economics – Technology Liberation Front

Why Isn’t Everyone Already Unemployed Due to Automation?

Adam Thierer — Sat, 11 Mar 2023 14:16:41 +0000

I have a new R Street Institute policy study out this week doing a deep dive into the question: “Can We Predict the Jobs and Skills Needed for the AI Era?” There’s lots of hand-wringing going on today about AI and the future of employment, but that’s really nothing new. In fact, in light of past automation panics, we might want to step back and ask: Why isn’t everyone already unemployed due to technological innovation?

To get my answers, please read the paper! In the meantime, here’s the executive summary:

To better plan for the economy of the future, many academics and policymakers regularly attempt to forecast the jobs and worker skills that will be needed going forward. Driving these efforts are fears about how technological automation might disrupt workers, skills, professions, firms and entire industrial sectors. The continued growth of artificial intelligence (AI), robotics and other computational technologies exacerbate these anxieties. Yet the limits of both our collective knowledge and our individual imaginations constrain well-intentioned efforts to plan for the workforce of the future. Past attempts to assist workers or industries have often failed for various reasons. However, dystopian predictions about mass technological unemployment persist, as do retraining or reskilling programs that typically fail to produce much of value for workers or society. As public efforts to assist or train workers move from general to more specific, the potential for policy missteps grows greater. While transitional-support mechanisms can help alleviate some of the pain associated with fast-moving technological disruption, the most important thing policymakers can do is clear away barriers to economic dynamism and new opportunities for workers.

I do discuss some things that government can do to address automation fears at the end of the paper, but it’s important that policymakers first understand all the mistakes we’ve made with past retraining and reskilling efforts. The easiest thing to do to help in the short-term is clear away barriers to labor mobility and economic dynamism, I argue. Again, read the study for details.

For more info on other AI policy developments, check out my running list of research on AI, ML robotics policy.

The Case for Innovation, Progress & Abundance: Some Readings

Adam Thierer — Tue, 25 Jan 2022 20:27:31 +0000

This is a compendium of readings on “ progress studies ,” or essays and books which generally make the case for technological innovation, dynamism, economic growth, and abundance. I will update this list as additional material of relevance is brought to my attention.

[Last update: 10/11/22]

Recent Essays

Marc Andreessen, “The Techno-Optimist Manifesto,” a16z.com, October 16, 2023.
Will Rinehart, “The Abundance Agenda,” The Exformation Newsletter, October 15, 2022.
Sarah Constantin, “Unblocking Abundance: A Model for Activism,” Rough Diamonds, October 10, 2022.
Derek Thompson, “The Forgotten Stage of Human Progress,” The Atlantic, May 11, 2022.
Adam Thierer, “Where is ‘Progress Studies’ Going?” Progress Forum, April 23, 2022.
Katherine Boyle, “The Case for American Seriousness,” Common Sense, April 18, 2022.
William Rinehart, “Vetocracy, the Costs of Vetos and Inaction,” Center for Growth & Opportunity at Utah State University, March 24, 2022.
James Pethokoukis, “Forget about Left Wing and Right Wing. How about an Up Wing America?” Faster Please, March 23, 2022.
John W. Lettieri & Kenan Fikri, “The Case for Economic Dynamism and Why it Matters for the American Worker,” Economic Innovation Group, March 2022.
Adam Kovacevich, “Saying YIMBY (Yes In My Back Yard) to “Civic Innovation,” Chamber of Progress, March 21, 2022.
Eli Dourado, “Remove Barriers to Productivity,” City Journal, March 18, 2022.
“A Case for Innovation and Optimism,” (A conversation with Jason Crawford), Discourse, March 2, 2022.
Noah Smith, “A New Industrialist Roundup,” Noahpinion, February 3, 2022.
James Pethokoukis, “When Will the Next Big Thing Arrive?” Faster Please, February 3, 2022.
Alec Stapp & Caleb Watney, “ Progress is a Policy Choice ,” Institute for Progress, January 20, 2022.
Adam Thierer, “ How to Get the Future We Were Promised ,” Discourse, January 18, 2022.
Katherine Boyle, “ Building American Dynamism ,” Future, January 14, 2022.
Derek Thompson, “ A Simple Plan to Solve All of America’s Problems ,” The Atlantic, January 12, 2022.
Jason Crawford, “Progress, Humanism, Agency: An Intellectual Core for the Progress Movement,” Roots of Progress, January 11, 2022.
Adam Thierer, “Defending Innovation Against Attacks from All Sides,” Discourse, November 9, 2021.
Matthew Yglesias, “The Case for More Energy,” October 7, 2021.
Jason Crawford, “ We need a new philosophy of progress ,” The Roots of Progress, August 23, 2021.
Gale Pooley & Marian L. Tupy, “The Simon Abundance Index 2021,” Human Progress, April 22, 2021.
Noah Smith, “ Techno-optimism for the 2020s ,” December 3, 2020.
Ezra Klein, “ Why We Can’t Build ,” Vox, April 22, 2020.
Marc Andreesen, “ It’s Time to Build ,” Future, April 18, 2020.
Eli Dourado, “ How do we move the needle on progress ?” September 26, 2019.
José Luis Ricón, “ About the ‘Progress’ in Progress Studies ” September 6, 2019.
Will Rinehart, “ Progress Studies: Some Initial Thoughts ,” August 30, 2019.
Adam Thierer, “ Is There a Science of Progress ?” AIER, August 8, 2019.
Patrick Collison and Tyler Cowen, “ We Need a New Science of Progress ,” The Atlantic, July 30, 2019.
Tyler Cowen, “ The Case for the Longer Term ,” Cato Unbound, January 9, 2019.
Vinod Khosla, “ We Need Large Innovations ,” Medium, January 1, 2018.
Adam Thierer, “ How Technology Expands the Horizons of Our Humanity ,” Medium, November 19, 2018.
Chelsea Follett, “Utopianism: One of the Biggest Obstacles to Progress,” Human Progress, August15, 2018.
Eli Dourado, “ How Technological Innovation Can Massively Reduce the Cost of Living ,” PlainText, January 29, 2016.

Books

J. Storrs Hall, Where Is My Flying Car ? (Stripe Press, 2021).
Matt Ridley, How Innovation Works: And Why It Flourishes in Freedom (New York: Harper, 2020).
Andrew McAfee, More from Less (New York: Simon & Schuster, 2020).
Ronald Bailey & Marian L. Tupy, Ten Global Trends Every Smart Person Should Know: And Many Others You Will Find Interesting (Cato Institute, 2020).
Arthur M. Diamond Jr., Openness to Creative Destruction: Sustaining Innovative Dynamism (Oxford: Oxford University Press, 2019).
Tyler Cowen, Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (San Francisco, CA: Stripe Press, 2018).
Steven Pinker, Enlightenment Now: The Case for Reason, Science, Humanism, and Progress (New York: Viking, 2018).
Hans Rosling, Factfulness: Ten Reasons We’re Wrong about the World—and Why Things Are Better Than You Think (New York: Flatiron Books, 2018).
Tim Harford, 50 Things That Made the Modern Economy (New York: Riverhead Books, 2017).
Joel Mokyr, A Culture of Growth: The Origins of the Modern Economy (Princeton, NJ: Princeton University Press, 2017).
Adam Thierer, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom , 2nd ed. (Arlington, VA: Mercatus Center at George Mason University, 2016).
Calestous Juma, Innovation and Its Enemies: Why People Resist New Technologies (New York: Oxford University Press, 2016).
Deirdre N. McCloskey, Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World (Chicago: University of Chicago Press, 2016).
Joe Carlen, A Brief History of Entrepreneurship: The Pioneers, Profiteers, and Racketeers Who Shaped Our World (New York: Columbia University Press, 2016).
Robert Bryce, Smaller Faster Lighter Denser Cheaper: How Innovation Keeps Proving the Catastrophists Wrong (New York: Public Affairs, 2014).
Matt Ridley, The Rational Optimist: How Prosperity Evolves (New York: Harper Collins, 2010).
Larry Downes, The Laws of Disruption: Harnessing the New Forces That Govern Life and Business in the Digital Age (New York: Basic Books, 2009).
Amar Bhidé, The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (Princeton, NJ: Princeton University Press, 2008).
Robert Friedel, A Culture of Improvement: Technology and the Western Millennium (Cambridge, MA: The MIT Press, 2007).
Benjamin M. Friedman, The Moral Consequences of Economic Growth , (New York: Vintage Books, 2006).
Virginia Postrel, The Future and Its Enemies (New York: The Free Press, 1998).
David Landes, The Wealth and Poverty of Nations: Why Some Are So Rich and Some are So Poor (New York: W.W. Norton & Co, 1998).
Robert Nisbet, History of the Idea of Progress (New Brunswick, NJ: Transaction Publishers, 1994).
Joel Mokyr, Lever of Riches: Technological Creativity and Economic Progress (New York: Oxford University Press, 1990).
Nathan Rosenberg and L. E.. Birdzell, How the West Grew Rich: The Economic Transformation of the Industrial World (New York: Basic Books, 1986).
Samuel C. Florman, The Existential Pleasures of Engineering (New York: St. Martin’s Griffin, 1976, 1994).

Lavoie’s Lessons for Industrial Policy Planners

Adam Thierer — Tue, 09 Nov 2021 15:55:23 +0000

Discourse magazine recently published my essay on what “Industrial Policy Advocates Should Learn from Don Lavoie.” With industrial policy enjoying a major revival in the the U.S. — with several major federal proposals are pending or already set to go into effect — I argue that Lavoie’s work is worth revisiting, especially as this weekend was the 20th anniversary of his untimely passing. Jump over to Discourse to read the entire thing.

But one thing I wanted to just briefly highlight here is the useful tool Lavoie created that helped us think about the “planning spectrum,” or the range of different industrial policy planning motivations and proposals. On one axis, he plotted “futurist” versus “preservationist” advocates and proposals, with the futurists wanting to invest in new skills and technologies, while the preservationists seek to prop up existing sectors. On the other axis, he contrasted “left-wing or pro-labor” and “right-wing or pro-business” advocates and proposals.

Lavoie used this tool to help highlight the remarkable intellectual schizophrenia among industrial policy planners, who all claimed to have the One Big Plan to save the economy. The problem was, Lavoie noted, all their plans differed greatly. For example, he did a deep dive into the work of Robert Reich and Felix Rohatyn, who were both outspoken industrial policy advocates during the 80s. Reich as affiliated with the Harvard School of Government at that time, and Rohatyn was a well-known Wall Street financier. The industrial policy proposals set forth by Reich and Rohatyn received enormous media and academic attention at the time, yet no one except Lavoie seriously explored the many ways in which their proposals differed so fundamentally. Rohatyn was slotted on the lower right quadrant because of his desire to prop up old sectors and ensure the health of various private businesses. Reich fell into the upper quadrant of being more of futurist in his desire to have the government promote newer skills, sectors, and technologies.

After identifying the many inconsistencies among these planners and their proposed schemes, Lavoie pointed out that these differences raised some obvious questions: Whose plan are we supposed to follow when proposed plans conflict? And how much stock should we place in the wisdom of industrial policy when the leading advocates cannot even agree on what sectors and technologies are worth preserving or promoting? It was a simply but powerful insight that should led us to calling into question anyone who tries to pretend that they have all the answers when it comes to industrial policy planning. And, as I argue in my new essay, this insight helps us identify the continuing intellectual schizophrenia among industrial policy planners and schemes today. If you jump over to my longer piece, you’ll see my breakdown of all this, but it’s plotted here:

In the end, I conclude that:

The limitations of industrial policy exist regardless of the policymaker’s intentions. There are no “good guys” versus “bad guys” when it comes to industrial policy efforts; there are just many people with many different technocratic plans, all of which are constrained by limited knowledge and resources.

Moreover, Lavoie most important piece of relevant advice is the simple adage that, if you find yourself in a hole, it is wise to stop digging. Constantly doubling down on planning efforts is not going to help governments escape the problems created by their earlier interventions. Unfortunately, this is exactly what many industrial policy advocates do: They insist that America already has an industrial policy, but that it lacks the sort of conscious design or coherent form or direction they desire. But that is the typical sort of hubris and folly we’ve always heard from planners. They always think there’s a proverbial “better path” out there and want us to imagine that they can lead us down it with wiser planning that avoids all the problems of all those past failed planning efforts.

As Lavoie taught us long ago, we’d be wise to reject their various schemes and recommendations. “In light of the inherent deficiencies of central planning, it might be argued that the U.S. should instead try to reduce current government interference with the competitive process to the absolute minimum consistent with other political goals,” he concluded. It remains wise advice for today’s policymakers.

Additional Reading:

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Presentation for IHS Papers Workshop: Does America Need a New Industrial Policy?, 2021.
Adam Thierer, “Government Planning and Spending Won’t Replicate Silicon Valley,” Discourse, August 18, 2021.
Adam Thierer, “To Promote Tech Hubs Across the Country, Governments Should Focus on Improving the General Business Environment,” Discourse, September 9, 2021.
Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
Adam Thierer, “Industrial Policy as ‘Casino Economics‘,” The Hill, July 12, 2021.
Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
Adam Thierer, “On Defining ‘Industrial Policy,’” Technology Liberation Front, September 3, 2020.
Adam Thierer, “Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, ongoing series.

Can Government Reproduce Silicon Valley Everywhere?

Adam Thierer — Sun, 12 Sep 2021 17:36:07 +0000

Wishful thinking is a dangerous drug. Some pundits and policymakers believe that, if your intentions are pure and you have the “right” people in power, all government needs to do is sprinkle a little pixie dust (in the form of billions of taxpayer dollars) and magical things will happen.

Of course, reality has a funny way of throwing a wrench into the best-laid plans. Which brings me to the question I raise in a new 2-part series for Discourse magazine: Can governments replicate Silicon Valley everywhere?

In the first installment, I explore the track record of federal and state attempts to build tech clusters, science parks & “regional innovation hubs” using state subsidies and industrial policy. This is highly relevant today because of the huge new industrial policy push at the federal level is building on top of growing state and local efforts to create tech hubs, science parks, or various other types of industrial “clusters.

At the federal level, this summer, the Senate passed a 2,300-page industrial policy bill, the “United States Innovation and Competition Act of 2021,” that included almost $10 billion over four years for a Department of Commerce-led effort to fund 20 new regional technology hubs, “in a manner that ensures geographic diversity and representation from communities of differing populations.” A similar proposal that is moving in the House, the “Regional Innovation Act of 2021,” proposes almost $7 billion over five years for 10 regional tech hubs. Meanwhile, the Biden administration also is pitching ideas for new high-tech hubs. In late July, the Commerce Department’s Economic Development Administration announced plans to allocate $1 billion in pandemic recovery funds to create or expand “regional industry clusters” as part of the administration’s new Build Back Better Regional Challenge. Among the possible ideas the agency said might win funding are an “artificial intelligence corridor,” an “agriculture-technology cluster” in rural coal counties, a “blue economy cluster” in coastal regions, and a “climate-friendly electric vehicle cluster.”

In my essay, I note that the economic literature on these efforts has been fairly negative, to put it mildly. There is no precise recipe for growing tech clusters, as most economists and business analysts note.

“Despite several attempts, Silicon Valley has not been successfully copied elsewhere,” notes Mark Zachary Taylor, author of “The Politics of Innovation: Why Some Countries Are Better Than Others at Science and Technology.” Judge Glock, a senior policy adviser with the Cicero Institute, offers a more blistering assessment of such efforts: “Almost every American state has tried to fund the creation of biotech clusters, projects that almost inevitably end with weeds growing through the parking-lot pavement and a trail of corrupt bargains.”

I then highlight the key findings from several major studies of these efforts, all of which make it clear that, as cluster scholars by Aaron Chatterji, Edward Glaeser and William Kerr noted in 2014 after gathering all the research conducted on the topic: existing evidence “suggests that the regional foundation for growth-enabling innovation is complex and that we should be cautious of single policy solutions that claim to fit all needs.” Furthermore, “even if clusters of entrepreneurship are good for local growth, it is less clear that cities or states have the ability to generate those clusters.”

