Over at his blog, our old TLF colleague Tim Lee has been discussing the AT&T – T-Mobile merger and the ways libertarians should think about antitrust more generally.  In his latest post, he pushes back against a brief comment I posted on a previous essay. You can head over to his site and read that exchange and then see my latest comment. But I thought I would also post it here for those interested.

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Tim… My thinking on antitrust is very much shaped by the choice between ex ante vs. ex post regulation. How much faith should we place in sector-specific regulators to get things right through preemptive, prophylactic regulation versus allowing things to play out and then — on the rare occasions when intolerable monopolies over essential goods develop — letting antitrust regulators devise a remedy?

More than any other economic value, I care about experimentation. I am completely under the sway of the Austrian School of thinking about markets and competition as an ongoing experiment, an evolutionary journey, a discovery process.  How are we to know if intolerable monopolies over essential goods will actually develop unless we let things play out?

As I argued in my critiques of the Lessig/Zittrain/Wu school of thinking, we need to be a bit more humble and have a little faith that ongoing experimentation and discovery will help us evolve into a better equilibrium. It’s during what some regard as a market’s darkest hour when some of the most exciting forms of disruptive technologies and innovation are developing. [I’ve elaborated more on this point in this lengthy discussion about Gary Reback’s recent book on antitrust.]

Viewed in that light, opting for ex post antitrust regulation, therefore, is an easy choice compared to the misguided micro-management associated with preemptive regulatory strikes.  The entire history of FCC common carriage regulation and “public interest” mandates teach us that. It also teaches how bureaucracies become hopeless entrenched, inefficient, and prone to capture.

Now, having said all that, it must be noted that antitrust law itself is a form of economic regulation and has its own set of problems. And you’re correct to note that there “has long been a tension in the libertarian approach to antitrust law.” I can appreciate many of the arguments made by antitrust abolitionists. (There’s a certain madness to antitrust law best captured by R.W. Grant’s classic story, “Tom Smith and His Incredible Bread Machine.”) Nonetheless, it’s important to be realistic and acknowledge that antitrust likely isn’t going away and that perhaps it shouldn’t if it’s existence can help us avoid what I regard as the nightmare scenario I described above: preemptive, sectoral, technology-specific, command-and-control oriented regulation.

Of course, some antitrust law can be preemptive without having all that baggage.  And that’s essentially what I think you are endorsing here for AT&T – T-Mobile.  You want the feds to “just say No” and be done with it. You’re assuming that’s sensible and efficient solution when I wouldn’t regard either of those things as a given.  Again, I’d like to let experimentation continue and see how things turn out.

I also do not understand your conclusion that “The federal government has a responsibility to clean up its own messes, as it did with the Ma Bell breakup in 1984, and it will hopefully do by blocking the AT&T/T-Mobile merger.”  These two situations are completely unique. As I noted in that old history of how the original AT&T monopoly came about, there was nothing “natural” about it. It was government guided at almost every junction. Not so for the new AT&T. While we don’t have a perfectly free market in communications services today, AT&T competes more aggressively — and is generally more antagonistic toward government intervention — than it ever has been before.  Moreover, having lived through the tail end of the old Bell System, I can remember the days of having to use a crappy rotary dial phone in just one color and being told to be happy about it.  Today, by contrast, competition is robust and innovation is thriving. I’ve never used an AT&T phone and I don’t plan to because of the many excellent smartphone alternatives at my disposal.

It’s a new world and one that keeps getting better regardless of who owns what.  Have a little faith, my friend.

But give me a call if things get bad. You have my Skype number after all!

Former TLF blogger Tim Lee returns with this guest post. Find him most of the time at the Bottom-Up blog.

Thanks to Jim Harper for inviting me to return to TLF to offer some thoughts on the recent Adam Thierer–Tim Wu smackdown. I’ve recently finished finished reading The Master Switch, and I didn’t have have my friend Adam’s viscerally negative reactions.

To be clear, on the policy questions raised by The Master Switch, Adam and I are largely on the same page. Wu exaggerates the extent to which traditional media has become more “closed” since 1980, he is too pessimistic about the future of the Internet, and the policy agenda he sketches in his final chapter is likely to do more harm than good. I plan to say more about these issues in future writings; for now I’d like to comment on the shape of the discussion that’s taken place so far here at TLF, and to point out what I think Adam is missing about The Master Switch.

Here’s the thing: my copy of the book is 319 pages long. Adam’s critique focuses almost entirely on the final third of the book, (pages 205-319) in which Wu tells the history of the last 30 years and makes some tentative policy suggestions. If Wu had published pages 205-319 as a stand-alone monograph, I would have been cheering along with Adam’s response to it.

But what about the first 200-some pages of the book? A reader of Adam’s epic 6-part critique is mostly left in the dark about their contents. And that’s a shame, because in my view those pages not only contain the best part of the book, but they’re also the most libertarian-friendly parts.

Those pages tell the history of the American communications industries—telephone, cinema, radio, television, and cable—between 1876 and 1980. Adam only discusses this history in one of his six posts. There, he characterizes Wu as blaming market forces for the monopolization of the telephone industry. That’s not how I read the chapter in question. Although Wu certainly suggests that market forces tended toward consolidation (which seems obviously correct), he also makes it clear that the government played an active role in the process, through the patent system, the Kingsbury Commitment, turning a blind eye to industrial sabotage, and later through explicit pro-monopoly regulation. Adam’s only specific quibble with Wu’s history is his failure to mention the nationalization of the telephone network during World War I. Maybe that’s an important oversight, but I’m not sure it would have changed Wu’s story very much. Certainly I think characterizing this section of the book as an anti-free-market screed is unfair.

The Master Switch takes an even more explicitly libertarian tone in its discussion of broadcasting. Wu makes it plain that everything about the radio (and later television) industries post-1927 was the result of heavy-handed government regulation. He tells how federal regulations robbed the inventor of FM radio of the opportunity to commercialize his invention, and how the FCC delayed the introduction of television by more than a decade to give RCA (then the dominant radio firm) time to perfect its own television technology.

It’s easy to imagine chapters 5, 9, and 10 being published by Cato or the Mercatus Center. Consider, for example, this passage describing the FCC’s decision to delay the introduction of television (p. 144):

Consider for a moment the oddness of this phenomenon in the putatively free-market economy. The government was deciding, in effect, when a product that posed no hazard to the public health would be “ready” for sale. Consider, too, how incongruous this was in a society under the First Amendment: a medium with great potential to further the exercise of free speech was being stalled until such time as the government could agree it had attained an acceptable technical standard. Rather than letting the market decide what a technology in its present state was worth, a federal agency—not even a democratically elected body—was to forbid its sale outright.

Whatever else you might say about this passage, it’s certainly not blaming anything on market forces!

One of Wu’s central points is that during the 20th century, the communications policy world was divided along different ideological lines. On one hand were the champions of monopoly and central planning—Wu chooses legendary AT&T president Theodore Vail as its intellectual father. On the other hand were champions of choice and competition. It’s worth emphasizing that Adam and Wu are on the same side of this ideological battle. In 1930, 1950, or 1970, all of us would have been teaming up to oppose monopolistic regulations.

