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OpenMarket: August 2013

  • MoveOn admits: "[I]f younger, healthier people don't participate, then costs will skyrocket and Obamacare will fail."

    August 30, 2013 1:14 PM

    MoveOn.org yesterday sent me an appeal asking for $5 to help fund a $250,000 social media campaign supporting ObamaCare targeted to reach young adults. Here’s why they need my five bucks:


     [R]ight-wing groups have launched a multi-million-dollar campaign to torpedo Obamacare before it even gets started. Their plan: Mislead young people about how the law works so they get scared and don't enroll. The problem is that it really could work because if younger, healthier people don't participate, then costs will skyrocket and Obamacare will fail. [Emphasis in original]


    MoveOn.org footnotes a Washington Post article, which explains that last sentence. From the Post Wonkblog article by Sarah Kliff: “Young adults tend to have lower medical bills, which would hold down premiums for the entire insurance market. If only the sick and elderly sign up, health costs would skyrocket.”


    So, as MoveOn itself acknowledges, ObamaCare is based on using insurance premiums from younger, healthier people to subsidize health care for older, sicker people. Yet, that is exactly the correct information free market and conservative groups opposed to ObamaCare are trying to get to young folks, so that they understand the racket they are being cajoled to join.


    So then what does the “multi-million dollar right-wing misinformation campaign” aimed at young adults entail? It seems that the purpose of MoveOn.org’s social media campaign is to keep the wool pulled over young people’s eyes to protect them from the painful reality that ObamaCare is a con game designed to fleece them. Otherwise, why would they sign up for it?


  • Before Net Neutrality Eats the World (Part 10): Who’s Discriminating Online?

    August 30, 2013 10:08 AM

    (Note: On September 9, the U.S. Court of Appeals for the D.C. Circuit will hear oral arguments in Verizon’s challenge of the Federal Communications Commission’s December 2010 Order on “Preserving the Free and Open Internet.” This series explores fundamental issues at stake.)


    The original four Federal Communications Commission (FCC) Policy Statement principles miscast the prerequisites of broadband infrastructure wealth development (property rights, exclusive deals and contracts and so forth) as antithetical to consumer welfare and fluid access to content.


    In that sense, they are philosophically flawed and harmful.


    Yet, the Notice of Proposed Rulemaking (NPRM) and 2010 Order on Preserving the Free and Open Internet consolidated the principles, and went beyond with an anti-discrimination mandate.


    The NPRM stated that “Subject to reasonable network management, a provider of broadband Internet access service must treat lawful content, applications and services in a nondiscriminatory manner” (Section 8.13, page 66).


    And as the Order puts it, "No unreasonable discrimination."


    The agency takes the term “nondiscriminatory” to mean that “a broadband access provider may not charge a content, application, or service provider for enhanced or prioritized access to the subscribers of the broadband Internet access service provider” (p. 42, paragraph 106).


    Indeed, the FCC intended and endorsed “a bright-line rule against discrimination” (NPRM, p. 43, paragraph 109). As expressed in the Order, "We conclude that the benefits of ensuring Internet openness through enforceable, high-level, prophylactic rules outweigh the costs."


    The effect of such decrees -- locked in as if something were inherently special about today, and as if the Internet’s present incarnation represented the culmination of all humanity’s network technology -- is hard to overstate.


  • CEI Podcast for August 29, 2013: Consequences of Net Neutrality

    August 29, 2013 2:48 PM

    Have a listen here.


    In 2010, the FCC issued regulations to implement net neutrality. The resulting legal challenge is about to hit the D.C. Circuit Court. Vice President for Policy Wayne Crews explains why net neutrality policies would hamper innovation and reduce competition in high-tech infrastructure.


  • Before Net Neutrality Eats the World (Part 9): How to Expand Consumer Choice and Access to Content

    August 29, 2013 12:06 PM

    (Note: On September 9, the U.S. Court of Appeals for the D.C. Circuit will hear oral arguments in Verizon’s challenge of the Federal Communications Commission’s December 2010 Order on “Preserving the Free and Open Internet.” This series explores fundamental issues at stake.)


    The gravely flawed principles of the initial 2005 Policy Statement, now being promulgated by the Federal Communications Commission (FCC) as the 2010 Order on Preserving the Free and Open Internet, claimed to enshrine the open and interconnected public Internet and uphold individuals’ ability to access the lawful content of their choice …and…connect their choice of legal devices.


