Economist Mariana Mazzucato has a full spread in the Wired UK humbling suggesting that she “has a plan to fix capitalism.” The plan is an outgrowth of her 2013 book The Entrepreneurial State, which contends that government involvement in research and development (R&D), loans, and other business subsidies are the true drivers of innovation, not the private sector. Her plan is simple: governments need to do better on funding innovation.  

It goes without saying that the government is massively involved in innovation and for good reason. Open any introductory economics text and you’re likely to see an argument for why. Private actors are short sighted and often fail to plan for the long term by investing in R&D that will lead to technological progress. Basic research also might lead to advances or products outside of the company’s niche. Knowing that they won’t be able to capture all of the gains from research, private entities will choose a lower level of investment than is optimal, leading to a market failure. Governments solve this market failure by allocating resources to expanding scientific and technological knowledge.    

While Mazzucato might be finding an audience with policy makers in the UK and doers in Silicon Valley, innovation economists are a little more wary of her state first theory of innovation. Here are some things worth considering when reading her work: Continue reading →

In the US there is a tangle of communications laws that were added over decades by Congress as–one-by-one–broadcast, cable, and satellite technologies transformed the TV marketplace. The primary TV laws are from 1976, 1984, and 1992, though Congress creates minor patches when the marketplace changes and commercial negotiations start to unravel.

Congress, to its great credit, largely has left alone Internet-based TV (namely, IPTV and vMVPDs) which has created a novel “problem”–too much TV. Internet-based TV, however, for years has put stress on the kludge-y legacy legal system we have, particularly the impenetrable mix of communications and copyright laws that regulates broadcast TV distribution.

Internet-based TV does two things–it undermines the current system with regulatory arbitrage but also shows how a diverse amount of TV programming can be distributed to millions of households without Congress (and the FCC and the Copyright Office) injecting politics into the TV marketplace.

Locast TV is the latest Internet-based TV distributor to threaten to unravel parts the current system. In July, broadcast programmers sued Locast (its founder, David Goodfriend) and in September, Locast filed its own suit against the broadcast programmers.

A portion of US TV regulations.

Many readers will remember the 2014 Aereo decision from the Supreme Court. Much like Aereo, Locast TV captures free broadcast TV signals in the markets it operates and transmits the programming via the Internet to viewers in that market. That said, Locast isn’t Aereo.

Aereo’s position was that it could relay broadcast signals without paying broadcasters because it wasn’t a “cable company” (a critical category in copyright law). The majority of the Supreme Court disagreed; Aereo closed up shop.

Locast has a different position: it says it can relay broadcast signals without paying because it is a nonprofit.

It’s a plausible argument. Federal copyright law has a carveout allowing “nonprofit organizations” to relay broadcast signals without payment so long as the nonprofit operates “without any purpose of direct or indirect commercial advantage.”

The broadcasters are focusing on this latter provision, that any nonprofit taking advantage of the carveout mustn’t have commercial purpose. David Goodfriend, the Locast founder, is a lawyer and professor who, apparently, sought to abide by the law. However, the broadcasters argue, his past employment and commercial ties to pay-TV companies mean that the nonprofit is operating for commercial advantage.

It’s hard to say how a court will rule. Assuming a court takes up the major issues, judges will have to decide what “indirect commercial advantage” means. That’s a fact-intensive inquiry. The broadcasters will likely search for hot docs or other evidence that Locast is not a “real” nonprofit. Whatever the facts are, Locast’s arbitrage of the existing regulations is one that could be replicated.

Nobody likes the existing legacy TV regulation system: Broadcasters dislike being subject to compulsory licenses; Cable and satellite operators dislike being forced to carry some broadcast TV and to pay for a bizarre “retransmission” right. Copyright holders are largely sidelined in these artificial commercial negotiations. Wholesale reform–so that programming negotiations look more like the free-market world of Netflix and Hulu programming–would mean every party has give up something they like improve the overall system.

The Internet’s affect on traditional providers’ market share has been modest to date, but hopefully Congress will anticipate the changing marketplace before regulatory distortions become intolerable.

Additional reading: Adam Thierer & Brent Skorup, Video Marketplace Regulation: A Primer on the History of Television Regulation and Current Legislative Proposals (2014).

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Over the last three decades, our experts at Rent-Seeking Consultants have dedicated themselves to the mission of advancing narrow interests at the expense of public welfare. We have done so by creatively exploiting laws and regulations that — while often implemented with the very best of intentions in mind — we recognized could be converted into a tool to advantage the few at the expense of the many.

