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The Case for Internet Optimism, Part 1: Saving the Net From Its Detractors

by on January 31, 2011 · 10 comments

Here’s the first of two essays I’ve recently penned making “The Case for Internet Optimism.” This essay was included in the book, The Next Digital Decade: Essays on the Future of the Internet (2011), which was edited by Berin Szoka and Adam Marcus of TechFreedom.  In these essays, I identify two schools of Internet pessimism: (1) “Net Skeptics,” who are pessimistic about the Internet improving the lot of mankind; and (2) “Net Lovers,” who appreciate the benefits the Net brings society but who fear those benefits are disappearing, or that the Net or openness are dying.  (Regular readers of this blog will be familiar with these themes since I sketched them out in previous essays here such as, “Are You an Internet Optimist or Pessimist?” and “Two Schools of Internet Pessimism.”) The second essay is here.

This essay focuses on the first variant of Internet pessimism, which is rooted in general skepticism about the supposed benefits of cyberspace, digital technologies, and information abundance. The proponents of this pessimistic view often wax nostalgic about some supposed “good ‘ol days” when life was much better (although they can’t seem to agree when those were). At a minimum, they want us to slow down and think twice about life in the Information Age and how it’s personally affecting each of us.  Occasionally, however, this pessimism borders on neo-Ludditism, with some proponents recommending steps to curtail what they feel is the destructive impact of the Net or digital technologies on culture or the economy.  I identify the leading exponents of this view of Internet pessimism and their major works. I trace their technological pessimism back to Plato but argue that their pessimism is largely unwarranted. Humans are more resilient than pessimists care to admit and we learn how to adapt to technological change and assimilate new tools into our lives over time. Moreover, were we really better off in the scarcity era when we were collectively suffering from information poverty?  Generally speaking, despite the challenges it presents society, information abundance is a better dilemma to be facing than information poverty.  Nonetheless, I argue, we should not underestimate or belittle the disruptive impacts associated with the Information Revolution.  But we need to find ways to better cope with turbulent change in a dynamist fashion instead of attempting to roll back the clock on progress or recapture “the good ‘ol days,” which actually weren’t all that good.

Down below, I have embedded the entire chapter in a Scribd reader, but the essay can also be found on the TechFreedom website for the book as well as on SSRN.  I have also includes two updated tables that appeared in my old “optimists vs. pessimists” essay.  The first lists some of the leading Internet optimists and pessimists and their books. The second table outlines some of the major lines of disagreement between these two camps and I divided those disagreements into (1) Cultural / Social beliefs vs. (2) Economic / Business beliefs.

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new paper: “Unappreciated Benefits of Advertising and Commercial Speech”

by on January 14, 2011 · 0 comments

Today the Mercatus Center has released a short new paper I have authored on “Unappreciated Benefits of Advertising and Commercial Speech.”  I begin the piece by noting that:

Federal policy makers, state legislators, and state attorneys general have recently shown interest in regulating commercial advertising and marketing. Several new regulatory initiatives are being proposed, or are already underway, that could severely curtail or restrict advertising or marketing on a variety of platforms. The consequences of these stepped-up regulatory efforts will be profound and will hurt consumer welfare both directly and indirectly.

I go on to note that “advertising can be an easy target for politicians or regulatory activist groups who make a variety of (typically unsubstantiated) claims about its negative impact on society,” but then continue on to explain how “the role of commercial speech in a free-market economy is often misunderstood or taken for granted.” I outline how, despite regulators’ concerns, consumers actually derive three important types of benefits from advertising and marketing: (1) Informational / Educational Benefits; (2) Market Choice / Pro-Competitive Benefits; and (3) Media Promotion / Cross-Subsidization.  After discussing each benefit, I conclude that:

For these reasons, a stepped-up regulatory crusade against advertising and marketing will hurt consumer welfare since it will raise prices, restrict choice, and diminish marketplace competition and innovation—both in ad-supported content and service markets, and throughout the economy at large.  Simply stated, there is no free lunch.

Read the entire 1,800-word essay here.  I have also embedded the document down below in a Scribd reader.

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Understanding the Costs of Regulation

by on January 12, 2011 · 1 comment

My colleague Dr. Richard Williams, who serves as the Director of Policy Research at the Mercatus Center, has just released an excellent little primer on “The Impact of Regulation on Investment and the U.S. Economy.” Those who attempt to track and analyze regulation in the communications and high-tech arenas will find the piece of interest since it provides an framework for how to evaluate the sensibility of new rules.

