open to scrutiny—and available for free on the Internet,” Talbot notes.

“The D.I.Y.-bio ecosystem includes a lot of do-gooders, and many of them have been galvanized by the covid-19 crisis,” she also observes. Quite right. I discussed that fact in the launch essay for my book, “Evasive Entrepreneurialism and Technological Civil Disobedience in the Midst of a Pandemic.” I documented dozens of examples of various individuals and organizations rising up to meet the challenges posed by the pandemic. “Eventually, people take notice of how regulators and their rules encumber entrepreneurial activities, and they act to evade them when public welfare is undermined,” I argued. “Working around the system becomes inevitable when the permission society becomes so completely dysfunctional and counterproductive.” DIY health innovation has gone mainstream out of necessity.

Importantly, Talbot notes that when it comes to what counts as success for DIY health and biohacking, sometimes good enough is, well, good enough. On this point, she quotes Jon Schull, an e-nable (non-commercial 3D-printed prosthetics) co-founder, who says, “it doesn’t matter that e-nable hands aren’t state-of-the-art. The job of professional prostheses-makers, he said, is “to produce something really good, and if it’s merely better than nothing it’s not good enough”—but, in some circumstances, something is better than nothing.”

That is a crucial point understanding why this movement is so important: Working together in a spontaneous, bottom-up fashion, citizen scientists and tinkerers can act quickly to fill pressing public health needs. Of course, that is exactly what makes these same innovations potentially risky and has some people wondering about the wisdom of such efforts—and the potential need for more regulation.

I wish Talbott would have spent a bit more time diving into these ethical and legal questions. I really struggled with them when writing about all this stuff in my new book on evasive entrepreneurialism and technological civil disobedience. She does briefly discuss how some FDA regs might affect DIY bio movement, including efforts like Open Insulin.  “Even if Open Insulin begins producing a consistent product, it will have to overcome all kinds of regulatory obstacles to demonstrate safety and purity before taking it to market,” she notes. “Manufacturers of pharmacy-grade medications must provide the F.D.A. with reams of evidence that they can produce the substances with complete consistency, in sterile environments. Proving this level of proficiency can cost millions of dollars.” But Talbot does not spend much more time exploring what might happen next on this front if DIY efforts continue to expand.

“But what should the law say about people… who are creating their own specialized medical devices in an open-source, noncommercial fashion?” I ask in my new book.

I outlined three potential future scenarios for the movement:

  1. DIY technologies go mainstream and become more commercialized.
  2. biohacking remains decentralized but becomes more mainstream and professional without becoming fully commercial.
  3. biohacking turn even more rogue or underground in nature as a form of guerrilla innovation that sometimes borders on neo-anarchism.

Regardless of the outcome, the ethical and regulatory issues will persist and grow as technological capabilities continue to grow more sophisticated, decentralized, and inexpensive. I argue in the book that it would be foolish for policymakers to think they can (or should) bottle up this movement altogether:

biohacking and decentralized medicine will expand for a simple reason: People care deeply about improving their health and abilities. They will take advantage of new technological capabilities that let them do so—especially when those capabilities are significantly cheaper than other options. To reiterate, that does not make these technologies safe or smart, but it does mean we will need a new approach to governance as evasive entrepreneurialism expands in this arena.

And then I continue on to note how improved risk education and awareness efforts might be one solution to the growing DIY bio movement.

Anyway, for more discussion on this, see pages 79-87 of my new book. I’ve also listed a few other essays down below that you might find interesting, including several penned by my former colleague Jordan Reimschisel.

Additional Reading:

]]> https://techliberation.com/2020/05/26/diy-bio-biohacking-evasive-entrepreneurialism/feed/ 2 76740 Robert Graboyes on What the Internet Can Teach Us about Health Care Innovation https://techliberation.com/2014/11/10/robert-graboyes-on-what-the-internet-can-teach-us-about-health-care-innovation/ https://techliberation.com/2014/11/10/robert-graboyes-on-what-the-internet-can-teach-us-about-health-care-innovation/#respond Mon, 10 Nov 2014 18:56:06 +0000 http://techliberation.com/?p=74900

Robert-GraboyesI want to bring to everyone’s attention an important new white paper by Dr. Robert Graboyes, a colleague of mine at the Mercatus Center at George Mason University who specializes in the economics of health care. His new 67-page study, Fortress and Frontier in American Health Care, seeks to move away from the tired old dichotomies that drive health care policy discussions: Left versus Right, Democrat versus Republican, federal versus state, and public versus private, and so on. Instead, Graboyes seeks to reframe the debate over the future of health care innovation in terms of “Fortress versus Frontier” and to highlight what lessons we can learn from the Internet and the Information Revolution when considering health care policy.

What does Graboyes mean by “Fortress and Frontier”? Here’s how he explains this conflict of visions:

The Fortress is an institutional environment that aims to obviate risk and protect established producers (insiders) against competition from newcomers (outsiders). The Frontier, in contrast, tolerates risk and allows outsiders to compete against established insiders. . . .  The Fortress-Frontier divide does not correspond neatly with the more familiar partisan or ideological divides. Framing health care policy issues in this way opens the door for a more productive national health care discussion and for unconventional policy alliances. (p. 4)

He elaborates in more detail later in the paper:

the Frontier encourages creative destruction and disruptive innovation. Undreamed-of products arise and old, revered ones vanish. New production processes sweep away old ones. This is a place where unknown innovators in garages destroy titans of industry. The Frontier celebrates and rewards risk, and there is a brutal egalitarianism to the creative process. In contrast, the Fortress discourages creative destruction and disruptive innovation. Insiders are protected from competition by government or by private organizations (such as insurers and medical societies) acting in quasigovernmental fashion. In the Fortress, insiders preserve the existing order. Innovation comes from well-established, credentialed insiders who, it is presumed, have the wisdom and motives and competence to identify opportunities for innovation.

In framing the debate in this fashion, Graboyes hopes that we will start paying more attention to the supply side of health care policy debates:

The debate over coverage (and over related issues concerning how health care providers are paid) has focused attention almost exclusively on the demand side of health care markets—who pays how much to whom for which currently offered services. The debate underplays questions of supply—how innovation can alter the very nature of the health care delivery system. (p. 3-4)

This is where Graboyes brings the Internet and information technology into the story to illustrate a powerful point: We could unlock many important life-enriching and potentially life-saving innovations by embracing the same vision we applied to the Internet and IT sectors. Graboyes is kind enough to cite my work on permissionless innovation and the importance of not letting public policy be dictated by excessive fear of worst-case scenarios regarding new technological innovations. As I noted in my book on the topic, “living in constant fear of worst-case scenarios—and premising public policy upon them—means that best-case scenarios will never come about. When public policy is shaped by precautionary principle reasoning, it poses a serious threat to technological progress, economic entrepreneurialism, social adaptation, and long-run prosperity.”

Had fear of potential worst-case outcomes driven policy for the Net, we might have never seen many of the life-enriching innovations that we enjoy today, as Graboyes explains eloquently in this passage:

Knowing what we know today, it would not be hard to persuade a cautious observer in 1989 to radically slow the pace of IT innovation. IT arguably poses personal risks as grave as those that health care poses. Cell phones have been essential components of improvised explosive devices in war zones. The 9/11 atrocities would have been difficult or impossible to carry out without cell phones. Thieves have used the Internet to steal. Stalkers have used the Internet to terrify their prey. Child predators find their victims on the web. People have been murdered by strangers they met in chatrooms. IT has allowed individuals and governments to violate others’ privacy in countless ways. Drug dealers and terrorist networks organize their efforts via cell phone and Internet. The Internet has greatly reduced the cost of destroying another’s reputation, and news accounts tell of suicides following cyberbullying. Our laws demand terribly high standards of safety and efficacy for drugs. We require no such standards for computers, cell phones, and software, but given the nefarious uses to which they are sometimes put, decades ago one could easily have argued for doing so. Had we done so, we would now be living in a much poorer, less interesting world—and perhaps one with even greater risks to life and limb than we have now. No online predators or improvised explosive devices, but also no OnStar to save you after an automobile crash or smartphone to alert police to your life-threatening situation and geographic location. (p. 41)

In other words–and this is another lesson I stress at length in my work–precautionary policies create profound trade-offs that are not always well understood upon enactment of new laws or regulations. As I noted in my book, “When commercial uses of an important resource or technology are arbitrarily prohibited or curtailed, the opportunity costs of such exclusion may not always be immediately evident. Nonetheless, those ‘unseen’ effects are very real and have profound consequences for individuals, the economy, and society.”

What Graboyes does so well in his new paper is prove that these trade-offs are already at work in the American health care system and that we had better get serious about acknowledging them before real damage is done. And what makes Fortress and Frontier such an enjoyable read is that Graboyes is a gifted story-teller who explains in clear terms how expanded health care innovation opportunities could improve the lives of real people. It’s not just abstract, textbook talk. We hear stories of real-world innovators and the patients who need their inventions. For example, Graboyes tells of “an unheralded doctor who pioneered stem-cell therapy in a small-town hospital, a carpenter and puppet-maker who invented functional prosthetic hands costing one-thousandth the price of professionally made devices (aided by an evolutionary biologist who started a worldwide consortium of amateur prosthetists), and college students who devised a low-cost treatment for clubfoot.” (p. 4) And much, much more.

“The most important thing to understand about disruptive innovation is that it often comes (perhaps usually comes) from strange and unexpected places,” Graboyes notes. (p. 20) “[A] shift from Fortress to Frontier would benefit the health and finances of Americans,” he argues, and “the task begins by easing limits on the supply of health care services, thereby clearing the way for innovators to take health care in directions we cannot yet imagine.” (p. 39)

Importantly, Graboyes also offers another reason why America should embrace the “frontier” spirit: Our global competitive advantage in this space is at risk if we don’t:

Moving health care from the Fortress to the Frontier may be more a matter of necessity than of choice. We are entering a period of rapid technological advances that will radically alter health care. Many of these advances require only modest capital and labor inputs that governments cannot easily control or prohibit. If US law obstructs these technologies here, it will be feasible for Americans to obtain them by Internet, by mail, or by travel. (p. 41-2)

He highlights several areas in which this debate will play out going forward including (and notice the intersection with the modern digital technologies and tech policy debates we often discuss here): genomic knowledge and personalized medicine, 3-D printing, artificial intelligence, information sharing via social media, wearable technology, and telemedicine.

To make sure that America can capitalize on the same innovative spirit that gave us the Information Revolution, Graboyes concludes his study with a laundry list of needed policy reforms. These include:

  • reform of FDA drug & device approval process to expedite reviews.
  • ensure that Americans have a “right to know” about themselves and their health (i.e., that individuals have a right to possess their own genetic information and to receive information about how to interpret the results.)
  • abolish state certificate-of-need laws, which unnecessarily “require that hospital developers obtain government permission before building a new facility, or expanding an existing one, or even adding a specific piece of medical equipment.”
  • reform state-based licensing laws, which “put barriers in the way of doctors moving from other states” and create physician shortages. Also need to reform state laws to allow nurse practitioners, optometrists, and others to practice independently of physicians.
  • reform tort law by capping noneconomic damages, instituting a “loser pays” rule to discourage frivolous lawsuits, establishing safe harbors for vaccine developers, and more.
  • revising tax laws to make sure medical devices are not hit with discriminatory tax burdens that discourage innovation, and then also revising other taxes that skew incentives in the health insurance marketplace.