We would have regarded AT&T, RCA, and other state-sponsored monopolists as our common enemy. If we’d submitted amicus briefs in the Carterfone or MCI proceedings, we would have made largely the same arguments. Of course, we wouldn’t have agreed perfectly on our long-term policy agenda, but we would have regarded that as a relatively minor area of disagreement compared to the pressing problem of repealing blatantly monopolistic government policies and bringing some degree of competition to communications markets. And for most of the 20th century we would have been the underdogs. In 1950, the monopolists were not only utterly dominant in Washington, D.C., but their ideology still had a great deal of cachet with the intellectual class.

Vail’s corporatist ideology has fallen so far out of favor that today it’s hard to find anyone who’s willing to defend it forthrightly. The remnants of the once-great monopolists have been forced to adopt the rhetoric of the free market and pretend to care about choice and competition. And it’s only in this new intellectual environment that Adam can plausibly portray Wu a “cyber-collectivist” at the opposite end of the ideological spectrum from me and Adam. The Master Switch reminds us that much less separates Adam from Wu than separates either of them from Theodore Vail and David Sarnoff.

Adam began his first post by stating that he “disagrees vehemently with Wu’s general worldview and recommendations, and even much of his retelling of the history of information sectors and policy.” This is kind of silly. In fact, Adam and Wu (and I) want largely the same things out of information technology markets: we want competitive industries with low barriers to entry in which many firms compete to bring consumers the best products and services. We all reject the prevailing orthodoxy of the 20th century, which said that the government should be in the business of picking technological winners and losers. Where we disagree is over means: we classical liberals believe that the rules of property, contract, and maybe a bit of antitrust enforcement are sufficient to yield competitive markets, whereas left-liberals fear that too little regulation will lead to excessive industry concentration. That’s an important argument to have, and I think the facts are mostly on the libertarians’ side. But we shouldn’t lose sight of the extent to which we’re on the same side, fighting against the ancient threat of government-sponsored monopoly.

My friend Kerry Howley coined the term “state-worship” to describe libertarians who insist on making the government the villain of every story. For most of history, the state has, indeed, been the primary enemy of human freedom. Liberals like Wu are too sanguine about the dangers of concentrating too much power in Washington, D.C. But to say the state is an important threat to freedom is not to say that it’s the only threat worth worrying about. Wu tells the story of Western Union’s efforts to use its telegraph monopoly to sway the election of 1876 to Republican Rutherford B. Hayes. That effort would be sinister whether or not Western Union’s monopoly was the product of government interference with the free market. Similarly, the Hays code (Hollywood’s mid-century censorship regime) was an impediment to freedom of expression whether or not the regime was implicitly backed by the power of the state. Libertarians are more reluctant to call in the power of the state to combat these wrongs, but that doesn’t mean we shouldn’t be concerned with them.

By casting every argument in terms of a Manichean struggle between “cyber-libertarians” and “cyber-collectivists,” Adam misses a lot of the value of The Master Switch. Many of the stories Wu tells are too complicated to fit comfortably at either end of the free-market-vs-regulation spectrum. For example, until I read The Master Switch, I didn’t realize how important, and harmful, patents were to the early development of communications markets. Should these stories make libertarians more skeptical of patent law? I’d be interested to hear Adam take, but he was too busy railing against Wu’s alleged cyber-collectivism to discuss the topic.

At BIGGOVERNMENT.com, Seton Motley takes the effort to regulate Internet service provision in the name of neutrality and stomps on it with both feet.

If this were high school (and politics really sort of is), Net Neutrality would be sitting alone at lunch — shunned even by the members of the marching band and the audio-visual club. Having had its lunch money taken, it would have only enough for milk (and would sadly be unable to open the container). It would be planning to take its aunt to prom.

His brief, unkind history takes the push for Internet regulation from its bright beginnings in 2006 through a four-year-long fade. It ends with the PR catastrophe the Progressive Change Campaign Committee produced when it signed 95 Democratic candidates onto a “Network Neutrality Pledge” and they all lost.

That fiasco doesn’t reveal anything about the merits of the proposal to turn Internet service providers into federally regulated public utilities. But it is emblematic of the immaturity and amateurishness of the push for net neutrality regulation. The effort never fixed on an actual, defined problem. Instead it rotated through corporate missteps with text message services, with web sites, and sometimes with actual Internet service. The movement was long on slogans and short on concrete proposals.

Proponents of net neutrality regulation never answered the conundrum posed by “regulatory capture”—that the FCC they wanted to “control” ISPs might end up controlled by them. They never countered the point that technologists and marketplace actors would husband the behavior of ISPs, a point made ably by Tim Lee in his paper, The Durable Internet.

Motley caps off his cyberbullying of the Internet regulation effort with an Examiner piece today noting that the Progressive Change Campaign Committee raised a pitiful $300 for its efforts.

If the push for net neutrality regulation survives, it will have to regroup/grow up, identify a concrete problem and a defensible solution, and then carry that credible message beyond its own echo chamber. All in all, the movement to regulate net neutrality seems to have been “playing at” advocacy rather than seriously advocating.

In the wake of yesterday’s ruling in the D.C. Circuit that the FCC had exceeded its authority in attempting to regulate access to the Internet, I did a number of radio interviews and a radio debate with Derek Turner of Free Press, a leading advocate of Internet regulation.

The debate was a brief, fair exchange of views. I was struck, though, to hear Turner refer to the situation as a “crisis.” Sure enough, in a Free Press release, Turner says three times that the ruling creates a “crisis.”

Recall that in 2007 Comcast degraded the service it provided to a tiny group of customers using a bandwidth-hogging protocol called BitTorrent. Recall also that before the FCC acted, Comcast had stopped doing this, relenting to customer complaints, negative attention in news stories, and such.

In the wake of the D.C. Circuit ruling and the crisis it has created, Internet users can expect the following changes to their Internet service:
None.

Wow. With crises like these, who needs tranquility?

“As a result of this decision, the FCC has virtually no power to stop Comcast from blocking Web sites,” the release intones.

That would be worrisome, though still not much of a crisis—except that Comcast would be undercutting its own business by doing that. Did you know also that no federal regulation bars people from burning their furniture in the backyard? That’s the same kind of problem.

As Tim Lee points out in his paper, “The Durable Internet,” consumer pressures are likely in almost all cases to rein in undesirable ISP practices. Computer scientist Lee presents examples of how ownership of communications platforms does not imply control. If an ISP persists in maintaining a harmful practice contrary to consumer demand—and consumers can’t express their desires by switching to another service—we can talk then.

In the meantime, this “crisis” has me slightly drowsy and eager to go outside and enjoy the spring weather.

I posted a rant here over the weekend about those who were engaging in what I believed was excessive whining about Apple’s moves to restrict pornographic content in the Apple Apps Store. (see: “Apple’s App Store, Porn & ‘Censorship‘”) It received a surprising number of comments and featured a back and forth between me and our old TLF blogging colleague Tim Lee. Tim has continued the discussion over on his personal blog and argued that:

[T]he key thing to focus on isn’t the abstract question of whether porn on iPhones is good or bad. The key thing to recognize is how fundamentally broken the process itself is. “Overtly sexual content” is a concept that seems clear in the abstract but gets leaky once you have to actually classify tens of thousands of applications. Apple is going to make mistakes, and when they do hapless developers are going to find their apps blocked, often with little explanation or recourse. Also, Apple is going to change its mind periodically, and when they do the affected developers are going to find their hard-earned apps rendered worthless overnight. This is no way to run a technology platform. It’s unfair to developers and it doesn’t scale. And this is precisely why it would be better for everyone if Apple could come up with an application distribution scheme that didn’t require so much central planning.