I also highlight research from my Mercatus Center colleagues on “The Economics of a Targeted Economic Development Subsidy” documenting costs of state-level planning & case study of Foxconn fiasco. They summarize the fairly miserable track record of state and local mini-industrial policy efforts. As they note, the extensive economic literature on this matter finds that “the net effect of targeted economic development subsidies is likely to be negative” because “the taxes funding the subsidies will discourage more economic activity than will be encouraged by the subsidies themselves.” Similarly, Harvard Business School economist Josh Lerner evaluated dozens of similar targeted development efforts from around the globe in his 2009 book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do About It. He concluded that “for each effective government intervention, there have been dozens, even hundreds, of failures, where substantial public expenditures bore no fruit.”

In my essay, I also discuss the astonishing array of federal efforts to promote the geographic spread of high-tech sectors and jobs since 2000. Throughout Bush, Obama, Trump & Biden admins, there’s been a lot of spending, but not a lot of success. Just lots of new laws and bureaucracies:

In 2012, the Obama administration launched the multiagency Rural Jobs and Innovation Accelerator Challenge and Advanced Manufacturing Jobs and Innovation Accelerator Challenge. This occurred at roughly the same time President Obama was launching his Startup America initiative. He also signed the JOBS Act (Jump-start Our Business Startups) in 2012. All these efforts included various measures to support the spread of advanced manufacturing and high-tech startups across the U.S. But none of these efforts have borne much fruit so far.

In the second installment of this series, I explore better ways to encourage regional tech innovation and economic development without doubling down on failed programs of the past. Specifically, I explain why, when it comes to economic development efforts, policymakers would be wise to avoid the costly, ineffective “fun stuff” and refocus on time-tested “boring” strategies:

The boring approach to economic development seeks to promote an open innovation culture that is conducive to risk-taking, investment and growth without the need to extend targeted privileges to particular firms or industries. Such a culture comes down to a classic mix of simplified and equally applied taxes, streamlined permitting processes and sensible regulations, limits on frivolous lawsuits, and clear protection of contracts and property rights. As Matt Mitchell and I argued previously, policymakers need to resist the urge to go for broke with splashy policies and programs. They need to appreciate the benefits of generalized economic development policy (a.k.a. the boring approach) as opposed to far riskier targeted development efforts.

I also highlight recent research explaining how perhaps the simplest way to strengthen existing clusters, or give rise to new ones, is to make sure America’s immigration policies are hospitable to the best and brightest minds from across the globe.

And I note how, due to the problems associated with many other forms of government-sponsored R&D assistance, many scholars and policymakers are increasingly turning to the idea of government-sponsored competitions and prizes as a superior way to distribute R&D assistance.

With competitions, governments can set broad goals to help facilitate the search for important societal needs. The prizes then create a powerful incentive for innovators to pursue those goals, not only to win money, but also to gain recognition from peers and the public. Another alternative is just using lotteries to distribute R&D money instead of having agencies target grants. That at least avoids political shenanigans and paperwork delays, although it may not be a particularly effective approach.

There is also some good news is overlooked in today’s rush to make big industrial policy gambles: Venture capitalists and new startups are already spreading out naturally.

A 2021 study on “The State of the Startup Ecosystem” by Engine, a research and advocacy organization supporting startups, revealed that “as Series A funding grew over the last fifteen years, more of that growth has started to shift to areas located outside of the largest ecosystems.” Series A funding refers to the initial round of outside venture capitalist investment in startups. The report looked at Series A deals from 2003 to 2018 and found that “Series A rounds outside of the top five ecosystems grew nearly 900 percent, while the number of rounds outside of the top nine grew nearly tenfold.” Whereas Series A fundings outside of the top five ecosystems stood at 38% in 2003, they had jumped up to 43% in 2018. “The increase in deal location diversity over this period reflects an increasing spread in venture capital investment across the country and less centralization of investment in areas like Silicon Valley,” the report concluded.

Meanwhile, tech innovators and investors are increasingly engaging in innovation arbitrage as they move to cities and states across the nation that are more hospitable to entrepreneurial activities. Firms and investors are voting with their feet (and dollars) by flocking to areas where tech clusters can more naturally sprout because the general policy environment is sound.

But government efforts to artificially try to create regional innovation hubs in a top-down, technocratic fashion will almost certainly persist. As they do, some will argue that this time will be different! Perhaps, but it is more likely that the past is prologue; these new hubs will likely cause federal politicians to jockey for position to have their regions named one of the winners and get a big cut of all the new high-tech pork being served up by Washington. We can do better.

Jump over to Discourse to read both installments here and here.

Also, down below I list several other things I have written recently on industrial policy efforts more generally.

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Presentation for IHS Papers Workshop: Does America Need a New Industrial Policy?, 2021.
Adam Thierer, “Government Planning and Spending Won’t Replicate Silicon Valley,” Discourse, August 18, 2021.
Adam Thierer, “To Promote Tech Hubs Across the Country, Governments Should Focus on Improving the General Business Environment,” Discourse, September 9, 2021.
Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
Adam Thierer, “Industrial Policy as ‘Casino Economics‘,” The Hill, July 12, 2021.
Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
Adam Thierer, “On Defining ‘Industrial Policy,’” Technology Liberation Front, September 3, 2020.
Adam Thierer, “Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, ongoing series.

Video: Lessons from the “Hall of Fallen Giants”

Adam Thierer — Wed, 17 Mar 2021 13:47:10 +0000

Here’s a new animated explainer video that I narrated for the Federalist Society’s Regulatory Transparency Project. The 3-minute video discusses how earlier “tech giants” rose and fell as technological innovation and new competition sent them off to what the New York Times once appropriately called “The Hall of Fallen Giants.” It’s a continuing testament to the power of “creative destruction” to upend and reorder markets, even as many pundits insist that there’s no possibility change can happen.

This is an important lesson for us to remember today, as I noted in the recent editorial for The Hill about why, “Open-ended antitrust is an innovation killer“:

Those who worry about today’s largest tech giants becoming supposedly unassailable monopolies should consider how similar fears were expressed not so long ago about other tech titans, many of which we laugh about today. Just 14 years ago, headlines proclaimed that “MySpace Is a Natural Monopoly,” and asked, “Will MySpace Ever Lose Its Monopoly?” We all know how that “monopoly” ceased to exist. At the same time, pundits insisted “Apple should pull the plug on the iPhone,” since “there is no likelihood that Apple can be successful in a business this competitive.” The smartphone market of that era was viewed as completely under the control of BlackBerry, Palm, Motorola and Nokia. A few years prior to that, critics lambasted the merger of AOL and TimeWarner as a new corporate “Big Brother” that would decimate digital diversity and online competition.

Accordingly, policymakers should be humble and recognize that, “it’s better to let rivalry and innovation emerge organically,” and only bring in the wrecking ball of heavy-handed antitrust regulation as a last resort, I argued. Technological change and entrepreneurialism has a way of upending and reordering markets when we least expect it. Just ask all those members of the Hall of Fallen Giants.

Skeptical Takes on Expansive Industrial Policy Efforts

Adam Thierer — Mon, 15 Mar 2021 17:09:11 +0000

[Last updated 3/25/22]

Industrial Policy is a red-hot topic once again with many policymakers and pundits of different ideological leanings lining up to support ambitious new state planning for various sectors — especially 5G, artificial intelligence, and semiconductors. A remarkably bipartisan array of people and organizations are advocating for government to flex its muscle and begin directing more spending and decision-making in various technological areas. They all suggest some sort of big plan is needed, and it is not uncommon for these industrial policy advocates to suggest that hundreds of billions will need to be spent in pursuit of those plans.

Others disagree, however, and I’ll be using this post to catalog some of their concerns on an ongoing basis. Some of the criticisms listed here are portions of longer essays, many of which highlight other types of steps that governments can take to spur innovative activities. Industrial policy is an amorphous term with many definitions of a broad spectrum of possible proposals. Almost everyone believes in some form of industrial policy if you define the term broadly enough. But, as I argued in a September 2020 essay “On Defining ‘Industrial Policy‘,” I believe it is important to narrow the focus of the term such that we can continue to use the term in a rational way. Toward that end, I believe a proper understanding of industrial policy refers to targeted and directed efforts to plan for specific future industrial outputs and outcomes.

The collection of essays below is merely an attempt to highlight some of the general concerns about the most ambitious calls for expansive industrial policy, many of which harken back to debates I was covering in the late 1980s and early 1990s, when I first started a career in policy analysis. During that time, Japan and South Korea were the primary countries of concern cited by industrial policy advocates. Today, it is China’s growing economic standing that is fueling calls for ambitious state-led targeted investments in “strategic” sectors and technologies. To a lesser extent, grandiose European industrial policy proposals are also prompting new US counter-proposals.

All this activity is what has given rise to many of the critiques listed below. If you have suggestions for other essays I might add to this list, please feel free to pass them along. FYI: There’s no particular order here.

Scott Lincicome and Huan Zhu, “Questioning Industrial Policy: Why Government Manufacturing Plans Are Ineffective and Unnecessary,” Cato Institute Working Paper, June 16, 2021.

[I]ndustrial policy – properly defined – has an extensive and underwhelming history in the United States, featuring high costs (seen and unseen), failed objectives, and political manipulation. Surely, not every U.S. industrial policy effort has ended in disaster, but facts here and abroad argue strongly against new government efforts to boost “critical” industries and workers and thereby fix alleged market failures. Such efforts warrant intense skepticism – skepticism that today is unfortunately in short supply.

Adam Thierer, “Industrial Policy as Casino Economics,” The Hill, July 12, 2021.

While some government investments will always be necessary, policymakers engaging in casino economics means bad industrial policy bets and taxpayer money squandered on risky ventures best made by private actors. We need to keep Uncle Sam’s gambling habits in check.

Adam Thierer, “Thoughts on the America COMPETES Act: The Most Corporatist & Wasteful Industrial Policy Ever,” Technology Liberation Front, January 26, 2022.

As far as industrial policy measures go, the COMPETES Act is one of the most ambitious and expensive central planning efforts in American history. It represents the triumph of top-down, corporatist, techno-mercantilist thinking over a more sensible innovation policy rooted in bottom-up competition, entrepreneurialism, private investment, and free trade.

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Mercatus Center at George Mason University, Special Study, November 2021.

This paper considers how both the recent history of high-tech industrial policy efforts at the national and international level—as well as some state and local economic development efforts in the United States—might better inform the wisdom of proposed efforts for AI or other high-tech sectors. That history is spotted with some limited successes alongside a long string of costly failures. We explore the reasons for those failures and recommend that the US refocus on the policy prerequisites that helped give rise to the computing and internet revolutions: a more generalized approach to economic development rooted in light-touch regulation and taxation of emerging technology.

Samuel Gregg, “Can America Build A Broad-Based Economy?” Law & Liberty, March 1, 2022

Of course, if a government decides to put enough money and resources behind a given industrial policy, it will likely produce some results. Yet the same is true of the gambler. If she stays in the casino long enough and spends enough money, she will win a few hands of cards. But the odds are that she will also lose a great deal of money, especially if she is as inept a gambler as the government is maladroit at identifying industry trends or entrepreneurial opportunities. Moreover, just as a compulsive gambler’s behavior will have numerous negative effects on her family’s well-being, so too does industrial policy risk inflicting wider damage upon a nation’s economy and political system. The harms range from gross misallocations of resources to the rampant cronyism and rent-seeking that seems inseparable from industrial policy (which, I again note, its advocates studiously avoid discussing), to name just a few.

Phil Gramm & Mike Solon, “Peace Through Strength Requires Economic Freedom,” Wall Street Journal, March 1, 2022.

The America Competes Act is the House’s effort to outdo the Chinese Communist Party’s latest five-year plan. The 2,900-page bill would make an old Soviet commissar blush. [. . . ] America’s success in the world economy has never depended on industrial policy or government subsidies. It has come from the relative absence of government planning and subsidies. This is hardly news. The U.S. government provided support for the efforts of Samuel Langley, the greatest aviation expert of the 1890s, in his effort to make America first in powered flight. His manned Aerodrome flopped into the Potomac River. It was the Wright brothers, two unsubsidized but determined bicycle makers from Dayton, Ohio, who flew at Kitty Hawk, N.C., and changed the world.

Scott Lincicome, “Moving Fast and Breaking Things,” Capitolism, February 2, 2022.

Adam Thierer, “The Coming Industrial Policy Hangover,” The Hill, February 16, 2022.

In the rush to pass legislation, we’ve barely heard a peep about the $250-$350 billion price tag. This follows a massive splurge of recent government borrowing, which led to the U.S. national debt hitting another lamentable new record: $30 trillion. China already owns over $1 trillion of that debt, making one wonder if we’re really countering China by adopting a massive, new and unfunded industrial policy that they will end up financing indirectly.

Podcast: “What’s Wrong with Industrial Policy,” Hold These Truths with Rep. Dan Crenshaw, February 16, 2022.

Tad DeHaven and Adam Thierer, “ The Military-Industrial Complex Offers a Cautionary Tale for Industrial Policy Planning,” Discourse, March 25, 2022.

Wayne Crews, “What To Do Instead Of The America COMPETES Act,” Forbes, February 2, 2022.

All this spending and expansion of the federal government, atop which our leaders would lay the America COMPETES Act and doubtless its own accompanying guidebook, has massive, ignored regulatory effects. Trillions in government spending (”investment”) have altered and will alter the entire trajectory and competitive environment of industries engaged in large-scale enterprises and transactions. This removes vast swaths of business activity from free competitive enterprise altogether, and creates displacements and distortions such that the restoration of free enterprise becomes a near-impossible disentanglement. The result is, after 100 years of big government and seduction of and fusion with big business, the greatest endeavors—from infrastructure to artificial intelligence, from smart cities to space—now consist of “partnerships” with governments rather than free enterprise, at scales and at costs so gigantic they can only be ignored.

Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.

Perhaps the most ironic indictment of industrial policy punditry lies in the way all the earlier books and essays about Japanese planning not only failed to forecast the many flops associated with it, but also did not foresee China as a potential future economic juggernaut. [. . .] What might that tell us about the ability of experts to predict the future course of countries and economies?

Adam Thierer, “Can Government Reproduce Silicon Valley Everywhere?” Technology Liberation Front, September 12, 2021.

government efforts to artificially try to create regional innovation hubs in a top-down, technocratic fashion will almost certainly persist. As they do, some will argue that this time will be different! Perhaps, but it is more likely that the past is prologue; these new hubs will likely cause federal politicians to jockey for position to have their regions named one of the winners and get a big cut of all the new high-tech pork being served up by Washington.

Weifeng Zhong, “Beijing Can’t Make Sense of Biden’s China Strategy. Can Biden?” Washington Examiner, July 01, 2021.

America is not China, and it would be a fatal mistake to equate competing with China with imitating what China does. Doing so would risk the advantageous U.S. position as the world’s chief innovator, whose ideas are turned into products by vibrant private sectors both domestically and internationally.

Mike Watson, “Industrial Policy in the Real World,” National Affairs, Summer 2021.

Given the nature of industrial policymaking in the United States, there’s little reason to believe future attempts at industrial planning will result in a more coherent, rational, or strategic allocation of resources than they have in the past. [. . .] In short, industrial policy in the United States cannot be steered by a small group of enlightened individuals, because a small group of enlightened individuals will never be at the helm. Indeed, in some sense, there is no single “helm” to speak of.

Samuel Gregg, “Industrial Policy Mythology Confronts Economic Reality,” Law & Liberty, September 3, 2021.

If prizes in policy debates were given out for persistence, those advocating for more widespread use of industrial policy in America would be first in line. No matter how many times it is pointed out that they don’t understand the nature and workings of comparative advantage; or avoid acknowledging how industrial policy fosters rampant cronyism and corruption; or highlight what they consider examples of countries in which industrial policy has been employed successfully (only to have it demonstrated that it didn’t quite work out the way they suggested), they don’t give up.

