The pending wireless spectrum deal between Verizon Wireless and a group of cable companies (the SpectrumCo deal, for short) continues to attract opprobrium from self-proclaimed consumer advocates and policy scolds.  In the latest salvo, Public Knowledge’s Harold Feld (and other critics of the deal) aren’t happy that Verizon seems to be working to appease the regulators by selling off some of its spectrum in an effort to secure approval for its deal.  Critics are surely correct that appeasement is what’s going on here—but why this merits their derision is unclear.

For starters, whatever the objections to the “divestiture,” the net effect is that Verizon will hold less spectrum than it would under the original terms of the deal and its competitors will hold more.  That this is precisely what Public Knowledge and other critics claim to want couldn’t be more clear—and thus neither is the hypocrisy of their criticism.

Note that “divestiture” is Feld’s term, and I think it’s apt, although he uses it derisively.  His derision seems to stem from his belief that it is a travesty that such a move could dare be undertaken by a party acting on its own instead of under direct diktat from the FCC (with Public Knowledge advising, of course).  Such a view—that condemns the private transfer of spectrum into the very hands Public Knowledge would most like to see holding it for the sake of securing approval for a deal that simultaneously improves Verizon’s spectrum position because it is better for the public to suffer (by Public Knowledge’s own standard) than for Verizon to benefit—seems to betray the organization’s decidedly non-public-interested motives.

But Feld amasses some more specific criticisms.  Each falls flat.

For starters, Feld claims that the spectrum licenses Verizon proposes to sell off (Lower (A and B block) 700 MHz band licenses) would just end up in AT&T’s hands—and that doesn’t further the scolds’ preferred vision of Utopia in which smaller providers end up with the spectrum (apparently “small” now includes T-Mobile and Sprint, presumably because they are fair-weather allies in this fight).  And why will the spectrum inevitably end up in AT&T’s hands?  Writes Feld:

AT&T just has too many advantages to reasonably expect someone else to get the licenses. For starters, AT&T has deeper pockets and can get more financing on better terms. But even more importantly, AT&T has a network plan based on the Lower 700 MHz A &B Block licenses it acquired in auction 2008 (and from Qualcomm more recently). It has towers, contracts for handsets, and everything else that would let it plug in Verizon’s licenses. Other providers would need to incur these expenses over and above the cost of winning the auction in the first place.

Allow me to summarize:  AT&T will win the licenses because it can make the most efficient, effective and timely use of the spectrum.  The horror!

Feld has in one paragraph seemingly undermined his whole case.  If approval of the deal turns on its effect on the public interest, stifling the deal in an explicit (and Quixotic) effort to ensure that the spectrum ends up in the hands of providers less capable of deploying it would seem manifestly to harm, not help, consumers.

And don’t forget that, whatever his preferred vision of the world, the most immediate effect of stopping the SpectrumCo deal will be that all of the spectrum that would have been transferred to—and deployed by—Verizon in the deal will instead remain in the hands of the cable companies where it now sits idly, helping no one relieve the spectrum crunch.

But let’s unpack the claims further.  First, a few factual matters.  AT&T holds no 700 MHz block A spectrum.  It bought block B spectrum in the 2008 auction and acquired spectrum in blocks D and E from Qualcomm.

Second, the claim that this spectrum is essentially worthless, especially  to any carrier except AT&T, is betrayed by reality.  First, despite the claimed interference problems from TV broadcasters for A block spectrum, carriers are in fact deploying on the A block and have obtained devices to facilitate doing so effectively.

Meanwhile, Verizon had already announced in November of last year that it planned to transfer 12 MHz of A block spectrum in Chicago to Leap (note for those keeping score at home: Leap is notAT&T) in exchange for other spectrum around the country, and Cox recently announced that it is selling its own A and B block 700 MHz licenses (yes, eight B block licenses would go to AT&T, but four A block licenses would go to US Cellular).

Pretty clearly these A and B block 700 MHz licenses have value, and not just to AT&T.