Graboyes itemizes dozens of other potential reforms to give policymakers a smorgasbord of options from which to choose. It is unlikely that all the reforms he lists will be adopted, but even if policymakers would just pick a few of those proposed action items, it could provide a real boost to medical innovation in the short term. Importantly, most of these proposed reforms could be implemented without stirring up contentious debate over the future of the Affordable Care Act (ACA).

Needless to say, I highly recommend Fortress and Frontier and I very much hope that the vision that Graboyes articulates in it comes to influence public thinking and future policymaking in the health care arena. In a follow-up post, I will also discuss how Fortress versus Frontier provides us with another “innovation paradigm” that can help us frame future innovation policy debates in many other contexts.

]]> https://techliberation.com/2014/11/10/robert-graboyes-on-what-the-internet-can-teach-us-about-health-care-innovation/feed/ 0 74900 New Book Release: “Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom” https://techliberation.com/2014/03/25/new-book-release-permissionless-innovation-the-continuing-case-for-comprehensive-technological-freedom/ https://techliberation.com/2014/03/25/new-book-release-permissionless-innovation-the-continuing-case-for-comprehensive-technological-freedom/#respond Tue, 25 Mar 2014 15:06:28 +0000 http://techliberation.com/?p=74314

book cover (small)I am pleased to announce the release of my latest book, “Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom.” It’s a short manifesto (just under 100 pages) that condenses — and attempts to make more accessible — arguments that I have developed in various law review articles, working papers, and blog posts over the past few years. I have two goals with this book.

First, I attempt to show how the central fault line in almost all modern technology policy debates revolves around “the permission question,” which asks: Must the creators of new technologies seek the blessing of public officials before they develop and deploy their innovations? How that question is answered depends on the disposition one adopts toward new inventions. Two conflicting attitudes are evident.

One disposition is known as the “precautionary principle.” Generally speaking, it refers to the belief that new innovations should be curtailed or disallowed until their developers can prove that they will not cause any harms to individuals, groups, specific entities, cultural norms, or various existing laws, norms, or traditions.

The other vision can be labeled “permissionless innovation.” It refers to the notion that experimentation with new technologies and business models should generally be permitted by default. Unless a compelling case can be made that a new invention will bring serious harm to society, innovation should be allowed to continue unabated and problems, if they develop at all, can be addressed later.

I argue that we are witnessing a grand clash of visions between these two mindsets today in almost all major technology policy discussions today.

The second major objective of the book, as is made clear by the title, is to make a forceful case in favor of the latter disposition of “permissionless innovation.” I argue that policymakers should unapologetically embrace and defend the permissionless innovation ethos — not just for the Internet but also for all new classes of networked technologies and platforms. Some of the specific case studies discussed in the book include: the “Internet of Things” and wearable technologies, smart cars and autonomous vehicles, commercial drones, 3D printing, and various other new technologies that are just now emerging.

I explain how precautionary principle thinking is increasingly creeping into policy discussions about these technologies. The urge to regulate preemptively in these sectors is driven by a variety of safety, security, and privacy concerns, which are discussed throughout the book. Many of these concerns are valid and deserve serious consideration. However, I argue that if precautionary-minded regulatory solutions are adopted in a preemptive attempt to head-off these concerns, the consequences will be profoundly deleterious.

The central lesson of the booklet is this: Living in constant fear of hypothetical worst-case scenarios — and premising public policy upon them — means that best-case scenarios will never come about. When public policy is shaped by precautionary principle reasoning, it poses a serious threat to technological progress, economic entrepreneurialism, social adaptation, and long-run prosperity.

Again, that doesn’t mean we should ignore the various problems created by these highly disruptive technologies. But how we address these concerns matters greatly. If and when problems develop, there are many less burdensome ways to address them than through preemptive technological controls. The best solutions to complex social problems are almost always organic and “bottom-up” in nature. Luckily, there exists a wide variety of constructive approaches that can be tapped to address or alleviate concerns associated with new innovations. These include:

  • education and empowerment efforts (including media literacy, digital citizenship efforts);
  • social pressure from activists, academics, and the press and the public more generally.
  • voluntary self-regulation and adoption of best practices (including privacy and security “by design” efforts); and,
  • increased transparency and awareness-building efforts to enhance consumer knowledge about how new technologies work.

Such solutions are almost always superior to top-down, command-and-control regulatory edits and bureaucratic schemes of a “Mother, May I?” (i.e., permissioned) nature. The problem with “top-down” traditional regulatory systems is that they often tend to be overly-rigid, bureaucratic, inflexible, and slow to adapt to new realities. They focus on preemptive remedies that aim to predict the future, and future hypothetical problems that may not ever come about. Worse yet, administrative regulation generally preempts or prohibits the beneficial experiments that yield new and better ways of doing things. It raises the cost of starting or running a business or non-business venture, and generally discourages activities that benefit society.

To the extent that other public policies are needed to guide technological developments, simple legal principles are greatly preferable to technology-specific, micro-managed regulatory regimes. Again, ex ante (preemptive and precautionary) regulation is often highly inefficient, even dangerous. To the extent that any corrective legal action is needed to address harms, ex post measures, especially via the common law (torts, class actions, etc.), are typically superior. And the Federal Trade Commission will, of course, continue to play a backstop here by utilizing the broad consumer protection powers it possesses under Section 5 of the Federal Trade Commission Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” In recent years, the FTC has already brought and settled many cases involving its Section 5 authority to address identity theft and data security matters. If still more is needed, enhanced disclosure and transparency requirements would certainly be superior to outright bans on new forms of experimentation or other forms of heavy-handed technological controls.

In the end, however, I argue that, to the maximum extent possible, our default position toward new forms of technological innovation must remain: “innovation allowed.” That is especially the case because, more often than not, citizens find ways to adapt to technological change by employing a variety of coping mechanisms, new norms, or other creative fixes. We should have a little more faith in the ability of humanity to adapt to the challenges new innovations create for our culture and economy. We have done it countless times before. We are creative, resilient creatures. That’s why I remain so optimistic about our collective ability to confront the challenges posed by these new technologies and prosper in the process.

If you’re interested in taking a look, you can find a free PDF of the book at the Mercatus Center website or you can find out how to order it from there as an eBook. Hardcopies are also available. I’ll be doing more blogging about the book in coming weeks and months. The debate between the “permissionless innovation” and “precautionary principle” worldviews is just getting started and it promises to touch every tech policy debate going forward.

Related Essays :

]]> https://techliberation.com/2014/03/25/new-book-release-permissionless-innovation-the-continuing-case-for-comprehensive-technological-freedom/feed/ 0 74314 Getting Communications & Media Reform Done Right Once and For All https://techliberation.com/2012/10/19/getting-communications-media-reform-done-right-once-and-for-all/ https://techliberation.com/2012/10/19/getting-communications-media-reform-done-right-once-and-for-all/#respond Fri, 19 Oct 2012 19:24:47 +0000 http://techliberation.com/?p=42639

Yesterday it was my privilege to speak at a Free State Foundation (FSF) event on “Ideas for Communications Law and Policy Reform in 2013.” It was moderated by my friend and former colleague Randy May, who is president of FSF, and the event featured opening remarks from the always-excellent FCC Commissioner Robert McDowell.

During the panel discussing that followed, I offered my thoughts about the problem America continues to face in cleaning up communications and media law and proposed a few ideas to get reform done right once and for all. I don’t have time to formally write-up my remarks, but I thought I would just post the speech notes that I used yesterday and include links to the relevant supporting materials. (I’ve been using a canned version of this same speech at countless events over the past 15 years. Hopefully lawmakers will take up some of these reforms some time soon so I’m not using this same set of remarks in 2027!)

I) The fundamental problem we face in the world of communications and media policy today is easy and diagnose and, at least in theory, easy to remedy.

The Problem= asymmetrical regulation / “unlevel playing field”

  • Policymakers are imposing different regulatory policies on different layers of the modern information ecosystem. (This is sometimes referred to as the “regulatory silos” problem.)
  • Regulatory silos and unlevel playing fields create 3 additional problems. They:
  1. are unfair to those players who suffer under more onerous rules;
  2. threaten to roll the old onerous rules on newer and less regulated speech and communications platforms and technologies; and,
  3. create uncertainty and threatens investment and innovations.

The Solution (again, simple in theory but not in political reality) = level the playing field by deregulating down to achieve parity instead of regulating up

II) Let’s get more concrete about how to accomplish that sort of liberalization and level the playing field. Three simple reform ideas can help:

  1. “MFN clause for communications and media policy”: To the extent Congress continues to place ground rules on the information sector at all, it should consider borrowing a page from trade law by adopting the equivalent of a “Most Favored Nation” (MFN) clause for communications and media policy. In a nutshell, this policy would state that: “Any operator seeking to offer a new service or entering a new line of business, should be regulated no more stringently than its least regulated competitor.” Such a MFN for communications would ensure that regulatory parity exists within this arena as the lines between existing technologies and industry sectors continue to blur. Placing everyone on the same deregulated level playing field should be at the heart of telecommunications policy to ensure non-discriminatory regulatory treatment of competing providers and technologies at all levels of government. In other words, to level the proverbial playing field properly, we should “deregulate down” instead of regulating up to place everyone on equal footing.
  2. “Moore’s Law” for information technology laws and regulations: With information markets evolving at the speed of Moore’s Law, public policy must as well. Toward that end, every new technology proposal should include a provision sunsetting the law or regulation 18 months to 2 years after enactment. And this principle should apply retroactively so that old rules are sunset on a rapid timetable. If Congress deems them vital, they can always be reauthorized. [See my Forbes column on this proposal.]
  3. Comprehensive FCC reform, downsizing & defunding: You can’t truly deregulate communications and media markets if the primary regulator (the FCC  in this case) remains large and is constantly growing its budget and responsibilities. Regulators exist to regulate! Only by downsizing and defunding them can we truly deregulate these markets. (Alfred Kahn and the Democrats taught us that in the late 1970s when the comprehensively deregulated airline and transportation markets and then moved to abolish the agencies that oversaw those sectors as well. They understood that the very existence of those agencies was a major contributing factor to economic inefficiency and crony capitalism.)

III) If wasn’t that long ago that this sort of an approach was considered the model for how to move forward

Following the lead of the Democrats who deregulated airlines and transportation sectors in the late 1970s, a number of scholars in the 1990s and 2000s devised comprehensive reform proposals for communications and media markets. (Two old PFF projects built on this):

  • “The Telecom Revolution”: May 1995 proposal from @ a dozen different free-market think tank analysts to replace the FCC with a much smaller agency.
  • “Digital Age Communications Act” project (“DACA”): a 2005-06 set of proposals from over 50 non partisan academics to make the FCC behave more like the FTC. [See this paper by Ray Gifford for a concise summary of the project and all the proposals).