Elizabeth Nolan Brown, “If This Is How America COMPETES, We’re Going to Lose,” Reason, January 26, 2022.

the bill can’t simply address one main issue or a few critical needs. Instead, it tries to insert the government into every aspect of all sorts of industries and markets and pretend that bureaucrats can solve complex social and cultural issues.

Chang-Tai Hsieh, “Countering Chinese Industrial Policy Is Counterproductive,” Project Syndicate, September 15, 2021.

US political leaders have long tried to counter Chinese industrial policy. And now they seem to have decided that the best way to do that is to emulate it. But their agenda betrays a profound lack of understanding of the unique challenge posed by China’s coupling of an authoritarian political regime with a dynamic market economy.

Adam Thierer, “Industrial Policy Advocates Should Learn from Don Lavoie,” Discourse, November 5, 2021.

“In light of the inherent deficiencies of central planning,” Lavoie said, “it might be argued that the U.S. should instead try to reduce current government interference with the competitive process to the absolute minimum consistent with other political goals.” It remains wise advice for today’s policymakers.

Anne O. Krueger, “America’s Muddled Industrial Policy,” CGTN, June 25, 2021.

Governments have a poor track record of identifying “winners” – be it a company or a category of technology – whereas private companies have proved better at transforming new discoveries into new products or cost savings. That is why the U.S. state traditionally has stuck to funding basic research.

Eric Boehm, “Massive Subsidies Won’t Solve the Semiconductor Supply Chain Crisis,” Reason, January 28, 2022.

Tracy C. Miller, “The Case for Limiting Government Semiconductor Subsidies,” The Hill, June 26, 2021.

Without the subsidies, firms would be more cautious about building or expanding foundries. If long-term production capacity is truly insufficient, high prices and anticipated profits give firms the right incentives to build or expand and satisfy demand at cost-covering prices.

Scott Lincicome, “The ‘Endless Frontier’ and American Industrial Policy,” Cato Institute Blog, May 26, 2021.

U.S. industrial policy has a long history of struggling to overcome political pressures, just as public choice predicts, and the EFA is no different. None of this means that all legislating is bad, or that politicians don’t at least occasionally vote in the national interest. Instead, the public choice framework simply adds another hurdle—along with things like the “knowledge problem,” seen and unseen costs, and misaligned incentives—to designing and implementing commercial policies specifically intended to beat the admittedly messy and imperfect situation that the market generates. It’s imperative that we understand these risks before supporting policies that, while they might look good on paper, could easily morph into a counterproductive boondoggle—one we’ve seen countless times with respect to U.S. industrial policy.

Daniel W. Drezner, “Is the United States capable of industrial policy in 2021?” Washington Post, June 14, 2021.

To believe that the United States can pursue a high-caliber industrial policy, however, requires assuming a more competent state than I have seen in the past decade.

Douglas Holtz-Eakin, “The Nicest Thing I Can Write About Supply Chain Policy,” The Daily Dish, June 10, 2021.

Nevertheless, the Senate just passed a provision for $50 billion to subsidize chip fabrication – something the president had requested – and the House will doubtlessly concur. That might seem like an industry victory, but wait until it realizes that the administration will assume it gives it the right to insist on union jobs, micromanage the design of chips, and dictate the pricing and distribution of the products. Good luck with that. As the definitive volume on policy analysis (Benjamin Franklin’s Poor Richard’s Almanack) put it, “He that lieth down with dogs shall rise up with fleas.”

Lipton Matthews, “Industrial Policy—a.k.a. Central Planning—Won’t Make America Great,” Mises Wire, November 5, 2021.

Although industrial policy is in vogue, the evidence suggests that it is not necessary for long-term development. Moreover, despite the popularity of industrial policy in China, America remains the world’s economic power, and by following China, it may lose this vaunted position.

Richard Beason, “Japanese Industrial Policy: An Economic Assessment,” National Foundation for American Policy, November 2021.

There is no evidence to support the claim that Japanese industrial policy during the 1955-1990 period enhanced growth rates by sector, industries with economies of scale (greater efficiency when produced in increased amounts), productivity growth or “competitiveness.” The reality of the political process and government spending priorities makes it very difficult for such policies to be effective. Furthermore, even if political pressures had not intervened, it seems questionable to suggest that government policymakers would be better than actual market participants in determining the most efficient allocation of resources to produce the best economic outcomes.

Douglas Irwin, “ Memo to the Biden administration on how to rethink industrial policy,” Peterson Institute for International Economics, October 2020.

The challenge for policymakers is to identify such industries without succumbing to the notion that every industry is vital to some public objective. For example, the goal of “economic security” is so broadly defined and open-ended that virtually every domestic producer could claim the need for government support on that basis. The risk is that ill-conceived government programs will encourage corrupt behavior in which industries benefit themselves without contributing to national welfare.

Jim Pethokoukis, “Will Biden’s embrace of industrial policy pay off?” AEI Blog, January 15, 2021.

The history of such efforts in advanced capitalist economies gives ample reason for skepticism about the effectiveness of such top-down government planning, from Japanese economic stagnation to the now-mothballed Concorde supersonic jet to France’s failed attempt to create a thriving tech sector. The Internet might seem like the exception that negates the rule, but what turned out to be a successful partnership of government and entrepreneurs didn’t arise out of some master plan from Washington. And what do even the smartest plans look like when filtered through the dodgy quality of American governance? Maybe as an excuse for cronyism and protectionism.

Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.

America needs to embrace its already vibrant venture capital market, the benefits of basic science and prize competitions, and a light-touch regulatory approach instead of gambling taxpayer dollars on grandiose industrial policy schemes that would likely become boondoggles.

Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.

Thus far, however, the Europeans don’t have much to show for their attempts to produce home-grown tech champions. Despite highly targeted and expensive efforts to foster a domestic tech base, the EU has instead generated a string of industrial policy failures that should serve as a cautionary tale for U.S. pundits and policymakers, who seem increasingly open to more government-steered innovation efforts.

Phil Levy & Christine McDaniel, “ Does the U.S. Need a Vigorous Industrial Policy?” Discourse, February 16, 2021.

we are certainly hearing new enthusiasm these days about industrial policy. It seems to have proponents or converts on both sides of the aisle. This either means that a new consensus has emerged, or it means that the term is being used so loosely that it has lost its original meaning. I’ll go with the latter; it now means different things to different people.

Wall Street Journal columnist Greg Ip discussing why “ The traditional skepticism toward industrial policy is well deserved.”

The traditional skepticism toward industrial policy is well deserved. Once Washington starts writing checks for semiconductors, other industries may get in line with the outcome determined more by political clout than economic merit. As in shipbuilding, the targeted companies may end up in perpetual need of federal protection and unable to compete internationally

David Ignatius, “The U.S. is quietly mobilizing its economy against China,” Washington Post, March 4, 2021.

The industrial policy the AI commission recommends could unlock talent and innovation. But if officials aren’t careful, government intervention could also afflict our best companies with the dead weight and dysfunction of our broken political system. We need government to spawn brainpower, not bureaucracy.

Veronique de Rugy, “Support for Industrial Policy is Growing,” AIER, January 18, 2020.

Looking at the federal government today tells me that the problems surrounding R&D programs in the past continue today, and will continue tomorrow, because they are simply a consequence of the normal functioning of government. It is hard to wish these problems away, even in the face of the private sector’s “imperfections.” Those arguing for more funding in R&D should proceed with caution.

Ben Reinhardt on concerns about The Endless Frontier Act

This bill is proposing to give money with risk-averse restrictions to a risk-averse organization (the NSF) to be dispersed among other risk-averse organizations (Universities) into a system with increasingly risk-averse incentives. Note that I’m not saying “it’s all fubar’d lets burn it to the ground!” but I am suggesting that instead of slamming on the accelerator, we should be asking “what would a tune-up and an oil change look like instead?”

Ryan Bourne, “Do Oren Cass’s Justifications for Industrial Policy Stack Up?” Cato Commentary, August 15, 2019.

Oren Cass asserts that markets cannot generally allocate resources efficiently by industry. Yet he provides no meaningful metrics to show this is the case, nor shows why his policies would deliver better outcomes. His two main claims about the benefits of a manufacturing sector — “stable employment” and “strong productivity growth” — are directly contradictory. A plethora of evidence suggests as countries’ get richer due to automation and technological improvements, they demand relatively more services, and so the industrial sector declines in employment terms.

Scott Lincicome, “ Manufactured Crisis: ‘Deindustrialization, Free Markets, and National Security,” Cato Policy Analysis No. 907, January 27, 2021.

This skepticism—mostly absent from Washington—is indeed warranted: analyses of the U.S. manufacturing sector and the relationship between trade and national security, as well as the United States’ long and checkered history of security‐related protectionism, undermine the theoretical justifications for imposing protectionism and industrial policy in the name of national defense. Instead, open trade, freer markets, and global interdependence will in almost all cases produce better outcomes in terms of national security and, most importantly, preventing wars and other forms of armed conflict.

Matthew Lau, “Trudeau government’s ‘industrial policy’ creates all the wrong incentives,” Toronto Sun, March 16, 2021.

The “A La Carte” Wars Come to an End

Adam Thierer — Fri, 12 Apr 2019 14:26:38 +0000

A decade ago, a heated debate raged over the benefits of “a la carte” (or “unbundling”) mandates for cable and satellite TV operators. Regulatory advocates said consumers wanted to buy all TV channels individually to lower costs. The FCC under former Republican Chairman Kevin Martin got close to mandating a la carte regulation.

But the math just didn’t add up. A la carte mandates, many economists noted, would actually cost consumers just as much (or even more) once they repurchased all the individual channels they desired. And it wasn’t clear people really wanted a completely atomized one-by-one content shopping experience anyway.

Throughout media history, bundles of all different sorts had been used across many different sectors (books, newspapers, music, etc.). This was because consumers often enjoyed the benefits of getting a package of diverse content delivered to them in an all-in-one package. Bundling also helped media operators create and sustain a diversity of content using creative cross-subsidization schemes. The traditional newspaper format and business is perhaps the greatest example of media bundling. The classifieds and sports sections helped cross-subsidize hard news (especially local reporting). See this 2008 essay by Jeff Eisenach and me for details for more details on the economics of a la carte.

Yet, with the rise of cable and satellite television, some critics protested the use of bundles for delivering content. Even though it was clear that the incredible diversity of 500+ channels on pay TV was directly attributable to strong channels cross-subsidizing weaker ones, many regulatory advocates said we would be better off without bundles. Moreover, they said, online video markets could show us the path forward in the form of radically atomized content options and cheaper prices.

Flash-forward to today. As this Wall Street Journal article points out, online video providers are rejecting a la carte and recreating content bundles to keep a diversity of programming flowing. This happened in unregulated markets without any FCC rules. YouTube, Hulu, PlayStation, and many other online video providers are creating new bundles and monetization schemes.

It is also worth noting that this same sort of “re-bundling” of content is happening with online news sources and other digital platforms as various sites struggle to find content monetization schemes that can sustain diverse, high-quality content in the Digital Era. Content bundling and various paywall schemes are helping them do so.

The lesson here is that the economics of content creation and delivery are quite dynamic, challenging, and extremely hard to predict. Mandating “a la carte” unbundling of content sounded smart and well-intentioned to many people a decade ago, but it proved to be problematic even in highly competitive online markets. Thankfully, we did not mandate unbundling by law. We waited and watched to see how it naturally played out in various markets. We now have a better feel for how big of a mistake mandatory a la carte would have likely been in practice.

The Limits of AI in Predicting Human Action

Anne Hobson — Fri, 08 Feb 2019 17:00:05 +0000

-Coauthored with Mercatus MA Fellow Walter Stover

Imagine visiting Amazon’s website to buy a Kindle. The product description shows a price of $120. You purchase it, only for a co-worker to tell you he bought the same device for just $100. What happened? Amazon’s algorithm predicted that you would be more willing to pay for the same device. Amazon and other companies before it, such as Orbitz, have experimented with dynamic pricing models that feed personal data collected on users to machine learning algorithms to try and predict how much different individuals are willing to pay. Instead of a fixed price point, now users could see different prices according to the profile that the company has built up of them. This has led the U.S. Federal Trade Commission, among other researchers, to explore fears that AI, in combination with big datasets, will harm consumer welfare through company manipulation of consumers to increase their profits.

The promise of personalized shopping and the threat of consumer exploitation, however, first supposes that AI will be able to predict our future preferences. By gathering data on our past purchases, our almost-purchases, our search histories, and more, some fear that advanced AI will build a detailed profile that it can then use to estimate our future preference for a certain good under particular circumstances. This will escalate until companies are able to anticipate our preferences, and pressure us at exactly the right moments to ‘persuade’ us into buying something we ordinarily would not.

Such a scenario cannot come to pass. No matter how much data companies can gather from individuals, and no matter how sophisticated AI becomes, the data to predict our future choices do not exist in a complete or capturable way. Treating consumer preferences as discoverable through enough sophisticated search technology ignores a critical distinction between information and knowledge. Information is objective, searchable, and gatherable. When we talk about ‘data’, we are usually referring to information: particular observations of specific actions, conditions or choices that we can see in the world. An individual’s salary, geographic location, and purchases are data with an objective, concrete existence that a company can gather and include in their algorithms.

Not all data, however, exist objectively. Individuals do not make choices based on preset, fixed rankings, but ‘color’ their decisions with subjective interpretation of the information available to them. When you purchase a Kindle, for instance, perhaps you are purchasing it because you travel frequently and can’t take a lot of physical books with you. This subjective plan is not directly available and recordable; only the actual purchase shows up as a data point. Machine learning algorithms make predictions based on second-hand, objective data that cannot perfectly reflect the subjective data or knowledge that the individual used to make their decision. Unlike information, knowledge is contextual and is generated from an individual’s interpretation of information against the background of conditions particular to their local time and place.

This does not make prediction impossible; if the actions and decisions of others held no useful information content, the price system as a whole would not function. AI can still assist companies with making predictions, but the contextual nature of knowledge simply restricts the kind of prediction it can make. In 1974, economist F.A. Hayek distinguished between pattern predictions about broad trends in systems and point predictions about what a particular individual or component of the system might do next. If we think about pattern and point predictions, we often think of the difference between the two as a technological problem. But the problem is not a technological one, but an epistemic one. As Don Lavoie put it in National Economic Planning:

“The knowledge relevant for economic decision-making exists in a dispersed form that cannot be fully extracted by any single agent in society. But such extraction is precisely what would be required if this knowledge were to be made usable.”
[Lavoie, Don. 1986. National Economic Planning: What is Left. Page 56]

Let’s assume for a second that AIs could possess not only all relevant information about an individual, but also that individual’s knowledge. Even if companies somehow could gather this knowledge, it would only be a snapshot at a moment in time. Infinite converging factors can affect one’s next decision to not purchase a soda, even if your past purchase history suggests you will. Maybe you went to the store that day with a stomach ache. Maybe your doctor just warned you about the perils of high fructose corn syrup so you forgo your purchase. Maybe an AI-driven price raise causes you to react by finding an alternative seller.

In other words, when you interact with the market—for instance, going to the store to buy groceries—you are participating in a discovery process about your own preferences or willingness to pay. Every decision emerges organically from an array of influences both internal and external that exist at that given moment. The best that any economic decision-maker can do, including Amazon, is to make pattern predictions using stale data that cannot predict these organic decisions and thus have no guarantee of persisting into the future. AI can be thought of as a technology that reduces the cost of pattern predictions by better collecting and interpreting the available data—but the data that would enable either humans or machines to make point predictions simply does not exist.

When we make grand claims about AI’s ability to price products as Uber does, we forget about the role of human action in consuming these services. As Will Rinehart argues, “prices convey information, which then allows for individual participants to act.” The point is that no matter how much information companies collect, and how sophisticated AI becomes, consumer preferences are not something determined ahead of time that exist concretely for the AI to discover. The data predicting these exact choices don’t exist, because the patterns of choices made by individuals are defined by the process of exchange and interaction itself. As long as the competitive forces that drive this process continue to exist, we need not fear dynamic pricing models will erode consumer welfare.

