Tag: competition

Eye of Neutrality, Toe of Frog

FCC Chairman Julius GenachowskiI won’t go on at too much length about FCC Chairman Julius Genachowski’s speech at Brookings announcing his intention to codify the principle of “net neutrality” in agency rules—not because I don’t have thoughts, but because I expect it would be hard to improve on my colleague Tim Lee’s definitive paper, and because there’s actually not a whole lot of novel substance in the speech.

The digest version is that the open Internet is awesome (true!) and so the FCC is going to impose a “nondiscrimination” obligation on telecom providers—though Genachowski makes sure to stress this won’t be an obstacle to letting the copyright cops sniff through your packets for potentially “unauthorized” music, or otherwise interfere with “reasonable” network management practices.

And what exactly does that mean?

Well, they’ll do their best to flesh out the definition of “reasonable,” but in general they’ll “evaluate alleged violations…on a case-by-case basis.” Insofar as any more rigid rule would probably be obsolete before the ink dried, I guess that’s somewhat reassuring, but it absolutely reeks of the sort of ad hoc “I know it when I see it” standard that leaves telecoms wondering whether some innovative practice will bring down the Wrath of Comms only after resources have been sunk into rolling it out. Apropos of which, this is the line from the talk that really jumped out at me:

This is not about protecting the Internet against imaginary dangers. We’re seeing the breaks and cracks emerge, and they threaten to change the Internet’s fundamental architecture of openness. [….] This is about preserving and maintaining something profoundly successful and ensuring that it’s not distorted or undermined. If we wait too long to preserve a free and open Internet, it will be too late.

To which I respond: Whaaaa? What we’ve actually seen are some scattered and mostly misguided  attempts by certain ISPs to choke off certain kinds of traffic, thus far largely nipped in the bud by a combination of consumer backlash and FCC brandishing of existing powers. To the extent that packet “discrimination” involves digging into the content of user communications, it may well run up against existing privacy regulations that require explicit, affirmative user consent for such monitoring. In any event, I’m prepared to believe the situation could worsen. But pace Genachowski, it’s really pretty mysterious to me why you couldn’t start talking about the wisdom—and precise character—of some further regulatory response if and when it began to look like a free and open Internet were in serious danger.

If anything, it seems to me that the reverse is true: If you foreclose in advance the possibility of cross-subsidies between content and network providers, you probably never get to see the innovations you’ve prevented, while discriminatory routing can generally be detected, and if necessary addressed, if and when it occurs.  And the worst possible time to start throwing up barriers to a range of business models, it seems to me, is exactly when we’re finally seeing the roll-out of the next-generation wireless networks that might undermine the broadband duopoly that underpins the rationale for net neutrality in the first place. In a really competitive broadband market, after all, we can expect deviations from neutrality that benefit consumers to be adopted while those that don’t are punished by the market. I’d much rather see the FCC looking at ways to increase competition than adopt regulations that amount to resigning themselves to a broadband duopoly.

Instead of giving wireline incumbents a new regulatory stick to whack new entrants with, the FCC could focus on facilitating exploitation of “white spaces” in the broadcast spectrum or experimenting with spectral commons to enable user-owned mesh networks. The most perverse consequence I can imagine here is that you end up pushing spectrum owners to cordon off bandwidth for application-specific private networks—think data and cable TV flowing over the same wires—instead of allocating capacity to the public Internet, where they can’t prioritize their own content streams.  It just seems crazy to be taking this up now rather than waiting to see how these burgeoning markets shake out.

Topics:

A Flat Tire for Low-Income Drivers?

Will the President raise taxes on new tires?

President Obama will need to decide any day now whether to impose tariffs on lower-end automobile tires imported from China. As my colleague Dan Ikenson has ably argued, the decision will tell us much about whether the president believes trade policy should serve the general interest of all Americans, or whether it is simply a political tool to satisfy key constituencies.
Neglected in the news coverage of the pending decision is the impact it could have on consumers. The imported tires targeted by this Section 421 case are of the cheaper variety, the kind that low-income Americans would buy to keep their cars on the road during a recession. If the president decides to impose tariffs, his union supporters will cheer, but “working families’ will find it more difficult to keep their cars running safely.
A central point of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, is that import competition is a working family’s best friend, especially imports from China. As I write in an excerpt published in today’s Washington Examiner,
Imports from China have delivered lower prices on goods that matter most to the poor, helping to offset other forces in our economy that tend to widen income inequality. …
Imposing steep tariffs on imports from China would, of course, hurt producers and workers in China, but it would also punish millions of American consumers through higher prices for shoes, clothing, toys, sporting goods, bicycles, TVs, radios, stereos, and personal and laptop computers.
We will see shortly if President Obama will punish low-income Americans who drive.

