Jeff Eisenach and Adam Thierer have a great essay in The American honoring the 50th anniversary of Ronald Coase’s article “The Federal Communications Commission.” It’s timely given the FCC’s proposal to establish public utility-style regulation of the Internet under the banner “net neutrality,” and it’s a good general warning to Neo-Progressives who “see market failure as the source of most problems, and government as the centerpiece of most solutions.”

Some people have labored under the impression that “net neutrality” regulation was about the government stepping in to ensure that large corporations would not control the Internet. Now that the issue is truly joined, it is clear (as exhibited in this Wall Street Journal story) that the debate is about one set of corporate interests battling another set of corporate interests about the Internet, each seeking to protect or strengthen its business model. The FCC is surfing the debate pursuing a greater role for itself, meaning more budget and power.

Tim Lee’s paper, The Durable Internet, dispels the idea that owners of Internet infrastructure can actually control the Internet. The preferred approach to “net neutrality” is to let Internet users decide what they want from their ISPs and let ISPs and content companies do unmediated battle with one another to create and capture the greatest value from the Internet ecosystem.

If the FCC were to reduce its power by freeing up more wireless spectrum—either selling it as property or dedicating it to commons treatment—competition to provide Internet service would strengthen consumers’ hands.

There was some buzz earlier this year when the White House used the free, open-source Drupal content management platform for Recov​ery​.gov. Now the administration’s marquee Web site White​house​.gov will be using it.

The AP story linked just above does a good job of recounting the benefits of open source in this application: chiefly, low cost and high security.

Arnold Kling wrote recently on the Library of Economics and Liberty blog relating the work Elinor Ostrom did to win the Nobel prize in economics to how the Internet enables private provision of public goods—no regulation, little to no centralized authority at all.

Open source is nothing if not an example of that, and it’s good to see this use of open source joining many others across the big, beautiful Internet.

In late July, the Senate Homeland Security and Governmental Affairs Committee passed a new version of PASS ID, the REAL ID revival bill. I’ve posted about various dimensions of it: the national ID question, the politics of PASS ID, whether PASS ID protects privacy, a run-down of the Senate hearing on it, and the inexplicable support of the Center for Democracy and Technology for this national ID law.

Three months later, the committee still has not reported the bill, meaning that the public doesn’t get access to the version the committee passed. (A resolution in the House would require committees there to publish amendments to bills within 24 hours.) But the Congressional Budget Office scored the bill this week. That is often a signal that legislation is on the move.

So it’s a good time to look at costs again. The National Governors Association and the National Conference of State Legislatures both premised their support for PASS ID on the idea that it would reduce costs to states to just $2 billion.

But in July I examined the likely costs of PASS ID and NGA’s cost calculations. To save you a burdensome click, here are some highlights:

But there is reason to doubt [the NGA’s $2 billion] figure. PASS ID is a lot more like REAL ID — the original REAL ID — in the way that most affects costs: the implementation schedule.

Under PASS ID, the DHS would have to come up with regulations in just nine months. States would then have just one year to begin complying. All drivers’ licenses would have to be replaced in the five years after that. That’s a total of six years to review the documents of every driver and ID holder, and issue them new cards.

How did the NGA come up with $2 billion? Maybe they took the extended, watered-down, 75%-over-ten-years estimate and subtracted some for reduced IT costs. (The NGA is free to publish its methodology, of course.)

But the costs of implementing PASS ID to states are more likely to be closer to $11 billion than the $2 billion figure that the NGA puts forward. In just six years, PASS ID would send some 245 million people into DMV offices around the country demanding new cards. States will have to hire and train new employees to handle the workload. They will have to acquire new computer systems, documents scanners, data storage facilities, and so on.

The NGA’s claim of savings from PASS ID is weak. Did the new CBO score change anything?

First, let’s review what a CBO score is. When CBO scores a bill, it reports how a bill will change costs to the federal government. Other CBO reports may include overall costs for federal programs, but when CBO scores a bill, it just reports the difference between current federal spending and spending if a new proposal should pass. CBO sometimes mentions mandates on states and private-sector costs in their bill-scores, but those are rarely if ever thoroughly reported. CBO’s wheelhouse is federal spending, and that’s what it reports.