Feld does actually realize that his preferred course of action is harmful.  According to Feld, even though the transfer would increase spectrum holdings by companies that aren’t AT&T or Verizon, the fact that it might also facilitate the SpectrumCo deal and thus increase Verizon’s spectrum holdings is reason enough to object.  For Feld and other critics of the deal the concern is over concentrationin spectrum holdings, and thus Verizon’s proposed divestiture is insufficient because the net effect of the deal, even with the divestiture, would be to increase Verizon’s spectrum holdings.  Feld writes:

Verizon takes a giant leap forward in its spectrum holding and overall spectrum efficiency, whereas the competitors improve only marginally in absolute terms. Yes, compared to their current level of spectrum constraint, it would improve the ability of competitors [to compete] . . . [b]ut in absolute terms . . . the difference is so marginal it is not helpful.

Verizon has already said that they have no plans (assuming they get the AWS spectrum) to actually use the Lower MHz 700 A & B licenses, so selling those off does not reduce Verizon’s lead in the spectrum gap. So if we care about the spectrum gap, we need to take into account that this divestiture still does not alleviate the overall problem of spectrum concentration, even if it does improve spectrum efficiency.

But Feld is using a fantasy denominator to establish his concentration ratio.  The divestiture only increases concentration when compared to a hypothetical world in which self-proclaimed protectors of the public interest get to distribute spectrum according to their idealized notions of a preferred market structure.  But the relevant baseline for assessing the divestiture, even on Feld’s own concentration-centric terms, is the distribution of licenses under the deal without the divestiture—against which the divestiture manifestly reduces concentration, even if only “marginally.”

Moreover, critics commit the same inappropriate fantasizing when criticizing the SpectrumCo deal itself.  Again, even if Feld’s imaginary world would be preferable to the post-deal world (more on which below), that imaginary world simply isn’t on the table.  What is on the table if the deal falls through is the status quo—that is, the world in which Verizon is stuck with spectrum it is willing to sell and foreclosed from access to spectrum it wants to buy; US Cellular, AT&T and other carriers are left without access to Verizon’s lower-block 700 MHz spectrum; and the cable companies are saddled with spectrum they won’t use.

Perhaps, compared to this world, the deal does increase concentration.  More importantly, compared to this world the deal increases spectrum deployment.  Significantly.  But never mind:  The benefits of actual and immediate deployment of spectrum can never match up in the scolds’ minds to the speculative and theoretical harms from increased concentration, especially when judged against a hypothetical world that does not and will not ever exist.

But what is most appalling about critics’ efforts to withhold valuable spectrum from consumers for the sake of avoiding increased concentration is the reality that increased concentration doesn’t actually cause any harm.

In fact, it is simply inappropriate to assess the likely competitive effects of this or any other transaction in this industry by assessing concentration based on spectrum holdings.  Of key importance here is the reality that spectrum alone—though essential to effective competitiveness—is not enough to amass customers, let alone confer market power.  In this regard it is well worth noting that the very spectrum holdings at issue in the SpectrumCo deal, although significant in size, produce precisely zero market share for their current owners.

Even the FCC recognizes the weakness of reliance upon market structure as an indicator of market competitiveness in its most recent Wireless Competition Report, where the agency notes that highly concentrated markets may nevertheless be intensely competitive.

And the DOJ, in assessing “Economic Issues in Broadband Competition,” has likewise concluded both that these markets are likely to be concentrated and that such concentration does not raisecompetitive concerns.  In large-scale networks “with differentiated products subject to large economies of scale (relative to the size of the market), the Department does not expect to see a large number of suppliers.”  Rather, the DOJ cautions against “striving for broadband markets that look like textbook markets of perfect competition, with many price-taking firms.  That market structure is unsuitable for the provision of broadband services.”

Although commonly trotted out as a conclusion in support of monopolization, the fact that a market may be concentrated is simply not a reliable indicator of anticompetitive effect, and naked reliance on such conclusions is inconsistent with modern understandings of markets and competition.