Generally speaking, both projects focused on same 5 reform objectives:

  1. Replacing the amorphous “public interest” standard with a consumer welfare standard, which is more well-established in field of antitrust law
  2. Eliminate regulatory silos and level the playing field through deregulation
  3. Comprehensively reform spectrum not just through more auctioning but through clear property rights
  4. Reform universal service by either voucherizing it or devolving it to the States and let them run their own telecom welfare programs
  5. Significantly reforming & downsizing the scope of the FCC’s power of the modern information economy
  • If we can get those 5 things done, we will have accomplished true deregulation of America’s information marketplace.  What we don’t want is another fiasco like the Telecommunications Act of 1996, which represented an effort at managed competition. That law intentionally avoided providing clear deregulatory guidance and instead delegated broad and remarkably ambiguous authority to the FCC. This left the most important deregulatory decisions to the FCC and, not surprisingly, the agency did a very poor job of following through with a serious liberalization agenda.
  • Again, regulators generally don’t deregulate themselves! It is against their self-interest. Congress must impose restraint on the agency and limit (or, better yet, end) its powers.

IV) Some will say communications & media markets are too important to deregulate. But the exact opposite is true.

  • America’s Founders thought media was important enough that they made sure that the First Amendment clearly stated that “Congress shall make no law” as it pertains to freedom of speech and the press. They got it exactly right.
  • We need to return to that Constitutional prime directive for information markets and start removing the layers of unjust and unnecessary regulation that have encumbered these markets for the past 100 years. America’s communications and media policy should once again be the First Amendment, not the Communications Act of 1934 or the Telecom Act of 1996.
  • What we need, to borrow the title of Richard Epstein’s book of the same title, is “simple rules for a complex world.”  Those simple rules include: the law of contract, torts and common law, anti-fraud statutes, etc.
  • Such simple rules can govern our complex information ecosystem the same way they govern every other sector of our capitalist economy. We don’t need a sector-specific regulator or body of regulation for communications, media, and the Internet.

[Video clip of my remarks from the FSF panel follows.]

]]> https://techliberation.com/2012/10/19/getting-communications-media-reform-done-right-once-and-for-all/feed/ 0 42639 The Wrong Way to Reinvent Media, Part 5: Media Bailouts & Welfare for Journalists https://techliberation.com/2010/04/30/the-wrong-way-to-reinvent-media-part-5-media-bailouts-welfare-for-journalists/ https://techliberation.com/2010/04/30/the-wrong-way-to-reinvent-media-part-5-media-bailouts-welfare-for-journalists/#respond Fri, 30 Apr 2010 18:28:38 +0000 http://techliberation.com/?p=28493

PFF today released the fifth installment in our ongoing series on “The Wrong Way to Reinvent Media.” This series of papers explores various tax and regulatory proposals that would have government play an expanded role in supporting the press, journalism, or other media content. In the latest essay, Berin Szoka, Ken Ferree, and I discuss proposals for direct subsidies for failing media outlets and out-of-work journalists.

We argue taxpayer support for failing outlets and unemployed journalists implicates significant First Amendment concerns. On the whole, subsidies can make “journalists and media operators more dependent upon the State; compromise press independence and diminish public trust in the free press; and result in government discrimination in the politically inescapable dilemma of determining eligibility for subsidies.” Such an agenda would also entail huge cost to taxpayers—initially about $35 billion per year according to advocates—and would represent “a massive wealth transfer from one class of speakers to another…”

We warn that calls for seemingly beneficent bailouts “to save” the media and journalism may actually be driven by those who have something more nefarious in mind: a “post-corporate” world shorn of media capitalists, and “such radicalism must be rejected if we hope to sustain a truly free press and uphold America’s proud tradition of keeping a high and tight wall of separation between Press and State.”

The ideas within these and other essays in the series will be worked into a major PFF filing in the Federal Communications Commission’s (FCC) proceeding on the “Future of Media” on May 7. The paper may be viewed online here and I’ve attached it down below in a Scribd reader.

Wrong Way to Reinvent Media Part 5 – Media Bailouts [Thierer Szoka Ferree – PFF] http://d1.scribdassets.com/ScribdViewer.swf

]]> https://techliberation.com/2010/04/30/the-wrong-way-to-reinvent-media-part-5-media-bailouts-welfare-for-journalists/feed/ 0 28493 The Wrong Way to Reinvent Media, Part 3: Media Vouchers https://techliberation.com/2010/04/14/the-wrong-way-to-reinvent-media-part-3-media-vouchers/ https://techliberation.com/2010/04/14/the-wrong-way-to-reinvent-media-part-3-media-vouchers/#respond Wed, 14 Apr 2010 21:13:59 +0000 http://techliberation.com/?p=28082

As I’ve mentioned here previously, PFF has been rolling out a new series of essays examining proposals that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. We’re releasing these as we get ready to submit a big filing in the FCC’s “Future of Media” proceeding (deadline is May 7th).  Here’s a podcast Berin Szoka and I did providing an overview of the series and what the FCC is doing.

In the first installment of the series, Berin and I critiqued an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. In the second installment, I took a hard look at proposals to impose fees on broadcast spectrum licenses and channeling the proceeds to a “public square channel” or some other type of public media or “public interest” content.

In our latest essay, “The Wrong Way to Reinvent Media, Part 3: Media Vouchers,” Berin and I consider whether it is possible to steer citizens toward so-called “hard news” and get them to financially support it through the use of “news vouchers” or “public interest vouchers”?  We argue that using the tax code to “nudge” people to support media — while less problematic than direct subsidies for the press — will likely raise serious issues regarding eligibility and be prone to political meddling.  Moreover, it’s unlikely the scheme will actually encourage people to direct more resources to hard news but instead just become a method of subsidizing other content they already consume.

I’ve attached the entire essay down below.

The Wrong Way to Reinvent Media, Part 3: Media Vouchers

by Adam Thierer & Berin Szoka*

PFF Progress on Point 17.4 [PDF]

Should the government play a greater role in the media sector in the name of sustaining struggling media enterprises, “saving journalism,” or promoting public media?  In this ongoing series of essays, we’ve been analyzing proposals that would have public policymakers use taxes, subsidies, or regulations to accomplish those objectives.

Part 1 of this series examined proposals to fund media content via a tax on consumer electronics, broadband service, or cell phone bills.[1] Part 2 critiqued proposals to impose fees on broadcast spectrum licenses and channeling the proceeds to a “public square channel” or some other type of public media or “public interest” content.[2] Other essays in this series will address proposals to tax private advertising revenues to support public media; expand postal subsidies; directly subsidize out-of-work journalists; and to prop up or bail out failing media entities.  A wrap-up essay will then focus on some potentially constructive policy reforms that could assist media enterprises without a massive infusion of state support or regulation of the press.

In this installment, we will consider whether it is possible to steer citizens toward so-called “hard news” (“serious” journalism)—and get them to financially support it—through the use of “news vouchers” or “public interest vouchers”?  We will argue that using the tax code to nudge people to support media—while less problematic than direct subsidies for the press—will likely raise serious issues regarding eligibility and be prone to political meddling.  Moreover, it’s unlikely the scheme will actually encourage people to direct more resources to hard news but instead just become a method of subsidizing other content they already consume.

Funding Hard News is Hard

Funding “hard news” has always been challenging.  Financing a team of dedicated local beat reporters, investigative journalists, national desks, foreign bureaus, and all the associated production facilities and support staff is an extremely expensive undertaking.[3] And, for all that trouble and expense, hard news rarely turns a healthy profit.  Often it has been considered a “loss leader” for media companies and has been cross-subsidized by other types of content or services.[4] This is why “bundling” has been such a popular model for many media operations such as newspapers, magazines, and cable television.  By tying news production to other types of content or services, media operators have been able to sustain the production of hard news, despite its general unprofitability on its own.

It’s worth recalling that a business model to sustain hard news production and dissemination on a mass scale really only developed mid-way through our Republic.  The early history of media in this country was characterized by the “partisan press” due to the heavy reliance on a patronage model and direct association with political parties and figures. This changed with the rise of large daily newspapers in the mid-1800s and then broadcast radio and television in the early half of the 20 th century.[5] Media providers were able to cross-subsidize news production independent of private or political patronage thanks to three things: (1) high-speed printing presses or broadcast facilities, (2) geographic-based market and pricing power, and (3) the widespread advertising base that was made possible by (1) and (2).

Over just the past 15-20 years, we’ve seen this traditional model upended.  Increased competition and technological/platform proliferation are placing an enormous strain on traditional media operations and business models. Schumpeterian “creative destruction” is at work in a serious, and for many, painful, way.

This is what is keeping the Federal Communications Commission,[6] the Federal Trade Commission,[7] some in Congress,[8] and many media worrywarts up at night: the fear that, as traditional financing mechanisms falter (advertising, classifieds, subscription revenues, etc.), many traditional news-gathering efforts and institutions will disappear.  And that’s leading to calls for government intervention or assistance of some sort to prop up struggling entities or directly subsidize the hard news that many of them have traditionally provided but may not be able to for much for longer.

Can Vouchers “Nudge” Citizens to Support Hard News?

One much-discussed proposal would create a “public interest voucher” or what Robert W. McChesney & John Nichols, authors of the new book The Death and Life of American Journalism, call a “Citizenship News Voucher.”[9] This is a variant on the “artistic freedom voucher,” an idea first put forward in 2003 by economist Dean Baker as an alternative to copyright law as a means of incentivizing artistic creation.[10] The regulatory activist group Free Press, which McChesney founded, has also endorsed a news voucher scheme.[11]

The idea is fairly straightforward: give every American a voucher (McChesney and Nichols propose $200) to support the non-profit news entities of their choice by listing those entities on their tax return.  (If half of all adult Americans actually used their voucher, that would cost at least $20 billion/year.[12])  They assume this would be an efficient way of channeling money to hard news providers while avoiding the serious concerns that arise when government officials or agencies are the ones providing or steering the subsidies.  McChesney and Nichols go so far as to call their tax-and-redistribute proposal “a libertarian’s dream,” since “people can support whatever political viewpoint they prefer or do nothing at all.”[13]

McChesney and Nichols seem to be building on the approach popularized by Richard Thaler and Cass Sunstein in their highly influential 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness.[14] Based on behavioral economics studies, Thaler and Sunstein argue that both government and private actors must inevitably make decisions about “choice architecture” and that, by setting defaults, incentives and rules smartly, “choice architects” can and should improve private decision-making—but only where they can do so without blocking, fencing-off or significantly burdening choices.[15] While their proposal might not qualify as a nudge in the strict sense defined by Thaler and Sunstein, the essential similarity between the concepts lies in trying to restructure the choices Americans make about media consumption by changing how they spend money on media—with the declared goal of “improving” both media consumption and the media itself (by “freeing it” of supposedly evil corporate influences).