President Obama will need to decide any day now whether to impose tariffs on lower-end automobile tires imported from China. As my colleague Dan Ikenson has ably argued, the decision will tell us much about whether the president believes trade policy should serve the general interest of all Americans, or whether it is simply a political tool to satisfy key constituencies.

Neglected in the news coverage of the pending decision is the impact it could have on consumers. The imported tires targeted by this Section 421 case are of the cheaper variety, the kind that low-income Americans would buy to keep their cars on the road during a recession. If the president decides to impose tariffs, his union supporters will cheer, but “working families’ will find it more difficult to keep their cars running safely.

A central theme of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, is that import competition is a working family’s best friend, especially imports from China. As I write in an excerpt published in today’s Washington Examiner,

Imports from China have delivered lower prices on goods that matter most to the poor, helping to offset other forces in our economy that tend to widen income inequality. …

Imposing steep tariffs on imports from China would, of course, hurt producers and workers in China, but it would also punish millions of American consumers through higher prices for shoes, clothing, toys, sporting goods, bicycles, TVs, radios, stereos, and personal and laptop computers.

We will see shortly if President Obama will punish low-income Americans who drive.

Mr. President, Here Is Our Answer

President Obama continues to portray the debate over health care reform as a choice between his plan for a massive government-takeover of the US healthcare system and “doing nothing.”  Those who oppose his plan are said to be “obstructionist” or in favor of the status-quo.  Yesterday, the President again said, “I’ve got a question for all those folks [who oppose his plan]: What are you going to do? What’s your answer? What’s your solution?”

Well, I can’t speak for all his critics, but the Cato Institute has a long record of supporting health care reform based on free-markets and competition.  If the President wanted to know more he might have read my recent op-ed in the Los Angeles Times or Michael Cannon’s piece in Investors Business Daily.  He could have read our book, Healthy Competition.  Or he might have just gone to healthcare.cato.org and read our plan:

  • Let individuals control their health care dollars, and free them to choose from a wide variety of health plans and providers.
  • Move away from a health care system dominated by employer-provided health insurance. Health insurance should be personal and portable, controlled by individuals themselves rather than government or an employer. Employment-based insurance hides much of the true cost of health care to consumers, thereby encouraging over-consumption. It also limits consumer choice, since employers get final say over what type of insurance a worker will receive. It means people who don’t receive insurance through work are put at a significant and costly disadvantage. And, of course, it means that if you lose your job, you are likely to end up uninsured as well.
  • Changing from employer to individual insurance requires changing the tax treatment of health insurance. The current system excludes the value of employer-provided insurance from a worker’s taxable income. However, a worker purchasing health insurance on their own must do so with after-tax dollars. This provides a significant tilt towards employer-provided insurance, which should be reversed. Workers should receive a standard deduction, a tax credit, or, better still, large Health Savings Accounts (HSAs)  for the purchase of health insurance, regardless of whether they receive it through their job or purchase it on their own.
  • We need to increase competition among both insurers and health providers. People should be allowed to purchase health insurance across state lines. One study estimated that that adjustment alone could cover 17 million uninsured Americans without costing taxpayers a dime.
  • We also need to rethink medical licensing laws to encourage greater competition among providers. Nurse practitioners, physician assistants, midwives, and other non-physician practitioners should have far greater ability to treat patients. Doctors and other health professionals should be able to take their licenses from state to state.   We should also be encouraging innovations in delivery such as medical clinics in retail outlets.
  • Congress should give Medicare enrollees a voucher, let them choose any health plan on the market, and let them keep the savings if they choose an economical plan. Medicare could even give larger vouchers to the poor and sick to ensure they could afford coverage.
  • The expansion of “health status insurance” would protect many of those with preexisting conditions. States may also wish to experiment with high risk pools to ensure coverage for those with high cost medical conditions.

Mr. President, the ball is back in your court.

I Would Rather You Just Said “Thank You, Private Schools,” and Went on Your Way…

Some well-known bloggers are being terrible bullies, beating up on private schools.

Felix Salmon kicks things off by hoping the government tightens the definition of a “charitable” organization and begins taxing private schools who don’t “do a bit more to earn it.” Matt Yglesias agrees that private schools are mooching deadbeats and ups the ante, calling them actively harmful as well. Finally, Conor Clarke at The Atlantic agrees, but makes the other two look like panty-waists by proposing the government radically narrow what is considered a charity in the first place.

Yglesias even has the temerity to indict private schools for the failure of NYC public schools:

And as best one can tell, their main impact on the common weal is negative, drawing parents with resources and social capital out of the public school system and contributing to its neglect. You’d have to believe that New York City’s public schools would be both better funded and free of this kind of nonsense if a larger portion of the city’s elite were sending their kids to them.