I followed up with a comment over there, but just thought I would repost it here, in which I argue that Tim is underestimating how difficult this task of defining acceptable content is and that he is also downplaying Apple’s legitimate editorial discretion to establish standards for the community platform they provide. I’m also uncomfortable with Tim’s constant use of “central planning” rhetoric to describe almost any private, proprietary model of institutional governance or platform development he doesn’t seem to agree with, but I have not elaborated on that point here. Anyway, here’s how I responded over on his blog:

So, when you say “Apple could come up with an application distribution scheme that didn’t require so much central planning,” what exactly does that mean? Apple already has Terms of Service, but there are ALWAYS going to be things in ANY terms of service that are fuzzy. “Security,” “stability,” “safety,” etc.. these are not exercises in exact science. So what would you have Apple do in this case?

How about this: “Penetration-based sexual images, videos, and applications shall not be allowed in the Apple Apps Store.” That seems like a pretty easy rule and fairly unambiguous. But everything after hard-core porn gets more and more difficult to define. What about an app that is just completely naked women pole-dancing? It’s not hard-core porn, but I bet Apple would want to keep it off their platform. Writing a rule that covers that but not a Sports Illustrated Swimsuit Edition app might be challenging.

The point here is that (a) crafting terms of service for acceptable content/conduct on media/communications platforms is always difficult, but (b) Apple and others should have the editorial discretion to do so. If customers don’t like it, they can (and do) complain vociferously. And sometimes companies change their editorial approach in response to such complaints. Other times, however, they will be under just as much pressure from other forces to to the exact opposite.

So, when you say: “The key thing to recognize is how fundamentally broken the process itself is,” you seem to fail to appreciate how this process is pretty damn challenging for any platform developer. The only way this becomes “easy” is if the platform owner just takes any and all content people throw at them. Libertarian-minded people like the two of us probably wouldn’t mind that. But the community of interests that Apple serves is broad and diverse. They are in the same boat as a traditional newspaper editor or broadcaster who was trying to juggle a lot of interests at once and inevitably making some folks unhappy in the process. But that doesn’t mean the process is “broken”; it just means it is difficult.

Apple should be more transparent about what they do and do not allow in the Apps Store and strive for brighter line rules. But even as they do, some folks will still complain. And, luckily, there’s always another place to go for service.

I’ve always generally agreed with the conventional wisdom about micropayments as a method of funding online content or services: Namely, they won’t work.  Clay Shirky, Tim Lee, and many others have made the case that micropayments face numerous obstacles to widespread adoption.  The primary issue seems to be the “mental transaction cost” problem: People don’t want to be diverted–even for just a few seconds–from what they are doing to pay a fee, no matter how small.  [That is why advertising continues to be the primary monetization engine of the Internet and digital services.]

That being said, I keep finding examples of how micropayments do work in some contexts and it has kept me wondering if there’s still a chance for micropayments to work in other contexts (like funding media content).  For example, I mentioned here before how shocked I was when I went back and looked at my eBay transactions for the past couple of years and realized how many “small-dollar” purchases I had made via PayPal (mostly dumb stickers and other little trinkets). And the micropayment model also seems to be doing reasonably well in the online music world. In January 2009, Apple reported that the iTunes Music Store had sold over 6 billion tracks.

And then there are mobile application stores.  Just recently I picked up a Droid and I’ve been taking advantage of the rapidly growing Android marketplace, which recently hit the 20,000 apps mark. Like Apple’s 100,000-strong App Store, there’s a nice mix of paid and free apps, and even though I’m downloading mostly freebies, I’ve started buying more paid apps. Many of them are “upsells” from free apps I downloaded. In most cases, they are just 99 cents. A few examples of paid apps I’ve downloaded or considered buying: Stocks Pro, Mortgage Calc Pro, Currency Guide, Photo Vault, Weather Bug Elite, and Find My Phone. And there are all sorts of games, clocks, calendars, ringtones, heath apps, sports stuff, utilities, and more that are 99 cents or $1.99.  Some are more expensive, of course.

I don’t have any idea how big this marketplace is in the aggregate, but according to AndroLib, “fully 62.2% of the apps available are completely free, compared to just 37.8% that are paid apps. That’s in stark contrast to the [Apple] App Store, which now has over 100,000 individual apps, of which (by some recent counts) a hefty 77% are paid applications — although only 30% of total App Store downloads are for paid apps.” That suggests that micropayments are doing quite well in mobile marketplaces. And this Wall Street Journal piece I was reading just yesterday, “Mobile-Payment Services Grow,” suggests there are lots of innovative things are happening in this space right now.

Of course, this gets into the semantic issue of, “what is a micropayment”? Does 99 cents qualify? I don’t know. I’ve never found any widely accepted definition of the term. Moreover, even if it’s true that a lot of people are buying “small-dollar” apps in mobile marketplaces, that doesn’t mean micropayments can fund all media going forward. It’s unlikely, for example, that we can fund quality journalism one micropayment at a time. People are just not going to pay a quarter (or even a penny) every time they want to read an article.  They might, however, be willing to pay a small monthly or annual access fee for some sites or services.  But with the exception of The Wall Street Journal and a handful of other media services, that model just doesn’t seem to have legs right now. [Although take a look at Dale Jefferson’s amazing newspapers app in the Android marketplace. Very cool. Perhaps media providers will learn from aggregation efforts like that and find a way to charge a small fee for access. But at less that one British pound — the cost of Jefferson’s app — I can’t imagine that funding a lot of content. They’ll need plenty of ads and other revenue streams to make up for what they are losing.]

Anyway, I’m not saying I have any answers here, just that my mind is still open regarding the possibility of micropayments as a method of funding online services and content. It may end up being easier for the former rather than the latter, however.

One of the more troubling aspects of the contentious debate over Net neutrality regulation is the way some proponents have sought to cast Net neutrality as “the Internet’s First Amendment.” As a die-hard free speech advocate, I find this truly outrageous and a complete contortion of the true purpose of the First Amendment.  As I have argued here before, it is incredibly dangerous thinking that puts our real First Amendment liberties at stake by empowering a regulatory agency with more means of controlling online speech and expression. Simply stated, the Internet’s First Amendment is the First Amendment, not some new, top-down, heavy-handed regulatory regime that puts the Federal Communications Commission in control of the Digital Economy.

On this point, I wanted to bring two things to your attention. The first is an outstanding address delivered today by Kyle McSlarrow, President & CEO of the National Cable & Telecommunications Association, at a Media Institute event here in Washington, DC.  And the second is this new paper by my PFF colleague Barbara Esbin.

