trade barriers

The Net Neutrality Scam

You have probably seen some net neutrality scare tactics recently. The issues are complex and proposals to “guarantee” net neutrality usually promise to protect Internet users from a variety of evil ISP behaviors by authorizing the FCC to treat the Internet as a common carrier / utility, with powers to regulate and tariff (that is, price control) services. As is usually the case when powerful business and political interests are involved, the spin obscures more than clarifies.

First, let’s look at a reasonably neutral outline of the issues, from Open Secrets:

Net neutrality is the principle that all data on the Internet should be treated equally, not discriminated against based on platform, content, user or any other characteristic; ISPs may not create pay-to-play “fast lanes” that only some content providers could afford. Sounds simple enough, but the application of this axiom is technically and legally complex given the immense, intertwined — and sometimes competing — interests of ISPs, governments, and consumers in Internet industries and infrastructures

Debate over net neutrality in the U.S. has picked up in recent years, but it’s been an issue of worldwide contention since the early 2000’s. The US government has attempted to implement various strategies for regulation over this timeframe with little success. Net neutrality supporters believe that the government hasn’t gone far enough to protect individual freedom and security on the Internet; opponents fear that government intervention will hamper innovation and investment while increasing the costs of getting online.

Much of the recent debate has centered on the concept of paid prioritization. ISPs, such as Comcast, want content providers to pay them to deliver data faster. The ISPs claim that allowing these fast lanes is the only way they’ll be able to manage data efficiently and generate revenue to expand and improve Internet infrastructure. Opponents of paid prioritization, including content providers like Netflix and Amazon, assert that this kind of data discrimination will stifle the growth of fledgling companies that cannot pay to compete with developed corporations in the fast lanes. Advocates on both sides of the issue believe that additional costs will be absorbed by customers if their adversaries prevail. Paid prioritization is only a part of the Net Neutrality issue, but it has become the most prominent aspect of the public discussion.

By voting in February to regulate broadband communications like a utility under Title II of the Communications Act, the FCC effectively prohibited paid prioritization. The Title II statute prohibits “common carriers,” which ISPs are now considered, from creating “any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services.” Similar common carrier laws have been used to regulate monopolistic markets like the telephone and railroad industries. Additionally, Title II imbues the FCC with the authority to investigate any consumer complaints in the Internet market and requires privacy and fair use assurances from ISPs. Net neutrality supporters rejoiced at this decision, but opponents are not settling for defeat: Congressional attempts to reign in the FCC’s authority over broadband have commenced as the first wave of telecom litigation arrives

Furthermore, some proponents of net neutrality like Google worry that the broad Title II classification may promote unintended consequences that raise costs. This is because Title II, an expansive set of regulations, permits the FCC to impose tariffs and other forms of rate regulation that are looked upon unfavorably by the private sector. FCC Chairman Tom Wheeler has vowed to selectively enforce Title II authority in an attempt to minimize costs and negative externalities, but such assurances have not assuaged the concerns of those embroiled in the debate.

Proponents of net neutrality regulation emphasize fear that ISPs will abuse their customers by using their power over what is delivered to discriminate against content — in its simplest form, the fear that the sites *you* want to see and paid to access will be slowed in favor of others. ISPs are widely resented in much of the US where local municipalities — authorized by Federal law to allow only one cable TV company to operate in their territory — restrict entry of wired Internet competitors, leaving the average US citizen dependent on 1.5 broadband Internet providers, usually the incumbent cable TV operator along with a few less competitive alternatives like DSL from remaining telephone carriers. You are stuck with one company, and as a result the company is unresponsive, the standard model for a regulated monopoly utility, and gets a better return on money spent lobbying its regulators and buying political influence than it does from spending to satisfy customers.

No one is suffering from differential slowdowns at the moment — though many suffer from lower speeds and higher monthly bills due to lack of consumer choice. Because most have no alternative, cable companies can milk their customers and make high profits while failing to invest in new equipment and network capacity. Until recently these companies were generating so much cash on cable TV that they were able to reinvest in content providers by buying up TV networks, cable channels, publishing houses, and newspapers. So today we have Time Warner, soon to be swallowed by Verizon (which originated as a rollup of old Bell System companies), Comcast (which now owns NBC-Universal and its cable channels (including MSNBC, CNBC, USA Network, NBCSN, E!, and The Weather Channel), Charter-Spectrum-Brighthouse, Cox, and so on.

The giant and most hated of these is Comcast, with its reputation for unresponsive, DMV-like service, constantly rising prices, and occasional abuses of power to favor their own content over competitors’. Comcast is maneuvering to get net neutrality regulation tailored to its interests — this would prevent other ISPs from charging for access to its content, while allowing it to provide better service and access for its own services within its dominant network.