Problems with the News Voucher Proposal

While nudges might be less objectionable in circumstances where it’s objectively evident what’s really “good” for us, the same can hardly be said for media consumption.  “Nudging” consumers towards better media choices isn’t based on clear science about, say, eating better or getting more exercise, but on highly subjective decisions about what kind of information consumption is really good for individuals, communities, and polities.  For policymakers to imagine that they can steer the public’s tastes or behavior in more desirable directions through law (including media subsidy schemes) is a profoundly elitist enterprise.[16] In the case of “news vouchers,” the hope is that the public can be encouraged to at least channel some additional support to news-gathering activities and institutions.  The problem, however, is that some people just don’t much like being “nudged” by officials from afar and they’ll often take steps to evade such paternalism—however ostensibly “libertarian” it might be.  And it could lead to a host of unintended consequences, discussed further below.[17]

As a general matter, it simply isn’t possible to make consumers choose the “right” media in an age of information abundance.[18] With so many voices competing for our attention, it’s impossible make people watch, listen, or read if they don’t want to.  That’s especially true with hard news, which has never netted major ratings.  As Ellen P. Goodman of the Rutgers-Camden School of Law has noted: “Given the proliferation of consumer filtering and choice, these kinds of interventions are of questionable efficacy.  Consumers equipped with digital selection and filtering tools are likely to avoid content they do not demand no matter what the regulatory efforts to force exposure.”[19] As Goodman rightly argues, “regulation cannot, in a liberal democracy, force viewers to consume media products they do not think they want in the name of the public interest.”[20] There’s no reason to believe this situation has ever been different or will ever change:  Writing in 1922, famed journalist Walter Lippmann noted that, “it is possible to make a rough estimate only of the amount of attention people give each day to informing themselves about public affairs,” but “the time each day is small when any of us is directly exposed to information from our unseen environment.”[21]

McChesney and Nichols’ effort to sell this scheme as “a libertarian’s dream” is a huge stretch.  There aren’t too many libertarians—or anyone else for that matter—who favor sending more money to the federal government only to win back the right to spend it on “qualifying media entities.”  And regarding their claim that “people can support whatever political viewpoint they prefer or do nothing at all,” well, people are already free to do whatever they want with their money when it comes to media products!  Why do we need to send money to Washington first and then have policymakers tell us how we can spend it?  This seems like a needless nudge—and one that would likely result in government bureaucracy taking a cut of the money or meddling in media markets.

Analogies to educational vouchers don’t work because we long ago decided to treat education as a public good and force everyone to pay for it.  “Voucherization” may make sense as a more efficient and “libertarian” way to fund such traditional public goods, when we absolutely have to force people to spend money on certain goods or services.  While McChesney and Nichols claim that the time has come for the government to fund media as such a public good, most people probably wouldn’t agree, since the private provision of media services has worked quite well for some time—being funded by a mix of advertising and subscription revenues for centuries.  They repeatedly claim that era is over (with little substantiation) but, in reality, it is their policies that would end private, for-profit media by taxing and regulating it to death.[22]

Second, what counts as a “qualifying media entity,” and how will the IRS make that call?  Can just any outlet that purports to gather and report “news” draw support from this new federal program?  McChesney and Nichols aren’t clear: They want the IRS to “determine eligibility—according to universal standards that err on the side of expanding rather than constraining the number of serious sources covering and commenting on issues of the day.”[23] They specify only that the entity must be a non-profit (though not necessarily a federally-recognized 501(c)(3)); not accept advertising; “do exclusively media content”; “cannot be part of a larger organization or have any non-media operations”; and that everything the medium produces must be made available immediately upon publication on the Internet and made available for free to all.”[24] But, anticipating objections about the dangers of political meddling, they also insist that “the government will not evaluate the content to see that the money is going toward journalism.  Our assumption is that these criteria will effectively produce that result, and if there is some slippage so be it.”[25] The only mechanism they can suggest for reducing fraud and ensuring “seriousness” is that, “for a medium to receive funds it would have to get commitments for at least $20,000 worth of vouchers” (100 full donations of the $200 voucher).[26]

But will policymakers really let citizens redeem their vouchers on The National Inquirer or People magazine?  How about the satirical The Onion or Jon Stewart’s Daily Show?  “This is a risk we are more than willing to take,” McChesney and Nichols say since they are “operating on a gut instinct that people will use their vouchers to fund serious media while reaching into their pockets to pay for copies of The National Inquirer at the supermarket checkout.”[27] Of course, it’s always easier to take such risks when you are playing with other people’s money!  (Nearly half of all Americans don’t pay any Federal income taxes,[28] so their $200 news voucher is definitely coming out of someone else’s tax bill.)

But it’s naïve to believe this idea is going to change the face of journalism in any serious way.  Most people will spend their vouchers on whatever media outlets and content they are currently consuming, which probably isn’t what McChesney and Nichols (or most policymakers) would prefer.  “The program may not develop exactly the type of journalism our greatest thinkers believe is necessary,” McChesney and Nichols admit.[29] But the real question is: What sort of demands will policymakers begin making if the voucher program ends up channeling money into media entities that don’t measure up to their standards or desires?  Qualification criteria would inevitably become the tool of political meddling.

The Inevitable Strings & the Political/Constitutional Paradox

This raises a fourth concern: How long will it be before government starts attaching more strings to the vouchers?  To borrow a recent headline from The Wall Street Journal, how long will it be before the “Economic Policy ‘Nudge’ Gives Way to a Shove?”[30] Although, in theory, the news voucher idea lets consumers figure out how to steer the funds, it’s unlikely much of those funds would go toward hard news, civic-minded or “high brow” content if consumers were actually free to choose.  How do we know this?  Because we already know what consumers choose today—and those “poor” choices are part of the supposed “problem” to be solved by media vouchers.  Once people start redirecting taxpayer dollars to content that the elites and policymakers don’t like, the nudge will become a shove and more interventions will follow in the form of “voucher guidance and compliance” hearings, rules, etc.

But the pressure for strings won’t just come from the top down because, as Thomas Jefferson famously put it in the 1786 Virginia Act for Establishing Religious Freedom, “to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves, is sinful and tyrannical.”[31] That is, we naturally—and rightly—resent subsidizing speech that is antithetical to our own values.  McChesney and Nichols dismiss this natural (presumably bourgeois?) indignation by saying, “people will have to accept that some of the vouchers are going to go to media that they detest.”[32] In one sense, they are dead wrong: People won’t just accept that.  They may accept subtle, indirect subsidies, but the more clear it becomes that they are being forced to pay for media they detest—and that could scarcely be more clear than with a refundable tax credit “voucher”—they will protest and demand that certain viewpoints, or at least kinds of content, be deemed out of bounds.

But in another sense, McChesney and Nichols are probably correct: For such a scheme to work, it probably can’t come with any content strings, because this is probably what the First Amendment would require.  Yet they don’t actually explain that point, stopping only to say that we all just have to become more tolerant of “dissent”— i.e., subsidize those who disagree with us!  In this sense, news vouchers therefore would likely fall prey to a common paradox faced by proposals for the government to subsidize speech: What’s politically feasible is unconstitutional and what’s constitutional is politically impossible.  Specifically, the kinds of eligibility restrictions necessary to push a voucher scheme through Congress would probably cause the courts to strike down the whole scheme.  Even if the courts were willing to strike down only the eligibility provisions as “severable” from the rest of the scheme, the whole scheme would likely die in the very next federal budget if the courts require the funding of “offensive” or “frivolous” content.  Understanding why this is the case requires a brief overview of key First Amendment case law.

In general, “when the Government appropriates public funds to establish a program it is entitled to define the limits of that program.”[33] Thus, in its 1991 Rust v. Sullivan decision, the Supreme Court upheld a law forbidding federal funding for family planning services to go to abortion counseling.[34] But the Supreme Court later clarified that such viewpoint discrimination is permissible only “[w]hen the government disburses public funds to private entities to convey a governmental message.”[35] By contrast, where subsidies are “designed to facilitate private speech,” government may not discriminate against viewpoints it does not like.[36] Thus, the government may not fund legal services but bar funding for defendants trying to amend or otherwise challenge existing welfare law.[37]

The First Amendment prohibits not only such viewpoint discrimination but content discrimination as well.  In 2003, the Supreme Court held that the University of Virginia could not exclude religious groups from drawing on the University’s Student Activity Fund, even though the Fund’s eligibility requirements did not discriminate against any particular religion.[38] Yet in 1995, the Court had upheld another content restriction: a requirement that the National Endowment for the Arts (NEA) “take into consideration general standards of decency and respect for the diverse beliefs and values of the American public” when making grants to “help create and sustain not only a climate encouraging freedom of thought, imagination, and inquiry but also the material conditions facilitating the release of . . . creative talent.”[39] The Court concluded, in an 8-1 majority, that the “’decency and respect’ criteria do not silence speakers by expressly threaten[ing] censorship of ideas.”[40] This decision rested largely on the fact that “Educational programs are central to the NEA’s mission” and “it is well established that ‘decency’ is a permissible factor where ‘educational suitability’ motivates its consideration.”[41] The Court left the door open to future First Amendment challenges to the statute “as applied,” such as “[i]f the NEA were to leverage its power to award subsidies on the basis of subjective criteria into a penalty on disfavored viewpoints.”[42]

What explains these starkly different outcomes is that the Court decided that the University of Virginia’s Student Activity Fund constituted a “limited public forum”[43] intended to “encourage a diversity of views from private speakers,” but the NEA did not.  The University had funded all speech except “religious editorial viewpoints” from its Student Activities Fund, into which every student paid a $14 mandatory fee each semester.  By contrast, the NEA made only a limited number of grants through a “competitive process” according to principles of inherently content-based principles of “excellence” as well as “geographic, ethnic, and esthetic diversity.”  Thus, it was permissible, in principle, for the NEA to exclude “indecent” content.

The Supreme Court’s decision in U.S. v. American Library Association, Inc. (2003) also suggests that content restrictions regarding Citizen News Vouchers would be struck down.  The Court held that the First Amendment did not bar Congress from requiring in the Children’s Internet Protection Act (CIPA) that “a public library may not receive federal assistance to provide Internet access unless it installs software to block images that constitute obscenity or child pornography, and to prevent minors from obtaining access to material that is harmful to them.”[44] Critically, the Court held that libraries were not public fora:

A public library does not acquire Internet terminals in order to create a public forum for Web publishers to express themselves, any more than it collects books in order to provide a public forum for the authors of books to speak. It provides Internet access, not to “encourage a diversity of views from private speakers” … but for the same reasons it offers other library resources: to facilitate research, learning, and recreational pursuits by furnishing materials of requisite and appropriate quality.[45]

But what is the purpose of the news voucher scheme if not to “encourage a diversity of views from private speakers?”  Indeed, this is precisely how McChesney and Nichols attempt to sell their scheme—as a “libertarian’s dream.”  But, paradoxically, the more “libertarian” and broader subsidies for speech are, the more likely the political/constitutional paradox mentioned above is to arise.