In short, choice is genuine and powerful; we don’t carry around a static schedule in our heads of what prices we are willing to pay for which goods under specific circumstances. Instead, we make choices based on our knowledge and unintentionally reveal our preferences, not just to others, but often ourselves as well. As economist James Buchanan states, market “participants do not know until they enter the process what their own choices will be.” Our preferences, such as they are, are continually created and updated in the process of interaction itself. People’s preferences are consequently moving targets, and cannot be accurately forecasted by AI based on data reflecting past choices.

What do these insights mean for discussions on protecting consumers from exploitative manipulation from companies such as Amazon? First, the epistemic obstacles faced by algorithms means that worst-case scenarios will not likely come about. Instead, the benefits of algorithmic dynamic pricing will outweigh the societal costs. For example, consumers benefit from the Google Chrome add-on Honey, which combs the web for the best coupons to apply when checking out any given product.

Policymakers should be wary of regulating companies to protect consumers against a threat that might not appear. If consumers choose to use platforms such as Amazon or Spotify that gather personal data, we should not automatically assume these algorithms will erode consumer welfare. If policymakers rush to protect consumers because we’re overestimating the forecasting capabilities of AI and underestimating the entrepreneurial capability of individuals in the market, they risk stifling the boon to consumers borne from technological innovations in AI. Policymakers should instead leave room to let individuals and firms work out the best tradeoff between privacy and tailored customer services.

Mercatus essays on innovation, entrepreneurialism & technological governance

Adam Thierer — Fri, 28 Sep 2018 15:40:52 +0000

In recent months, my colleagues and I at the Mercatus Center at George Mason University have published a flurry of essays about the importance of innovation, entrepreneurialism, and “moonshots,” as well as the future of technological governance more generally. A flood of additional material is coming, but I figured I’d pause for a moment to track our progress so far. Much of this work is leading up to my next on the freedom to innovate, which I am finishing up currently.

Adam Thierer, “Deep Technologies & Moonshots: Should We Dare to Dream?” Medium , September 7, 2018.
Adam Thierer, “The Right to Pursue Happiness, Earn a Living, and Innovate,” The Bridge , September 20, 2018.
Adam Thierer, “Is It “Techno-Chauvinist” & “Anti-Humanist” to Believe in the Transformative Potential of Technology?” Medium , September 18, 2018.
Adam Thierer, “How Technology Expands the Horizons of Our Humanity,” Medium, November 19, 2018.
“Evasive Entrepreneurs and Permissionless Innovation: An Interview with Adam Thierer,” The Bridge , September 11, 2018.
Adam Thierer, “Making the World Safe for More Moonshots,” The Bridge , February 5, 2018.
Adam Thierer & Trace Mitchell, “A Non-Partisan Way to Help Workers and Consumers,” The Bridge , September 25, 2018.
Adam Thierer and Trace Mitchell, “The Many Forms of Entrepreneurialism,” The Bridge , August 30, 2018.
Adam Thierer, “Evasive Entrepreneurialism and Technological Civil Disobedience: Basic Definitions,” The Bridge , July 20, 2018,
Adam Thierer, “The Pacing Problem and the Future of Technology Regulation,” The Bridge , August 8, 2018.
Adam Thierer, “The Pacing Problem, the Collingridge Dilemma & Technological Determinism,” Technology Liberation Front, August 16, 2018.
Andrea O’Sullivan & Adam Thierer, “3D Printers, Evasive Entrepreneurs and the Future of Tech Regulation,” The Bridge , August 1, 2018.
Jennifer Huddleston Skees, “The Regulatory Name Game,” The Bridge , September 13, 2018.
Jennifer Skees, “Do You Need a License to Innovate?”, The Bridge , June 29, 2018.
Adam Thierer and Jennifer Skees, “Lemonade Stands and Permits,” The Bridge , August 20, 2018.
Jennifer Huddleston Skees and Adam Thierer, “Pennsylvania’s Innovative Approach to Regulating Innovation,” The Bridge , September 5, 2018.
Jennifer Huddleston Skees & Trace Mitchell, “Transportation 3.0”, The Bridge , August 29, 2018.
Jennifer Skees & Trace Mitchell, “Will The Electric Scooter Movement Lose Its Charge?” The Bridge , July 18, 2018.
Adam Thierer & Trace Mitchell, “The Many Flavors of Food Entrepreneurialism,” The Bridge, September 26, 2018.
Jennifer Skees, “Should You Be Able to Fix Your Own iPhone,” Plain Text , June 18, 2018, https://readplaintext.com/should-you-be-able-to-fix-your-own-iphone-b4157e6cd23

Some older essays on related topics

Adam Thierer, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom, 2nd ed. (Arlington, VA: Mercatus Center at George Mason University, 2016).
Adam Thierer, “Wendell Wallach on the Challenge of Engineering Better Technology Ethics,” Technology Liberation Front, April 20, 2016.
Adam Thierer, “Are “Permissionless Innovation” and “Responsible Innovation” Compatible?” Technology Liberation Front, July 12, 2017.
Adam Thierer, “Does “Permissionless Innovation” Even Mean Anything?” Technology Liberation Front, May 18, 2017.
Adam Thierer, “What Does It Mean to “Have a Conversation” about a New Technology?,” Technology Liberation Front, May 23, 2013.
Adam Thierer, “On the Line between Technology Ethics vs. Technology Policy,” August 23, 2013.
Adam Thierer, “Muddling Through: How We Learn to Cope with Technological Change” Medium, June 30, 2014.
Adam Thierer, “Book Review: Calestous Juma’s “Innovation and Its Enemies” Technology Liberation Front, July 29, 2016.
Adam Thierer, “Embracing a Culture of Permissionless Innovation,” Cato Online Forum, November 17, 2014.
Adam Thierer, “Defining ‘Technology’” Technology Liberation Front, originally published April 29, 2014, last updated July 2017.
Ryan Hagemann, Jennifer Skees & Adam Thierer, “Soft Law for Hard Problems: The Governance of Emerging Technologies in an Uncertain Future,” February 5, 2018, (Forthcoming – Colorado Technology Law Journal).

The Many Forms of Entrepreneurialism

Adam Thierer — Fri, 31 Aug 2018 14:16:14 +0000

by Adam Thierer & Trace Mitchell

[originally published on The Bridge on August 30, 2018.]

What is an entrepreneur?

While it may seem straightforward, this question is deceptively complex. The term can be used in many different ways to describe a variety of individuals who engage in economic, political, or even social activities. Entrepreneurs affect almost every aspect of modern society. While most people probably have a general sense of what is meant when they hear the term entrepreneur, it can be difficult to provide a precise definition. This is due in no small part to the fact that some of the primary thinkers who have given substance to the term have placed their focus on different aspects of entrepreneurialism.

How Economists Talk About Entrepreneurs

Austrian economist Joseph Schumpeter thought that the purpose of an entrepreneur was “to reform or revolutionize the pattern of production by exploiting an invention.” Schumpeterian entrepreneurs are highly creative, disruptive innovators who challenge the status quo in order to bring about new economic opportunities. American economist Israel Kirzner viewed the defining characteristic of entrepreneurs as “alertness.” Kirznerian entrepreneurs are individuals who are able to identify the ways in which a market could be moved closer to its equilibrium, such as recognizing a gap in knowledge between different economic actors.

In the time since Schumpeter and Kirzner helped lay the groundwork, a number of George Mason University-affiliated scholars have made major contributions to our understanding of entrepreneurialism. Don Boudreaux, Jerry Ellig and Daniel Lin, and Virgil Storr, Stefanie Haeffele and Laura Grube, have offered a merged view of Schumpeterian and Kirznerian entrepreneurialism, showing the significant overlap between the two approaches.

In this new way of looking at the issue, entrepreneurs are crucial to innovation, economic growth, and societal change. They are dynamic actors who respond to incentives and market signals. “Greater discovery and innovation are the benchmarks of dynamic competition,” note Ellig and Lin, “not the driving down of price to marginal cost.”

Productive and Unproductive Entrepreneurs

But are all of these dynamic entrepreneurs good for society? Among modern economists and political scientists, there is a general consensus that Schumpeterian-Kirznerian entrepreneurs are individuals who either find or create value within society. In recent decades, therefore, scholars have focused on applying those insights more broadly and developing a more robust way to categorize different types of entrepreneurial activity.

Another American economist, William Baumol, drew an important distinction between productive and unproductive entrepreneurs. He described productive entrepreneurs as people engaged in enterprising activity that generates value within society, such as the creation of new and innovative technologies. However, he also found that entrepreneurs could be unproductive if they did not create value or actively harmful if they destroyed value. “Indeed, at times the entrepreneur may even lead a parasitical existence that is actually damaging to the economy.” For Baumol, entrepreneurs are not defined as individuals who develop new methods of creating value but rather “persons who are ingenious and creative in finding ways that add to their own wealth, power, and prestige.”

Entrepreneurs in the Political Arena

An individual who is highly skilled at lobbying a particular governmental agency might be considered an entrepreneur, but that does not mean they are necessarily contributing value to society overall. Some scholars refer to this as political entrepreneurialism. Economists Peter Boettke and Christopher Coyne define political entrepreneurs as, “individuals who operate in political institutions and who are alert to profit opportunities created by those institutions.” Utah State University professors Randy Simmons, Ryan Yonk and Diana Thomas observe how such entrepreneurs seek specific rewards or privileges from political institutions and interactions through “alertness to previously unnoticed rent-seeking opportunities.” ‘Rent-seeking’ is an economic concept where one person or group is able to derive certain benefits from a particular institutional arrangement without actually creating value for others.

Our Mercatus Center colleague Matthew Mitchell has documented the “long list of privileges that governments occasionally bestow upon particular firms or particular industries.” Mitchell offers a taxonomy of the sort of privileges that political entrepreneurs seek. They include: “monopoly status, favorable regulations, subsidies, bailouts, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts.”

All of these privileges could qualify as a form of Baumol’s “unproductive entrepreneurship” or, in the extreme, what he called destructive entrepreneurialism. Professors Sameeksha Desai, Zoltan Acs and Utz Weitzel define destructive entrepreneurship as “wealth-destroying (such as the destruction of inputs for production activities).” Whereas unproductive entrepreneurship “seeks to redistribute from one individual to another individual,” Boettke and Coyne note, “destructive entrepreneurship reduces the total surplus in an attempt by the entrepreneur to increase his own wealth.” Outright theft and violent conflict over resources are examples of destructive entrepreneurship.

When policymakers reward political destructive or unproductive entrepreneurs, it has profound effects on the well-being of ordinary people and entire nations.

Evasive and Regulatory Entrepreneurs

Not all political entrepreneurs are necessarily out to gain privileges from government at the expense of others, however. Some entrepreneurs are more interested in simply gaining greater freedom to innovate. Scholars have used the terms evasive entrepreneurs or regulatory entrepreneurs to describe such actors. Researchers Niklas Elert and Magnus Henrekson define evasive entrepreneurialism as “profit-driven business activity in the market aimed at circumventing the existing institutional framework by using innovations to exploit contradictions in that framework.” GMU economists Christopher Coyne and Peter Leeson argue that “[e]vasive activities include the expenditure of resources and efforts in evading the legal system or in avoiding the unproductive activities of other agents.” Regulatory entrepreneurs, according to legal scholars Elizabeth Pollman and Jordan Barry, are innovators who “are in the business of trying to change or shape the law” and are “strategically operating in a zone of questionable legality or breaking the law until they can (hopefully) change it.” Evasive or regulatory entrepreneurs generally adopt a “permissionless innovation” approach to both business and political activities.

Generally speaking, evasive and regulatory entrepreneurs are synonymous, although regulatory entrepreneurialism implies a more active intent to change policy through entrepreneurial acts. Evasive entrepreneurs might also be ignorant of what the law says, whereas regulatory entrepreneurs, by definition, understand how the law negatively affects their efforts and seek to change policy through their actions.

However, both evasive and regulatory entrepreneurs are distinct from what economists Alexandre Padilla and Nicolas Cachanosky call indirectly productive entrepreneurs. They argue that regulation often creates unintended consequences which lead to new entrepreneurial opportunities. Indirectly productive entrepreneurs seize upon these opportunities by finding ways to mitigate the costs associated with specific regulations. Unlike regulatory entrepreneurs, who desire to change policy, or evasive entrepreneurs, who seek to avoid it, indirectly productive entrepreneurs create value by reducing the harm caused by policies. For example, the Transportation Safety Administration (TSA) has a policy prohibiting passengers from bringing liquids on an airplane unless they are kept in a container that is smaller than 3.4 ounces. As a response, several indirectly productive entrepreneurs have created “TSA Approved” containers for shampoo, mouthwash, and other toiletries that make it easier for passengers to comply with the regulation.

Social Entrepreneurs

There is also a growing acknowledgment that entrepreneurial behavior can transcend economic or political activities. Mercatus scholars have defined social entrepreneurs as individuals who engage in “innovative, social value-creating activity that can occur within or across the nonprofit, business, or government sectors.” Social entrepreneurial activities are not typically in pursuit of compensation or profit, but that need not always be the case and “the distinction between social and commercial entrepreneurship is not dichotomous, but… a continuum ranging from purely social to purely economic,” they note.

Some sort of social mission drives this type of entrepreneurship, and social entrepreneurialism will often incorporate what MIT economist Eric von Hippel refers to as “free innovation.” He defines a free innovation as “a functionally novel product, service, or process that (1) was developed by consumers at private cost during their unpaid discretionary time (that is, no one paid them to do it) and (2) is not protected by its developers, and so is potentially acquirable by anyone without payment—for free.” A good example of free innovation would be social entrepreneurs using 3D printers and open source designs to voluntarily create prosthetics for children with limb deficiencies.

Conclusion

As this brief survey reveals, there are many different forms of entrepreneurialism. Individuals can act in an entrepreneurial fashion in pursuit of many different objectives: profits, fame, social or legal change, or even personal or organizational privileges that come at the expense of others. Clearly, not all forms of entrepreneurialism produce socially beneficial outcomes. Policymakers should seek to foster and reward Schumpeterian-Kirznerian entrepreneurs given the positive implications for innovation and economic growth and avoid falling into the trap of rewarding political entrepreneurs, who instead seek to game laws and regulations to their own advantage.

Given the extensive research and academic literature inherent to this subject, we’ve curated a list of selected readings below.

The FCC’s new Office of Economics and Analytics and the public interest

Brent Skorup — Fri, 09 Feb 2018 18:32:59 +0000

Last week the FCC commissioners voted to restructure the agency and create an Office of Economics and Analytics. Hopefully the new Office will give some rigor to the “public interest standard” that guides most FCC decisions. It’s important the FCC formally inject economics in to public interest determinations, perhaps much like the Australian telecom regulator’s “total welfare standard,” which is basically a social welfare calculation plus consideration of “broader social impacts.”

In contrast, the existing “standard” has several components and subcomponents (some of them contradictory) depending on the circumstances; that is, it’s no standard at all. As the first general counsel of the Federal Radio Commission, Louis Caldwell, said of the public interest standard, it means

as little as any phrase that the drafters of the Act could have used and still comply with the constitutional requirement that there be some standard to guide the administrative wisdom of the licensing authority.

Unfortunately, this means public interest determinations are largely shielded from serious court scrutiny. As Judge Posner said of the standard in Schurz Communications v. FCC,

So nebulous a mandate invests the Commission with an enormous discretion and correspondingly limits the practical scope of responsible judicial review.

Posner colorfully characterized FCC public interest analysis in that case:

The Commission’s majority opinion … is long, but much of it consists of boilerplate, the recitation of the multitudinous parties’ multifarious contentions, and self-congratulatory rhetoric about how careful and thoughtful and measured and balanced the majority has been in evaluating those contentions and carrying out its responsibilities. Stripped of verbiage, the opinion, like a Persian cat with its fur shaved, is alarmingly pale and thin.

Every party who does significant work before the FCC has agreed with Judge Posner’s sentiments at one time or another.

Which brings us to the Office of Economics and Analytics. Cost-benefit analysis has its limits, but economic rigor is increasingly important as the FCC turns its attention away from media regulation and towards spectrum assignment and broadband subsidies.