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Our “Raising Rivals’ Costs Using the GDPR” report continues our latest line of new products, which aim to take Europe’s bold new privacy regulatory regime and convert it into a rent-seeker’s paradise. Our previous report outlined, “How to Pretend Compliance Costs Will Destroy Your Big Company, While Also Letting Your Shareholders Know It is Actually an Amazing Way to Crush the Competition.” Continue reading →

California’s recently enacted digital privacy legislation, the “California Consumer Privacy Act,” may be getting a sequel in the form of an initiative called the “California Privacy Rights and Enforcement Act of 2020.” While the fallout of CCPA has yet to be seen, since the Act does not go into effect until next year and the regulations governing its application have yet to be finalized, CPREA promises to double-down on its approach by creating yet more largely superfluous – and hugely expensive – digital “rights”.

How did we get here? Well, CCPA, the original, was the brainchild of a wealthy real estate investor named Alastair Mactaggart who, inspired by a cocktail party conversation, used California’s initiative process as a cudgel to get the full attention of the legislature in Sacramento. The body was given an ultimatum, negotiate and pass privacy legislation or Mactaggart would place his creation on the ballot. Continue reading →

The endless apocalyptic rhetoric surrounding Net Neutrality and many other tech policy debates proves there’s no downside to gloom-and-doomism as a rhetorical strategy. Being a techno-Jeremiah nets one enormous media exposure and even when such a person has been shown to be laughably wrong, the press comes back for more. Not only is there is no penalty for hyper-pessimistic punditry, but the press actually furthers the cause of such “fear entrepreneurs” by repeatedly showering them with attention and letting them double-down on their doomsday-ism. Bad news sells, for both the pundit and the press.

But what is most remarkable is that the press continues to label these preachers of the techno-apocalypse as “experts” despite a track record of failed predictions. I suppose it’s because, despite all the failed predictions, they are viewed as thoughtful & well-intentioned. It is another reminder that John Stuart Mill’s 1828 observation still holds true today: “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.”

Additional Reading:

by Andrea O’Sullivan & Adam Thierer

This essay originally appeared on The Bridge on September 25, 2019.

It is quickly becoming one of the iron laws of technology policy that by attempting to address one problem (like privacy, security, safety, or competition), policymakers often open up a different problem on another front. Trying to regulate to protect online safety, for example, might give rise to privacy concerns, or vice versa. Or taking steps to address online privacy through new regulations might create barriers to new entry, thus hurting online competition.

In a sense, this is simply a restatement of the law of unintended consequences. But it seems to be occurring with greater regularity in the technology policy today, and it serves as another good reminder why humility is essential when considering new regulations for fast-moving sectors.

Consider a few examples.

Privacy vs security & competition 

Many US states and the federal government are considering data privacy regulations in the vein of the European Union’s wide-reaching General Data Privacy Regulation (GDPR). But as early experiences with the GDPR and various state efforts can attest, regulations aimed at boosting consumer privacy can often butt against other security and competition concerns. Continue reading →

by Adam Thierer and Trace Mitchell

This essay originally appeared on The Washington Examiner on September 12, 2019.

You won’t find President Trump agreeing with Hillary Clinton and Barack Obama on many issues, but the need for occupational licensing reform is one major exception. They, along with many other politicians and academics both Left and Right, have identified how state and local “licenses to work” restrict workers’ opportunities and mobility while driving up prices for consumers.

Of course, not everybody has to agree with high-profile Democrats and Republicans, but let’s at least welcome the chance to discuss something important without defaulting to our partisan bunkers.

This past week, for example, ThinkProgress published an article titled “Koch Brothers’ anti-government group promotes allowing unlicensed, untrained cosmetologists.” Centered around an Americans for Prosperity video highlighting the ways in which occupational licensing reform could lower some of the barriers that prevent people from bettering their lives, the article painted a picture of an ideologically driven, right-wing movement.

In reality, it’s anything but that. Continue reading →

Jaron Lanier was featured in a recent New York Times op-ed explaining why people should get paid for their data. Under this scheme, he estimates the total value of data for a four person household could fetch around $20,000. 

Let’s do the math on that.

Data from eMarketer finds that users spend about an hour and fifteen minutes per day on social media for a total of 456.25 hours per year. Thus, by Lanier’s estimates, the income from data would be about $10.95 per hour. That’s not too bad!