Now, let’s look at how CBO has done with estimating the costs to states from implementing federal national ID standards.

Its first cut at scoring national ID standards was when it looked at H.R. 10 in the latter stages of the 108th Congress. (This was before REAL ID — H.R. 10 was an early version of the bill that became law as the Intelligence Reform and Terrorism Prevention Act.) When CBO scored H.R. 10 in late 2004, it lumped national ID standards along with several other policies and programs in a category called “Mandates With no Significant Costs.”

Four months later, in early 2005, CBO scored the REAL ID Act, which had been introduced early in the new Congress. It found then that the national ID standards Congress had put into law in December had changed from a mandate with “no significant costs” to a mandate costing more than $100 million.

CBO thought REAL ID would only cost $20 million more than that, an amount below the reporting threshold of the Unfunded Mandates Reform Act, so CBO did not do a thorough analysis.

Then the folks actually faced with implementing it took a look at REAL ID. More realistic estimates of costs to states in the $10+ billion range came forward, including an estimate from the National Governors Association, as I discussed in my previous post on costs.

With that background we’re ready to look at the CBO score for PASS ID. CBO makes no precise estimate of costs to states. Its specialty, again, is federal spending. But it makes a few observations about such costs:

• “The bill would require states to issue public notices about their security and privacy policies that include information about how personally identifiable information is used, stored, accessed, and shared.”

This, all should agree, is a complex problem but a small cost.

• “The bill also would require states to have a process that would allow individuals to access, amend, and correct their information. Information from groups representing state governments [NGA and NCSL, most likely] indicates that most states currently have such policies and procedures, though some may need to be revised.”

No. They. Do. Not.

As I said in my post on the privacy consequences of PASS ID:

This is a new and different security/​identity fraud challenge not found in REAL ID, and the states have no idea what they’re getting themselves into if they try to implement such a thing. A May 2000 report from a panel of experts convened by the Federal Trade Commission was bowled over by the complexity of trying to secure information while giving people access to it. Nowhere is that tension more acute than in giving the public access to basic identity information.

No state has opened its driver databases for review and correction by the public. That would be an all-you-can-eat buffet for identity fraudsters. The CBO has been bamboozled about state policies.

But the language of PASS ID finesses this, doesn’t it? It says that opening up identity data and giving the public correction rights would be done “as determined appropriate by the State.” So states wouldn’t really have to do anything, right? Right!

Except that the Department of Homeland Security gets to interpret what that language means, and a court will defer to any reasonable DHS interpretation. That’s the Supreme Court’s Chevron doctrine. (It’s an unfortunate abdication of power to administrative agencies, but it’s the law today.)

If the NGA and NCSL have told their clients that they will have the last word on how PASS IS is implemented, they are wrong. It’s DHS’ call — not states’. There may be huge costs to states — hidden at first, but growing and growing — if they stick their heads into the jaws of the federal lion.

Returning to the CBO’s assessment of state costs:

• “The bill would repeal the requirements of the REAL ID Act and replace them with more flexible requirements for issuing compliant driver’s licenses and identification cards.”

This is true in some respects, and not in others. As I noted before, PASS ID is on a tighter implementation schedule which is the main driver of costs.

• “The bill also would authorize appropriations that could be used to pay for those requirements, and it would prohibit the federal government from charging fees to states to access the SAVE and SSOLV data systems.”

Because it’s federal, this is something that CBO actually knows about, and its assessment is that PASS ID would dole out a total of $123 million to states over the next five years. Washington, D.C.‘s highest spending year would be fiscal 2013, in which it would spend $39 million, less than $1 million per state.

And those savings when the federal government doesn’t charge states for using its databases? Just $2 million each year in fiscal 2010 and 2011.

Nothing in the CBO estimate changes the conclusion that implementing a national ID would cost states over $10 billion dollars, as they hired new staff, acquired new equipment and systems, and marched 250 million Americans through their DMVs. The federal government is promising to dole out $123 million and offer states a whopping $4 million in savings on data access.

The National Governors Association’s argument that PASS ID reduces costs to states is ludicrous. And the paltry funds Congress might share with states is a drop in the bucket. The homeland security appropriations bill for fiscal 2010 cuts funding for REAL ID by $40 million from its 2009 funding level. PASS ID would fare no better.