The worst excesses of FCC regulation are in the past where, for instance, one broadcaster’s staff in 1989 “was required to review 14,000 pages of records to compile information for one [FCC] interrogatory alone out of 299.” Or when, say, FCC staff had to sift through and consider 60,000 TV and radio “fairness” complaints in 1970. These regulatory excesses were corrected by economists (namely, Ronald Coase’s recommendation that spectrum licenses be auctioned, rather than given away for free by the FCC after a broadcast “beauty contest” hearing), but history shows that FCC proceedings spiral out of control without the agency intending it.

Since Congress gave such a nebulous standard, the FCC is always at risk of regressing. Look no further than the FCC’s meaningless “Internet conduct standard” from its 2015 Open Internet Order. This “net neutrality” regulation is a throwback to the bad old days, an unpredictable conduct standard that–like the Fairness Doctrine–would constantly draw the FCC into social policy activism and distract companies with interminable FCC investigations and unknowable compliance requirements.

In the OIO’s mercifully short life, we saw glimpses of the disputes that would’ve distracted the agency and regulated companies. For instance, prominent net neutrality supporters had wildly different views about whether a common practice, “zero rating” of IP content, by T-Mobile violated the Internet conduct standard. Chairman Tom Wheeler initially called it “highly innovative and highly competitive” while Harvard professor Susan Crawford said it was “dangerous” and “malignant” and should be outlawed “immediately.” The nearly year-long FCC investigations into zero rating and the equivocal report sent a clear, chilling message to ISPs and app companies: 20 years of permissionless innovation for the Internet was long enough. Submit your new technologies and business plans to us or face the consequences.

Fortunately, by rescinding the 2015 Order and creating the new economics Office, Chairman Pai and his Republican colleagues are improving the outlook for the development of the Internet. Hopefully the Office will make social welfare calculations a critical part of the public interest standard.

“Learning by Doing,” the Process of Innovation & the Future of Employment

Adam Thierer — Fri, 25 Sep 2015 19:08:37 +0000

I recently finished Learning by Doing: The Real Connection between Innovation, Wages, and Wealth , by James Bessen of the Boston University Law School. It’s a good book to check out if you are worried about whether workers will be able to weather this latest wave of technological innovation. One of the key insights of Bessen’s book is that, as with previous periods of turbulent technological change, today’s workers and businesses will obviously need find ways to adapt to rapidly-changing marketplace realities brought on by the Information Revolution, robotics, and automated systems.

That sort of adaptation takes time, but for technological revolutions to take hold and have meaningful impact on economic growth and worker conditions, it requires that large numbers of ordinary workers acquire new knowledge and skills, Bessen notes. But, “that is a slow and difficult process, and history suggests that it often requires social changes supported by accommodating institutions and culture.” (p 223) That is not a reason to resist disruptive forms of technological change, however. To the contrary, Bessen says, it is crucial to allow ongoing trial-and-error experimentation and innovation to continue precisely because it represents a learning process which helps people (and workers in particular) adapt to changing circumstances and acquire new skills to deal with them. That, in a nutshell, is “learning by doing.” As he elaborates elsewhere in the book:

Major new technologies become ‘revolutionary’ only after a long process of learning by doing and incremental improvement. Having the breakthrough idea is not enough. But learning through experience and experimentation is expensive and slow. Experimentation involves a search for productive techniques: testing and eliminating bad techniques in order to find good ones. This means that workers and equipment typically operate for extended periods at low levels of productivity using poor techniques and are able to eliminate those poor practices only when they find something better. (p. 50)

Luckily, however, history also suggests that, time and time again, that process has happened and the standard of living for workers and average citizens alike improved at the same time.

Of course, that won’t stop some from proclaiming that, This time it’s different! Indeed, we’re hearing increasing concerns today about the “rise of the robots,” and the general negative impact of automation on the workforce.

But these concerns are really nothing new. “There have been periodic warnings in the last two centuries that automation and new technology were going to wipe out large numbers of middle class jobs,” notes MIT economist David H. Autor. Luckily, those dire predictions have not come to pass. The reason was because short-sighted skeptics failed to appreciate how as new technologies obliterated old businesses and jobs, it simultaneously opened up many more opportunities that were impossible to predict in advance. For every factory worker that lost a job due to technological innovation, new jobs opened up in entirely new sectors that usually offered workers better wages, a safer work environment, and more leisure time. And society clearly benefited in many other ways.

In a new essay for The Journal of Economic Perspectives on “The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?” Joel Mokyr, Chris Vickers, and Nicolas L. Ziebarth, note that “Discussions of how technology may affect labor demand are often focused on existing jobs, which can offer insights about which occupations may suffer the greatest dislocation, but offer much less insight about the emergence of as-yet-nonexistent occupations of the future.” They continue on to note that:

In the end, the fears of the Luddites that machinery would impoverish workers were not realized, and the main reason is well understood. The mechanization of the early 19th century could only replace a limited number of human activities. At the same time, technological change increased the demand for other types of labor that were complementary to the capital goods embodied in the new technologies. This increased demand for labor included such obvious jobs as mechanics to fix the new machines, but it extended to jobs for supervisors to oversee the new factory system and accountants to manage enterprises operating on an unprecedented scale. More importantly, technological progress also took the form of product innovation, and thus created entirely new sectors for the economy, a development that was essentially missed in the discussions of economists of this time.

And despite a resurgence of automation anxiety in recent years, that historic trend still generally holds true. In late 2014, economists at Deloitte LLP published a sweeping survey of the impact of technology and jobs over the past 200 years and found that “Technology has transformed productivity and living standards, and, in the process, created new employment in new sectors.” This is because human needs and wants constantly change and, therefore, “The stock of work in the economy is not fixed; the last 200 years demonstrates that when a machine replaces a human, the result, paradoxically, is faster growth and, in time, rising employment.” And they conclude that: “Machines will take on more repetitive and laborious tasks, but seem no closer to eliminating the need for human labour than at any time in the last 150 years. It is not hard to think of pressing, unmet needs even in the rich world: the care of the elderly and the frail, lifetime education and retraining, health care, physical and mental well-being.”

While it is easy for critics to highlight disruptions in some notable sectors where machines replaced human labor, fewer news reports or panicky books discuss the many new sectors where people have found new opportunities. Again, the historical evidence suggests that there are good reasons to have faith that humans will once again muddle through and prevail in the face of turbulent, disruptive change. As venture capitalist Marc Andreessen has noted when addressing the fear that automation is running amuck and that robots will eat all our jobs,

We have no idea what the fields, industries, businesses, and jobs of the future will be. We just know we will create an enormous number of them. Because if robots and AI replace people for many of the things we do today, the new fields we create will be built on the huge number of people those robots and AI systems made available. To argue that huge numbers of people will be available but we will find nothing for them (us) to do is to dramatically short human creativity. And I am way long human creativity.

Some tech critics may reject Andreessen’s bullish optimism about human resiliency, but real-world evidence already supports that his conclusion that we’ll learn to adapt to a world full of robots and robotic systems. A 2015 economic analysis from Colin Lewis, a behavioral economist who runs Robotenomics, showed that “despite the headlines, companies that have installed industrial robots are actually increasingly employing more people whilst at the same time adding more robots.” His research revealed that 1.25 million new jobs had been added by companies that make extensive use of industrial robots over the previous 6 years. He also found that this trend held among more recent disruptive firms like Amazon and Tesla Motors, but also older and more established companies like Chrysler, Daimler, Philips Electronics and others.

So, it’s worth keeping these facts in mind next time you read an article or book that declares that the sky is falling and that technological innovation is going to destroy labor markets and living standards. The entirety of human history points in the opposite direction. We should be bullish about our ability to muddle through tough times of technological change and flourish in the long run.

New Paper on The Sharing Economy and Consumer Protection Regulation

Adam Thierer — Mon, 08 Dec 2014 15:06:54 +0000

I’ve just released a short new paper, co-authored with my Mercatus Center colleagues Christopher Koopman and Matthew Mitchell, on “The Sharing Economy and Consumer Protection Regulation: The Case for Policy Change.” The paper is being released to coincide with a Congressional Internet Caucus Advisory Committee event that I am speaking at today on “Should Congress be Caring About Sharing? Regulation and the Future of Uber, Airbnb and the Sharing Economy.”

In this new paper, Koopman, Mitchell, and I discuss how the sharing economy has changed the way many Americans commute, shop, vacation, borrow, and so on. Of course, the sharing economy “has also disrupted long-established industries, from taxis to hotels, and has confounded policymakers,” we note. “In particular, regulators are trying to determine how to apply many of the traditional ‘consumer protection’ regulations to these new and innovative firms.” This has led to a major debate over the public policies that should govern the sharing economy.

We argue that, coupled with the Internet and various new informational resources, the rapid growth of the sharing economy alleviates the need for much traditional top-down regulation. These recent innovations are likely doing a much better job of serving consumer needs by offering new innovations, more choices, more service differentiation, better prices, and higher-quality services. In particular, the sharing economy and the various feedback mechanism it relies upon helps solve the tradition economic problem of “asymmetrical information,” which is often cited as a rationale for regulation. We conclude, therefore, that “the key contribution of the sharing economy is that it has overcome market imperfections without recourse to traditional forms of regulation. Continued application of these outmoded regulatory regimes is likely to harm consumers.”

We note that this is especially likely to be the case when the failure of traditional regulatory models is taken into account. As we document in the paper, all too often, well-intentioned “public interest” regulation is often captured by industry and used to to serve their interests:

by limiting entry, or by raising rivals’ costs, regulations can be useful to the regulated firms. Though regulations often make consumers worse off, they are often sustained by political pressure from consumer advocates because they can be disguised as “consumer protection.”

We provide evidence of the problem of regulatory capture and note it has been a particular problem in many of the sectors that are now being disrupted by sharing economy innovators–such as taxi and transportation services. It is evident that regulation has not lived up to its lofty expectations in many sectors. Accordingly, when market circumstances change dramatically—or when new technology or competition alleviate the need for regulation—then public policy should evolve and adapt to accommodate these new realities.

Of course, many bad laws and regulations that policymakers remain on the books and have constituencies who will defend them vociferously. Our paper concludes with some recommendations for how to “level the regulatory playing field” in a pro-consumer, pro-innovation fashion. We note that while differential regulatory treatment of incumbents and new entrants does represent a potential problem, there’s a sensible, pro-consumer and pro-innovation way to solve that problem:

such regulatory asymmetries represent a legitimate policy problem. But the solution is not to punish new innovations by simply rolling old regulatory regimes onto new technologies and sectors. The better alternative is to level the playing field by “deregulating down” to put everyone on equal footing, not by “regulating up” to achieve parity. Policymakers should relax old rules on incumbents as new entrants and new technologies challenge the status quo. By extension, new entrants should only face minimal regulatory requirements as more onerous and unnecessary restrictions on incumbents are relaxed.

Download this new paper on the Mercatus website or via SSRN or ResearchGate. Incidentally, we plan to release a much longer Mercatus Center white paper early next year that will explore reputational feedback mechanisms in far greater detail and explain how these systems help address the problem of “asymmetrical information” in these and other contexts.

Also see: “The Debate over the Sharing Economy: Talking Points & Recommended Reading,” which includes the following video of me on the Stossel Show discussing these issues recently.

Patrick Byrne on online retailers accepting Bitcoin

Jerry Brito — Tue, 22 Apr 2014 10:00:25 +0000

Patrick Byrne, CEO of Overstock.com, discusses how Overstock.com became one of the first online retail stores to accept Bitcoin. Byrne provides insight into how Bitcoin lowers transaction costs, making it beneficial to both retailers and consumers, and how governments are attempting to limit access to Bitcoin. Byrne also discusses his project DeepCapture.com, which raises awareness for market manipulation and naked short selling, as well as his philanthropic work and support for education reform.

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Randall Stross on Y Combinator

Jerry Brito — Tue, 01 Oct 2013 10:00:05 +0000

Randall Stross discusses his recent book: The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups. Stross’s behind-the-scenes look at Y Combinator details how the seed fund has been able to produce young entrepreneurs and successful startups such as Dropbox and Airbnb. Stross also discusses Y Combinator’s early history, the typical Y Combinator participant, the fund’s rate of return, the gender gap in the program, and the reason Silicon Valley has become the epicenter for startups.

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Jerry Ellig on the Universal Service Fund

Jerry Brito — Tue, 30 Jul 2013 10:00:06 +0000

Jerry Ellig, senior research fellow at the Mercatus Center at George Mason University, discusses the the FCC’s lifeline assistance benefit funded through the Universal Service Fund (USF). The program, created in 1997, subsidizes phone services for low-income households. The USF is not funded through the federal budget, rather via a fee from monthly phone bills — reaching an all-time high of 17% of telecomm companies’ revenues last year. Ellig discusses the similarities between the USF fee and a tax, how the fee fluctuates, how subsidies to the telecomm industry have boomed in recent years, and how to curb the waste, fraud and abuse that comes as a result of the lifeline assistance benefit.

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New Paper on “A History of Cronyism & Capture in the Information Technology Sector”

Adam Thierer — Tue, 02 Jul 2013 13:48:02 +0000

The Mercatus Center at George Mason University has just released a new paper by Brent Skorup and me entitled, “A History of Cronyism and Capture in the Information Technology Sector.” In this 73-page working paper, which we hope to place in a law review or political science journal shortly, we document the evolution of government-granted privileges, or “cronyism,” in the information and communications technology marketplace and in the media-producing sectors. Specifically, we offer detailed histories of rent-seeking and regulatory capture in: the early history of the telephony and spectrum licensing in the United States; local cable TV franchising; the universal service system; the digital TV transition in the 1990s; and modern video marketplace regulation (i.e., must-carry and retransmission consent rules, among others.

Our paper also shows how cronyism is slowly creeping into new high-technology sectors.We document how Internet companies and other high-tech giants are among the fastest-growing lobbying shops in Washington these days. According to the Center for Responsive Politics, lobbying spending by information technology sectors has almost doubled since the turn of the century, from roughly $200 million in 2000 to $390 million in 2012. The computing and Internet sector has been responsible for most of that growth in recent years. Worse yet, we document how many of these high-tech firms are increasingly seeking and receiving government favors, mostly in the form of targeted tax breaks or incentives.

We argue that the creeping cronyism could have two major negative ramifications. First, it could dull entrepreneurialism and competition in this highly innovative sector since time and resources spent on influencing politicians and capturing regulators cannot be spent competing and innovating in the marketplace. Cronyism will also negatively impact consumer welfare by denying consumers more and better products and services. Additionally, consumers might end up paying higher prices or higher taxes due to government privileges for industry.

Second, cronyism also raises the specter of greater government control of the Internet and of the digital economy. When policymakers dispense favors, they usually expect something in return. They also become accustomed to having greater informal powers over the sector receiving favors, and contribute to DC’s infamous “revolving door” problem.

High-tech America’s recent embrace of Washington could take it down the familiar path followed by the agriculture, telecommunications, and automotive sectors (among many others), with government becoming both protector and punisher of industry. Today’s dynamic tech industries will increasingly come under the “Mother, may I?” permission-based regulatory regime that encumbered the older information technology sectors.

Finally, this paper offers strategies for stalling and diminishing the cronyism already taking root in the high-tech sector. We suggest several targeted reforms to limit or undo cronyism. Generally speaking, however, we note that, as economist David R. Henderson argued in an earlier Mercatus Center report, “There is only one way to end, or at least to reduce, the amount of cronyism, and that is to reduce government power.”

The paper can be downloaded from the Mercatus website, SSRN, or Scribd. The Scribd version is embedded down below. (Also, here’s some coverage of the paper over at the Washington Post’s “Wonkblog” from our old colleague Tim Lee. Here’s more coverage from Bloomberg Businessweek and the San Francisco Chronicle. And here’s a U.S. News oped that Brent and I wrote condensing our paper into just 600 words. Finally, a short 3-minute video of me discussing the problem of tech cronyism is also embedded below.)