By any measure, however, the estimate is high. Since I have written extensively on this subject (see this, this, and this), I thought it might be helpful to explain the four general methods used to value an intangibles like data. They include income methods, market rates, cost methods, and finally, shadow prices.  Continue reading →

Last month, Senator and presidential candidate Elizabeth Warren released a campaign document, Plan for Rural America. The lion’s share of the plan proposed government-funded and -operated health care and broadband. The broadband section of the plan proposes raising $85 billion (from taxes?) to fund rural broadband grants to governments and nonprofits. The Senator then placed a Washington Post op-ed to decrying the state of rural telecommunications in America. 

While it’s commendable she has a plan, it doesn’t materially improve upon existing, flawed rural telecom subsidy programs, which receive only brief mention. In particular, the Plan places an unwarranted faith in the power of government telecom subsidies, despite red flags about their efficacy. The op-ed misdiagnoses rural broadband problems and somehow lays decades of real and perceived failure of government policy at the feet of the current Trump FCC, and Chairman Pai in particular.

As a result, the proposals–more public money, more government telecom programs–are the wrong treatment. The Senator’s plan to wire every household is undermined by “the 2% problem”–the cost to build infrastructure to the most remote homes is massive. 

Other candidates (and perhaps President Trump) will come out with rural broadband plans so it’s worth diving into the issue. Doubling down on a 20 year old government policy–more subsidies to more providers–will mostly just entrench the current costly system.

How dire is the problem?

Somewhere around 6% of Americans (about 20 million people) are unserved by a 25 Mbps landline connection. But that means around 94% of Americans have access to 25 Mbps landline broadband. (Millions more have access if you include broadband from cellular and WISP providers.)

Further, rural buildout has been improving for years, despite the high costs. From 2013 to 2017, under Obama and Trump FCCs, landline broadband providers covered around 3 or 4 million new rural customers annually. This growth in coverage seems to be driven by unsubsidized carriers because, as I found in Montana, FCC-subsidized telecom companies in rural areas are losing subscribers, even as universal service subsidies increased.

This rural buildout is more impressive when you consider that most people who don’t subscribe today simply don’t want Internet access. Somewhere between 55% to 80% of nonadopters don’t want it, according to Department of Commerce and Pew surveys. The fact is, millions of rural homes are connected annually despite the fact that most nonadopters today don’t want the service.

These are the core problems for rural telecom: (1) poorly-designed, overlapping, and expensive programs and (2) millions of consumers who are uninterested in subscribing to broadband.

Tens of billions for government-operated networks

The proposed new $85 billion rural broadband fund gets most of the headlines. It resembles the current universal service programs–the fund would disburse grants to providers, except the grants would be restricted to nonprofit and government operators of networks. Most significant: Senator Warren promises in her Plan for Rural America that, as President, she will “make sure every home in America has a fiber broadband connection.” 

Every home?

This fiber-to-every-farm idea had advocates 10 years ago. The idea has failed to gain traction because it runs into the punishing economics of building networks.

Costs rise non-linearly for the last few percent of households and $85 billion would bring fiber only to a small sliver of US households. According to estimates from the Obama FCC, it would cost $40 billion to build fiber to the final 2% of households. Further, the network serving those 2% of households would require an annual subsidy of $2 billion simply to maintain those networks since revenues are never expected to cover ongoing costs. 

Recent history suggests rapidly diminishing returns and that $85 billion of taxpayer money will be misspent. If the economics wasn’t difficult enough, real-world politics and government inefficiency also degrade lofty government broadband plans. For example, Australia’s construction of a nationwide publicly-owned fiber network–the nation’s largest-ever infrastructure project–is billions over budget and years behind schedule. The RUS broadband grant debacle in the US only supports the case that $85 billion simply won’t go that far. As Will Rinehart says, profit motive is not the cause of rural broadband problems. Government funding doesn’t fix the economics and government efficacy.

Studies will probably be come out saying it can be done more cheaply but America has been running a similar experiment for 20 years. Since 1998, as economists Scott Wallsten and Lucía Gamboa point out, the US government has spent around $100 billion on rural telecommunications. What does that $100 billion get? Mostly maintenance of existing rural networks and about a 2% increase of phone adoption.

Would the Plan improve or repurpose the current programs and funding? We don’t know. The op-ed from Sen. Warren complains that:

the federal government has shoveled more than a billion in taxpayer dollars per year to private ISPs to expand broadband to remote areas, but these providers have done the bare minimum with these resources.