    Statements like this have the effect (perhaps unintended, but likely not) of improperly conflating political freedoms and contractual/economic freedoms, while potentially undermining all.


    Rights, of course, describe the relation of an individual to the state, not to a commercial vendor.


    Be that as it may, commerce is not a threat to democracy or the free flow of ideas; it is the enabler.


    Consumer choice is created by, not threatened by, the existence of the producer.


    That consumer choice is made available by a vastly complex interplay between content providers and network owners, all seeking to offer, at any given moment, that which does not yet exist.


  • Before Net Neutrality Eats the World (Part 8): The Essential Elements of Non-Destructive Rulemaking

    August 28, 2013 12:32 PM

    (Note: On September 9, the U.S. Court of Appeals for the D.C. Circuit will hear oral arguments in Verizon’s challenge of the Federal Communications Commission’s December 2010 Order on “Preserving the Free and Open Internet.” This series explores fundamental issues at stake.)


    As noted in the previous installment of "Before Net Neutrality Eats the World" on smart networks vs. dumb ones, capitalism itself is historically a relatively new phenomenon, and communications networks, as massive-scale private assets, lack the legitimization they deserve.


    Consumers and competitors can rapidly and devastatingly react against bad business practices, should Internet providers attempt it; but reversing course under an inferior net neutrality regime is another story altogether.


    Regulation cannot substitute for competitive enterprise. But one will scour the Federal Communications Commission's (FCC) Order on Preserving the Free and Open Internet in vain for recognition that government failure is both endemic and harder to extricate from than mere bad business decisions.


    Instead of "neutrality," policymakers must extend property rights institutions, carrying on the important work of previous generations who established those concepts -- not abandon them.


    Such institutions have to be discovered and defended; they’re not obvious. For FCC and policymakers to simply retreat to “openness” on legacy networks represents a colossal shirking and disservice. Rather than strive to legitimize markets, the Order puts network owners on the defensive without a corresponding recognition that the behaviors at issue -- special agreements, contracts -- contribute to consumer welfare and are in fact prerequisites.


  • Playing Politics with Public Pensions

    August 27, 2013 2:48 PM

    Many public pension plans around the nation are severely underfunded. The 2008 financial crisis, which wiped out many pension investments, has focused the public's and policy makers' attention on the issue since then. But the financial crash and ensuing Great Recession don't explain all of the problem public pensions face today.


    One major problem is self-inflicted: investment decisions that advance political agendas rather than shareholder value. Texas Comptroller of Public Accounts Susan Combs, in a Wall Street Journal op-ed, outlines how pervasive this is:


    Since 2006, about a third of all shareholder proposals floated with Fortune 250 companies have come from institutional investors affiliated with organized labor, according to the Manhattan Institute. Pension funds for state and municipal workers sponsored about a quarter of those proposals. Proposals put forward by public pension funds cover a gamut of popular causes du jour, including the environment, corporate political spending or lobbying, and government use of privatized services (they're opposed to that, oddly enough).


    A major reason for this problem, Combs argues, is that public pension managers do not face strong requirements for investing with increasing shareholder value as their sole goal.


    The Employee Retirement Income Security Act known as Erisa specifically requires private pension funds to focus on the economic value of their investments. There's no similar requirement for public pensions—and that may explain some of their problems. Nine states, for instance, have less than 60% of the funds they need to honor their current pension commitments, according to a recent report from CNBC.

  • Lobbyists at the State Public Trough

    August 27, 2013 12:36 PM

    Who is a public employee?


    The answer to that should be simple: Someone who works directly for a government entity. But in 20 states, the definition of public employee for pension purposes includes lobbyists, an Associated Press investigation has found. AP notes:


    The debate is more about principle than big money, since the staffs of such organizations are relatively small and make barely a ripple in huge state retirement systems. The eight New York associations, for example, have fewer than 120 total employees out of 633,100 current workers in the state's $158.7 billion pension system.


    Yet, the cost to taxpayers is greater than that, because this is money that state governments use to lobby for money for themselves, at the expense of taxpayers both within their borders and elsewhere. Indeed, the AP story itself notes.


    In many states, lobbying groups for states and counties take positions that could conflict with taxpayer interests, such as advocating to weaken caps on property tax increases and boosting state school aid.