On the other side are major content providers who want a net neutrality that bars ISPs for charging them extra to guarantee quality of service (QoS) for their customers. Netflix, for example, is paid by customers by the month, and those customers suck huge amounts of streaming data through the system to their homes; if that data bogs down the network, ISPs either have to spend money on new capacity and charge non-Netflix users for it, or control use by capping data use or speed. While metering data and charging both originators and receivers for it at a very low rate might be the closest to economic fairness, asking big data sellers like Netflix, Amazon, and Google to pay something for their use is at least approximately fair. Of course these companies don’t want to pay unless all of their competitors (especially the in-house content generators of the ISPs) are required to.

So the big campaign to scare you into supporting the latest generation of net neutrality regulation is really a fight between big media and ISP companies to keep their own margins high and competitors weak. Notice the real underlying problem for consumers — limited choice of ISPs and local monopolies — isn’t addressed at all. Nearly every legislator at federal, state, and local levels gets some campaign funding from the media and ISP giants (as well as flattering news coverage that is a major advantage for incumbents), and by finding problems only where the big donors want them to look, they keep voters from understanding where the real problem is. This is much like the current battle to “repeal and replace” the ACA, which carefully neglects to address the biggest underlying problem, the cost and limited availability of medical services and treatments due to overregulation and cartelization of supply.

In the long run, beyond 5 years, technology will eliminate the local cable monopolies — wireless 5G and beyond will provide broadband data service in most locations at a reasonable cost. Google fiber rollouts have stopped and most companies with fiber optic ambitions have decided to scrap new installations as the high costs would have to be written off in a short time, which is why Verizon FIOS, a winning product where it was allowed to compete with coax-based cable TV, was never fully installed where authorized and has been sold off to other companies.

The giants are competing for advantage in a future marketplace by promoting regulation that benefits them or reduces competition. But in their focus on their interests, they are opening the door for broader FCC regulation of the Internet, which in the long run could be applied to wireless and as well and result in constant political warfare and control of what you see and hear. The excuse for FCC regulation in the New Deal era was to prevent a kind of Tragedy of the Commons in radio and television — since there was limited spectrum for signals and laissez-faire broadcasting would ruin it for everyone, Congress declared the spectrum a public resource, then promptly turned it into a property right by handing it out for free to TV and radio stations connected to the powerful (see, for example, how Lady Bird Johnson made LBJ a multimillionaire by using his political pull to get TV licenses.) FCC control came with regulations of content and suppression of minority political viewpoints, something many party politicians would like to see return. Already the incumbent social media giants like Facebook and Twitter are suppressing “dangerous” views, and countries like China are suppressing Internet speech to continue their control of public discourse. Even a small step in that direction like the current net neutrality proposals is dangerous.

Free people don’t need protection; they need freedom to change providers. Start by opening up competition in ISP services so any abuse can be dealt with by going with someone else. Don’t give unelected government regulators control of your feed.


Death by HR: How Affirmative Action Cripples Organizations

Death by HR: How Affirmative Action Cripples Organizations

[Death by HR: How Affirmative Action Cripples Organizations, in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. 

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat…. It is time to turn the tide against this madness and Death by HR is an important research tool…  All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.


More reading:

A Clinton Christmas Carol
“High Tech Under Diversity Pressure
Ban the Box, Credit Scores, Current Salaries: The Road to Hiring Blind
HireVue, Video Interviews, and AI Job Searches
“Death by HR” – Diversity Programs Don’t Work

Interstate Commerce: Trade Barriers Between States

Doctor sees patients via Internet

Doctor sees patients via Internet

Ilya Somin has a post at Volokh/WaPo about “foot voting” (people choosing to move to jurisdictions that have local governments that reflect their values or offer economic opportunities lacking in their current home areas.)

One phenomenon often discussed is migrants bringing their voting habits with them and voting into place local governments that duplicate the conditions in, say. California (they are said to “Californicate” the new area.) People who move because of economic opportunities may have no understanding that the existence of the better job opportunities and lower costs of living in the new place owes much to more enlightened, less business-suppressing tax and regulation in the new location. Since they never realized those business-unfriendly California laws were suppressing local opportunities that might have kept them there, they don’t modify the type of politicians they support and so begin the process of bringing Progressive political machines and micromanagement to their new homes.

Outside observers look a country like India and wonder why reform of internal trade barriers, which are relics of the pre-colonial states, are widely understood to be prosperity-enhancing, but progresses very slowly if at all. Products made in one Indian state can’t be sold to a customer in another without paying additional taxes or being blocked by local content regulations.

