Archives For politics

Remember when net neutrality wasn’t going to involve rate regulation and it was crazy to say that it would? Or that it wouldn’t lead to regulation of edge providers? Or that it was only about the last mile and not interconnection? Well, if the early petitions and complaints are a preview of more to come, the Open Internet Order may end up having the FCC regulating rates for interconnection and extending the reach of its privacy rules to edge providers.

On Monday, Consumer Watchdog petitioned the FCC to not only apply Customer Proprietary Network Information (CPNI) rules originally meant for telephone companies to ISPs, but to also start a rulemaking to require edge providers to honor Do Not Track requests in order to “promote broadband deployment” under Section 706. Of course, we warned of this possibility in our joint ICLE-TechFreedom legal comments:

For instance, it is not clear why the FCC could not, through Section 706, mandate “network level” copyright enforcement schemes or the DNS blocking that was at the heart of the Stop Online Piracy Act (SOPA). . . Thus, it would appear that Section 706, as re-interpreted by the FCC, would, under the D.C. Circuit’s Verizon decision, allow the FCC sweeping power to regulate the Internet up to and including (but not beyond) the process of “communications” on end-user devices. This could include not only copyright regulation but everything from cybersecurity to privacy to technical standards. (emphasis added).

While the merits of Do Not Track are debatable, it is worth noting that privacy regulation can go too far and actually drastically change the Internet ecosystem. In fact, it is actually a plausible scenario that overregulating data collection online could lead to the greater use of paywalls to access content.  This may actually be a greater threat to Internet Openness than anything ISPs have done.

And then yesterday, the first complaint under the new Open Internet rule was brought against Time Warner Cable by a small streaming video company called Commercial Network Services. According to several news stories, CNS “plans to file a peering complaint against Time Warner Cable under the Federal Communications Commission’s new network-neutrality rules unless the company strikes a free peering deal ASAP.” In other words, CNS is asking for rate regulation for interconnectionshakespeare. Under the Open Internet Order, the FCC can rule on such complaints, but it can only rule on a case-by-case basis. Either TWC assents to free peering, or the FCC intervenes and sets the rate for them, or the FCC dismisses the complaint altogether and pushes such decisions down the road.

This was another predictable development that many critics of the Open Internet Order warned about: there was no way to really avoid rate regulation once the FCC reclassified ISPs. While the FCC could reject this complaint, it is clear that they have the ability to impose de facto rate regulation through case-by-case adjudication. Whether it is rate regulation according to Title II (which the FCC ostensibly didn’t do through forbearance) is beside the point. This will have the same practical economic effects and will be functionally indistinguishable if/when it occurs.

In sum, while neither of these actions were contemplated by the FCC (they claim), such abstract rules are going to lead to random complaints like these, and companies are going to have to use the “ask FCC permission” process to try to figure out beforehand whether they should be investing or whether they’re going to be slammed. As Geoff Manne said in Wired:

That’s right—this new regime, which credits itself with preserving “permissionless innovation,” just put a bullet in its head. It puts innovators on notice, and ensures that the FCC has the authority (if it holds up in court) to enforce its vague rule against whatever it finds objectionable.

I mean, I don’t wanna brag or nothin, but it seems to me that we critics have been right so far. The reclassification of broadband Internet service as Title II has had the (supposedly) unintended consequence of sweeping in far more (both in scope of application and rules) than was supposedly bargained for. Hopefully the FCC rejects the petition and the complaint and reverses this course before it breaks the Internet.

Like most libertarians I’m concerned about government abuse of power. Certainly the secrecy and seeming reach of the NSA’s information gathering programs is worrying. But we can’t and shouldn’t pretend like there are no countervailing concerns (as Gordon Crovitz points out). And we certainly shouldn’t allow the fervent ire of the most radical voices — those who view the issue solely from one side — to impel technology companies to take matters into their own hands. At least not yet.

Rather, the issue is inherently political. And while the political process is far from perfect, I’m almost as uncomfortable with the radical voices calling for corporations to “do something,” without evincing any nuanced understanding of the issues involved.

Frankly, I see this as of a piece with much of the privacy debate that points the finger at corporations for collecting data (and ignores the value of their collection of data) while identifying government use of the data they collect as the actual problem. Typically most of my cyber-libertarian friends are with me on this: If the problem is the government’s use of data, then attack that problem; don’t hamstring corporations and the benefits they confer on consumers for the sake of a problem that is not of their making and without regard to the enormous costs such a solution imposes.