Williams, who is an expert in benefit-cost analysis and risk analysis, opens the piece by noting that:

The total cost of regulation in the United States is difficult to calculate, but one estimate puts the cost at $1.75 trillion in 2008. Total expenditures by the U.S. government were about $2.9 trillion in 2008. Thus, out of a total of $4.6 trillion in resources allocated by the federal government, 38% of the total is for regulations. If regulations always produced goods and services that were valued as highly as market-produced goods and services, then this would not be a cause for alarm. But that is precisely what is not known. In fact, there is evidence to the contrary for many regulations. Where regulations take resources out of the private sector for less valuable uses, overall consumer welfare is diminished. … Regulation also impacts the creation and sustainability of jobs… [which] can have very real consequences for the economy.

He also explains how regulation can affect international competitiveness, especially when burdensome rules limit the ability of companies to attract capital for new innovations and investment. Continue reading →

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Regulatory Capture: What the Experts Have Found

by on December 19, 2010 · 661 comments

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

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

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

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

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

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Event Data Recorders: They’re Not Just for Safety

by on May 28, 2010 · 3 comments

In my recent testimony before the House Commerce Committee on a proposal to require event data recorders in all new cars sold in the United States, I pointed out that the mandate would go far beyond what is needed to ensure safety. Indeed, the cost of EDRs raises the prices of new cars, marginally reducing the pool of used cars and keeping lower income drivers in older used cars which are less safe.

The demand for EDRs in all cars, collecting and transmitting data about all crashes, suggests that something more than statistically relevant safety data is what advocates of this mandate want. I put a finer point on these issues today in answers to questions propounded to me after the hearing.

The proposed EDR mandate includes controls on the use of EDR information, a nominal protection for privacy, but the EDR mandate “sets the stage for migration away from consumer privacy toward serving the goals of government and industry related not only to safety but also to general law enforcement, taxation, and surveillance.”

The bill is H.R. 5381, the Motor Vehicle Safety Act of 2010. Other bills with EDR mandates include H.R. 5169, H.R. 5345, and S. 3271.

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Tom Hazlett on the history and economics of spectrum

by on March 16, 2010 · 0 comments

Tom HazlettNow that the broadband plan is out, and the FCC has its sights set on 500 MHz of broadcast spectrum, come listen to what it all means. In the latest episode of the Surprisingly Free Conversation podcast, Thomas Hazlett, Professor of Law & Economics and Director of the Information Economy Project at George Mason University School of Law, discusses the economics of spectrum. The discussion also turns to the history of spectrum regulation, ongoing inefficiencies in the current system, and suggestions for possible improvements.

Listen to other episodes and remember to subscribe to the podcast using RSS or iTunes.

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Are You An Internet Optimist or Pessimist? The Great Debate over Technology’s Impact on Society

by on January 31, 2010 · 194 comments

[I’ve been working on an outline for a book I hope to write surveying technological skepticism throughout history. I first started thinking about this topic two years when I noticed that a great number of recent books about Internet policy could generally be grouped into one of two camps: Internet optimists vs. Internet pessimists. I subsequently penned an essay on the subject that generated a fair bit of attention. So, I figured I must be on to something, and the more Net policy books I read, the more I realized that the divisions between these two camps were growing wider and increasingly heated. Thus, I thought I would share this very rough draft (much of it still in outline form) of the opening chapter of that book I want to write about this great intellectual war over the impact of technology on society. I invite reader input. Update Jan. 2011: I finally published a full-length essay on this topic. You can find it here. ]

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The impact of technological change on culture, learning, and morality has long been the subject of intense debate, and every technological revolution brings out a fresh crop of both pessimists and pollyannas. Indeed, a familiar cycle has repeat itself throughout history whenever new modes of production (from mechanized agriculture to assembly-line production), means of transportation (water, rail, road, or air), energy production processes (steam, electric, nuclear), medical breakthroughs (vaccination, surgery, cloning), or communications techniques (telegraph, telephone, radio, television) have appeared on the scene.

The cycle goes something like this. A new technology appears. Those who fear the sweeping changes brought about by this technology see a sky that is about to fall. These “techno-pessimists” predict the death of the old order (which, ironically, is often a previous generation’s hotly-debated technology that others wanted slowed or stopped).  Embracing this new technology, they fear, will result in the overthrow of traditions, beliefs, values, institutions, business models, and much else they hold sacred.

The pollyannas, by contrast, look out at the unfolding landscape and see mostly rainbows in the air. Theirs is a rose-colored world in which the technological revolution du jour is seen as improving the general lot of mankind and bringing about a better order.  If something has to give, then the old ways be damned! For such “techno-optimists,” progress means some norms and institutions must adapt—perhaps even disappear—for society to continue its march forward.