The Citizenship News Voucher Fund proposed by McChesney and Nichols strongly resembles the University of Virginia’s Student Activity Fund:  In both cases, consumers are taxed to finance a fund that is, in theory, available to any entity that meets certain basic eligibility criteria.  No attempt is made in either case to ensure the quality of content or activities being funded.  Indeed, McChesney and Nichols explicitly reject such oversight of voucher spending and insist that taxpayers must accept that much of the fund will simply be wasted on media that falls well short of the “hard” or “serious” news they’re trying to save.  (By contrast, the Corporation for Public Broadcasting, whose budget McChesney and Nichols propose increasing nine-fold to fund more public media,[46] more closely resembles the NEA as a selective grant-maker.)

Also distinguishing the Court’s decision upholding CIPA’s content-based restrictions is the fact that both Justice Kennedy in his concurrence and Justice Souter in his dissent (joined by Justice Ginsburg) agreed that First Amendment problems could be solved to the extent that adults could opt-out of filtering.[47] But with news vouchers, the government either restricts the eligibility of certain publications to receive vouchers depending on their eligibility or it does not.

Furthermore, unlike with CIPA or the NEA, the Citizenship News Voucher wouldn’t be related to educational settings, so it’s not even clear a “decency” requirement like that Congress imposed on the NEA’s grant-making could be imposed on voucher eligibility.[48] Magazines like Playboy offer a mix of pornography and thoughtful commentary on the news, proving that there is a market for such combination of journalism and controversial entertainment and photography.  Going even further, “Naked News” is a daily show whose buxom anchors strip while delivering the news.[49] Why wouldn’t millions of Americans, especially younger men, use their voucher for such content?  Who’s going to draw the line between porn-spiced news and “serious” content?

The typical taxpayer will be outraged by having to subsidize some media outlet, whether because of its objectionable viewpoint or indecent or unserious content.  He will fiercely resist being compelled “to furnish contributions of money for the propagation of opinions which he disbelieves and abhors,” as Jefferson put it.  Good luck getting even the most “tolerant” gay voters, for example, to accept being taxed to pay for fundamentalist Christian perspectives on the news—or vice versa!  McChesney and Nichols don’t actually say anything about the First Amendment, but do recognize that, for their program to be accepted, the American people will have to swallow the “hard pill” of accepting that “some of the vouchers are going to go to media that they detest” and “embrace dissent in reality and not just rhetoric.”[50] They seem to think this “hard pill” is a benefit of their scheme because it would teach us all to be more tolerant of “dissent.”  That’s easy for an endowed professor at a taxpayer-funded university and avowed neo-Marxist like Robert McChesney to say, but it’s not likely to fly with most Americans.  Disputes over “qualifying entity” eligibility will only add new rancor to the Culture Wars (over sex, abortion, religion, politics, etc.).

Realistically, it would likely take years for a news voucher bill to make its way through Congress, and if it ever did pass, it would likely be tied up in the courts for years, requiring at least one visit to the Supreme Court.  If any content strings are included, the law could well lead to the same kind of ordeal as with the 1998 Child Online Protection Act, which spent nearly 9 years in litigation and went up to the Supreme Court twice.[51] Yet somehow McChesney and Nichols imagine their proposal will save media today at this critical moment of technological transition.

Down with Copyright, Down with Capitalism?

There’s another problematic caveat to the McChesney-Nichols variant of the news voucher idea: They would disallow any copyright protection or advertising support for an entity who receives voucher funds.  That’s an effort by the authors to steer even more media activity away from the commercial sphere and toward what might be thought of as a “public option” for the press—what McChesney and Nichols euphemistically (and repeatedly) call “post-corporate” media.

Let’s not forget that McChesney has argued (during an interview on the Canadian-based “Socialist Project”) that “the ultimate goal is to get rid of the media capitalists,” and that, “unless you make significant changes in the media, it will be vastly more difficult to have a revolution.”  So, it’s important to keep his true intentions in mind when he starts claiming to have found “a libertarian’s dream” of a solution to what ails America’s media sector.[52] It sounds more like a central planner’s dream.  The true “libertarian’s dream” would be to leave Americans free to make their own choices about media without additional meddling from the State, and to look to innovation to fund media through a combination of advertising, sponsorship, subscriptions and micropayments.

Related PFF Publications

[1] Adam Thierer & Berin Szoka, The Progress & Freedom Foundation, The Wrong Way to Reinvent Media, Part 1: Taxes on Consumer Electronics, Mobile Phones & Broadband, PFF Progress on Point 17.1, March 2010, www.pff.org/issues-pubs/pops/2010/pop17.1-the_wrong_way_to_reinvent_media.pdf.

[2] Adam Thierer, The Progress & Freedom Foundation, The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Taxes to Subsidize Public Media, Progress on Point 17.2, March 2010, www.pff.org/issues-pubs/pops/2010/pop17.2-wrong_way_part_2.pdf

[3] “Until now, the iron core of news has been somewhat sheltered by an economic model that was able to provide extra resources beyond what readers—and advertisers—would financially support. This kind of news is expensive to produce, especially investigative reporting.” Alex S. Jones, Losing the News: The Future of the News that Feeds Democracy (2009) at 4.

[4] “For a long time, publishers have used news as a ‘loss leader,’ a product sold below costs to create other sales.” The Media Consortium, The Big Thaw: Charting a New Future for Journalism, July 2009, at 36, www.themediaconsortium.org/thebigthaw.

[5] James T. Hamilton notes that, “nonpartisan reporting emerged as a commercial product in American newspaper markets in the 1870s.  Before that time, many papers openly proclaimed association with a particular political party.”  James T. Hamilton, All the News That’s Fit to Sell (2004), at 3.

[6] The Federal Communications Commission (FCC) recently kicked off a new “Future of Media” effort with a workshop on “Serving the Public Interest in the Digital Era.” See Federal Communications Commission, FCC Launches Examination of the Future of Media and Information Needs of Communities in a Digital Age, FCC Public Notice, GN Docket No. 10-25, Jan. 21, 2010, at 2, http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-10-100A1.pdf

[7] The Federal Trade Commission (FTC) has hosted two workshops asking “How Will Journalism Survive the Internet Age?” www.ftc.gov/opp/workshops/news/index.shtml

[8] Both the Senate and House of Representatives have held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) recently introduced the “Newspaper Revitalization Act,” which would allow newspapers to become nonprofit organizations in an effort to help them stay afloat—but also curtail their political editorializing.  See http://cardin.senate.gov/news/record.cfm?id=310392.

[9] Robert W. McChesney & John Nichols, The Death and Life of American Journalism (2010) at 201-206. McChesney discussed this idea in more detail when he spoke at the recent FTC event on saving journalism.  Robert W. McChesney, Rejuvenating American Journalism: Some Tentative Policy Proposals, Presentation to FTC Workshop on Journalism, March 10, 2010, www.ftc.gov/opp/workshops/news/mar9/docs/mcchesney.pdf

[10] Dean Baker, The Artistic Freedom Voucher: An Internet Age Alternative to Copyrights, Nov. 5, 2003, www.cepr.net/documents/publications/ip_2003_11.pdf.

[11] Free Press, Saving the News: Toward a National Journalism Strategy, May 2009, at 36, www.freepress.net/files/saving_the_news.pdf.

[12] McChesney & Nichols, supra note 9 at 205.

[13] Id. at 204.

[14] Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (2008).

[15] They define choice architecture as follows:  “A structure designed by a choice architect(s) to improve the quality of decisions made by homo sapiens. Often invisible, choice architecture is the specific user-friendly shape of an organization’s policy or physical building when homo sapiens come into contact with it. Examples of choice architecture include a voter ballot, a procedure for handling well-meaning people who forget a deadline, or a skyscraper.”  Nudge Glossary of Terms, www.nudges.org/glossary.cfm.

[16] See Adam Thierer & Berin Szoka, The Progress & Freedom Foundation, What Unites Advocates of Speech Controls & Privacy Regulation?, Progress on Point 16.19, Aug. 11, 2009, www.pff.org/issues-pubs/pops/2009/pop16.19-unites-speech-and-privacy-reg-advocates.pdf.

[17] As Glen Whitman notes in challenging such “nudging”: “the new paternalism carries a serious risk of expansion. Following its policy recommendations places us on a slippery slope from soft paternalism to hard. This would be true even if policymakers — including legislators, judges, bureaucrats, and voters — were completely rational. But the danger is especially great if policymakers exhibit the same cognitive biases attributed to the people they’re trying to help.”  Glen Whitman, The Rise of the New Paternalism, Cato Unbound, April 5, 2010, www.cato-unbound.org/2010/04/05/glen-whitman/the-rise-of-the-new-paternalism.

[18] Adam Thierer, The Progress & Freedom Foundation, Why Expansion of the FCC’s Public Interest Regulatory Regime is Unwise, Unneeded, Unconstitutional, and Unenforceable, Testimony Before the Federal Communications Commission Hearing on “Serving the Public Interest in the Digital Era,” March 4, 2010, www.pff.org/issues-pubs/testimony/2010/2010-03-04-Thierer_Remarks_at_FCC_Hearing.pdf.

[19] Ellen P. Goodman, “Proactive Media Policy in an Age of Content Abundance,” in Philip M. Napoli, ed., Media Diversity and Localism: Meaning and Metrics (2007) at 370, 374.

[20] Id.

[21] Walter Lippmann, Public Opinion (1922), at 53, 57.

[22] For example, among other things, McChesney and Nichols call for a 5% tax on consumer electronics, a 3% tax on monthly ISP & cell phone bills, a 2% sales tax on advertising, and a 7% tax on broadcasters.  See McChesney & Nichols, supra note 9 at 209-11.

[23] Id. at 202.

[24] Id.

[25] Id.

[26] Id.

[27] Id. at 205.

[28] http://www.taxpolicycenter.org/UploadedPDF/1001289_who_pays.pdf

[29] McChesney & Nichols, supra note 9 at 205.

[30] Jonathan Weisman, Economic Policy ‘Nudge’ Gives Way to a Shove, Wall Street Journal, March 8, 2010, http://online.wsj.com/article/SB10001424052748704869304575103980232739138.html.

[31] http://religiousfreedom.lib.virginia.edu/sacred/vaact.html

[32] McChesney & Nichols, supra note 9 at 205.

[33] Rust v. Sullivan, 500 U.S. 173, 194 (1991).

[34] Id. (emphasis added).

[35] Rosenberger v. Rector and Visitors of Univ. of Va., 515 U.S. 819, 833 (1995) (emphasis added).