As it happens, there is detailed evidence in the Fifteenth Wireless Competition Report on actual competitive dynamics; market share analysis is unlikely to provide any additional insight.  And the available evidence suggests that the tide toward concentration has resulted in considerable benefits and certainly doesn’t warrant a presumption of harm in the absence of compelling evidence to the contrary specific to this license transfer.  Instead, there is considerable evidence of rapidly falling prices, quality expansion, capital investment, and a host of other characteristics inconsistent with a monopoly assumption that might otherwise be erroneously inferred from a structural analysis like that employed by Feld and other critics.

In fact, as economists Gerald Faulhaber, Robert Hahn & Hal Singer point out, a simple plotting of cellular prices against market concentration shows a strong inverse relationship inconsistent with an inference of monopoly power from market shares:

Today’s wireless market is an arguably concentrated but remarkably competitive market.  Concentration of resources in the hands of the largest wireless providers has not slowed the growth of the market; rather the central problem is one of spectrum scarcity.  According to the Fifteenth Report, “mobile broadband growth is likely to outpace the ability of technology and network improvements to keep up by an estimated factor of three, leading to a spectrum deficit that is likely to approach 300 megahertz within the next five years.”

Feld and his friends can fret about the phantom problem of concentration all they like—it doesn’t change the reality that the real problem is the lack of available spectrum to meet consumer demand.  It’s bad enough that they are doing whatever they can to stop the SpectrumCo deal itself which would ensure that spectrum moves from the cable companies, where it sits unused, to Verizon, where it would be speedily deployed.  But when they contort themselves to criticize even the re-allocation of spectrum under the so-called divestiture, which would directly address the very issue they hold so dear, it is clear that these “protectors of consumer rights” are not really protecting consumers at all.

[Cross-posted at Forbes]

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Now you know how I felt this morning when I read in the Wall Street Journal that my own constitutional law professor had stated that it would be “an unprecedented, extraordinary step” for the Supreme Court to “overturn[] a law [i.e., the Affordable Care Act] that was passed by a strong majority of a democratically elected Congress.”  Putting aside the “strong majority” nonsense (the deeply unpopular Affordable Care Act got through the Senate with the minimum number of votes needed to survive a filibuster and passed 219-212 in the House), saying that it would be “unprecedented” and “extraordinary” for the Supreme Court to strike down a law that violates the Constitution is like saying that Kansas City is the capital of Kansas.  Thus, a Wall Street Journal editorial queried this about the President who “famously taught constitutional law at the University of Chicago”:  “[D]id he somehow not teach the historic case of Marbury v. Madison?”

I actually know the answer to that question.  It’s no (well, technically yes…he didn’t).  President Obama taught “Con Law III” at Chicago.  Judicial review, federalism, the separation of powers — the old “structural Constitution” stuff — is covered in “Con Law I” (or at least it was when I was a student).  Con Law III covers the Fourteenth Amendment.  (Oddly enough, Prof. Obama didn’t seem too concerned about “an unelected group of people” overturning a “duly constituted and passed law” when we were discussing all those famous Fourteenth Amendment cases – Roe v. Wade, Griswold v. Connecticut, Romer v. Evans, etc.)  Of course, even a Con Law professor focusing on the Bill of Rights should know that the principle of judicial review has been alive and well since 1803, so I still feel like my educational credentials have been tarnished a bit by the President’s “unprecedented, extraordinary” remarks.

Fortunately, another bit of my educational background somewhat mitigates the reputational damage inflicted by the President’s unfortunate comments.  This morning, the judge for whom I clerked, Judge Jerry E. Smith of the U.S. Court of Appeals for the Fifth Circuit, called the President’s bluff.

Here’s a bit of transcript from this morning’s oral argument in Physicians Hospital of America v. Sebelius, a case involving a challenge to the Affordable Care Act:

Judge Jerry E. Smith: Does the Department of Justice recognize that federal courts have the authority in appropriate circumstances to strike federal statutes because of one or more constitutional infirmities?

Dana Lydia Kaersvang (DOJ Attorney): Yes, your honor. Of course, there would need to be a severability analysis, but yes.

Smith: I’m referring to statements by the President in the past few days to the effect…that it is somehow inappropriate for what he termed “unelected” judges to strike acts of Congress that have enjoyed – he was referring, of course, to Obamacare – what he termed broad consensus in majorities in both houses of Congress.