Our current Information Revolution is no different. It too has its share of techno-pessimists and techno-optimists. Indeed, before most of us had even heard of the Internet, people were already fighting about it—or at least debating what the rise of the Information Age meant for our culture, society, and economy. Continue reading →

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Chairman Leibowitz’s Disconnect on Privacy Regulation & the Future of News

by on January 13, 2010 · 14 comments

by Adam Thierer & Berin Szoka, Progress Snaphot 6.1

Stephanie Clifford of the  New York Times posted a very interesting article this week summarizing a recent “on-the-record chat” the Times staff had with Federal Trade Commission (FTC) chairman Jon Leibowitz and FTC Bureau of Consumer Protection chief David Vladeck.  The interview [discussed by Braden here] is profoundly important in that it reveals an alarming disconnect regarding the relationship between “privacy” regulation and the future of media, which were the subjects of their discussion with Times staff.  Namely, Leibowitz and Vladeck apparently fail to appreciate how the delicate balance between commercial advertising and journalism is at risk precisely because of the sort of regulations they apparently are ready to adopt.  Because the value of online advertising depends on data about its effectiveness and consumers’ likely interests, and because advertising is indispensable to funding media, what’s ultimately at stake here is nothing short of the future of press freedom.

The “Day of Reckoning” Is Upon Us

Leibowitz and Vladeck spend the first half of The Times interview wringing their hands about “privacy policies,” the declarations made by websites and advertising networks about their data collection and use practices (for which the FTC can and must hold them accountable).  But the two feel that privacy policies don’t adequately inform consumers.  Chairman Leibowitz claims that online companies “haven’t given consumers effective notice, so they can make effective choices.”  And Mr. Vladeck states that advise-and-consent models “depended on the fiction that people were meaningfully giving consent.” But he and the FTC seem ready to abandon the notice and choice model because the “literature is clear” that few people read privacy policies, Vladeck told the Times.  He and Leibowitz continue:

“Philosophically, we wonder if we’re moving to a post-disclosure era and what that would look like,” Mr. Vladeck said. “What’s the substitute for it?” He said the commission was still looking into the issue, but it hoped to have an answer by June or July, when it plans to publish a report on the subject. Mr. Leibowitz gave a hint as to what might be included: “I have a sense, and it’s still amorphous, that we might head toward opt-in,” Mr. Leibowitz said.

This clearly foreshadows the regulatory endgame we have long suspected was coming.  When the FTC released its “Self-Regulatory Principles for Online Behavioral Advertising” eleven months ago, we asked: “What’s the Harm & Where Are We Heading?”  Their answers to both questions have become clearer with each new calculated comment—all apparently intended to slowly “turn up the heat” on the advertising industry so that the proverbial frog will stay in the pot until the water finally boils.  Leibowitz’s FTC has simply dodged the “harm” question with a four-part strategy: Continue reading →

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Cyber-Libertarianism: The Case for Real Internet Freedom

by on August 12, 2009 · 186 comments

libertyby Adam Thierer & Berin Szoka — (Ver. 1.0 — Summer 2009)

We are attempting to articulate the core principles of cyber-libertarianism to provide the public and policymakers with a better understanding of this alternative vision for ordering the affairs of cyberspace. We invite comments and suggestions regarding how we should refine and build-out this outline. We hope this outline serves as the foundation of a book we eventually want to pen defending what we regard as “Real Internet Freedom.” [Note:  Here’s a printer-friendly version, which we also have embedded down below as a Scribd document.]

I. What is Cyber-Libertarianism?

Cyber-libertarianism refers to the belief that individuals—acting in whatever capacity they choose (as citizens, consumers, companies, or collectives)—should be at liberty to pursue their own tastes and interests online.

Generally speaking, the cyber-libertarian’s motto is “Live & Let Live” and “Hands Off the Internet!”  The cyber-libertarian aims to minimize the scope of state coercion in solving social and economic problems and looks instead to voluntary solutions and mutual consent-based arrangements.

Cyber-libertarians believe true “Internet freedom” is freedom from state action; not freedom for the State to reorder our affairs to supposedly make certain people or groups better off or to improve some amorphous “public interest”—an all-to convenient facade behind which unaccountable elites can impose their will on the rest of us.

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New Economy Business Models (Carr vs. Anderson)

by on October 31, 2008 · 11 comments

Somewhere between Nick Carr’s “Typology of Network Strategies” and Chris Anderson’s “Four Kinds of Free” is the secret to understanding our new economy:

Carr’s “Typology of Network Strategies”:

  1. Network effect
  2. Data mining
  3. Digital sharecropping, or “user-generated content”
  4. Complements
  5. Two-sided markets
  6. Economies of scale, economies of scope, and experience

Anderson’s “Four Kinds of Free”:

  1. Direct cross-subsidy (get one thing free, pay for another)
  2. Ad-supported (third-party subsidizes second party)
  3. “Freemium” (a few people subsidize everyone else)
  4. “Gift economy” (people give away things for non-monetary rewards)

Of course, both Carr and Anderson are building on theories and business models previously articulated by many others. A few that come to mind:

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