This understates the problem. The federal government “shovels” not $1 billion, but about $5 billion, annually to providers in rural areas, mostly from the Universal Service Fund Congress established in 1996.

As for the “public option for broadband”–extensive construction of publicly-run broadband networks–I’m skeptical. Broadband is not like a traditional utility. Unlike electricity, water, or sewer, a city or utility network doesn’t have a captive customer base. There are private operators out there.

As a result, public operation of networks is a risky way to spend public funds. Public and public-private operation of networks often leads to financial distress and bankruptcy, as residents in Provo, Lake County, Kentucky, and Australia can attest.

Rural Telecom Reform

I’m glad Sen. Warren raised the issue of rural broadband, but the Plan’s drafters seem uninterested in digging into the extent of the problem and in solutions aside from throwing good money after bad. Lawmakers should focus on fixing the multi-billion dollar programs already in existence at the FCC and Ag Department, which are inexplicably complex, expensive to administer, and unequal towards ostensible beneficiaries. 

Why, for instance, did rural telecom subsidies break down to about $11 per rural household in Sen. Warren’s Massachusetts in 2016 when it was about $2000 per rural household in Alaska? 

Alabama and Mississippi have similar geographies and rural populations. So why did rural households in Alabama receive only about 20% of what rural Mississippi households receive? 

Why have administrative costs as a percentage of the Universal Service Fund more than doubled since 1998? It costs $200 million annually to administer the USF programs today. (Compare to the FCC’s $333 million total budget request to Congress in FY 2019 for everything else the FCC does.)

I’ve written about reforms under existing law, like OTARD rule reform–letting consumers freely install small, outdoor antennas to bring broadband to rural areas–and transforming the current program funds into rural broadband vouchers. There’s also a role for cities and counties to help buildout by constructing long-lasting infrastructure like poles, towers, and fiber conduit. These assets could be leased out a low cost to providers.

Conclusion

After years of planning, the FCC reformed some of the rural telecom program in 2017. However, the reforms are partial and it’s too early to evaluate the results. The foundational problem is with the structure of existing programs. Fixing that structure should be a priority for any Senator or President concerned about rural broadband. Broadband vouchers for rural households would fix many of the problems, but lawmakers first need to question the universal service framework established over 20 years ago. There are many signs it’s not fit for purpose.

Originally published on 9/9/19 at The Bridge as, “Beware Calls for Government to ‘Save the Press‘”

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by Adam Thierer & Andrea O’Sullivan

Anytime someone proposes a top-down, government-directed “plan for journalism,” we should be a little wary. Journalism should not be treated like it’s a New Deal-era public works program or a struggling business sector requiring bailouts or an industrial policy plan.

Such ideas are both dangerous and unnecessary. Journalism is still thriving in America, and people have more access to more news content than ever before. The news business faces serious challenges and upheaval, but that does not mean central planning for journalism makes sense.

Unfortunately, some politicians and academics are once again insisting we need government action to “save journalism.” Senator and presidential candidate Bernie Sanders (D-VT) recently penned an op-ed for the Columbia Journalism Review that adds media consolidation and lack of union representation to the parade of horrors that is apparently destroying journalism. And a recent University of Chicago report warns that “digital platforms” like Facebook and Google “present formidable new threats to the news media that market forces, left to their own devices, will not be sufficient” to continue providing high-quality journalism.

Critics of the current media landscape are quick to offer policy interventions. “The Sanders scheme would add layers of regulatory supervision to the news business,” notes media critic Jack Shafer. Sanders promises to prevent or rollback media mergers, increase regulations on who can own what kinds of platforms, flex antitrust muscles against online distributors, and extend privileges to those employed by media outlets. The academics who penned the University of Chicago report recommend public funding for journalism, regulations that “ensure necessary transparency regarding information flows and algorithms,” and rolling back liability protections for platforms afforded through Section 230 of the Communications Decency Act.

Both plans feature government subsidies, too. Sen. Sanders proposes “taxing targeted ads and using the revenue to fund nonprofit civic-minded media” as part of a broader effort “to substantially increase funding for programs that support public media’s news-gathering operations at the local level.” The Chicago plan proposed a taxpayer-funded $50 media voucher that each citizen will then be able to spend on an eligible media operation of their choice. Such ideas have been floated before and the problems are still numerous. Apparently, “saving journalism” requires that media be placed on the public dole and become a ward of the state. Socializing media in order to save it seems like a bad plan in a country that cherishes the First Amendment. Continue reading →