That has troubled a number of people who have read it as somehow a challenge to the federal courts or to their authority or to the appropriateness of the concept of judicial review. And that’s not a small matter. So I want to be sure that you’re telling us that the attorney general and the Department of Justice do recognize the authority of the federal courts through unelected judges to strike acts of Congress or portions thereof in appropriate cases.

Kaersvang: Marbury v. Madison is the law, your honor, but it would not make sense in this circumstance to strike down this statute, because there’s no –

Smith: I would like to have from you by noon on Thursday…a letter stating what is the position of the Attorney General and the Department of Justice, in regard to the recent statements by the President, stating specifically and in detail in reference to those statements what the authority is of the federal courts in this regard in terms of judicial review. That letter needs to be at least three pages single spaced, no less, and it needs to be specific. It needs to make specific reference to the President’s statements and again to the position of the Attorney General and the Department of Justice.

I must say, I’m pretty dang proud of Judge Smith right now.  And I’m really looking forward to reading that three-page, single-spaced letter.

The underlying premise of the Administration’s decision is that the federal government has the right to force people to give away the products and services they produce. If the government can force insurance companies to “give away” health care coverage to avoid a political embarrassment, what is to prevent the government from requiring other companies or industries to give away their products if such a mandate would be politically expedient? And more importantly, does Mr Obama really believe any company is going to simply write-off the cost of the “free” service and not cover it by raising the cost of other services? In essence, insurance companies will have incentive simply to raise the price of the health plans they offer to exemption-qualifying employers. Either way, the employer will pay for it. It just might not be listed on the receipt.

Or perhaps Mr. Obama plans to make the cost of the “free” contraceptive care a qualifying charitable contribution for health insurers, since it will only apply to non-profits.

What makes the proposed solution even more ludicrous is that health insurance companies neither manufacture nor deliver, in most cases, contraceptive pills. So why should insurance companies even be involved in this great giveaway? A more direct solution would be to require pharmaceutical manufacturers to give the pills away to begin with. Or to require pharmacies to distribute them for free to qualifying individuals.

Regardless of where one stands on women’s reproductive rights, women’s health or religious liberty, we all make our living by getting paid for what we do. The President’s mandate attempts to create something from nothing by forcing insurers to provide services without getting paid for them. That should violate the sensibilities of anyone who works for their pay.

Those now attacking the new health-coverage requirement claim that it is an assault on religious liberty, but the opposite is true.  Religious freedom means that Catholic women who want to follow their church’s doctrine can do so, avoiding the use of contraception in any form.  But the millions of American women who choose to use contraception should not be forced to follow religious doctrine, whether Catholic or non-Catholic.

The three Senators seem to believe that as long as the government doesn’t force Catholic women to use birth control and the morning after pill, religious liberty is protected.  They also believe that in praying to the Almighty One (not that Almighty One) for permission not to pay for a medical intervention that offends their deeply and sincerely held religious beliefs, Catholic officials are trying to force women to follow their religious doctrine.

That’s ridiculous, and it shows how desperate the defenders of President Obama’s intrusion on individual conscience have become.  In a world in which religious employers were exempt from paying for a measure that violates their sacred beliefs, any woman who didn’t share those beliefs would be perfectly free to obtain birth control.  The Catholic Church, after all, doesn’t have the power to overrule Griswold v. Connecticut.

By contrast, in the world of Mr. Obama’s contraception mandate, Catholic officials who choose to follow their consciences by refusing to subsidize interventions that violate their religious beliefs may ultimately be thrown in jail.  That, Honorable Senators, is a full-frontal assault on religious liberty.

[More on the deeply misguided contraception mandate here.]

It’s late January 2016.  Newt Gingrich is President.  The House of Representatives is solidly Republican, and there’s a slight Republican majority in the Senate.  Because Republicans lack a filibuster-proof majority in the Senate, the Affordable Care Act (a.k.a. Obamacare) remains on the books.  (The reconciliation process, which allowed the law to be enacted without supermajority support in the Senate, could not be used to repeal the law.)  The Act continues to require employer-provided insurance to provide full coverage for all preventive care measures.