    Thus, state lobbyists on the direct public dole arguably play a political similar role as government employee unions -- as an organized, motivated, and well-funded permanent lobby for bigger government. In fact, trying to expand the definition of "public" is something that government unions have been trying to do for some time now, trying to organize government contractors, as my coauthors and I note in our 2009 Cato Institute study on public sector unionization.


    Likewise, expanding the definition of "public" to state lobbyists means that taxpayers are paying a bigger bill for states' lobbying for more of their own money.


     


  • Historians Should Learn the Economic Way of Thinking

    August 27, 2013 11:06 AM

    Simon Schama is one of the world's great historians. Indeed, I am currently having my children watch his magisterial "History of Britain," and they are enthralled by it. In this brief contribution to Britain's Prospect magazine he says some very important and insightful things, but one thing stood out for me:


    I would make it completely illegal for flight attendants to presume to tell people how to fasten a seatbelt. Is there anybody in the entire world who doesn’t know how to fasten a seatbelt? It’s so insulting.


    This is where the economic way of thinking is as useful as a knowledge of history. The economic way of thinking tells you that incentives matter and that therefore when something seems odd, you should look at where the incentives lie. Often the incentives for stupid and wasteful behavior are outdated government regulations that no one can be bothered to change. So it is with the seat belt demonstration, at least under American law (other jurisdictions undoubtedly have similar regulations). Behold the Code of Federal Regulations § 121.571, "Briefing passengers before takeoff":


    (a) Each certificate holder operating a passenger-carrying airplane shall insure that all passengers are orally briefed by the appropriate crewmember as follows: ...

  • Before Net Neutrality Eats the World (Part 7): Mandatory Dumb Pipes? But Why Sacrifice Genius?

    August 27, 2013 11:02 AM

    (Note: On September 9, the U.S. Court of Appeals for the D.C. Circuit will hear oral arguments in Verizon’s challenge of the Federal Communications Commission’s December 2010 Order on “Preserving the Free and Open Internet.” This series explores fundamental issues at stake.)


    It’s worthwhile to reflect on the prerequisites for massively greater infrastructure and broadband. Net neutrality mandates imply that private control by dominant vendors is against the public interest.


    But a better starting point is to appreciate that today’s offerings are not broadband at all compared to future multimedia needs and specialized requirements. Neutrality imposed at 28 kilobits per second would hardly have been a benefit to anyone and would have left us much poorer.


    Neutrality advocates sometimes indicate their preference for so-called “dumb pipes,” (see this critique by Adam Thierer) that merely shut up and carry all content; but we would more properly advocate a competitive dimension that acknowledges and encourages the “genius” of pipes.


    To hold in 2013 that pipes should henceforth be “dumb” further indicates grave political failure approaching if the neutrality Order is upheld. It’s unfortunate enough that the Federal Communications Commission (FCC), the agency allegedly responsible for communications, would entertain shutting off the potential for unfettered experimentation in advanced network access, of differentiation of price and service.


  • Before Net Neutrality Eats the World (Part 6): Does “Market Failure” Demand Neutrality Regulation?

    August 26, 2013 10:45 AM

    (Note: On September 9, the U.S. Court of Appeals for the D.C. Circuit will hear oral arguments in Verizon’s challenge of the Federal Communications Commission’s December 2010 Order on “Preserving the Free and Open Internet.” This series explores fundamental issues at stake.)


    Net neutrality as a concept exists to prolong government control of a major modern productive sector.


    Market failure cannot be a problem in telecommunications and the Internet, since communications has been a comprehensively regulated industry almost since the outset. If anything, political Failure is the matter at hand.


    But let's look at market failure a little more anyway.


    In the prior installment (Pt. 5) of "Before Net Neutrality Eats The World," some fallacies motivating net neutrality were itemized. These fallacies rely on the notion that market failure exists, but that political failure and pressure group activity do not exist in the Internet communications sector.


    In its Notice of Proposed Rulemaking that culminated in the Order on "Preserving the Free and Open Internet," the Federal Communications Commission (FCC) asked for “fact-based” answers and data about network practices (p. 5, paragraph 6). But FCC itself presented no fact-based evidence of market failure as such, only instances of residual effects of distant government granted monopoly power. Those are political and regulatory failures.


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