McSlarrow’s speech was entitled, “Net Neutrality: First Amendment Rhetoric in Search of the Constitution” and it squarely addressed the fundamental fallacy set forth by the Net neutralitistas when it comes to the First Amendment. “Whatever our present-day policy disagreements about net neutrality, or even differing politics, let’s not forget that the First Amendment is framed as a shield for citizens, not a sword for government,” he argued. “By its plain terms and history, the First Amendment is a limitation on government power, not an empowerment of government,” McSlarrow said. “And… if there’s one thing the Supreme Court has made clear, it’s that rules that directly restrict protected speech cannot be justified by a government interest that is merely hypothetical.”

Absolutely correct. And these views are buttressed by the comments of Barbara Esbin in her new paper, in which she argues that “Net Neutrality is not the First Amendment for the Internet.”  She continues:

Today we live in a world with no FCC-imposed network neutrality rules. Can anyone seriously maintain that the Internet’s potential for commercial, political, artistic, and social expression has been hobbled in this country? Or that diversity is lacking? It is far more likely that the Internet has thrived, as Congress has stated, in the absence of federal or state regulation.

“Nor has the evidence, amassed after years of trying, painted a picture of persistent market failure or consumer harms,” she argues.

Turning the First Amendment on Its Head

Both she and McSlarrow note that twisted rationales for Net neutrality “turn First Amendment protections on their head” by making private platforms and actors in the enemies of speech instead of the government, which has traditionally acted to curtail speech liberties and freedom of expression. And it has succeeded at times because the government has the coercive ability to imprison, fine or otherwise punish speakers in ways that no private media or communications platform can.

There’s also the question of whether Net neutrality regulation might constitute a form of “compelled speech.” As Barbara notes, “Under traditional First Amendment jurisprudence, the government compelling a speaker to speak or transmit a message that it does not wish to transmit is just as much a free speech infringement as it is to prevent a speaker from transmitting or posting messages it wishes to transmit or post.” She cites remarks delivered at a 2007 Progress & Freedom Foundation event by noted First Amendment scholar Lawrence Tribe on this issue, in response to a question about broadband ISP control of content delivered over their networks:

The general question that raises is the extent to which the government can, in effect, force media to act as common carriers, to be transparent, to force them simply to convey whatever content comes along. To the extent that someone, or an entity, is a content provider engaging in discretion is not simply an empty pipeline. It has the fundamental right of editorial discretion. For the government to tell that entity that it cannot exercise that right in a certain way, that it must allow the projection of what it doesn’t want to include, is a violation of its First Amendment rights.

The Madness of “Media Access” Theory

All this should seem logical to anyone who has taken a look at the plain language of the First Amendment. It could not be more clear when it says, “Congress shall make no law…”  There aren’t any caveats or footnotes. And the First Amendment most certainly was not intended as a tool for government to control the editorial discretion of private individuals or institutions. It was about restricting the power of the government to curtail speech and expression.

So how did this twisted theory of the First Amendment gain currency in Net neutrality circles? To answer that you need to go back to the 1960’s when a handful of liberal legal scholars began concocting a new theory of the First Amendment that eventually came to be known as the “media access” school of thinking. George Washington University law professor Jerome A. Barron’s 1967 Harvard Law Review article, “Access to the Press — a New First Amendment Right,” as well as the work of Yale University law professor Owen Fiss, gave rise to this new intellectual movement. Its goal, in essence, was to convert the First Amendment into a club to beat demands out of private media providers. Basically, these theorists wanted to expand “Fairness Doctrine”-like right-of-reply notions to newspapers, and simultaneously grant the government more leeway to use the First Amendment to alter media structures and outputs. As Fiss argued in a 1986 law review article, under the “media access” approach, a proper reading of the First Amendment requires “a change in our attitude about the state” such that we learn “to recognize the state not only as an enemy, but also as a friend of speech… [that should act] to enhance the quality of public debate.” (Iowa Law Review, Vol. 71, 1986, p. 1416).

Other left-leaning intellectuals and activists groups would come to integrate that logic into their work and public policy proposals. Now you know, for example, where the Media Access Project gets their name!  But many other regulatory-minded groups — Free Press, Public Knowledge, the Center for Digital Democracy, MoveOn.org, New America Foundation, and others — trace much of their intellectual heritage back to Barron, Fiss, and the other media access theorists. [Read my lengthy debunking of media access theory here.]

And now we have books being written with titles like Virtual Freedom: Net Neutrality and Free Speech in the Internet Age, by Dawn Nunziato of George Washington University. I’ll have a review of Nunziato’s disturbing new book up shortly, but suffice it to say, she has taken media access theory, put it on steroids, and brought it into the Information Age.  At least the media access old-timers could more reasonably use “media scarcity” as an excuse for their regulatory machinations. But Nunziato just dispenses with all that and instead conditions all the new regulation on “democratic participation” and other amorphous theories.

Will the Real Big Brother Please Stand Up

Indeed, with Nunziato’s book, we see how the seeds of misguided intellectual thinking sometimes spring into wild gardens in which the weeds slowly take over everything in sight.  This twisted conception of the First Amendment is so thoroughly ingrained in leftist media policy thinking today that even an abundant medium like the Internet is not exempt from potential regulations based on it despite the death of media scarcity. And that’s how we got to the point we are at today in the net neutrality regulatory debate, with many policymakers and activists groups painting private broadband operators as the supposed real Big Brother problem that the First Amendment must address.

Consider, for example, the comments then-Sen. Hillary Clinton made in 2006 regarding why she supports net neutrality regulation: “Each day on the Internet views are discussed and debated in an open forum without fear of censorship or reprisal.” As I noted at the time, when I read her statement I practically fell off my chair. It’s not just that Mrs. Clinton was asking us to believe in some asinine conspiracy theory about how broadband companies are supposedly out to censor our thoughts or engage in reprisals. (”Reprisals”? For what?) No, what really blew my mind here was the fact that Sen. Clinton had the chutzpah to declare that the private sector was somehow the real threat to online speech. After all, as I inventoried in that old essay, Sen. Clinton has led several notable efforts over the past decade to expand government regulation of television, video games, and even the Internet.

Where’s the Evidence? And How Would They Even Do It?

And yet Clinton and many other Net neutrality advocates continue to insist that it is the private sector, not the government, that is the real threat to our free speech rights. Practically speaking, these advocates of Net neutrality regulation have little to fear in this regard. It is almost impossible to believe that any Internet operator could limit speech or expression in the ways these regulatory advocates fear.  Unlike the government, which possesses the coercive power to completely foreclose all speech under threat of fine or imprisonment, the private sector lacks the ability to use force to bottle up speech or speakers. And even if private operators tried it, there would be hell for them to pay with the press, industry watchdogs, and their even subscribers. More importantly, there’s just no good business angle to censorship; they make more money by delivering more bits, not fewer. Finally, any attempt by one actor to stifle something becomes a prime incentive for another to offer it.

Tim Lee nailed all these points in an excellent paper from last year, “The Durable Internet: Preserving Network Neutrality without Regulation.” Tim noted:

Concerns that network owners will undermine free speech online are particularly misguided. Network owners have neither the technology nor the manpower to effectively filter online content based on the viewpoints being expressed, nor do profit-making businesses have any real incentive to do so. Should a network owner be foolish enough to attempt large-scale censorship of its customers, it would not only fail to suppress the disfavored speech, but the network would actually increase the visibility of the content as the effort at censorship attracted additional coverage of the material being censored.