Secretary Rick Santorum of the Department of Health and Human Services has determined that conversion therapy for gay males will help prevent all sorts of costly health problems.  HIV and related health problems, it seems, are extremely costly to treat and are far more common among gay men than among straight men.  HHS has determined that the most modern conversion therapies can cheaply and successfully alter sexual orientation or, at a minimum, reduce homosexual impulses so that they can be managed by homosexually oriented patients who would prefer not to engage in homosexual activity.

President Gingrich and Secretary Santorum have therefore mandated that employer-provided health insurance policies cover gay conversion therapies.  Claiming to be sensitive to the concerns of gay groups, they have included a narrow exemption for employers who don’t employ or serve significant numbers of straight people.  In reality, though, none of the major gay and lesbian advocacy groups (e.g., the Human Rights Campaign, GLAAD) or publishing organizations (e.g., The Advocate, OUT Magazine) could qualify for this exemption because all employ a great many gay-affirming straight people and include outreach to heterosexuals as one of their objectives.     

Can you imagine the howls from the New York Times, the television networks, and basically every other political commentator in America?  Andrew Sullivan might just explode.  And rightly so.  Forcing gay groups to pay for a procedure that so deeply offends their core principles would be beyond the pale in a liberal society that respects personal conscience and the right of individuals to associate in groups that share their values – a right that can exist only if groups are allowed to express those values and, to the extent they aren’t hurting others, order their affairs according to them.  

So why do President Obama and HHS Secretary Kathleen Sebelius get a pass when they order Catholic schools, hospitals, and social service agencies to cover birth control, sterilization, and the morning after pill?  The ridiculous “exemption” they created shows how little they know about what churches actually do:  Christ’s apostles themselves wouldn’t have qualified because they, like any church worth its salt, served multitudes of nonbelievers.  Providing an extra year to come into compliance does nothing to alleviate the fundamental problem (Is the doctrinal conflict going to disappear next year?) and is a transparent attempt to deflect media attention until after the 2012 election.  There are lots of Catholics in Ohio and Pennsylvania, after all.

One might say that my analogy fails because the science doesn’t show that gay conversion therapy actually works, and it therefore wouldn’t reduce total health care costs.  But that’s beside the point.  Even if there were a therapy that could cheaply and effectively make gay people straight (i.e., a pill or a quick surgical procedure) it would still be inappropriate to force groups whose central objective is to affirm gay people and fight anti-gay bias to provide coverage for such a therapy.

My point is not to defend the Catholic Church’s views on birth control (with which I disagree), to defend gay conversion therapy (which I think is a harmful crock), or to question the mission of gay rights organizations.  Instead, I mean to point out that governments in liberal societies do not force individuals or voluntary associations to violate their consciences where their conscience-following does not violate the rights of others.  Yet another example of Obamacare’s heavy hand.

Mitt Romney’s candidacy is subjecting the entire private-equity industry—where Mr. Romney spent most of his business career—to vicious attacks by journalists and several of his rivals for the Republican presidential nomination.

Newt Gingrich’s political action committee is sponsoring a film called “When Mitt Romney Came to Town” that accuses Mr. Romney and his former company, Bain Capital, of taking over companies, looting them, and then tossing their workers out on the street. Jon Huntsman’s attacks on his rival include the description of private equity as a business that “breaks down businesses [and] destroys jobs, as opposed to creating jobs and opportunity, leveraging up, spinning off, [and] enriching shareholders.”

This is anticapitalist claptrap. Private-equity firms make significant investments in companies, mainly U.S. companies. Most of their investments are in companies that underperform industry peers. Frequently these firms are on the brink of failure.

Professor Macey ends with a sharp, and I think wholly appropriate, note:

Assaults on the private-equity industry really are attacks on economic freedom, because the private-equity process is nothing more and nothing less than free-market capitalism at work. Shame on all the people, particularly those who claim to be friendly to capitalism, who attack Mitt Romney because of his association with the U.S. private-equity industry.