Really? Would we have to believe what Yglesias says? No, it’s not “the best one can tell.” According to the evidence, Yglesias’ breezy, offhand accusation is demonstrably wrong. Increased competition from private schools actually improves public school performance.

And the more kids who leave public to go private, the more money the schools have for the kids who remain.

What ingrates. They complain about the lost tax revenue while dismissing out of hand the billions of dollars that parents and donors spend every year to educate children outside the government system. They dismiss the fact that these parents and donors are saving taxpayers in the neighborhood of $60 Billion a year based on current-dollar public school spending and the number of kids in private schools.

Finally, if this is all about rich people getting a free ride, why aren’t these guys screaming about means-testing public schools? Why shouldn’t we charge rich parents tuition to attend public schools? If a charitable deduction for private schools is so bad, why isn’t a free public education even worse?

Bringing the States Back In

afghanistanIt’s an annoying, hackneyed trope of foreign policy types to say “if you want to understand X, you have to understand Y.”  That said, let me engage in a little bit of it.

What’s going on in Afghanistan, we’re supposed to believe, is about terrorism, failed states, economic development, counterinsurgency, counterterrorism, human rights, and some other stuff.  And to an extent, it is about each of those things.  But to my mind, if you want to get a handle on what’s driving events over there, and on its historical status as a plaything of regional and extraregional powers, you ought to read this article in today’s Wall Street Journal.

The themes that permeate the article are familiar: States as the primary actors in international politics, their uncertainty about other states’ intentions, the fundamental zero-sumness of security competition…somebody should cook up a theory or two on this stuff.

Eventually–although in fairness, God only knows when–we’re going to leave Afghanistan.  When that happens, India and Pakistan are still going to live in the neighborhood.  They’d each prefer to have lots of influence in Afghanistan, and to preclude the other from having too much.  Accordingly, they’re both trying to set up structures and relationships that would, in the ideal scenario, let them control Afghanistan.  In a less-than-ideal scenario, they’d like enough influence to undermine the other’s control of the country.  Until you grasp that nettle, you’re really just fumbling around in the dark.

Find a solution for that in your COIN manual.

Why a “Public Option” Is Hazardous to Your Health

President Obama and other leading Democrats have proposed creating a new government health insurance program as an “option” for Americans under the age of 65. In a new study, Cato scholar Michael F. Cannon shows that government programs cost more and deliver lower-quality care than private insurance. “If Congress wants to make health care more efficient and increase competition in health insurance markets, there are far better options,” argues Cannon.

Fannie Med? Why a “Public Option” Is Hazardous to Your Health, Cato Policy Analysis No. 642

End the Credit Rating Monopoly

Earlier this week, SEC Chair Mary Shapiro appeared before Congress to suggest ways to fix the failings in our credit rating agencies.   Sadly her proposals miss the market, although that shouldn’t be so surprising as her suggestions appear to rest upon a misunderstanding of the problem.

The thrust of the SEC’s current approach is more disclosure, such as releasing “pre-ratings” that debt issuers may get before final issuance.  Additional disclosure of ratings methodology and assumptions is likely to be useless.  Almost all that information was available during the building housing bubble.  The problem is that the rating agencies had little incentive to go beyond the consensus forecasts of increasing to at most modest declines in home prices.  These same assumptions were the foundation of almost all government economic forecasting as well, yet few believe that forcing CBO or OMB to disclosure more of their forecasts will cure our budget imbalances.  What is needed is a change in incentives.

Here again the SEC seems to misunderstand the incentives at work, but then recognizing such would force the SEC to admit its own role in creating those some perverse incentives.  The SEC’s notion that agencies issue favorable ratings in order to gain business misses the most basic fact of the ratings business - they don’t have to compete for business, any debt issuer wanting to place “investment grade” debt has to use the agencies, and often has to use more than one of them.  Due to a variety of SEC and bank regulations, there is almost no competition among the rating agencies.  They have been given a government created monopoly.  If the rating agencies were, as the SEC proposes, competing strongly for business, then they wouldn’t have been earning huge profits on that business.  Competition erodes a business’ profits.  During the housing boom, the rating agencies continued to make ever more profits - more the sign of a monopoly than one of competition.

The truth is not that the agencies were captive to the debt issuers, but the other way around.  And like any monopolist, the agencies became lazy, slow and fat.  The real fix for the failure of the credit raters is to reduce the excessive reliance on their judgements inherent in most securities, banking and insurance regulations.  An investment grade rating should never serve as a substitute for appropriate due diligence on the part of investors (especially pension fund managers) or regulators.