I think that’s exactly right and, later in his paper (between pgs 22-3), Tim nicely elaborates about the “Herculean task” associated with any attempt by a broadband provider to “manipulate human communication.” Not only is it true, as Tim argues, that “no widescale manipulation would go unnoticed for very long,” but he is also correct in noting that the public and press backlash would be enormous.

Shield from Government or Sword for the Government?

But let’s get back to the principle of the matter at stake here because, for those of us who cherish the real First Amendment and seek to protect it, it is essential we not let regulatory advocates get away with their effort to convert it into something it isn’t and was never meant to be.  Jonathan Emord, author of the brilliant 1991 book, Freedom, Technology and the First Amendment, put his thumb on the real threat here: “In short, the [media] access advocates have transformed the marketplace of ideas from a laissez-faire model to a state-control model.” The ultimate danger of this twisted conception of the First Amendment, he noted, is that, “It fundamentally shifts the marketplace of ideas from its private, unregulated, and interactive context to one within the compass of state control, making the marketplace ultimately responsible to government for determinations as to the choice of content expressed.”  Or as Kyle McSlarrow noted in his speech today, these regulatory advocates are essentially saying that the First Amendment “a sword for government” instead of “a shield for citizens” from coercive government actions that would infringe our legitimate rights of free speech and expression.

In sum, “media access” philosophy and the regulatory approach its adherents counsel  is completely at odds with a proper understanding of the First Amendment.  Government — not the private sector — remains the true threat to our liberties.  And, most horrifyingly of all, empowering the state to use the First Amendment to regulate private actors will almost certainly backfire and result in more, not less, regulation of speech online.

Over at his new blog, our old TLF colleague Tim Lee has an interesting post up about “The Problem with Top-Down ‘App Stores’” in which he argues that “when app store approval becomes mandatory, it becomes a major impediment to the success of high-tech platforms.”  But I have to wonder if the facts support that assertion. Here’s how I commented on his site:

Tim… What I don’t hear you articulating here is your vision of what a “bottom-up” app store would look like and why it would really produce vastly superior results. Nor do I hear you saying anything about the legitimate concerns that the handset makers might have about the security or stability factors associated with certain applications. I’m not saying those problems are extensive, but at the margins they could be real depending on the nature of the program and how it interacts with the handset and/or network. Second, there needs to be some sense of proportionality here, at least about the iPhone (I can’t speak for the Palm experience). In just a little over a year, there’s been 2 billion downloads of over 85,000 apps from over 125,000 developers. So, when you talk about Apple’s approval process being “plagued by.. problems” and “rejections for trivial or non-sensical reasons” and “long delays in the review process have become a staple of the tech blogosphere” I think you are giving the impression that this is somehow the norm when it is very much the exception to the rule. Perhaps you would be willing to itemize the examples for us. Once you do, I’d appreciate you doing the math on what that looks like as a percentage of the total 85,000 apps that are already out there on the market today. I am willing to bet the result is something like 0.000001%. Again, a sense of proportionality is really key here. While I am not an Apple fan and agree they have a bit too much of a control streak for my tastes, it’s hard to argue with results. In this case, a closed, top-down system has produced some fairly spectacular results.

I’m sure Tim will have more to say so head over to his blog for more discussion.

Five years ago today the Technology Liberation Front (the “TLF”) got underway with this post.  The idea for the TLF came about after I asked some tech policy wonks whether it was worth put together a blog dedicated to covering Internet-related issues from a cyber-libertarian perspective.  The model I had in mind was a “Volokh Conspiracy for Tech Issues,” if you will. I wanted to bring together a collection of sharp, liberty-loving wonks (most of whom worked in the think tank world) to talk about their research on this front and to give them a place to post their views on breaking tech policy developments.  It was to be a sort of central clearinghouse for libertarian-oriented tech policy analysis and advocacy.

At first, Tim Lee and I debated whether it even made sense to have that sort of narrow focus, but I think the passage of time and the rise of plenty of competition on this front shows that it was worthwhile.  And I’ve been very pleased with the tag-team effort of all our TLF contributors and the way—without anyone planning it, in true libertarian fashion—we’ve sort of developed a nice division of labor on various tech policy issues.

Perhaps a few stats are in order on this occasion to mark our progress 5 years in. The best indication of our success is the fact that our Pagerank (Google’s logarithmic scale of website importance based on links to that site) has reached 7/10—the same score shared by the Volokh Conspiracy (our model), as well as Techmeme (the leading tech news aggregator), the Cato Institute, CDT, etc. (For comparison: ArsTechnica and EFF are 8s.) Unfortunately, we’ve only been using Google Analytics for three of the past five years, so it’s impossible to get a authoritative accounting of traffic growth since Day 1. But here are few markers:

• 4,450+ posts
• 29,000+ comments
• 2,698 RSS subscribers
• 15,763 unique visitors per month
• 1,000,000 pageviews since Nov. 2006 when we started using Google Analytics
• Besides organic search and direct links, we get the bulk of our traffic from other tech-oriented sites (in order of hits) TechDirt, Freedom to Tinker, Ars Technica, GamePolitics.com, TechMeme, Slate, etc., and aggregators such as reddit, Fark, and StumbleUpon

So, what’s our #1 post of all-time? That would be Jim Harper’s “Where to Get Your Fake ID,” proving that if you play Google search terms wisely, you can build a link goldmine!  18,200+ pageviews and counting!  (Harper… You finally have something to list on your resume that lots of people have read!)  Sometimes silly posts like that can net a lot of traffic. For example, another top 5 TLF post was my piece on “The Most Powerful Computer Ever,” which has netted over 7,700 pageviews.  It was just an old magazine ad that Wayne Crews had found years ago and sent me a copy of.

In case you’re interested, some of our other most popular TLF posts include:

• My post “Grouping Recent Net Books: Internet Optimists vs. Pessimists” (6,631 views)
• Jim Harper’s “Social Hack on Gmail Users” (3,756 views)
• My rant on “Video Games & Moral Panic” (3,408 views)
• Berin Szoka’s look at “The Right Way to Allow Cell Phone Jammers” (3,322 views)
• Tim Lee’s piece on the tech community & civil liberties: “Pissing on Their Graves” (2,828 views)
• Harper’s “ID Checks are About Control, Not Security” (2,870) and his look at “Border Biometrics” (2,402 views)
• Cord Blomquist’s “Sirius XM Bankruptcy: Thank Washington for the Delay” (2,069 views)
• Alex Harris’s look at the “Best and Worst Supreme Court Decisions” (1,714 views)
• My book review of  “Zittrain’s Future of the Internet” (1,689 views)

I want to thank all my TLF blogging colleagues for their contributions over the past 5 years. As I noted in that very first post here back in 2004, “this blog is not a one-man show.”  Almost all of us here have our own personal or organizational blogs, but when we come together here on the TLF, it helps us show the world that there is another vision for ordering the affairs of cyberspace beside the command-and-control, hands-all-over-the-Net mentality that dominates today: real Internet freedom!