There is, of course, another angle to evaluating the attacks against Romney’s private equity experience.  As Larry Ribstein was fond of pointing out, for example here and here:

I understand what the OWS crowd will make of this story.  But they need to persuade me why this story should make Romney look worse than the typical presidential candidate who has spent his life in politics and whose job history has consisted mainly of engineering wealth transfers from weak interest groups (e.g., taxpayers) to more powerful ones (e.g., big banks).

Larry’s critiques, unfortunately, should be mandatory reading not just for the “OWS crowd,” but for the Republican candidates — especially the few that claim to be market-oriented.

“I want individuals to have their own insurance,” he said. “That means the insurance company will have an incentive to keep you healthy. It also means if you don’t like what they do, you can fire them. I like being able to fire people who provide services to me.

“You know, if someone doesn’t give me a good service that I need, I want to say I’m going to go get someone else to provide that service to me.”

Bainbridge explains why, even if one was to take this quote and extend it to Romney’s days at Bain Capital, the ability to fire people who are are failing to provide a needed service is a feature of a well-functioning market for corporate control, not a bug:

In many cases, restoring a business to efficiency and profitability thus requires the kind of shakeup occasioned by a corporate takeover, such as the sort of LBOs in which Romney specialized, which brings in new managers who are willing to fire people.   LBO specialists who like to fire people thus played — and still play — a critical role in ensuring that US corporations are sufficiently lean to compete effectively in a pitiless global economy.

The economic point goes well beyond the market for corporate control.  The ability to impose sanctions on an economic partner is fundamental to modern contracting.  In nearly every treatment of the economics of contracting, one begins with the notion that the transacting parties potentially have at their disposal both reputational capital — that is, self-enforcement — and written enforcement as means for assuring contractual performance.  Klein & Leffler (1981) is the model that comes to mind.  The key insight is that parties do not have to rely upon imperfect court enforcement, but can create self-enforcement mechanisms were performance is assured not by litigation, but by threat of termination of the economic relationship.  The costs imposed on the non-performing party are not damages, but the loss of the expected premium stream from the economic relationship. In the economic literature, self-enforcement has been used not just to explain economic relationships in which court enforcement is entirely unavailable, but the complementary nature of written terms and reputational enforcement in a wide array of complex contractual arrangements including franchising arrangements, tying, resale price maintenance and exclusive dealing.  I discuss the distinction between standard economic approaches to contract that ignore these complementarities and the Klein (and also Oliver Williamson) approach to self-enforcement here.

The role of termination in facilitating well functioning economic relationships is critical in not just the market for corporate control,  but it all kinds of product and service markets.   It is hard to take these arguments against Romney seriously — even harder than the arguments disparaging his role at Bain.   In context, what Romney actually said is unremarkable.  How many of us don’t want to be able to terminate our economic relationship with the restaurant that feeds us low quality food or the service person who we find out shirked and provided shoddy quality work after the fact?  Our ability to do so constrains economic opportunism.  Perhaps the real objection is not that Romney talked about termination, but that he expressed a preference for terminating shirkers with whom he has economic relationships.   Not only does he fire people, but he likes it!  Perhaps the appropriate response then, from an economic perspective, is not to pillory him for it a la Huntsman, but to thank him for allowing us to free-ride on his efforts.

A prohibition on trading would be impossible to enforce because congressmembers have so many opportunities to use information without trading on it. They could trade tips or exchange them for political favors. Given the pervasiveness of political events, the Securities and Exchange Commission would face an impossible task of identifying the trading from market movements — its usual tool for tracking insider trading.

If the SEC did try to enforce the ban, it could chill legitimate information flows on Capitol Hill and create a powerful tool for political parties to deploy against their enemies. Moreover, the SEC itself would be exposed to accusations of political favoritism — which could undermine its market-policing role. Conflict-of-interest allegations, like those during the Madoff investigation, would become routine.

The SEC is already embroiled in more politics than you want a market regulator to be.  Does it really need to start regulating Congress?  I think this Act needs more thought and less Twittering.