[36] Legal Services Corp. v. Velazquez, 531 US 533, 542 (2001).  The Court in Rosenberger noted:

even in the provision of subsidies, the Government may not “ai[m] at the suppression of dangerous ideas,” Regan v. Taxation with Representation of Wash., 461 U.S. 540, 550 (1983), and if a subsidy were “manipulated” to have a “coercive effect,” then relief could be appropriate. See Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221, 237 (1987) (Scalia, J., dissenting); see also Leathers v. Medlock, 499 U.S. 439, 447 (1991) (“[D]ifferential taxation of First Amendment speakers is constitutionally suspect when it threatens to suppress the expression of particular ideas or viewpoints”). In addition…, a more pressing constitutional question would arise if Government funding resulted in the imposition of a disproportionate burden calculated to drive “certain ideas or viewpoints from the marketplace.” Simon & Schuster, Inc. v. Members of N. Y. State Crime Victims Bd., 502 U.S. 105, 116 (1991).

Id. at 587.

[37] 531 U.S. at 542.

[38] Rosenberger v. Rector and Visitors of Univ. of Va., 515 U.S. 819, 833 (1995).  The University’s rule prohibited funding of any group that “primarily promotes or manifests a particular belie[f] in or about a deity or an ultimate reality.”

[39] National Endowment for the Arts v. Finley, 524 U.S. 569, 574 (1998).

[40] 524 U.S. at 583 (quoting R. A. V. v. St. Paul, 505 U.S. 377 (1992) (internal quotations omitted).

[41] Id. at 584 (citing  Board of Ed., Island Trees Union Free School Dist. No. 26 v. Pico, 457 U.S. 853, 871 (1982); see also Bethel School Dist. No. 403 v. Fraser, 478 U.S. 675, 683 (1986)).

[42] Id. at 587.

[43] 515 U.S. 819 (1995).

[44] U.S. v. American Library Association, Inc., 539 U.S. 194 (2003).  See generally Robert Corn-Revere, United States v. American Library Association: A Missed Opportunity for the Supreme Court to Clarify Application of First Amendment Law to Publicly Funded Expressive Institutions, Cato Supreme Court Rev. 105, 2003, www.cato.org/pubs/scr2003/publiclyfunded.pdf.

[45] Id. at 207 (quoting Rosenberger, 515 U.S. at 834).

[46] McChesney & Nichols, supra note 9 at 192, 199.

[47] “If, on the request of an adult user, a librarian will unblock filtered material or disable the Internet software filter without significant delay, there is little to this case.” American Library Association, 539 U.S. at 214 (Kennedy, J. concurring).  Justice Souter agreed that it would ‘‘tak[e] the curse off the statute for all practical purposes’’ if adult patrons could obtain an unblocked Internet terminal ‘‘simply for the asking,’’ but doubted this would actually happen in practice.  Id. at 232.

[48] Cf. Rosenberger, 515 U.S. at 584 (“Educational programs are central to the NEA’s mission.… And it is well established that ‘decency’ is a permissible factor where ‘educational suitability’ motivates its consideration.”).

[49] See www.nakednews.com.

[50] Id. at 205.

[51] See Adam Thierer, Closing the Book on COPA?, Technology Liberation Front, Jan. 21, 2009, http://techliberation.com/2009/01/21/closing-the-book-on-copa/.

[52] Adam Thierer, The Progress & Freedom Foundation, Free Press, Robert McChesney & the “Struggle” for Media, Aug. 10, 2009, http://blog.pff.org/archives/2009/08/free_press_robert_mcchesney_the_struggle_for_media.html

Wrong Way to Reinvent Media Part 3 – Media Vouchers [Thierer & Szoka – PFF] http://d1.scribdassets.com/ScribdViewer.swf

]]> https://techliberation.com/2010/04/14/the-wrong-way-to-reinvent-media-part-3-media-vouchers/feed/ 0 28082 The Wrong Way to Reinvent Media, Part 1: Taxing Devices & Networks to Subsidize Media https://techliberation.com/2010/03/24/the-wrong-way-to-reinvent-media-part-1-taxing-devices-networks-to-subsidize-media/ https://techliberation.com/2010/03/24/the-wrong-way-to-reinvent-media-part-1-taxing-devices-networks-to-subsidize-media/#comments Wed, 24 Mar 2010 22:17:31 +0000 http://techliberation.com/?p=27420

By Adam Thierer & Berin Szoka

As we mentioned yesterday, in a new series of essays, we will be examining proposals being put forward today that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. With many traditional media operators struggling, and questions being raised about how journalism in particular will be supported in the future, Washington policymakers are currently considering what role government can and should play in helping media providers reinvent themselves in the face of tumultuous technological change wrought by the Digital Revolution. We will be releasing 6 or 7 essays on this topic leading up to our big filing in the FCC’s “Future of Media” proceeding (deadline is May 7th).

In the first installment of our series, we will critique an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. We argue that such media income redistribution is fundamentally inconsistent with American press traditions, highly problematic under the First Amendment, difficult to implement in a world of media abundance and platform convergence, and likely to cause serious negative side effects.  Bottom line: Don’t tax our iPhones or broadband to subsidize media!

We’ve attached the entire text of the piece below. (Installment #2, on broadcast spectrum taxes to subsidize public media, will be released next week.)

The Wrong Way to Reinvent Media, Part I: Taxes on Consumer Electronics, Mobile Phones & Broadband

by Adam Thierer & Berin Szoka*

PFF Progress on Point 17.1 [PDF]

With many traditional media operators struggling, and questions being raised about how journalism in particular will be supported in the future,[1] Washington policymakers are currently considering what role government can and should play in helping media providers reinvent themselves in the face of tumultuous technological change wrought by the Digital Revolution. For example, the Federal Communications Commission (FCC) recently kicked off a new “Future of Media” effort with a workshop on “Serving the Public Interest in the Digital Era.” Likewise, the Federal Trade Commission (FTC) has hosted two workshops asking “How Will Journalism Survive the Internet Age?”  Meanwhile, the Senate has already held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) recently introduced the “Newspaper Revitalization Act,” which would allow newspapers to become tax-exempt non-profits in an effort to help them stay afloat.

In a series of forthcoming essays leading up to the May 7 filing deadline for the FCC’s “Future of Media” proceeding, we will discuss and critique some of the leading proposals being put forward that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content.

In this essay, we discuss an old idea that‘s gained new currency: taxing media  devices or distribution systems to fund media content. We argue that such media income redistribution is fundamentally inconsistent with American press traditions, highly problematic under the First Amendment, difficult to implement in a world of media abundance and platform convergence, and likely to cause serious negative side effects.

The BBC Model: Taxing Devices

Taxing devices to subsidize media content has never gained much traction here in the U.S., but it’s been used by some foreign governments for many decades.  Most famously, taxes on radios, eventually replaced by taxes on televisions, have sustained the BBC in the U.K. since its inception as the world’s first national broadcasting system in 1922. According to the most recent BBC annual report, the annual “fee” was raised to £142.50/year (currently $213.43) as of April 2009.  Failure to pay the fee is, of course, a crime and punished with stiff fines up to £1000 ($1497.75)—and radio emissions from unlicensed televisions can be detected by government vans that rove Britain’s streets looking for violators.  The revenue generated by the tax is then allocated among various BBC media products, with most of it going to the BBC 1 and BBC 2 television channels.

The U.S. has taken a different approach.  We’ve not embedded a tax in the cost of new media devices to pay for the content delivered over those devices.  (Of course, that’s at least partially because we’ve had a strong tradition of free markets in media ever since we revolted against the Brits and mercantilism, their system of state-directed economic planning!)  Generally speaking, private media operators have been expected to pay their own way in this country and not look to government for direct support.

America has had some indirect subsidies in the form of reduced postal rates for print media, as well as tax treatment for advertising.  And taxpayer dollars have been channeled to the CPB/PBS/NPR regime, of course.  But such public subsidy is small potatoes when compared to private media in the U.S.  For example, the Corporation for Public Broadcasting’s 2010 budget is just $400 million.[2] While many look to CPB to fund children’s programming (among its many other activities), its entire budget is no more than a quarter of the total amount of U.S. advertising revenue produced by children’s programming from food and beverages products alone: $1.6 billion in 2006 by the FTC’s most conservative estimates.[3] That comparison illustrates the vital importance of advertising to media,[4] but subscriptions, direct sales, and private patronage have also been major economic engines of media in United States.

But the idea of more direct government support for media (and journalism, in particular) has always been lurking out there.  There’s long been a small but vociferous crowd of academics and policymakers advocating huge increases in government spending on non-commercial or public media.  And some of them have even toyed with a tax on technology to cross-subsidize the media content that flows over those devices or networks.  Most recently, Robert W. McChesney and John Nichols, authors of the new book The Death and Life of American Journalism, have proposed a 4-part tax plan to raise money ($18-21 billion) for a massive $35 billion/year “public works” program for the press (with the remainder coming from other sources):[5]

  • a 5% tax on consumer electronics (they estimate it would bring in $4 billion/year)
  • a 3% tax on monthly ISP & cell phone bills (estimated $6 billion/year)
  • a 2% sales tax on advertising (estimated $5 to $6 billion/year)
  • a 7% tax on broadcasters (estimated $3-6 billion/year)

Similarly, Leonard Downie, Jr., Vice President at Large of The Washington Post, and Michael Schudson, a Professor at the Columbia University Graduate School of Journalism, have advocated the creation of a “Fund for Local News” that “would make grants for advances in local news reporting and innovative ways to support it.”[6] The Fund would make grants to news organizations through “Local News Fund Councils” and would be financed by “fees paid by radio and television licensees, or proceeds from auctions of telecommunications spectrum, or new fees imposed on Internet service providers.”[7] (Note: Proposals to impose fees on radio and television licensees will be discussed in a subsequent installment of this PFF series.  But for purposes of this installment, we reference the Downie & Schudson plan because of its call for fees on ISPs as one method of financing media going forward.)

More Platforms, More Taxes

McChesney and Nichols don’t go into a lot of detail about their tax proposals, but the consumer electronics tax they favor appears to be based on the 1967 Carnegie Commission Report, which called for a 5% tax on all new television purchases—a variant on Britain’s annual licensing fee.  But instead of just taxing “televisions”—which would be very difficult in a world of technological convergence where consumers can “watch television” on any number of devices (PCs, mobile phones, portable gaming devices, portable media players, etc.)—they apparently want to tax all consumer electronic devices.  Thus, they seem to recognize the reality of convergence but their answer is to just tax everything!

The British themselves have struggled with technological change: In 1971, the radio fee first introduced in 1922 was abolished, and in 1972, so was the BBC’s radio monopoly, with commercial radio stations being allowed to compete with BBC Radio for the first time.  One might argue that abolishing the radio tax and relying on a single tax (on televisions) to fund the BBC’s television programming (67% of BBC spending) as well as BBC radio (17%) was simply more efficient—since most consumers had a television as well as a radio.  Indeed, actually implementing any media device tax in the U.S. could prove very difficult, since countering evasion would require imposing sales taxes on online retailers ranging from Amazon.com to TigerDirect.com to countless small operators who sell TVs, DVD players, cell phones, and a wide variety of other gadgets.  So much for the Internet sales tax moratorium!