There are a couple of people who deserve special thanks for what they have done for the TLF:

PJ Doland has not only generously hosted our site all these years and donated endless hours of his time to keeping it running through waves of spam attacks, but he also designed our unique TLF banner. His use of Soviet-style art for libertarian purposes is the perfect compliment to our “Liberation Front” theme.  PJ also provided that awesome TLF tagline: “The real problem is not whether machines think but whether men do.” (It’s a B.F. Skinner quote, incidentally).

Jerry Brito has also been enormously helpful with the back office stuff, including getting our podcast off the ground. He is also is responsible for the wonderful site redesign and improvements that were just rolled out recently. And Jerry has been extremely patient with all the TLF bloggers through the years as he taught us the basics about how to be more effective bloggers.

Tim Lee has been the TLF’s most prolific and popular blogger and, as I noted recently when he announced his departure from the TLF, it is not an overstatement to say that for many of the TLF’s five years the rest of us here have simply been riding on his coat tails. We were just lucky to be along for the ride as he made the TLF more visible to the tech policy world. He brought us a significant portion of the audience and respect that we have to today and I cannot thank him enough for that.

Berin Szoka, my colleague at PFF, came on board just over a year ago but since then has become a prolific force on the TLF and helped spawn several new “ongoing series” features such as the Privacy Solutions Series, “Googlephobia,” and Cutting the Video Cord.  Berin is also helping with the back-office stuff and trying to help me get the podcast going again regularly.

Our Readers! Seriously, we thank each and every one of you who has taken the time to visit our site, read our rants, and leave comments (even the shitty ones!)  We really appreciate it. We know there are countless other blogs out there to occupy your time and we’re honored that you’d give ours even a few minutes of your day. If you’re in D.C. today, we hope you’ll join us for our celebratory happy hour tonight!

Here’s to another 5 great years of technology freedom!  If you haven’t already done so, please subscribe to our blog feed, podcast feed (iTunes), Twitter and Facebook page.

Cheers,

Adam Thierer

P.S. I’m feeling a bit sentimental as I think back and realize all the things that didn’t exist even just 5 years ago: Twitter, the iPhone, FiOS, Facebook, Pandora, Chrome, the PS3 + Wii + 360, YouTube, Hulu, etc…   Just imagine how exciting the next 5 years will be!

Conversations about how the Internet can be used to increase the openness and accountability of government usually focuses on the Executive and Legislative branches of the Federal government.  But on this week’s episode of Technology Policy Weekly, I hosted a discussion of the equally vital issue of public access to court records, joined by:

• The TLF’s own Tim Lee,  who’s written about the problems with PACER , the arcane and expensive system by which court documents are currently made publicly available—with a separate system for each of the 100+ Federal courts!
• James Grimmelmann of New York Law School, who wrote Copyright, Technology, and Access to the Law: An Opinionated Primer.
• Steve Schultze, of Harvard’s Berkman Center, who’s  been writing about these issues on his own blog, especially about Sen. Lieberman’s recent laudable efforts.  Also check out a talk he gave recently on “Selling the Law: The Business of Public Access to Court Records.”

We discussed a wide range of issues, including:

• Why lay people should care—this is ultimately about reducing the legal profession’s monopoly over access to the courts!
• The philosophical reasons why better access to court records is important – little things like democracy, fairness, consistency, equality, the rule of law, etc.
• The copyrightability of legal records
• The history of the problem & what can be done about it

There are several ways to listen to the TLF Podcast. You can press play on the player below to listen right now, or download the MP3 file. You can also subscribe to the podcast by clicking on the button for your preferred service. And do us a favor, Digg this podcast!

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Before commenting on Lawrence Lessig’s latest call to abolish the Federal Communications Commission (he issued a similar call for the FCC’s abolition earlier this year, which I commented on here), let’s recall what Tim Lee posted yesterday about “Real Regulators“:

Too many advocates of regulation seem to have never considered the possibility that the FCC bureaucrats in charge of making these decisions at any point in time might be lazy, incompetent, technically confused, or biased in favor of industry incumbents. That’s often what “real regulators” are like, and it’s important that when policy makers are crafting regulatory scheme, they assume that some of the people administering the law will have these kinds of flaws, rather than imagining that the rules they write will be applied by infallible philosopher-kings.

Ironically, Prof. Lessig — who typically defends many forms of high-tech regulation like Net neutrality and online content labeling — is essentially agreeing with Tim’s critique of bureaucracy. But Lessig seems to ignore the underlying logic of Tim’s critique and instead imagines that we need only reinvent bureaucracy in order to save it. But I’m getting ahead of myself. First, let’s hear what Lessig proposes.

In a Newsweek column this week entitled “Reboot the FCC,” Lessig argues that the FCC is beyond saving because, instead of protecting innovation, the agency has succumb to an “almost irresistible urge to protect the most powerful instead.” Consequently, he continues:

The solution here is not tinkering. You can’t fix DNA. You have to bury it. President Obama should get Congress to shut down the FCC and similar vestigial regulators, which put stability and special interests above the public good. In their place, Congress should create something we could call the Innovation Environment Protection Agency (iEPA), charged with a simple founding mission: “minimal intervention to maximize innovation.” The iEPA’s core purpose would be to protect innovation from its two historical enemies–excessive government favors, and excessive private monopoly power.

As was the case with his earlier call to “blow up the FCC,” I am tickled to hear Lessig call for shutting down an agency that many of us have been fighting against for the last few decades. (Here’s a 1995 blueprint for abolishing the FCC that I contributed to, and here’s PFF’s recent “DACA” project to comprehensively reform and downsize the agency.)

But is Lessig really calling for the same sort of sweeping regulatory reform and downsizing that others have been calling for? And has he identified the real source of the problem that he hopes to correct?  I don’t think so. There are 3 basic problems with the argument Lessig is putting forward in his essay. I will address each in turn.

(1) Real Reform or Just Reshuffling of Deck Chairs?

The first problem is that Lessig isn’t really calling for complete abolition of the FCC; just the transfer of many of its regulatory responsibilities to the supposedly less “corrupt” new Innovation Environment Protection Agency (iEPA). As you read the paragraphs below, note how in the process of re-branding the FCC as the “iEPA,” Lessig seems to be handing that new agency a lot of the FCC’s old powers:

The iEPA’s first task would thus be to reverse the unrestrained growth of these monopolies. For example, much of the wireless spectrum has been auctioned off to telecom monopolies, on the assumption that only by granting a monopoly could companies be encouraged to undertake the expensive task of building a network of cell towers or broadcasting stations. The iEPA would test this assumption, and essentially ask the question: do these monopolies do more harm than good? With a strong agency head, and a staff absolutely barred from industry ties, the iEPA could avoid the culture of favoritism that’s come to define the FCC. And if it became credible in its monopoly-checking role, the agency could eventually apply this expertise to the area of patents and copyrights, guiding Congress’s policymaking in these special-interest hornet nests. The iEPA’s second task should be to assure that the nation’s basic communications infrastructure spectrum— the wires, cables and cellular towers that serve as the highways of the information economy—remain open to new innovation, no matter who owns them. For example, “network neutrality” rules, when done right, aim simply to keep companies like Comcast and Verizon from skewing the rules in favor of or against certain types of content and services that run over their networks. The investors behind the next Skype or Amazon need to be sure that their hard work won’t be thwarted by an arbitrary decision on the part of one of the gatekeepers of the Net. Such regulation need not, in my view, go as far as some Democrats have demanded. It need not put extreme limits on what the Verizons of the world can do with their network—they did, after all, build it in the first place—but no doubt a minimal set of rules is necessary to make sure that the Net continues to be a crucial platform for economic growth. Beyond these two tasks, what’s most needed from the iEPA is benign neglect. Certainly, it should keep competition information flowing smoothly and limit destructive regulation at the state level, and it might encourage the government to spend more on public communications infrastructure, for example in the rural areas which private companies often ignore.