A History of Cronyism and Capture in the Information Technology Sector [Thierer and Skorup – July 2013] by Adam Thierer

Tiered Pricing in Broadband ≠ Monopoly

Brent Skorup — Wed, 08 May 2013 19:54:15 +0000

I plan to write more about broadband competition and the impact of Google Fiber but in the meantime, there is a New York Times article on the subject that I’ll briefly address.

The author, Eduardo Porter, misdiagnoses why tiered pricing in broadband exists, giving readers the impression that only monopolies price discriminate:

That means that in most American neighborhoods, consumers are stuck with a broadband monopoly. And monopolies don’t strive to offer the best, cheapest service. Rather, they use speed as a tool to discriminate by price — coaxing consumers who are willing to pay for high-speed broadband into more costly and profitable tiers.

Consumer advocacy groups regularly–and wrongly–equate price discrimination with monopoly. Price discrimination–where firms price different customers different prices because of their willingness to pay–tells us nothing about the existence of monopoly (and little about market power). Firms lacking monopoly–in industries like airlines, clothing retail, movie theaters, and restaurants–use price discrimination. No one alleges monopoly in these industries, so I don’t know why the author makes this connection between monopoly and price discrimination. Had Porter thought about it, this paragraph makes little sense since even in the urban areas that have 2 or 3 high-speed broadband providers you still see tiered pricing. This should be a tip-off that tiered pricing does not arise from monopoly.

Porter makes another error, which I think just signals the sloppy reporting in this piece:

The preferred strategy seems to involve more cooperation than competition. In 2011, Verizon tried to cobble together agreements with the nation’s major cable firms to jointly market each others’ services — offering itself as the wireless complement to cable’s wireline plans. It was foiled only because the Justice Department slapped the deals down as anticompetitive.

As Gigi Sohn (who generally agrees with the author) points out on Twitter, this is not right either.

Great @nytimes piece on why US #broadband is mediocre: nytimes.com/2013/05/08/bus…Correction: DoJ did *not* block Verizon-cable spectrum deal
— Gigi Sohn (@gigibsohn) May 8, 2013

//platform.twitter.com/widgets.js

The agreements to jointly market others’ products were not in any meaningful sense “foiled.” Those agreements were approved with conditions, namely, that Verizon couldn’t market a cable company’s service where FiOS is available.

I don’t think these are minor nitpicks. The fact is, journalists and advocates regularly employ loose definitions of “monopoly,” often intentionally in order to increase the urgency to further some political end. And the portion about the Verizon deal gives readers the distinct impression that Verizon was doing something colluding and nefarious that was stopped by the DOJ, and that’s just not true.

Alex Tabarrok on innovation

Jerry Brito — Tue, 30 Apr 2013 10:00:22 +0000

Alex Tabarrok, author of the ebook Launching The Innovation Renaissance: A New Path to Bring Smart Ideas to Market Fast discusses America’s declining growth rate in total factor productivity, what this means for the future of innovation, and what can be done to improve the situation.

Accroding to Tabarrok, patents, which were designed to promote the progress of science and the useful arts, have instead become weapons in a war for competitive advantage with innovation as collateral damage. College, once a foundation for innovation, has been oversold. And regulations, passed with the best of intentions, have spread like kudzu and now impede progress to everyone’s detriment. Tabarrok outs forth simple reforms in each of these areas and also explains the role immigration plays in innovation and national productivity.

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Paul Heald on the public domain

Jerry Brito — Tue, 23 Apr 2013 10:00:04 +0000

Paul J. Heald, professor of law at the University of Illinois Urbana-Champaign, discusses his new paper “Do Bad Things Happen When Works Enter the Public Domain? Empirical Tests of Copyright Term Extension.”

The international debate over copyright term extension for existing works turns on the validity of three empirical assertions about what happens to works when they fall into the public domain. Heald discusses a study he carried out with Christopher Buccafusco that found that all three assertions are suspect. In the study, they show that audio books made from public domain bestsellers are significantly more available than those made from copyrighted bestsellers. They also demonstrate that recordings of public domain and copyrighted books are of equal quality.

Since copyrighted works will once again begin to fall into the public domain starting in 2018, Heald says, it’s likely that content owners will ask Congress for yet another term extension. He argues that his empirical findings suggest it should not be granted.

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Marc Hochstein on bitcoin

Jerry Brito — Tue, 16 Apr 2013 10:00:45 +0000

Marc Hochstein, Executive Editor of American Banker, a leading media outlet covering the banking and financial services community, discusses bitcoin.

According to Hochstein, bitcoin has made its name as a digital currency, but the truly revolutionary aspect of the technology is its dual function as a payment system competing against companies like PayPal and Western Union. While bitcoin has been in the news for its soaring exchange rate lately, Hochstein says the actual price of bitcoin is really only relevant for speculators in the short-term; in the long-term, however, the anonymous, decentralized nature of bitcoin has far-reaching implications.

Hochstein goes on to talk about the new market in bitcoin futures and some of bitcoin’s weaknesses—including the volatility of the bitcoin market.

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Joshua Gans on the economics of information

Jerry Brito — Tue, 02 Apr 2013 10:00:10 +0000

Joshua Gans, professor of Strategic Management at the University of Toronto’s Rotman School of Management and author of the new book Information Wants to be Shared, discusses modern media economics, including how books, movies, music, and news will be supported in the future.

Gans argues that sharing enhances most information’s value. He also explains that the business models of traditional media companies, gatekeepers who have relied on scarcity and control, have collapsed in the face of new technologies. Equally important, he argues that sharing can revive moribund, threatened industries even as he examines platforms that have, almost accidentally, thrived in this new environment.

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New MRU Online Courses on Economics of Bundling & Cable TV Regulation

Adam Thierer — Fri, 22 Mar 2013 13:45:13 +0000

As noted here last week, as part of their Marginal Revolution University online courses, Tyler Cowen and Alex Tabarrok have been rolling out several classes on “Economics of the Media.” I think TLF readers will be interested in checking out their lessons on “Bundling” and “Cable TV Regulation” since these are topics we have frequently discussed here over the years. I’ve embedded those two presentations below, but please go the MRU site and watch all the videos in their media economics course when you get a chance. They are excellent.

Net Neutrality Videos for Marginal Revolution University

Adam Thierer — Fri, 15 Mar 2013 13:35:37 +0000

I hope that you’ve all been watching the terrific videos on “Economics of the Media” that Tyler Cowen and Alex Tabarrok have put together as part of their Marginal Revolution University online courses. They divide their media economics lessons into four groupings: (1) Basic economics of media; (2) Media bias; (3) Media and government; and (4) Media and economic development. Tyler and Alex asked Jerry Brito and me to contribute two videos on Net neutrality for the project. Jerry’s course offers an overview of Net neutrality as a general engineering principle. My video explores Net neutrality as a regulatory proposal and couches it in a broader discussion of network economics. Each video lasts approximately 6-7 minutes. Here they are:

Ronald Cass on intellectual property

Jerry Brito — Tue, 19 Feb 2013 21:54:04 +0000

Ronald A. Cass, Dean Emeritus of Boston University School of Law, discusses his new book, Laws of Creation: Property Rights in the World of Ideas, which he co-authored with Boston University colleague Keith Hylton. Written as a primer for understanding intellectual property law and a defense of intellectual property, Laws of Creation explains the basis of IP and its justification.

According to Cass, not all would-be reformers share a similar guiding philosophy, distinguishing between those who support property rights but nevertheless have specific critiques of the intellectual property system as it currently stands, and reformers who do not see a place for property.

Cass explains that the current intellectual property system is neither wholly good nor wholly bad, but is a matter of weighing tradeoffs. On the whole, he argues, intellectual property benefits society. Cass also argues that intellectual property law in the U.S. is still more functional than that in other countries, such as Italy, and that, while it would benefit from some reform, it is fundamentally a workable system.

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So You Want to Be an Internet Policy Analyst?

Adam Thierer — Mon, 03 Dec 2012 21:22:08 +0000

[Updated 7/10/14: See new addendum at bottom. Updated 4/28/13: Included links to several things + started list of additional resources at end.]

Each year I am contacted by dozens of people who are looking to break into the field of information technology policy as a think tank analyst, a research fellow at an academic institution, or even as an activist. Some of the people who contact me I already know; most of them I don’t. Some are free-marketeers, but a surprising number of them are independent analysts or even activist-minded Lefties. Some of them are students; others are current professionals looking to change fields (usually because they are stuck in boring job that doesn’t let them channel their intellectual energies in a positive way). Some are lawyers; others are economists, and a growing number are computer science or engineering grads. In sum, it’s a crazy assortment of inquiries I get from people, unified only by their shared desire to move into this exciting field of public policy.

I always do my best to answer their emails, calls, and requests for meetings. Unfortunately, there’s only so much time in the day and I am sometimes not able to get back to all of them. I always feel bad about that, so, this essay is an effort to gather my thoughts and advice and put it all one place so that I will at least have something to send these folks. Perhaps I’ll try to update it over time.

#1) Understand that Specialization Matters

I don’t want to bury the lede here, so let me start with the most important piece of advice I share with everyone who contacts me: specialization matters. When I got started in the sleepy field of information technology policy back in 1991, it was possible to be a jack-of-all-trades. There were only a few issues that really mattered, and most of them were tied up with traditional communications and media policy. If you knew a little something about telephony, universal service subsidies, spectrum policy, and broadcast regulation, then you could be an analyst in this field. There were only a handful of people in the think tank world back then who even cared about such issues.

But then came the Internet. It really did change everything, including this field of policy study. In the old days, people in this field were called telecom policy analysts or media policy analysts. We had titles like “Director of Telecommunications Studies” or “Fellow in Media Studies.” But when the Net came along, it almost instantly made such titles seem archaic. Today, this field is more appropriately labelled “information technology policy studies.” That term incorporates those old telecom and media policy issues, but it includes much more now.

That’s why specialization matters more than ever. In essence, over the past 15 years, the information technology policy world underwent a metamorphosis similar to the one that occurred in the field of environmental policy a decade or two before. In the early days of environmental policy, it was enough to say you were interested in environmental policy at all. That could probably win you a job (or at least an activist role) somewhere in that field. By the mid-1980s, however, the field of environmental policy had become remarkably specialized. Academic programs and public policy jobs started developing around very targeted issues: water, air, waste management, nuclear issues, endangered species, farming / sustainable development, climate change, etc, etc. Today, therefore, if you are looking for a career in the environmental policy arena, you are generally expected to first develop a more finely-honed specialization in one of its many sub-issue areas.

This is exactly what has been happening in the field of information technology policy since the mid-1990s. If you want a career in the field of information technology policy studies today, you need to be thinking about a very specific area of expertise. Do you already have that expertise? Great, then skip to step #5 below. If not, read on.

#2) The Major Areas of Specialization in the Modern Information Technology Policy Arena

OK, so you understand that specialization matters. What specific topic / field should you choose as your particular area of focus? Well, that’s up to you and your particular interests. Here’s the good news: There are more options than ever.

It’s useful to divide the information technology policy world into 3 big buckets (Note: This is a taxonomy that Jerry Brito, Eli Dourado, and I use to think about our priorities of the Mercatus Center’s Technology Policy Program each year):

Conduit / Infrastructure
Content / Speech
Other

Let’s break down each one of these to reveal just how specialized this field has become:

(A) Conduit: Generally refers to anything involving the physical infrastructure side of information technology policy, including:

Broadband policy (including traditional communications / common carrier regs)
Spectrum / Wireless
Universal service (and other tech subsidies)
Media marketplace regs (broadcasting, cable)
Antitrust & mergers

(B) Content: Generally refers to any (mostly intangible) information control or speech control issue

Public Morals / Free Speech (porn, gambling, spam, cyberbullying, political speech, etc)
Privacy (including reputation & defamation concerns)
Cybersecurity (online security, national security concerns, state secrets, encryption controls)
IP (copyright & patents)

Internet Governance (ICANN, domain names, international affairs & treaties)
Taxation of online goods or services
Trade policy involving tech

Here’s the key takeaway from this taxonomy: You can develop a specialized career around countless information policy issues today. Do you want to be a privacy guru? Great, there are countless policy opportunities in that area alone. Do you love freedom of speech? Excellent, you can find plenty of cool gigs there, too. Cybersecurity strike your fancy? No problem. That field is growing like wildfire. And there are entire academic programs and activist institutions that long ago developed around digital copyright.

If you prefer to stick with the “conduit” bucket, have no fear, there exists many opportunities in those sub-areas. I know many professionals who describe themselves as a “cable lawyer” or a “media economist” or an “antitrust consultant.” Those fields are heavily saturated today, however, especially because they tended to pay quite well in the past. That could change as the “content” issues become more visible and important in coming years. Privacy policy is probably the biggest growth market in this regard. Huge opportunities await you there if you are so inclined.

I could go on, but you get the idea: You need to think about specialization because just randomly contacting someone and telling them you want to be an Internet policy analyst today is not enough. You need to be able to tell them, “I am interested in information technology policy and I possess a particular interest/expertise in X.” What “X” is is up to you, but you better have something to fill in that blank.

#3) What Specific Academic Experience Will Help?

Many people who contact me about how to advance their careers in the information technology policy arena are already far along in advanced degree programs or even finished those degrees long ago. But, for what it’s worth, here’s some general advice about which degrees will help you out the most in this arena. They are listed in order of importance:

Law: A law degree from a program with a specialized cyberlaw program will probably help you out most in this arena. It will open more doors for you than the other degrees mentioned below. I suppose that is true for most public policy fields and jobs, of course. Legal experience is also easier to “re-purpose” than other degrees; it offers excellent training for many different professions. The downside: The field of information technology policy is increasingly being flooded with lawyers. While a law degree still offers important advantages over other degrees, that may change if the legal market grows over-saturated. The way to counter that, of course, is to hyper-specialize! Start thinking about how to develop a very targeted legal expertise in privacy law, free speech policy, copyright law, cybersecurity, media/spectrum policy, antitrust law, etc.
Economics: An economics degree offers you the opportunity to analyze public policy using a very different toolbox than the lawyer will use. Economists are in increasing demand in the field of information technology policy because (a) there are just too many damn lawyers in the field already and (b) economists can actually offer some hard data to support their claims or make their case. PhD economists with a focused expertise in a particular tech area can also command a very impressive premium for their skills. (Note: MBAs are less in demand than economists and are generally a rare bird in the information technology policy arena. I am one of them, and I regret to say that it really hasn’t done much to help my career.)
Computer Science / Engineering: Increasingly, employers in this arena are interested in finding skilled CS grads and engineering experts (ex: spectrum engineers) who can tackle special jobs and projects. If you have such expertise, you will be able to cover certain technical policy issues in a far more authoritative fashion. That’s increasingly valuable to institutions as they look to broaden their stable of talent. For example, many policy institutions and even government agencies now hire a “Chief Technologist” to offer the rest of the staff their specialized advice on highly technical matters. In the future, I expect policy institutions will employ several technologists to fit the specialized needs they have.
Poly Sci / Public Policy / History: Degrees in political science, public policy, and even history probably won’t help you out as much as degrees from one of the three previous areas, but it depends on what you are looking to do. Again, the information technology policy arena is specialized enough today that certain jobs will require this skill set. For example, I have personally done a lot of work on cronyism and regulatory capture in this arena and my undergrad degree in poly sci has actually come in quite handy as I try to explain the political economy of high-tech rent-seeking. Similarly, many advanced degrees in public policy today offer very specialized areas of focus that could help. For example, the School of Public Policy here at George Mason University offers a couple of excellent M.A. and PhD. programs related to information technology policy. I’ve found many other Public Policy M.A. and PhD. programs that offer similar degree opportunities.

Needless to say, if you can combine two of these degrees, you’ll be golden. I’m finding a lot more analysts in this field have economics undergrad degrees and then a law degree to boot. Even better, however, would be combining a technical degree in CS or engineering with one of these other degrees. Then you are talking about truly valuable academic experience. And it had damn well better be valuable because you are going to be dead broke after you get done with all that education!