But the evasion problem is a real one. The BBC estimates an 8.7% evasion rate, and it’s not clear how much more (or less) of a problem evasion might be when the tax is imposed at the point of sale (as McChesney and Nichols propose) rather than every year (as in Britain).  But clearly, the problem can’t be solved simply by trying to tax all consumer electronics:  The higher the tax rate, the more likely a black market will develop for discounted devices—with all the problems that generally come with black markets, such as funding organized crime. Whenever someone proposes a single-digit tax rate for anything, it’s worth remembering that the federal income tax started out at 1-7% back in 1913—and, well, we all know how that turned out!  (Top rates rose to 67-73% during World War I, fell again to the mid-20s under Coolidge, then jumped again to 63% by 1933 and didn’t fall below 50% till 1986!)  Maybe McChesney and Nichols realize how ugly black markets would get if tax rates on devices rise in the future—and perhaps that’s why they’re trying to spread the pain around by taxing broadband and wireless service, advertising and broadcasting, too.  But, as discussed next, that’s another problem with the plan.

Taxation’s Negative Disincentives

Taxes distort markets and human behavior.  Long ago, Chief Justice John Marshall taught us that “the power to tax is the power to destroy.”  As the late Clarence B. Carson noted in an article of the same name:

Any level of taxation will make some undertakings unprofitable or submarginal. In practice, any increase in taxes will drive some people out of business, prevent them from going into business, or make it difficult or impossible for them to sustain themselves by whatever they are doing.[8]

This helps us understand why raising taxes on mobile phones and broadband bills would be particularly foolish way of supporting media:  it will distort beneficial behavior by both providers and consumers of communications conduit.

The FCC just recently reported that cost is a major factor for many households who decide not to buy broadband service (even though it’s available).  Why, after the FCC spent 13 months producing a 376-page, Congressionally mandated National Broadband Report on ways to increase the utilization and affordability of broadband, would we want to do anything to boost broadband bills, even in the name of “saving journalism”?  Increased taxes on broadband bills might discourage some broadband providers from rolling out innovative new services as rapidly as planned.  And once the new service tax is passed along to consumers—as all business taxes inevitably are—they might be less likely to adopt broadband, or might even cancel existing service.  How would that benefit media and journalism?

The same goes for mobile phones. CTIA—The Wireless Association estimates that wireless users already pay an average 15% tax (local state and federal) on their cell phone bills.  Moreover, if there is one thing we can count on, it’s that taxes inevitably rise once they get on the books, whatever the intention of their initial architects.  That‘s especially true when the tax creates a new class of subsidy recipients who have a vested interest in keeping the scheme alive and growing. Thus, what starts out as 3-5% tax on phones, broadband, and consumer electronics, will likely grow to be much higher over time.  Pretty soon the FCC will look like the massively inefficient Department of Agriculture, doling out subsides to everybody and his brother who qualifies for media industry corporate welfare.

How Will the Government Spend Your Money?

But the more interesting question about such a media tax may be on the  payout side of the scheme.  Herein lies a fundamental difference between the BBC model and what McChesney and Nichols are proposing: The BBC fees have always been used to fund BBC content only, not for all media.  True, the BBC once held monopolies in radio and television, but those monopolies died long ago, and when they did, the British did not share fee revenue with the BBC’s competitors.  Instead, commercial radio and television in the UK have had to rely on subscription and advertising revenues, just as in the US.  Thus, the British model does not answer a profoundly difficult question: Even if we assume government could create a reasonably effective media tax collection regime, who would qualify for a cut of the money?

In an age of user-generated content and a wide variety of hybrid media products, it would seem that defining eligibility criteria for the subsidy might be significantly more challenging than it was in the past. Would blogs qualify?  What about live reporting via Twitter or photo-journalism via Flickr?  Who gets to decide what qualifies as news worth subsidizing, as opposed to mere opinions or aggregation?  Similarly, the “Fund for Local News” and “Local News Fund Councils” favored by Downie and Schudson would be doubly problematic.  They propose that, “The criteria for grants should be journalistic quality, local relevance, innovation in news reporting, and the capacity of the news organization, small or big, to carry out the reporting.”[9] But, again, who determines “journalistic quality” and “the capacity… to carry out the reporting” or even what constitutes “local” news?

Beyond such practical problems, determining eligibility raises profound First Amendment questions because, as the Supreme Court has held, “in the realm of private speech or expression, government regulation may not favor one speaker over another.”[10] The Court has also held that “Both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system.”[11] Thus, the government may not pick preferred classes of speakers for subsidies, just as it may not single out disfavored classes for penalties.  For example, a state university may not selectively deny funding to a gay and lesbian students association, because, as the Eighth Circuit has held:

a public body that chooses to fund speech or expression must do so even-handedly, without discriminating among recipients on the basis of their ideology.  The University need not supply funds to student organizations; but once having decided to do so, it is bound by the First Amendment to act without regard to the content of the ideas being expressed.  This will mean, to use Holmes’s phrase, that the taxpayers will occasionally be obligated to support not only the thought of which they approve, but also the thought that they hate. That is one of the fundamental premises of American law.[12]

And there’s also a First Amendment-related concern here associated with the potentially—if subtly—coercive effects of subsidies on the independent editorial discretion of news-gatherers.  Downie and Schudson insist they “understand the complexity of establishing a workable grant selection system and the need for strict safeguards to shield news organizations from pressure or coercion from state councils or anyone in government.”[13] Yet they hope political pressure can, somehow, be kept to a minimum.  Likewise, McChesney and Nichols largely dismiss such concerns about undue political influence on subsidized entities—even though they cite several examples of politicians attempting to use the purse strings to influence PBS and NPR funding over the past four decades![14]

Regardless, these scholars fail to account for the fact that, going forward, political pressure would likely grow in proportion to dependence of media entities upon such public subsidy and the overall amount of those subsidies.  After all, we’re talking about taxpayer funding for the press on an unprecedented scale here.  Moreover, the more visible these subsidies become—especially then the funding goes to highly controversial media content or outlets ( e.g., involving pornography, vulgarity, politics, religion, abortion, homosexuality)—the more likely the public and politicians are to clamor for rules on who gets what.  We’ve already seen a microcosm of that concern with National Endowment for the Arts funding for controversial art and culture in the past.  Now imagine media subsidies on the scale that McChesney and Nichols envision coupled with Downie and Schudson’s “Local News Fund Councils” sorting out competing claims and concerns.  Media funding will quickly become a political circus—and another front in the ongoing Culture Wars.

Here’s another concern: Will this scheme lead to more or less media competition?  It would be misguided to argue that such a tax system couldn’t fund some quality journalism and even entertainment.  After all, there’s some wonderful stuff on the BBC.  But without having run the numbers for all countries, there seems to be a correlation between the level of government investment in media and the overall number of media outlets at the public’s disposal.  When visiting Europe, one is struck by how even the largest European countries have so few choices compared to what we have here in the States, and that’s true across media (video, audio, print, online).  Could that be because government spending / investment in media has had a crowding-out effect on private media?  That possibility is at least worth considering as some look to broaden public support for media here in the U.S. Government simply doesn’t have a very good track record of creating innovative, competitive businesses and markets.

How the Death of Private, For-Profit Media Becomes a Self-Fulfilling Prophecy

Which leads to a final concern: There’s just a gut-level discomfort many of us would have with the idea of government imposing even more taxes on us to support industries or interests we might find distasteful or not deserving of corporate welfare.  It’s one thing to say that the government should play a role at the margin funneling some money into public broadcasting efforts via the CPB for limited purposes, but it’s quite another to suggest that this should be the new model upon which all media should rest.  That’s essentially what McChesney and Nichols propose in their book, on the grounds that “the old order is collapsing” and private media is dead.

Of course, it’s virtually a self-fulfilling prophecy that private media operators will fail if you impose a smorgasbord of new tax burdens on them and related devices and distribution channels—and then channel the money to “public media” competitors!  As will be discussed in a future installment in this series of essays, taxing advertising is particularly harmful because those taxes come straight out of the advertising revenues upon which most publishers depend for their lifeblood.

But raising prices of innovative consumer electronics like readers ( e.g., Amazon’s Kindle, Barnes & Noble’s Nook, Sony’s Reader or Apple’s iPad) and the wireless broadband services that connect them isn’t such a bright idea either at a time when traditional publishers are hoping that new media distribution and consumption technologies will also allow them to experiment with new business models (like selling subscriptions for magazines or newspapers tailored for these devices).  Unlike the British annual license fee, a tax imposed at the point of purchase would discourage users from buying new devices.  This, in turn would slow adoption of new technologies and retard innovation in a market that has seen consumers move increasingly towards replacing their old devices every few years, due to the constant increased in processing power and functionality made possible by Moore’s Law.

Taken together, these tax proposals are a sure-fire way to achieve McChesney’s true radical end: the destruction of private, commercial media and journalism.  Let’s not forget, after all, that McChesney has argued (during this interview with the Canadian-based “Socialist Project”) that “the ultimate goal is to get rid of the media capitalists,” and that, “unless you make significant changes in the media, it will be vastly more difficult to have a revolution.”[15] And in his book with Nichols, he concludes by noting that “We have responded in a time of crisis not with tinkering reforms but with revolution.”[16]

Indeed they have!  But such radicalism must be rejected if we hope to sustain a truly free press and uphold America’s proud tradition of keeping a high and tight wall of separation between Press and State.  Americans would do well remember to remember the (other) Golden Rule: “Whoever Has the Gold, Makes the Rules!”[17] The more control politicians have over funding media, the more control they will inevitably have over media itself.

Related PFF Publications

[1] The Pew Project for Excellence in Journalism reports that: “The numbers for 2009 reveal just how urgent these questions are becoming. Newspapers, including online, saw ad revenue fall 26% during the year, which brings the total loss over the last three years to 43%. Local television ad revenue fell 22% in 2009, triple the decline the year before. Radio also was off 22%. Magazine ad revenue dropped 17%, network TV 8% (and news alone probably more). Online ad revenue over all fell about 5%, and revenue to news sites most likely also fared much worse. Only cable news among the commercial news sectors did not suffer declining revenue last year.” Pew Project For Excellence in Journalism, Introduction, The State of the News Media 2010, March 2010, www.stateofthemedia.org/2010/overview_intro.php.

[2] Corporation for Public Broadcasting, FY 2010 Operating Budget, www.cpb.org/aboutcpb/leadership/board/resolutions/090915_fy10OperatingBudget.pdf.

[3] See FTC’s 2008 report, Marketing Food to Children and Adolescents: A Review of Industry Expenditures, Activities, and Self-Regulation, at ES-1-2, www.ftc.gov/os/2008/07/P064504foodmktingreport.pdf.

[4] Adam Thierer & Berin Szoka, The Progress & Freedom Foundation, The Hidden Benefactor: How Advertising Informs, Educates & Benefits Consumers, PFF Progress Snapshot 6.5, Feb. 2010, www.pff.org/issues-pubs/ps/2010/ps6.5-the-hidden-benefactor.html.

[5] Robert W. McChesney & John Nichols, The Death and Life of American Journalism (2010) at 210-11.