“But beyond these limited tasks, ” Lessig claims, “whole phone-books worth of regulation could simply be erased. And with it, we would remove many of the levers that lobbyists use to win favors to protect today’s monopolists.”

Again, from what he’s said here, it sure doesn’t sound like “whole phone books worth of regulation” are being erased. What Lessig has done is essentially restate the current powers and responsibilities of the FCC.  I don’t see much serious downsizing being proposed here at all. Indeed, his call for Net neutrality regulation represents an expansion of bureaucracy.

Instead, what Lessig seems to be saying is that the new iEPA will do the job right because it will be less “corrupt” and enlightened. But that’s not true either.

(2) What Larry Doesn’t Get (about Bureaucracy)

Lessig is essentially calling for the same sort of “scientific” or “professional” bureaucracy that his progressive forefathers advocated a century ago when the modern regulatory leviathan was being envisioned and erected. But what has changed since then? Nothing. Special interests were able to gain influence then just as they do now.

This gets back to Tim Lee’s point about how many pundits and policymakers foolishly believe that everything will magically be better once rules are “applied by infallible philosopher-kings.” Apparently Lessig believes that lots of those folks will be walking the halls at the new iEPA. They’ll somehow be immune from the the “almost irresistible urge to protect the most powerful” that FCC bureaucrats have fallen prey to.

But Lessig provides no rational reason for us to believe that this will really be the case. And really, why should we believe that story? Do we have any good historical evidence to support such a proposition? To the contrary, everything we know from the history of regulation and bureaucracy tells us that exactly the opposite will be the case.

As I so often do when I debate quixotic progressives who say they can construct a more “enlightened” regulatory state, I invite Prof. Lessig to take a hard look at the definitive 2-volume Economics of Regulation by a far more experienced progressive Democrat, Professor Alfred E. Kahn. In Kahn’s masterwork, Prof. Lessig will find the following words of wisdom (and caution) from someone who spent a lifetime studying the issue:

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

(3) No Right to Petition Government ?

At this point, Prof. Lessig and his defenders will no doubt say that everything will be different this time around when they reinvent bureaucracy. The secret, they seem to suggest, is “getting money out of politics” or “ending corruption” by “special interests.” Again, hard to argue against any of that — except to say as we have here many times before that if Big Government exists, special interests will exist to influence it (probably unduly so). Thus, the logical solution is real regulatory reform and downsizing of bureaucracy. That is the only way we are ever really going to solve the problem Prof. Lessig wants to address.

But Prof. Lessig and his supporters are obviously not going to accept that. What they want is government activism without the ugly downsides of lobbying and special interest influence polluting the process. Is there any way to do it? Again, for the reasons I have stated here, I doubt it. But what, exactly, would it mean in practice to let them try?  I fear that what Prof. Lessig and many other “progressives” mean by “ending special interest influence” is really ending the free speech rights of citizens to petition their government if those citizens happen to be corporations.

Let’s remember what the First Amendment says:

“Congress shall make no law … abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

Now, I certainly realize how unpopular this will be to some, but if you believe in the plain text of the Constitution then you should respect the right of citizens (including corporate entities) to petition (i.e., “lobby”) the government for consideration of their interests, especially if the government is imposing significant regulatory burdens on them. Calling for limits on the ability of the regulated to petition their regulators is a fundamental betrayal of the plain language of the First Amendment.

I don’t want to put words in Prof. Lessig’s mouth, but I have a feeling that this is where his proposal is heading. He says that the staff of his new iEPA will be “absolutely barred from industry ties” but doesn’t really spell out what that means. If it just means limits on who can be hired for certain positions in the new agency, I’m generally fine with that (even though I do not for one minute believe it will magically “end corruption.”) If, however, Lessig and his fellow progressives want rules restricting the ability of “interests” to communicate with this new agency, then I find such a proposal quite troubling.

One final point: What exactly counts as a “special interest”? No doubt, Lessig and other progressives equate interests with corporations. But what about unions, co-ops, non-profits, schools, charities, think tanks, etc.?  They all petition government endlessly. Would Lessig limit their rights?

I hope Prof. Lessig takes the time to ellaborate on his proposal because he may have good answers to many of the quibbles I have raised here. I really do want to take him at his word and believe that he is ready to radically reform the regulatory beast that has so completely failed in its mission to improve consumer welfare.  But I have my doubts. And, sadly, I have history on my side.

Over just the past 24 hours, there’s been quite a hullabaloo surrounding the Wall Street Journal’s controversial front-page story on Google’s edge caching plan and whether it violates Net neutrality. (See Cord’s post and Bret’s). Lessig calls it a “made-up drama“, David Isenberg says it’s “bogus” and “bullshit,” and Google’s Rick Whitt has said it’s much ado about nothing.

Regardless, here’s the important thing not to overlook about this episode: It is a prime example of the what Tim Lee has referred to as “the fundamental problem of backlash” that ensues whenever there is even a hint of a potential violation of network neutrality (however one defines it). As Tim argued in his excellent Cato paper on Net neutrality, “No widespread manipulation would go unnoticed for very long,” and a “firestorm of controversy would… be unleashed if a major network owner embarked on a systematic campaign of censorship on its network.” (p. 23). Indeed, this (non-)story about Google’s edge-caching plans have spawned an intense “firestorm of controversy” over the past 24 hours and it doesn’t even involve serious network meddling or censorship! I’ve been trying to keep up with all the traffic about this on TechMeme and Google News during that time, but I have given up trying to digest it all. (Take a look at those snapshots I pasted down below to get a feel for the volume we are talking about here).

In that regard, I love this quote from the always-bloodthirsty Tim Karr of the (inappropriately-named) regulatory activist group Free Press:

If Google or any other tech company were secretly violating Net Neutrality, there would be an absolute and cataclysmic backlash from the grassroots and netroots who have made Net Neutrality a signature issue in 21st Century politics. The Internet community would come crashing down on their heads like Minutemen on Benedict Arnold.

Indeed, that’s exactly what we saw today. But it wasn’t just pro-regulatory fanatics like Free Press. The entire tech and business blogoshere and even some of the mainstream media were on top of this. That’s the “fundamental problem of backlash” at work, and with a vengeance.

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

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

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

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

Esbin puts these shocking results in perspective:

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

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

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

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

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

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

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

Sure.