State governors and legislatures that have fallen for the PASS ID cost estimates of the National Governors Association and National Conference of State Legislatures should fire these financial advisors. NGA and NCSL are trying to grow federal power at the expense of state coffers.

In an effort to achieve “network neutrality” online, the FCC is starting to write new regulations for Internet providers. Reuters reports:

U.S. communications regulators voted unanimously Thursday to support an open Internet rule that would prevent telecom network operators from barring or blocking content based on the revenue it generates.

The proposed rule now goes to the public for comment until Jan. 14, after which the Federal Communications Commissions will review the feedback and possibly seek more comment. A final rule is not expected until the spring of next year.

Cato Director of Information Policy Studies Jim Harper appeared on Fox News this week to discuss the FCC decision. “This is governmental tinkering with a market place that is working really well and growing right now,” said Harper. “The last thing we need is to cut that off.”

Watch:

There are ways to achieve net neutrality without regulation, says Timothy B. Lee:

An important reason for the Internet’s remarkable growth over the last quarter century is the “end-to-end” principle that networks should confine themselves to transmitting generic packets without worrying about their contents. Not only has this made deployment of internet infrastructure cheap and efficient, but it has created fertile ground for entrepreneurship. On a network that respects the end-to-end principle, prior approval from network owners is not needed to launch new applications, services, or content.

…Like these older regulatory regimes, network neutrality regulations are likely not to achieve their intended aims. Given the need for more competition in the broadband marketplace, policymakers should be especially wary of enacting regulations that could become a barrier to entry for new broadband firms.

Read the whole thing.

Today the House of Representatives is debating H. Res. 672, which would call on the government of Vietnam to release imprisoned bloggers and respect Internet freedom.

Here is an article or two about what is happening with Vietnamese bloggers.

Some of the most prominent Internet companies sent a letter yesterday asking for protection from market forces. Among them: Facebook, Google, Amazon, and Twitter.

A Washington Post story summarizes their concerns: “[W]ithout a strong anti-discrimination policy, companies like theirs may not get a fair shot on the Internet because carriers could decide to block them from ever reaching consumers.”

No ISP could block access to these popular services and survive, of course. What they could do is try to charge the most popular services a higher tariff to get their services through. Thus, weep the helpless, multi-billion-dollar Internet behemoths, we need a “fair shot”!

Plain and simple, these companies want regulation to ensure that ISPs can’t capture a larger share of the profits that the Internet generates. They want it all for themselves. Phrased another way, the goal is to create a subsidy for content creators by blocking ISPs from getting a piece of the action.

It’s all very reminiscent of disputes between coal mines and railroads. The coal mines “produced the coal” and believed that the profitability of the coal-energy ecosystem should accrue only to themselves, with railroads earning the barest minimum. But where is it written that digging coal out of the ground is what creates the value, and getting it where it’s used creates none? Transport may be as valuable as “production” of both commodities and content. The market should decide, not the industry with the best lobbyists.

What happens if ISPs can’t capture the value of providing transport? Of course, less investment flows to transport and we have less of it. Consumers will have to pay more of their dollars out of pocket for broadband, while Facebook’s boy CEO draws an excessive salary from atop a pile of overpriced stock holdings. The irony is thick when opponents of high executive compensation support “net neutrality” regulation.

Another reason why these Internet companies’ concerns are bogus is their size and popularity. They have a direct line to consumers and more than enough capability to convince consumers that any given ISP is wrongly degrading access to their services. As Tim Lee pointed out in his excellent paper, “The Durable Internet,” ownership of a network service does not equate to control. ISPs can be quickly reined in by the public, as has already happened.

A “net neutrality” subsidy for small start-up services is also unnecessary: They have no profits to share with ISPs. What about mid-size services—heading to profitability, but not there yet? Can ISPs choke them off? Absolutely not.

Large, established companies are not known for being ahead of trends, for one thing, and the anti-authoritarian culture of the Internet is the perfect place to play “beleaguered upstart” against the giant, evil ISP. There could be no greater PR gift than for a small service to have access to it degraded by an ISP.

The Internet companies’ plea for regulation is bogus, and these companies are losing their way. The leadership of these companies should fire their government relations staffs, disband their contrived advocacy organization, and get back to innovating and competing.