One other point: I don’t want to suggest that you can’t break into the info-tech policy world with other degrees under your belt. There’s a growing group of philosophers and sociologists, for example, who are doing important Internet policy work. Likewise, there have always been major media studies and journalism programs that offered a path toward being a tech policy wonk. (My other undergrad degree was in journalism). For now, however, that policy work is being doing almost exclusively within universities. If you are looking to come to Washington (or a state or international capital) and do public policy work, you would probably be better served having one of the degrees listed above.

#4) What Other Experience Will Help?

Regardless of what academic degree you are pursing or already possess, additional “real-world” experience will help you advance you career in the the information technology policy arena, much like every other policy field. Here’s what I think will be most useful to you:

Hill / govt work: If you can stomach spending a semester or even an entire year working on Capitol Hill or in a regulatory agency, it will do wonders to advance your career in the information technology policy world. It’s not just about the experience you gain from working inside the system; people care about the connections you make, too. When you work for the right sort of Hill office or committee (like Energy & Commerce), or for the right sort of agency (FCC, FTC, NTIA), you gain important connections in those institutions that can benefit you (or your future employer) for many years to come.
Legal associate / clerkship: For you lawyers out there, experience in a firm, or clerking for a judge, puts a big star on any resume and is increasingly important in this field. Again, if you can land a gig in the right firm or with the right judge (one that has a very specialized expertise), that’s even better.
Corporate internship / fellowship: Working for a major corporation or trade association offers very specialized experience that can help advance your career, but it comes with one potential downside: It could label you as being too close to that interest. For example, tech firms like Google and Microsoft offer some wonderful internships and research fellowships, but once you accept such positions it could be held against you by others who, for whatever reason, might have issues with those firms.
University programs/ projects: If you are still at university finishing up a higher degree, are their programs internally that can help advance your career in the information technology policy field? There are obvious things like serving on the law review, but how about more specialized programs that might allow you to work with other tech policy scholars on special reports and projects? Can you help a scholar in that program with research for a big paper? Can you help them build a website to highlight an important new project? Can you join together with other students in your program to develop new sites or tools that highlight a particular public policy issue that you care deeply about? Stuff like this can help boost your visibility in an increasingly crowded field.
Think tank internship / fellowship: There are a lot of great opportunities available to you in the think tank world, so long as you don’t mind slave wages! Think tanks of all stripes offer aspiring tech policy analysts a wonderful opportunity to get their feet wet and experience the tech policy world first-hand. Some think tanks will even let interns or junior analysts write for their blogs or at least work on major projects as a research assistant. Again, the pay absolutely blows and you will struggle to make ends meet, but the experience will be quite valuable. If you are already older and looking to shift from you current dead-end profession into the world of Internet policy, think tanks can offer you an excellent platform — perhaps the very best platform of all. Again, the downside is the pay. You won’t be able to command a premium for your talent in the think tank world. They just don’t have the budget to pay you handsomely and there will probably also be plenty of other competition for your position. But you’ll have the opportunity to write and speak and preach like no other job can provide.

Again, if you can combine a few of these things, it’ll be a hell of a resume-builder.

#5) Write (and then write some more!)

Whether you are a student looking to break into this field or an established professional looking to shift jobs, there is one piece of advice I have for all of you: If you really want to get involved in the information technology policy world, you need to start writing about the information technology policy world.

I suppose this general word of advice could apply to all public policy fields and professions, but the reason it is particularly important in this field is because, quite obviously, we are in the information business! We are using the same technologies we are writing about. And people in our arena generally use these technologies far more aggressively than people in other professions. So, it is generally expected that you should be using them, too.

There are two specific reasons why writing is vitally important. First, it shows others you have a deep interest (and potential expertise) in information technology policy. Second, it serves as a writing sample when others want to gauge your capabilities and grasp of the issues.

Here are a few ways you can start writing more and building your brand:

Start a blog or start blogging with others: If you’re already doing so, that’s great. But kick it up a notch. Just find anything that interests you — an academic paper, a news report, another blog post — and write about it. Even if you just summarize that other piece and add a line or two of commentary, that’s something. It’ll help get your name out there and help you develop your own brand. Better yet, when you write about others and their work or advocacy, they see it. Most academics and policy wonks have a big enough ego that they probably have a Google Alert set up for their own name. I certainly do because I want to know what others are saying about me and my work. So, if I see you writing about me, I’m going to be far more likely to add your blog to my RSS feed or even follow you on Twitter.
Try to publish something “professionally”: If you can, find a way to get some of your work published in a academic journal, a professional publication, or a leading media outlet in the field. I realize that this isn’t easy. Sometimes it will be impossible, especially at a young age when you are first breaking into the field. But the good news is that there are more outlets than ever and, if you work hard enough, you’ll eventually find one of them that will republish your work. Having a few independent publications under your belt and on your resume can really help jumpstart your career in the policy world. It goes without saying that getting published matters even more if you’re hoping to secure a position with a university-based research center. If your work is more academic in character, get it on SSRN immediately.
Use Twitter and other social media services (but be careful): Twitter can do wonders to help you build a following in the information technology policy arena by (1) letting you share your insights about tech policy with the world and, more importantly, (2) getting you connected with well-established figures in the field. Not every tech guru will follow you back once you start following them, but many will. And, with enough work (and a little brown-nosing), you will eventually get on their radar screen. For example, if you enjoy papers and essays by a particular cyberlaw guru or digital policy economist, retweet their work and add a thoughtful comment. Keep doing that for them and others. And do the same for journalists who post interesting tech policy stories. Put all these people on a curated Twitter list of your own and label it something flattering like “Tech Policy Gurus” or “Best Net Policy Wonks.” I can say from personal experience that when I find myself on such lists, I am more likely to follow the people who created them. One word of caution about Twitter and social media, however: Being provocative can get you noticed, but it can also piss people off and cost you followers / respect. Worse yet, it could come back to haunt you when you pursue future job opportunities. If you are at the stage in your career where you are fairly well-established and don’t necessary care as much about what the rest of the world thinks about you (hey, that’s me!), then it’s easier to get away with being provocative and even a bit snarky online. But when you are young and just getting started, be careful not to burn bridges before you’ve even built any. Be friendly, at least at first. There will be plenty of time in the future for you to tell me that you think I am full of sh*t!

#6) Network

Sure, you can get plenty of networking done using online tools and strategies, some of which I discussed above. But meeting people in person still matters. A little face time and a few handshakes can open up opportunities that you would otherwise not even known existed. Toward that end, if you are near a major university center or city that hosts occasional tech policy events, get to them. Or, if you can, plan occasional visits to major university events or other tech policy galas. When you visit these places, see if you can schedule a few minutes of private face time with leading analysts that you respect. Tell them how much you value their time but ask for just a few minutes with them to get some advice on how to be the next great tech policy analyst, just like them! (Again, flattery gets you everywhere in this world).

Finally, if you are lucky enough to live near Washington, DC, then you’ll have no problem finding an endless array of technology policy events to attend on a near-daily basis. Get to as many as you can and introduce yourself to as many people as possible. Tell them all you are interested in pursuing a career in the information technology field and stress the particular area of policy that most interests you. I have probably found more jobs for people during cocktail hours than anything else. One person will come up to me and explain their interests and background and then I will point them to the 2 or 3 other people in the room who can help them advance their particular career objective.

#7) Read

Geez… do I really need to say this? Well, I do only because I wanted to offer a list of a few things I read regularly to keep my finger on the pulse of the info-tech policy world. Perhaps the easiest way to do so is to just list some of what’s in my daily RSS and/or Twitter feed. Here’s a sample:

Tech News: Ars Technica, National Journal’s Tech Daily Dose, The Hill’s Hillicon Valley, WSJ tech reporters and “Digits” blog, NYT’s technology feed, GigaOm, CNet politics & law
Tech Policy Blogs: The Technology Liberation Front (of course!), EFF Deeplinks, TechDirt, Freedom to Tinker, Eric Goldman’s Technology & Marketing Law Blog, Digitopoly, Public Knowledge blog, CDT blog, Monday Note, Rough Type, Regulation 2.0, various Forbes contributors (esp. Kashmir Hill), and sharp philosophers of technology (like Evan Selinger & Michael Sacasas)
Cyberlaw or other university-based tech policy centers: Berkman Center at Harvard, CIS at Stanford, Oxford Internet Institute, CLIP at Fordham, CLI at Maine, Yale ISP, HTLI at Santa Clara, Boalt Center at Berkeley, Columbia Institute for Tele-Information, IEP at George Mason, Center for Information Technology Policy at Princeton, (also here’s the list of all of them that I follow on Twitter)
Corporate / Law Firm Blogs: Google, Verizon, AT&T, and many other companies and trade associations have blogs worth following. Also, law firms are finally starting to open to door a bit to blogging, although they are still hyper-cautious about it. I follow a couple of law firm blogs that have top privacy and antitrust attorneys blogging for them. I can’t even begin to name them all here.

This just scratches the surface. Again, the more specialized your focus, the more likely it is you’ll follow very targeted blogs and media outlets. For example, there are dozens of targeted blogs on copyright and privacy policy. I follow many of them casually on Twitter but don’t keep them in my daily RSS feed.

More generally, you should be keeping up with major Internet policy books so that you are conversant in intellectual circles about the hottest publications du jour. That can be challenging — both because reading books takes time and the field is increasingly crowded with new titles. At the end of each year, I try to put together a list of important info-tech policy books. (Here are the lists for 2008, 2009, 2010, 2011 and 2012). You should try to be familiar with some of the big titles on those lists. Also, here’s my compendium of all the major titles from the 2000s and here’s the running list of all my tech policy book reviews.

Conclusion

Well, that’s all I got for ya. I promise to try to offer my thoughts to you in person or via email if you call or write, but please understand that I’m just sometimes too busy to respond to everyone at length. But I hope what I’ve written here helps some of you out in your effort to break into the tech policy world. Best of luck, and if you make it big, buy me a beer someday!

Additional Reading / Resources:

Internet Society – “Brief History of the Internet” (by various authors who helped give birth to it)
Internet Society’s “History of the Internet” page
list of cyberlaw professionals & groups on LinkedIn
William H. Dutton, “Internet Studies: The Foundations of a Transformative Field,” in Oxford Handbook of Internet Studies (W. H. Dutton, eds., Oxford University Press, 2013)
Adam Thierer, “The Digital Decade’s Definitive Reading List: Internet & Info-Tech Policy Books of the 2000s,” Technology Liberation Front, Dec. 29, 2009.
Robert D. Atkinson, “Who’s Who in Internet Politics: A Taxonomy of Information Technology Policy“
James Grimmelmann, Internet Law: Cases and Problems

* Addendum, July 2014 *

If I was penning this essay today, I think I would have instead entitled it, “So You Want to Be a Technology Policy Analyst?” Since I penned this back in Dec 2012, a lot has changed in the world of Internet policy, starting with the fact that, as Marc Andreessen has noted, “software is eating the world.” As Jerry Brito, Eli Dourado, and I noted in our May 2014 essay, “Technology Policy: A Look Ahead”:

many of the underlying drivers of the digital revolution—massive increases in processing power, exploding storage capacity, steady miniaturization of computing, ubiquitous communications and networking capabilities, the digitization of all data, and increasing decentralization and disintermediation—are beginning to have a profound impact beyond the confines of cyberspace.

As a result of this convergence of the old “meatspace” economy (the world of atoms) and the digital economy (the world of bits), what it means to be an “Internet policy analyst” is changing and expanding once again. A wide variety of new innovations are now emerging and raising fresh policy concerns. For example, a short list of the technologies and sectors I am now covering includes: the “Internet of Things” and “wearable technologies;” smart car technology and autonomous vehicles; commercial drones; robotics; mobile medicine; biohacking and genetic engineering; and much more.

Just a few years ago, none of these issues were on my list of policy priorities. Today, they constitute 90% of what I write and speak about on a daily basis.

What this means for aspiring technology policy analysts is that the opportunities here are virtually boundless. The sky is the limit!

Of course, I will reiterate my first piece of advice above by once again stressing that specialization matters. While it would be wonderful to be able to be a jack-of-all-trades who could cover all these issues effectively, that’s just impossible. You need to focus, and that is even truer today as the universe of tech policy issues expands rapidly. I had to abandon issues that I once cared deeply about, such as Internet governance, intellectual property, infrastructure regulation, and mass media policy. I wrote 4 books on those topics in the past decade, and now I’ve had to give up on them entirely to make room for all the hot new tech policy issues out there.

But while it may seem a bit overwhelming at times, again, the upside of all this is that you have countless opportunities at your disposal to make your mark in these new policy arenas. There has never been a more exciting time to be a technology policy analyst. Good luck, and I hope you enjoy it half as much as I do, because I am having a blast! Every day brings an exciting new challenge.

(Seriously, why would anyone want to cover any other issue?!)

* Addendum, Sept. 2015 *

On the whiteboard in my office I have a giant matrix of technology policy issues and the policy “threat vectors” that might end up driving regulation of particular technologies or sectors. Along with my colleagues at the Mercatus Center, we constantly revise this list of policy priorities and simultaneously make a (very unscientific) attempt to weight the potential policy severity in each area. I use 5 policy groupings: Privacy, safety, security, economic disruption, and IP. We then use this matrix to help us determine what we should be paying more attention to and then decide what sort of scholarly outputs are needed on each front. [See this post for more elaboration about the categories and issues.]

Several people who have seen that matrix in my office tell me I should do something more with it, but I’m not really sure what that something would be. But I thought it might make sense to plop it into this old post to give readers a feel for the current generation of tech policy issues that might be worth focusing on. Again, there are lots and lots of opportunities here! I’ll try to upload new versions of the matrix as that giant whiteboard in my office morphs over time.

The War on Vertical Integration in the Digital Economy [slideshow]

Adam Thierer — Sun, 18 Nov 2012 17:26:40 +0000

Here’s a presentation I delivered on “The War on Vertical Integration in the Digital Economy” at the latest meeting of the Southern Economic Association this weekend. It outlines concerns about vertical integration in the tech economy and specifically addresses regulatory proposals set forth by Tim Wu (arguing for a “separations principle” for the tech economy) & Jonathan Zittrain (arguing for “API neutrality” for social media and digital platforms). This presentation is based on two papers published by the Mercatus Center at George Mason University: “Uncreative Destruction: The Misguided War on Vertical Integration in the Information Economy” (with Brent Skorup) & “The Perils of Classifying Social Media Platforms as Public Utilities.”

New Paper on Wu’s “Separations Principle” & the War on Vertical Integration in the Tech Economy

Adam Thierer — Tue, 16 Oct 2012 20:29:53 +0000

[UPDATE 4/30/13: This article was subsequently published in Volume 65, Issues 2 of the Federal Communications Law Journal in April 2013. The links below now point to the final FCLJ version.]