Tim Lee has been taking some heat here from Richard Bennett and Steve Schultze about various aspects of his new Net neutrality paper. I haven’t had much time this week to jump into these debates, but I did want to mention one important portion of Tim’s paper that is being overlooked. Specifically, I like the way Tim took head-on some of the silly free speech arguments being put forth as a rationale for net neutrality regulation. As Tim notes in the introduction of the paper:

Concerns that network owners will undermine free speech online are particularly misguided. Network owners have neither the technology nor the manpower to effectively filter online content based on the viewpoints being expressed, nor do profit-making businesses have any real incentive to do so. Should a network owner be foolish enough to attempt large-scale censorship of its customers, it would not only fail to suppress the disfavored speech, but the network would actually increase the visibility of the content as the effort at censorship attracted additional coverage of the material being censored.

I think that’s exactly right and, later in his paper (between pgs 22-3), Tim nicely elaborates about the “Herculean task” associated with any attempt by a broadband provider to “manipulate human communication.” Not only is it true, as Tim argues, that “no widescale manipulation would go unnoticed for very long,” but he is also correct in noting that the public and press backlash would be enormous.

Again, I agree wholeheartedly with all these sentiments, but I think Tim missed another important angle here when discussing the unfounded fears about corporate censorship and the misguided attempts to use free speech as a justification for imposing net neutrality regulations.

In his paper, Tim is essentially making an argument about the practicality of broadband providers acting as speech regulators — and he demolishes that assertion. But Tim fails to make an argument about the principle of the matter that is at stake here. Namely, some net neutrality supporters are attempting to convert the First Amendment into an affirmative grant of state power to regulate private entities, something it was clearly never intended to do.

Indeed, when Net neutrality supporters like the “Save the Internet Coalition” make statements like “Network neutrality is the Internet’s First Amendment,” I sometimes wonder if they are reading the same Constitution that I am. After all, the language of the First Amendment could not be more clear when it says, “Congress shall make no law…” It doesn’t contain any caveats or footnotes. And the First Amendment most certainly was not intended as a tool for government to control the editorial discretion of private individuals or institutions. It was about restricting the power of the government to curtail speech and expression.

Beginning in the 1960’s, however, a handful of liberal legal theories began concocting a new theory of the First Amendment that eventually came to be known as the “media access” school of thought. George Washington University law professor Jerome A. Barron’s 1967 Harvard Law Review article, “Access to the Press — a New First Amendment Right,” as well as the work of Yale University law professor Owen Fiss, gave rise to this new intellectual movement. Its goal, in essence, was to convert the First Amendment into a club to beat demands out of private media providers. Basically, these theorists wanted to expand “Fairness Doctrine”-like right-of-reply notions to newspapers, and simultaneously grant the government more leeway to use the First Amendment to alter media structures and outputs. As Fiss argued in a 1986 law review article, under the “media access” approach, a proper reading of the First Amendment requires “a change in our attitude about the state” such that we learn “to recognize the state not only as an enemy, but also as a friend of speech… [that should act] to enhance the quality of public debate.” (Iowa Law Review, Vol. 71, 1986, p. 1416).

Other left-leaning intellectuals and activists groups would come to integrate that logic into their work and public policy proposals. Now you know, for example, where the Media Access Project gets their name! But many other regulatory-minded groups — like Free Press, MoveOn.org, New America Foundation, and others — trace much of their intellectual heritage back to Barron, Fiss, and the other media access theorists. [Read my lengthy debunking of media access theory here.]

Here we see how the seeds of misguided intellectual thinking sometimes spring into wild gardens in which the weeds slowly take over everything in sight. This twisted conception of the First Amendment is so thoroughly ingrained in leftist media policy thinking today that even an abundant medium like the Internet is not exempt from potential regulations based on it. And that’s how we get to the point we are at today in the net neutrality regulatory debate, with many policymakers and activists groups painting private broadband operators as the supposed real Big Brother problem that the First Amendment must address.

Consider, for example, the comments Sen. Hillary Clinton made in 2006 regarding why she supports net neutrality regulation: “Each day on the Internet views are discussed and debated in an open forum without fear of censorship or reprisal.” As I noted at the time, when I read her statement I practically fell off my chair. It’s not just that Sen. Clinton is asking us to believe in some asinine conspiracy theory about how broadband companies are supposedly out to censor our thoughts or engage in reprisals. (”Reprisals”? For what?) No, what really blew my mind here was the fact that Sen. Clinton had the chutzpah to declare that the private sector was somehow the real threat to online speech. After all, as I inventoried in that old essay, Sen. Clinton has led several notable efforts over the past decade to expand government regulation of television, video games, and even the Internet.

And yet she and many other Net neutrality advocates insist that it is the private sector, not the government, that is the real threat to our free speech rights. Again, Tim Lee is correct to point out in his paper that, practically speaking, these advocates of Net neutrality regulation have little to fear in this regard. It is almost impossible to believe that any Internet operator could limit speech or expression in the ways these regulatory advocates fear. Unlike the government, which possesses the coercive power to completely foreclose all speech under threat of fine or imprisonment, the private sector lacks the ability to use force to bottle up speech or speakers. And even if private operators tried it, there would be hell for them to pay with the press, industry watchdogs, and their even subscribers. More importantly, there’s just no good business angle to censorship; they make more money by delivering more bits, not fewer. Finally, any attempt by one actor to stifle something becomes a prime incentive for another to offer it.  So, Tim is right on all those grounds.

But the principle of the matter is important, and we can’t let regulatory advocates get away with their effort convert the First Amendment into something it isn’t. As Jonathan Emord, author of the brilliant Freedom, Technology and the First Amendment, argued back in 1991, “In short, the [media] access advocates have transformed the marketplace of ideas from a laissez-faire model to a state-control model.” The real danger of this twisted conception of the First Amendment, he noted, is that, “It fundamentally shifts the marketplace of ideas from its private, unregulated, and interactive context to one within the compass of state control, making the marketplace ultimately responsible to government for determinations as to the choice of content expressed.”

That philosophy and regulatory approach is completely at odds with a proper understanding of the First Amendment, and yet that is exactly what many Net neutrality regulatory advocates are asking us to accept today.  The state — not the private sector — remains the true threat to our liberties. And, most horrifyingly of all, empowering the state to use the First Amendment to regulate private actors will almost certainly backfire and result in more, not less, regulation of speech online.

The Federal Circuit significantly limited the patentability of software and business methods today.  Mike Masnick at TechDirt summarizes the holding of the case as follows:

the court has said that there’s a two-pronged test to determine whether a software of business method process patent is valid: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In other words, pure software or business method patents that are neither tied to a specific machine nor change something into a different state are not patentable.

I’m sure several of my TLF colleagues will have a great deal to say about this.   Tim Lee has already written about this on Ars Technica:

The Bilski decision, then, is a clear signal that the pendulum has begun to swing back toward tighter limits on software and business patents. However, it remains to be seen how far the court will go in this direction. Bilski was a relatively easy case. The applicant made little effort to hide the fact that he was seeking to patent a mental process, something the Supreme Court has clearly said is not allowed. Therefore, the Federal Circuit’s rejection of this patent doesn’t tell us how it will rule when confronted with software or business method patents that are tied more directly to a physical machine or a transformation of matter. And indeed, the Federal Circuit reiterated that some software and business method patents are valid, so we are unlikely to return to the near-prohibition on such patents that prevailed until the early 1980s.

Thoughts?