[6] Leonard Downie, Jr. & Michael Schudson, The Reconstruction of American Journalism, Columbia Journalism Review, Oct. 20, 2009, at 92, available at www.scribd.com/doc/21268382/Reconstruction-of-Journalism.

[7] Id.

[8] Clarence B. Carson, The Power to Tax is the Power to Destroy, The Freeman, Vol. 26, No. 10, Oct. 1976, www.thefreemanonline.org/featured/the-power-to-tax-is-the-power-to-destroy.

[9] Downie & Schudson, supra note 6 at. 93.

[10] Rosenberger, 515 U.S. 819, 828 (1995).

[11] Regan v. Taxation with Representation of Washington, 461 U.S. 540, 544 (1983).

[12] Gay & Lesbian Students Assoc, 850 F.2d 361, 362 (8th Cir. 1988).

[13] Id.

[14] McChesney & Nichols, supra note 5 at 193-99.

[15] Socialist Project, Media Capitalism, the State and 21st Century Media Democracy Struggles: An Interview with Robert McChesney, The Bullet, Socialist Project, E-Bulletin No. 246, Aug. 9, 2009, www.socialistproject.ca/bullet/246.php.

[16] Id.

[17] The Big Apple, Golden Rule (“He Who Has the Gold Makes the Rules”), June 13, 2009,  www.barrypopik.com/index.php/new_york_city/entry/golden_rule_he_who_has_the_gold_makes_the_rules.

Wrong Way to Reinvent Media Part 1 – Media Taxes [Thierer & Szoka – PFF] http://d1.scribdassets.com/ScribdViewer.swf

]]> https://techliberation.com/2010/03/24/the-wrong-way-to-reinvent-media-part-1-taxing-devices-networks-to-subsidize-media/feed/ 3 27420 The Wrong Way to Reinvent Media: A New Series of Essays https://techliberation.com/2010/03/23/the-wrong-way-to-reinvent-media-a-new-series-of-essays/ https://techliberation.com/2010/03/23/the-wrong-way-to-reinvent-media-a-new-series-of-essays/#comments Tue, 23 Mar 2010 21:49:28 +0000 http://techliberation.com/?p=27401

By Adam Thierer & Berin Szoka

In a series of upcoming essays, we will be examining proposals being put forward today that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. The reason we’re working up this multi-part series is because, with many traditional media operators struggling, and questions being raised about how journalism in particular will be supported in the future, Washington policymakers are currently considering what role government can and should play in helping media providers reinvent themselves in the face of tumultuous technological change wrought by the Digital Revolution.

For example, the Federal Communications Commission (FCC) recently kicked off a new “Future of Media” effort with a workshop on “Serving the Public Interest in the Digital Era.” (The  filing deadline for the FCC’s “Future of Media” proceeding is May 7th).  Likewise, the Federal Trade Commission (FTC) has hosted two workshops asking “How Will Journalism Survive the Internet Age?”  Meanwhile, the Senate has already held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) recently introduced the “Newspaper Revitalization Act,” which would allow newspapers to become tax-exempt non-profits in an effort to help them stay afloat.

Thus, in light of Washington’s sudden interest in the future of media and journalism, we will be taking a hard look at several issues and proposals that are being floated today, including:

  • Taxes on media devices, mobile phones, or broadband bills to channel money to media enterprises / content;
  • Taxes / fees on broadcasters to funnel support to their public sector competitors or to public interest programs;
  • “News vouchers” or “public interest vouchers” that would encourage citizens to channel support to media providers;
  • Taxes on private advertising to subsidize non-commercial / public media content;
  • Expanded postal subsidies for media mail; and
  • Targeted welfare programs for out-of-work journalists or corporate welfare in the form of bailouts for failing media enterprises.

You won’t be surprised to hear that we are generally quite skeptical of most of these ideas, but we promise to give each one serious consideration.  We’ll kick things off tomorrow with our essay on why taxing media devices or distribution systems to fund media content is not a particularly good idea.

]]> https://techliberation.com/2010/03/23/the-wrong-way-to-reinvent-media-a-new-series-of-essays/feed/ 8 27401 Just How Inefficient is Communications Regulation? The USF Case Study https://techliberation.com/2008/12/04/just-how-inefficient-is-communications-regulation-the-usf-case-study/ https://techliberation.com/2008/12/04/just-how-inefficient-is-communications-regulation-the-usf-case-study/#comments Thu, 04 Dec 2008 17:28:25 +0000 http://techliberation.com/?p=14690

One of the reasons that so many of us here take issue with proposals to expand regulation of communications, broadband, and media markets is because we have studied the horrendous inefficiencies of economic regulation in practice. We oppose regulatory proposals not because of a “blind faith” in free markets, but because we understand that even when markets stumble they correct themselves quicker and more efficiently than regulatory systems do. One can profess the supposed theoretical benefits of enlightened “public interest” regulation all they want, but the facts are the facts. And the facts do not support the proposition that government regulation generally enhances consumer welfare.

In that regard, Tim Lee’s new Net neutrality report for Cato does a nice job of surveying some of the past unintended consequences of regulation. Also, even though it is now 10 years old, I highly recommend “Economic Deregulation and Customer Choice” by Jerry Ellig and Robert Crandall. It’s an outstanding overview of why economic regulation of various industries failed consumers so miserably in the past.

But if you want even more shocking proof of how horrendously inefficient communications regulation can be in practice, then you must read my PFF colleague Barbara Esbin’s two essays this week on the Universal Service Fund (USF): “The High Cost of USF Support,” and “More FCC Support Fund Follies.” In these two essays, Esbin walks the reader through various grim reports and statistics that have been released recently documenting the failures of the USF.

Her first essay notes how a recent FCC Inspector General report found that the USF “High Cost” fund is spiraling out of control. According to a FCC press release, that report found that “a program is at risk if the erroneous payment rate exceeds 2.5% and the amount of erroneous payments is greater than $10 million. The estimated erroneous payment rate for the High Cost Program (“HCP”) was 23.3%. The previous estimate was 16.6%. Total estimated erroneous payments were $ 971.2 million as compared with the previous estimate of erroneous payments of $617.8 million. Accordingly, the FCC-OIG concluded that the High Cost Fund program is “at risk” under applicable [..] criteria.”

Esbin puts these shocking results in perspective:

“At risk” is a surely a euphemism for a program that loses in “erroneous payments” nearly one out of every four dollars collected from telephone subscribers. In 2007, pursuant to FCC rules, telephone consumers were effectively taxed over $4 billion for the high-cost portion of the USF. Thus, nearly $1 billion dollars of subscriber money went out the door in “erroneous payments.” As the report makes clear, erroneous payments include both over- and underpayments, and also instances where the agency is unable to discern whether a payment was proper as a result of “lack of documentation.” The report’s conclusions state that the “rate of improper overpayments is 22.8%, and the proportion of improper overpayments out of total improper payments is 98.2%.” To be considered “erroneous,” an payment “need not be the result of fraudulent misrepresentation, or a corrupt administrative process.” “Nor does it necessarily exclude those factors as potential causes of erroneous payments.” Significantly, nor are “the erroneous payments . . . necessarily recoverable from recipients by process of law.” Fabulous. Not only has nearly $1 billion in erroneous overpayments gone missing, but even if final audits indicate where it has gone, it may not be recoverable! Among the interesting results of this preliminary report are the identified causes of erroneous payments. According to Table 2 of the report, 50% of the causes of erroneous payments can be attributed nearly equally to two factors: either “Inadequate Documentation” (25.3%) or “Inadequate Auditee Processes and/or Policies and Procedures” (24.6%). Another 10% “Disregarded FCC Rules” and 12% had “Applicant/Auditee Weak Internal Controls.” That is, roughly 75% of the erroneous overpayments can be attributed to poor bookkeeping, inadequate internal controls and “disregard” of FCC rules. This is stunning information. No wonder it made its appearance the day before Thanksgiving.

But wait, things get worse. So much worse. In Esbin’s second essay, she notes that:

On Monday, the OIG released its Semi-Annual Report to Congress, discussing the full range of audit activities conducted from April 1, 2008 to September 30, 2008. Thus we learn that in addition to the loss of nearly $1 billion in erroneous overpayments to the High Cost program, another fund the FCC is ultimately responsible for, the “Telecommunications Relay Service” (TRS) Fund, which provides funds for a variety of telephone transmission services for those with hearing and speech disabilities, also appears to be at risk for substantial overpayments due to the lack of adequate controls. Since 1993, according to the FCC’s website, the Commission’s rules have required that each common carrier providing voice transmission services provide TRS throughout its service area. All providers of interstate telecommunications services contribute to the TRS Fund, and TRS providers recover the costs of providing interstate services from the Fund on a minutes-of-use basis. Intrastate TRS funding is generally administered by the states, although some intrastate TRS offerings are supported by the interstate TRS Fund. The current TRS Fund Administrator is the National Exchange Carrier Association (NECA). Although NECA directly manages the Fund, the FCC sets the Fund size and carrier contribution factor annually and is ultimately responsible for Fund oversight. When the TRS Fund started, it disbursed about $31 million, growing to over $38 million by 1999. Since 1999, the OIG report states that the TRS Fund has increased approximately 50-80% each year, to reach $637 million for the Fund’s fiscal year from July, 2007 to June, 2008. The size of the fund for the current fiscal year is $850 million, a 26% increase over the previous fiscal year. That is, in roughly ten years the TRS Fund has ballooned from $38 million to $850 million! What, if any, other communications service has seen 50-80% growth in costs per year?

Indeed, that is a shocking degree of waste and inefficiency by just about any standard. And Esbin goes on to document specific examples of this waste and inefficiency in action within the TRS Fund. It’s shocking stuff and doesn’t make for pleasant reading if you care about good government.

Barbara is actually much more tempered and tolerant than me when it comes to what to do about all this. She recommends a lot more reform and oversight. If you ask me, however, then entire USF program should be dismantled immediately and any future support deemed necessary should be distributed directly to consumers at the state level in the form of a welfare payment. After all, at root, that’s what universal service is: a communications industry welfare program, but one in which most of the support flows to companies instead of individuals. And that makes it one of the most insanely misguided and inefficient regulatory / subsidization systems known to man. 13 years ago, in one of the very first things that PFF ever published ( The Telecom Revolution: An American Opportunity) I was advocating exactly this sort of a plan along with a dozen other think tank colleagues. (And we also set forth another, less radical reform plan than the “voucher-ize & devolve” plan I favored).

But no one listened. Business as usual continued. And so the endless waste and inefficiencies continue. Somebody will have to remind me how any of this benefits consumer welfare. I can’t see how anyone could make such a case, and I would hope the USF follies serve as a cautionary tale for how the best of intentions are meaningless when it comes to what regulation actually means in practice. Because it sure ain’t pretty.

But hey, it’ll all be different going forward right? We just need to have faith in the media reformistas and the Net neutralitistas.  If we click our heels together enough time and just wish hard enough, all our dreams can come true.

Sure.

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