The Mercatus Center at George Mason University has just released a new paper by Brent Skorup and me entitled, “Uncreative Destruction: The War on Vertical Integration in the Information Economy.” Brent, who is the research director for the Information Economy Project at the George Mason University School of Law, and I have been working on this paper since the Spring and we are looking forward to getting it published in a law review shortly. The paper focuses on Tim Wu’s “separations principle” for the digital economy, something I’ve spent some time critiquing here in the past. Here’s the introduction from the 44-page paper that Brent and I just released:

Are information sectors sufficiently different from other sectors of the economy such that more stringent antitrust standards should be applied to them preemptively? Columbia Law School professor Tim Wu responds in the affirmative in his book The Master Switch: The Rise and Fall of Information Empires. Having successfully pushed net-neutrality regulation into the policy spotlight, Wu has turned his attention to what he regards as excessive market concentration and threats to free speech throughout the entire information economy.To support his call for increased antitrust intervention, Wu explains his view of competition in the information economy—a view that deviates substantially from current mainstream antitrust theory. First, Wu contends that “information monopolies” are pervasive in the information economy. Wu’s “monopolists” include Facebook, Apple, Google, and even Twitter. In The Master Switch and essays like “In the Grip of the New Monopolists,” Wu argues that these so-called monopolies are increasing their market power and require more aggressive oversight and regulation.Second, Wu argues that traditional antitrust analysis is not sufficient for information systems because they carry speech. He claims, “Information industries… can never be properly understood as ‘normal’ industries,”and traditional forms of regulation, including antitrust enforcement, “are clearly inadequate for the regulation of information industries.”Wu believes that because information industries “traffic in forms of individual expression” and are “fundamental to democracy,” they should be subject to greater regulatory treatment.Third, in contrast to current competition law’s focus on horizontal relationships, Wu desires a reinvigorated regulatory enforcement that addresses “the corrupting effects of vertically integrated power” in the information sectors.He is particularly concerned about private threats to free speech arising from such vertical integration.The solution, he says, is preventing vertical mergers in the information economy and the mandatory divestiture of vertically integrated companies. To implement this, Wu proposes a Separations Principle for the information economy, which would segregate information providers into three buckets, which we have labeled information creators, information distributors, and hardware makers.This article outlines Wu’s separations proposal, explains why his fears regarding vertical relationships should be rejected by regulatory and antitrust policymakers, and illustrates the legal and practical problems his Separations Principle poses. Wu justifies his Separations Principle by citing monopolies and market power in the information economy. He also advocates using U.S. antitrust authorities to enforce his Principle. We argue that the antitrust harms he fears are not present, and we highlight scholarship on the accepted benefits of vertically integrated firms. We show that Wu’s remedies are policy preferences wrapped in the language of competition law. In fact, the information economy is largely competitive and does not warrant interventionist regulatory enforcement. Since much of American economic vitality flows from the information economy and technology, policymakers should reject a radical antitrust remedy like Wu’s preemptive Separations Principle.

The paper can be downloaded from the Mercatus website, SSRN, or Scribd.

Antitrust & Innovation in the New Economy: The Problem with the Static Equilibrium Mindset

Adam Thierer — Mon, 16 Apr 2012 16:03:16 +0000

In this new Money Morning article, “The Antitrust Curse: What Apple Can Learn From Microsoft, IBM,” David Zeiler wonders whether the antitrust lawsuit filed against Apple and several book publishers by the U.S. Department of Justice last week could open the door to a broader case against Apple or, at a minimum, simply become a major distraction to the firm and it’s ability to innovate going forward. He uses IBM and Microsoft as case studies in this regard and notes that, “the problem with being in the DOJ’s gunsight is that it distracts management, makes the company hesitant to innovate, and blemishes the company’s public image. While antitrust woes may not have been entirely responsible for Microsoft and IBM ceding their dominant positions in tech, they were clearly a major factor,” he says. “And worse for Apple, the e-book case could be just the beginning.”

Quite right. I raised the same concern in my recent Forbes column,”Regulatory, Antitrust and Disruptive Risks Threaten Apple’s Empire,” which Zeiler was kind enough to quote in his essay. In that piece, I argued:

Even if Apple beats back [the eBooks] investigation, broader questions are being raised about the company’s power that could invite a much broader investigation. The danger for Apple is that antitrust becomes an omnipresent threat that must be factored into all ongoing business decisions. Antitrust is a particular danger to Apple because the firm is highly vertically integrated and that integration is the source of many of their innovations. As earlier tech titans like IBM and Microsoft learned, when antitrust hangs like the Sword of Damocles, every decision about how to evolve and innovate becomes a calculated gamble.

Regarding the earlier impact that antitrust Sword of Damocles had on Microsoft, Zeiler unearthed this terrific 2005 quote from Mark Kroese, a general manager of information services at the Microsoft Network, who described the impact of the MS antitrust case on innovation at the firm as follows: “Working at Microsoft today vs. five years ago is different,” Kroese said. “If anyone thinks the antitrust case hasn’t slowed us down, you’re wrong. If I want to meet with a products manager for Windows, there needs to be three lawyers in the room. We have to be so careful, we err on the side of caution. We are on such a fine line of conduct.” Regarding how antitrust chilled IBM, Zeiler cites veteran tech journalist Steve Wildstrom of Tech.pinions who noted, “Twelve years of litigation were an enormous distraction in a time of rapid technological and business change. IBM management became cautious and over-lawyered, constantly looking over its shoulder-a condition that persisted for years after the case ended. The antitrust case was almost certainly a major cause of the serious decline of IBM in the late 1980s and early 90s,” Wildstrom said.

Of course, it is impossible to scientifically determine to what degree antitrust harassment contributed to either IBM or Microsoft’s inability to innovate and adapt to the rapidly changing market conditions. And let’s be clear: both IBM and MS have found ways to rebound and innovate in other ways. But one wonders what was lost in the process as the threat of antitrust constantly loomed and potentially chilled innovative efforts that could have kept both firms on the cutting-edge.

It’s not just Apple that faces similar threats today. Google is obviously another company increasingly mentioned as an antitrust target. Commenting of the dangers of a potential case against Google, Bernstein Research senior analyst Carlos Kirjner argues that “even if regulatory proceedings come to naught, the process has the potential, in the most extreme circumstances, to consume so much of the company’s energy that it can lead to important strategic missteps: many believe that Microsoft missed the boat on the Internet, and IBM on the importance of the personal computer, in large part because their management teams were focused on defending against the DoJ’s antitrust efforts.”

The better approach to disciplining tech firms and markets is to rely less on intervention and more on Schumpeter’s “perennial gales of creative destruction,” which are blowing harder than ever in our modern high-tech economy. In markets built largely upon binary code and governed by Moore’s Law, the pace and nature of change has become hyper-Schumpeterian: unrelenting and utterly unpredictable. Innovative risk-takers are constantly shaking things up and displacing yesterday’s lumbering, lethargic giants. Just ask some of the players that have been largely left in the dust, including AOL, AltaVista, MySpace, Palm, and others. Of course, there’s my favorite recent case study: Research In Motion’s BlackBerry smartphone. As I noted in my recent column, “Bye Bye BlackBerry. How Long Will Apple Last?” BlackBerry was virtually synonymous with “smartphones” and was considered one of the tech titans that seemed destined to dominate for many years to come. But now the BlackBerry’s days appear numbered and its parent company Research In Motion Ltd. is struggling for its very survival.

Too many tech industry pundits today ignore these dynamic realities and instead rely a myopic analytical approach to the information economy that is fundamentally static in character. Many static equilibrium scholars in both the legal and economic profession tend to adopt a snapshot view of markets and innovation. Such critics often express an overly nostalgic view of the technological past while adopting an excessively gloomy view of the present and the chances for future progress.

But, a la Schumpeter, modern tech markets are highly dynamic. There is no static end-state, “perfect competition,” or “market equilibrium” in today’s information technology marketplace. Change and innovation are chaotic, non-linear, and paradigm-shattering. Schumpeter said it best long ago when he noted how, “in capitalist reality as distinguished from its textbook picture, it is not [perfect] competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization… competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is as much more effective than the other,” he argued, because the “ever-present threat” of dynamic, disruptive change “disciplines before it attacks.”

By contrast, the static equilibrium mindset is myopically fixated on short-term market share and price competition while ignoring “competition for innovation,” which is what matters most in the more dynamic Schumpeterian model. “Schumpeterian competition is primarily about active, risk-taking decision makers who seek to change their parameters,” note economists Jerry Ellig and Daniel Lin. “It is about continually destroying the old economic structure from within and replacing it with a new one.” Thus, while static or “perfect competition” models assume away innovation and are preoccupied with equilibrium, dynamic models revolve around disequilibrium and assume that the only constant is change. What is most important to economic progress, therefore, is the ongoing process of constant experimentation and spontaneous discovery that allows new business models and organizational structures to emerge in response to market signals.

The other danger of the static equilibrium mindset is that the same new innovators and innovations that obtain success and scale quite rapidly as a result of this process are sometimes thought to possess problematic market power. Accusations of “monopoly” quickly follow. As Nobel Laureate Ronald Coase noted, “if an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of understandable practices tends to be very large, and the reliance on a monopoly explanation, frequent,” he argued. Of course, non-economists are just as likely—perhaps more likely—to make that same error. This is why a short-term fixation on market share and market power is so problematic.

Moreover, as Schumpeter also taught us, it is essential that uneven entrepreneurial gains be tolerated so that innovation can occur and be continuously incentivized. Economies need innovators to take risks because progress is born from it. Penalizing the risk-takers by trying to “level the playing field” through rash regulation or antitrust interventions will simply sap the entrepreneurial spirit from the marketplace, limit technological innovation, and diminish the possibility of progress and prosperity over the long-haul.

If you’d like a better understanding of this dynamic conception of competition and an explanation of why the static equilibrium mindset — especially in the antitrust field — is so horribly misguided, then I strongly recommend you begin your investigation with the following readings:

Jerry Ellig and Daniel Lin, “A Taxonomy of Dynamic Competition Theories,” in Jerry Ellig (ed.), Dynamic Competition and Public Policy: Technology, Innovation, and Antitrust Issues (Cambridge, Cambridge University Press, 2001).
J. Gregory Sidak & David J. Teece, “Dynamic Competition in Antitrust Law,” 5 Journal of Competition Law & Economics (2009).
Geoffrey A. Manne & Joshua D. Wright, “Innovation and the Limits of Antitrust,” George Mason Law & Economics Research Paper No. 09-54, February 16, 2010.
Joshua D. Wright, “Antitrust, Multi-Dimensional Competition, and Innovation: Do We Have an Antitrust-Relevant Theory of Competition Now?” (August 2009).
Thomas Hazlett, David Teece, Leonard Waverman, “Walled Garden Rivalry: The Creation of Mobile Network Ecosystems,” George Mason University Law and Economics Research Paper Series, (November 21, 2011), No. 11-50.
Bruce Owen, “Antitrust and Vertical Integration in ‘New Economy’ Industries,” Technology Policy Institute (November 2010).
Daniel F. Spulber, “Unlocking Technology: Antitrust and Innovation,” Journal of Competition Law & Economics, 4(4), 915 (2008).
Richard Posner, “Antitrust in the New Economy,” 68 ANTITRUST L.J. 925, 927 (2001).

Also make sure to check out these classic works from Austrian School economists:

Israel Kirzner, Discovery and the Capitalist Process (University of Chicago Press, 1985).
F.A. Hayek, “Competition as a Discovery Procedure,” in New Studies in Philosophy, Politics, Economics and the History of Ideas (Chicago, IL: University of Chicago Press, 1978).
Gerald P. O’Driscoll, Jr. & Mario J. Rizzo, “Competition and Discovery, in The Economics of Time and Ignorance (London: Routledge, 1985, 1996).

Guest Post: The Case against Taxing Cell Phones

Dan Rothschild — Thu, 02 Jun 2011 20:34:12 +0000

[The following essay is a guest post from Dan Rothschild, Managing Director of the State and Local Policy Project at the Mercatus Center at George Mason University.]

As cell phone ownership has tripled in the United States over the last decade, policymakers have increasingly seen mobile devices as a cash cow. In some states, consumers now pay as much as a quarter of their cell phone bills in taxes. And while state revenues are beginning to tick back up from their low point during the recession, Medicaid costs are fast on their tails. So it’s likely that over the coming years, states will be looking to find taxes to hike or new taxes to create — all without calling them tax hikes, of course.

Policy makers may be tempted to hike taxes on cell phones, or to create (or “equalize”) taxes on untaxed (or “under taxed”) parts of wireless telephony, such as cell phone data plans or e-readers with cellular connections. As I argue in a recent issue of Mercatus on Policy, this is a bad idea for a number of reasons.

First, it’s bad economics. Having special taxes on cell phone violates the well-established principle of tax neutrality, which holds that taxes should treat all economic activities similarly. The purpose of taxes is to raise funds for necessary government services; when taxes treat different activities unequally, it distorts consumer behavior. Empirical evidence suggests that, at the margin, consumer spending on wireless service is elastic. This makes it a particularly poor choice for excise taxation.

There are two economic justifications for a tax that singles out a particular good or service for a higher tax: if it’s something that policymakers deem “sinful” (a so-called “sin tax”), or if it causes negative externalities that the tax corrects (a Pigouvian tax). In both of these cases, policymakers enact these taxes explicitly to discourage the use of the object of the tax; think cigarettes and alcohol. Neither of these rationales apply to cell phones, and (hopefully) no policymaker believes it’s a worthy policy to reduce consumer access to this technology. Nobody seriously argues that cell phones are sinful, nor that cell phones create net negative externalities.

Second, it runs counter to a number of other policy goals. On the national level, politicians are tripping over themselves to extoll the virtues of broadband internet access and its almost magical effects on everything from health outcomes to urban entrepreneurship. But taxing wireless service, which is frequently bundled with wireless broadband, runs counter to that goal (as would any attempts to “equalize” taxes between the voice and data sections of a bill by applying voice tariffs to data services). Similarly, the FCC’s universal service fund is meant to, inter alia, support telephone access in low-income and rural households. The most efficient way to increase take-up of telephony in these households is to lower the price rather than relying on notoriously inefficient subsidies.

Third, it’s a regressive tax. In all likelihood, cell phones are taxed at a higher rate because not so long ago they were seen as toys of the wealthy. This is obviously no longer the case. The marginal consumers today are largely lower-income, and high taxes keep them from adopting technologies.

On the federal level, the Wireless Tax Fairness Act would prohibit states and localities from “imposing a new discriminatory tax on cell phone services, providers, or property.” This is probably a step in the right direction, though it still leaves (from my reading) loopholes for states. For instance, states could argue that they are not imposing a new tax if they applied the same taxes on wireless voice products to wireless data products. This could allow them to easily slap monthly fees on Kindles, iPads, and other devices that use cellular networks. In many ways, this would be more pernicious than raising taxes on voice products.

The bottom line is that taxes on cell phones are inefficient, inequitable, and run counter to other public policies. They likely cost more in lost consumer welfare than they collect in revenues. There’s no reason for them, and states looking to improve their tax structure could do well by eliminating them altogether.

Read the whole thing here.

economics – Technology Liberation Front

Why Isn’t Everyone Already Unemployed Due to Automation?

The Case for Innovation, Progress & Abundance: Some Readings

Lavoie’s Lessons for Industrial Policy Planners

Can Government Reproduce Silicon Valley Everywhere?

Video: Lessons from the “Hall of Fallen Giants”

Skeptical Takes on Expansive Industrial Policy Efforts

The “A La Carte” Wars Come to an End

The Limits of AI in Predicting Human Action

-Coauthored with Mercatus MA Fellow Walter Stover

Mercatus essays on innovation, entrepreneurialism & technological governance

The Many Forms of Entrepreneurialism

How Economists Talk About Entrepreneurs

Productive and Unproductive Entrepreneurs

Entrepreneurs in the Political Arena

Evasive and Regulatory Entrepreneurs

Social Entrepreneurs

Conclusion

Further Reading

The FCC’s new Office of Economics and Analytics and the public interest

“Learning by Doing,” the Process of Innovation & the Future of Employment

New Paper on The Sharing Economy and Consumer Protection Regulation

Patrick Byrne on online retailers accepting Bitcoin

Related Links

Randall Stross on Y Combinator

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Jerry Ellig on the Universal Service Fund

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New Paper on “A History of Cronyism & Capture in the Information Technology Sector”

Tiered Pricing in Broadband ≠ Monopoly

Alex Tabarrok on innovation

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Paul Heald on the public domain

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Marc Hochstein on bitcoin

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Joshua Gans on the economics of information

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New MRU Online Courses on Economics of Bundling & Cable TV Regulation

Net Neutrality Videos for Marginal Revolution University

Ronald Cass on intellectual property

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So You Want to Be an Internet Policy Analyst?

*** Addendum, July 2014 ***

*** Addendum, Sept. 2015 ***

The War on Vertical Integration in the Digital Economy [slideshow]

New Paper on Wu’s “Separations Principle” & the War on Vertical Integration in the Tech Economy

Antitrust & Innovation in the New Economy: The Problem with the Static Equilibrium Mindset

Guest Post: The Case against Taxing Cell Phones

* Addendum, July 2014 *

* Addendum, Sept. 2015 *