Verizon, unlike just about every other technology company, seems to get this. In a recent speech, John Stratton, head of Verizon’s Enterprise Solutions unit, had this to say:

“This is not a question that will be answered by a telecom executive, this is not a question that will be answered by an IT executive. This is a question that must be answered by societies themselves.”

“I believe this is a bigger issue, and press releases and fizzy statements don’t get at the issue; it needs to be solved by society.

Stratton said that as a company, Verizon follows the law, and those laws are set by governments.

“The laws are not set by Verizon, they are set by the governments in which we operate. I think its important for us to recognise that we participate in debate, as citizens, but as a company I have obligations that I am going to follow.

I completely agree. There may be a problem, but before we deputize corporations in the service of even well-meaning activism, shouldn’t we address this as the political issue it is first?

I’ve been making a version of this point for a long time. As I said back in 2006:

I find it interesting that the “blame” for privacy incursions by the government is being laid at Google’s feet. Google isn’t doing the . . . incursioning, and we wouldn’t have to saddle Google with any costs of protection (perhaps even lessening functionality) if we just nipped the problem in the bud. Importantly, the implication here is that government should not have access to the information in question–a decision that sounds inherently political to me. I’m just a little surprised to hear anyone (other than me) saying that corporations should take it upon themselves to “fix” government policy by, in effect, destroying records.

But at the same time, it makes some sense to look to Google to ameliorate these costs. Google is, after all, responsive to market forces, and (once in a while) I’m sure markets respond to consumer preferences more quickly and effectively than politicians do. And if Google perceives that offering more protection for its customers can be more cheaply done by restraining the government than by curtailing its own practices, then Dan [Solove]’s suggestion that Google take the lead in lobbying for greater legislative protections of personal information may come to pass. Of course we’re still left with the problem of Google and not the politicians bearing the cost of their folly (if it is folly).

As I said then, there may be a role for tech companies to take the lead in lobbying for changes. And perhaps that’s what’s happening. But the impetus behind it — the implicit threats from civil liberties groups, the position that there can be no countervailing benefits from the government’s use of this data, the consistent view that corporations should be forced to deal with these political problems, and the predictable capitulation (and subsequent grandstanding, as Stratton calls it) by these companies is not the right way to go.

I applaud Verizon’s stance here. Perhaps as a society we should come out against some or all of the NSA’s programs. But ideological moralizing and corporate bludgeoning aren’t the way to get there.

I am disappointed but not surprised to see that my former employer filed an official antitrust complaint against Google in the EU.  The blog post by Microsoft’s GC, Brad Smith, summarizing its complaint is here.

Most obviously, there is a tragic irony to the most antitrust-beleaguered company ever filing an antitrust complaint against its successful competitor.  Of course the specifics are not identical, but all of the atmospheric and general points that Microsoft itself made in response to the claims against it are applicable here.  It smacks of competitors competing not in the marketplace but in the regulators’ offices.  It promotes a kind of weird protectionism, directing the EU’s enforcement powers against a successful US company . . . at the behest of another US competitor.  Regulators will always be fighting last year’s battles to the great detriment of the industry.  Competition and potential competition abound, even where it may not be obvious (Linux for Microsoft; Facebook for Google, for example).  Etc.  Microsoft was once the world’s most powerful advocate for more sensible, restrained, error-cost-based competition policy.  That it now finds itself on the opposite side of this debate is unfortunate for all of us.

Brad’s blog post is eloquent (as he always is) and forceful.  And he acknowledges the irony.  And of course he may be right on the facts.  Unfortunately we’ll have to resort to a terribly-costly, irretrievably-flawed and error-prone process to find out–not that the process is likely to result in a very reliable answer anyway.  Where I think he is most off base is where he draws–and asks regulators to draw–conclusions about the competitive effects of the actions he describes.  It is certain that Google has another story and will dispute most or all of the facts.  But even without that information we can dispute the conclusions that Google’s actions, if true, are necessarily anticompetitive.  In fact, as Josh and I have detailed at length here and here, these sorts of actions–necessitated by the realities of complex, innovative and vulnerable markets and in many cases undertaken by the largest and the smallest competitors alike–are more likely pro-competitive.  More important, efforts to ferret out the anti-competitive among them will almost certainly harm welfare rather than help it–particularly when competitors are welcomed in to the regulators’ and politicians’ offices in the process.