In the US, regulation of interstate commerce was intentionally made a Federal matter, making the US a free trade area. This aided in creating the world’s largest internal free market and allowed local industries to grow up specializing in one manufacturing segment to serve a national market — regions specialized in furniture, shoes, textiles, steel, and so on, aided by economies of scale and able to take advantage of local resources that gave them a national advantage. If each state had been able to put tariffs on incoming products or block shipments from other states by regulation, the nation’s growth would have been stunted.

But services and professions are still licensed by states and even smaller units. To braid hair or do massage in a town can require licenses from both state and local authorities, with professional guilds using such licensing to block competition. This prevents poor entrepreneurs from finding work providing services and increases costs of those services for poor consumers, all in the name of consumer protection.

At the higher end, doctors are cartelized and regulated by states as well as the Federal government, which runs the subsidies and residency schemes that keep production of new physicians expensive and restricted. Healthcare services that could easily be handled by less expensive technologists are often required to be provided only under a licensed doctor’s supervision, pumping up the incomes for even the worst doctors (who may use their credential to take jobs in prison or institutional settings where their record of incompetence is ignored because their license is valid.)

New technology that might allow low-cost Internet doctoring by out-of-state or even out-of-country physicians is blocked in most states. Concern for consumer health is always cited as the reason, even when poor consumers can’t afford to seek any face-to-face care for their health issues. It is apparently better to go untreated than to allow the poor to buy “good enough” services on the Internet. The inability of above-board, higher-quality companies to run such remote doctoring systems leaves the field open to bootleg quacks.

So even the US is not truly a free trade zone, since many services (cable TV, real estate, medicine, restaurants, schools) are heavily regulated by state and local governments, and outsiders trying to break in face high barriers to entry. Big companies can overcome the need to manage 50 or more different regulatory regimes, but smaller chains just starting out have to choose wisely and only expand in areas where the regulatory environment is more supportive.

Not surprisingly, the result is vigorous competition and lower prices in less regulated areas, and sluggish investment and higher prices in more-regulated areas.

It’s clear that Federalism (state and local control) applied to service regulations is costing the economy growth and raising prices in an era where barriers to travel and communication have come down. Medical, teaching, and real estate professionals should not have to undergo licensing in every jurisdiction where they might practice. Cities and towns should not be able to extract concessions from a monopoly cable TV-Internet provider which result in high prices and no local competition.

Perhaps we should thank those Progressives who battered the Supreme Court into submission and started making the case that every local economic decision could be regulated by the Feds, since even the tiniest decision locally has some effect on the national market, no matter how minuscule.

The Progressives opened the way, so now it would be constitutional to overrule all local and state licensing of professionals, insurance companies, and other services, which could now be much more competitive in a true free national market. So if they wanted to, Congress could rule all medical and communications services licensed in one jurisdiction to be sellable in others. nationwide insurance policies would provide travel flexibility and economies of scale, and these companies could provide services via Skype examination that would undercut local doctor and hospital cartels. Sick people in the Bronx projects could be “seen” and prescribed treatment and medication from doctors in low-cost South Dakota, say. “Oh, no!” cry the Progressives, “They could be quacks!” And the products sold in New York from manufacturers in South Dakota, Michigan, or even China could be fakes or defective. Yet we tolerate the free trade of goods because it is in the long run best for everyone, and the wholesalers and retailers of goods have an interest in keeping bad products out of their systems. And now that low-skilled manufacturing jobs are mostly outside the US, isn’t it interesting that professions and industries that benefit from barriers to trade in services — lawyers, doctors, communications giants, drug companies, public schools — resist any effort to open themselves up to competition.

In “Death by HR” I discussed one remedy — a “Freedom of Contract” Amendment to the Constitution to clarify the Common Law right of adults to contract with each other and service providers in any way they choose. If I choose to buy a product from a Chinese company, I deal with the risk and consequences. I should be allowed to buy services from anywhere I want — to have my skin lesions imaged to a doctor in Florida, to have the treatment done by medications from a pharmacy in Oregon, to have a local contractor handle any hands-on services, and so on. The key problem with many necessary services today is regulation and a resulting lack of low-cost options. This is especially true in medicine, which Obamacare only made worse by restricting practical treatment options to small geographic regions. The solution is radical deregulation.


Death by HR: How Affirmative Action Cripples Organizations

Death by HR: How Affirmative Action Cripples Organizations

[Death by HR: How Affirmative Action Cripples Organizations, in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. 

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat…. It is time to turn the tide against this madness and Death by HR is an important research tool…  All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.


More reading:

A Clinton Christmas Carol
“High Tech Under Diversity Pressure
Ban the Box, Credit Scores, Current Salaries: The Road to Hiring Blind
HireVue, Video Interviews, and AI Job Searches
“Death by HR” – Diversity Programs Don’t Work