As I said, disappointing.  It is not inherently inappropriate for Microsoft to resort to this simply because it has been the victim of such unfortunate “competition” in the past, nor is Microsoft obligated or expected to demonstrate intellectual or any other sort of consistency.  But knowing what it does about the irretrievable defects of the process and the inevitable costliness of its consequences, it is disingenuous or naive (the Nirvana fallacy) for it to claim that it is simply engaging in a reliable effort to smooth over a bumpy competitive landscape.  That may be the ideal of antitrust enforcement, but no one knows as well as Microsoft that the reality is far from that ideal.  To claim implicitly that, in this case, things will be different is, as I said, disingenuous.  And likely really costly in the end for all of us.

Josh has recently discussed his thoughts about the intellectual trajectory of the newly-minted CFPB and how that intellectual trajectory might influence the selection of the Bureau’s first director–presumed to be either Michale Barr or Elizabeth Warren.  His is a brief, dispassionate and intellectually-honest assessment.  But given Simon Johnson’s brief, intemperate and intellectually-devoid assessment of the issue, I’m afraid Josh may be a bit naive.

Johnson’s concerns are, as he presents them, just political.  After pointing out his own bottom line (“it would be a complete travesty not to put the strongest possible regulator in change of protecting consumers” [that means Elizabeth Warren, by the way]), he assesses the implications of the decision:

This can now go only one of two ways.

  1. Elizabeth Warren gets the job.  Bridges are mended and the White House regains some political capital.  Secretary Geithner is weakened slightly but he’ll recover.
  2. Someone else gets the job, despite Treasury’s claims that Elizabeth Warren was not blocked.  The deception in this scenario would be nauseating – and completely blatant.  “Everyone was considered on their merits” and “the best candidate won” will convince who [sic] exactly?

Despite the growing public reaction, outcome #2 is the most likely and the White House needs to understand this, plain and clear – there will be complete and utter revulsion at its handling of financial regulatory reform both on this specific issue and much more broadly.  The administration’s position in this area is already weak, its achievements remain minimal, its speaking points are lame, and the patience of even well-inclined people is wearing thin.

Failing to appoint Elizabeth Warren would be the straw that breaks the camel’s back.  It will go down in the history books as a turning point – downwards – for this administration.

What galls me about this kind of assessment is that it is, well, “nauseating – and completely blatant.”  It’s not an assessment, really.  It’s a threat.  It’s an effort to paint the politics of the situation in a way that makes the speaker’s preferred outcome (admittedly possibly arrived at in an intellectually-honest and sincere fashion) the only politically-viable outcome, in the process stripping all of the intellectual content out of the discussion and forcing intellectually-honest opponents of the speaker’s view to choose between intellectual honesty and, for example, the willful destruction of the entire Democratic agenda.  Hardly an environment for honest debate, but then I suppose that’s not really the goal.

Congratulations (or is it condolences?) to my friend, colleague and former dean at Lewis & Clark Law School, Jim Huffman, who has secured the Oregon Republican nomination for US Senate.  Jim now faces an arduous uphill battle against Ron Wyden in the general election.  As a point of reference: Wyden has more than $3 million in his coffers; Huffman has about $300,000.  But Jim is an appealing candidate in a state like Oregon that has traditionally sent moderates (both Republican and Democrat) to the senate.  Wyden is no moderate, and Jim’s strong libertarianism could place him in that sweet spot in the center that appeals to both the overwhelming Republican majority living in the Eastern part of the state, as well as a good portion of the Democratic base living in the larger cities in the Western part.  I’m not optimistic, but Jim is the first candidate I’ve ever supported, in any political race.  Maybe we’ll get him over for a guest post so we can grill him on the essential antitrust and financial regulatory issues of the day . . . .

Like Mike, we also have a short article in the latest issue of the CPI Antitrust Chronicle.  Also available on SSRN, for those without a CPI subscription.

Here’s our stab at an abstract:

There are very few industries that can attract the attention of Congress, multiple federal and state agencies, consumer groups, economists, antitrust lawyers, the business community, farmers, ranchers, and academics as the agriculture workshops have.  Of course, with intense interest from stakeholders comes intense pressure from potential winners and losers in the political process, heated disagreement over how gains from trade should be distributed among various stakeholders, and certainly a variety of competing views over the correct approach to competition policy in agriculture markets.  These pressures have the potential to distract antitrust analysis from its core mission: protecting competition and consumer welfare.  While imperfect, the economic approach to antitrust that has generated remarkable improvements in outcomes over the last fifty years has rejected simplistic and misleading notions that antitrust is meant to protect “small dealers and worthy men” or to fulfill non-economic objectives; that market concentration is a predictor of market performance; or that competition policy and intellectual property cannot peacefully co-exist.  Unfortunately, in the run-up to and during the workshops much of the policy rhetoric encouraged adopting these outdated antitrust approaches, especially ones that would favor one group of stakeholders over another rather than protecting the competitive process. In this essay, we argue that a first principles approach to antitrust analysis is required to guarantee the benefits of competition in the agricultural sector, and discuss three fundamental principles of modern antitrust that, at times, appear to be given short-shrift in the recent debate.

Bill Northey, IA Ag Sec’y, sounds a bit like an economist (ah, turns out he has a degree in ag business and an MBA . . . ).  Yes, price of seeds has gone up, but so has yield, and so has overall value.  The issue, he says, is how to divide the surplus, and he suggests that it’s dividing the pie that drives farmer concerns.  That’s not at all a surprise, but it’s also not much of an antitrust issue.  Unless the pie could be bigger absent, say, Monsanto’s huge investment in seeds and the resulting relatively-concentrated market structure (and basing enforcement on the theoretical possibility of that counter-factual is a perilous enterprise, as Josh and I have suggested many times), this is just a question of pecuniary transfers.  Sure, they matter a lot to the parties involved and there’s always an incentive to deputize the government to put a thumb on the scale of that dispute, but that’s not a matter of allocative efficiency, and not a matter for the antitrust laws.

Now we hear Iowa AG Miller pushing for the development of “the non-antitrust laws to deal with concentration.”  By which he means the Packers and Stockyards Act.  Maybe the DOJ has their Section 5 after all!

As if on cue, AG Miller trots out the pendulum story of antitrust enforcement–“how to bring the antitrust law back to the middle.”  This is not really an accurate description, unfortunately.  Even worse, it’s not an economically-sensible concept, and measuring the efficiency of antitrust enforcement by counting enforcement actions (or looking at rhetoric) is usually just flimsy cover for an essentially-political determination.  Combine that with Miller’s suggestion that the P&S Act’s “unfair practices” language should be enlisted in the service of dealing with concentration, and the risk of false positives is much magnified.  Which, of course, is a perfect lead-in for Christine Varney. Continue Reading…

As readers may know, Eric Holder was added to the workshop at the last minute (see the latest agenda here).  So the day starts out with Holder and Vilsack, and they are joined by Varney and Tom Miller (the Iowa AG) and a host of other politicos including Senator Grassley and Congressman Boswell.

Vilsack is introducing the event, and seems to be lamenting the extraordinary increase in productivity in the farm sector–by which I mean, he laments the loss of farm jobs even though output has increased by leaps and bounds.  That’s an unfortunate framing of the issue, but it suggests that economic efficiency won’t be at the core of the discussion.

Some choice quotes from Vilsack:

“Great efficiencies have led to consolidation.  They’ve also led to lower prices for consumers.  . . . Is marketplace providing a fair deal to ranchers and farmers.”

“We know seed companies control the lion’s share of certain commodities–does that help or hurt farmers?”

“The purpose of the workshops is to determine if the system is fair [not efficient, fair –ed.].”

And now Eric Holder:

“erosion of free competition is one of the greatest threats to our economy.”

“We’ve learned the hard way that reckless deregulation can foster conduct that is harmful [this is a paraphrase . . . ]”

“Enforcement of the antitrust laws does not fully address the concerns of farmers and other stakeholders.  [Which explains why this isn’t an antitrust event . . . ]”

And now comments from the panel, moderated by Vilsack . . . I’ll focus on the most relevant (if any) . . .

Holder:

“commitment to enforcing the antitrust laws in the ag sector.”

Grassley:

refers to “concentration and lack of competition in agriculture”

“not enough competition and too much concentration [I’ll assume that’s not an economic conclusion]”

“bigger isn’t per se bad but it can lead to predatory practices and behavior.”

“I don’t want anything to be done that stifles innovation.”

Well, as the political speeches proceed, there’s not much to report.  I’ll post this and await Varney’s comments . . . .