The General Accounting Office (GAO) has just released its long-awaiting report on cable television rates. The balanced report will disappoint folks like John McCain (R. Ariz.), who wanted proposals that would allow consumers to order only the cable channels they want, a la carte. The idea has its roots in some very bad economics; GAO tags some of the problems with the idea, but misses others.

The fuss about cable television rates is a non-problem. Consumer groups are fond of comparing cable rates to the consumer price index; Consumers Union notes that cable rates have risen six times the rate of inflation as measured by the consumer price index. But, to start, the CPI is intended as a rough measure of inflation, not a standard by which to judge prices of individual products—especially when the product changes over time, as cable has. The U.S. Bureau of Labor Statistics, which compiles the index, notes the limited ability of the index to consider changes in the costs and quality of products. The example of a product that changes in quality over time that BLS uses to explore the limits of the index, is a cable television channel.

The GAO report confirms that there have been increases in cable’s costs, and that some cablecos’ expenses are due to new infrastructure investment. The quality issue is harder to get a grip on. But it’s hard to deny that there are more channels than before, and that these channels serve more diverse tastes than before. Now, more channels aren’t necessarily better. But cable penetration continues to expand. And surely fewer channels aren’t better. Forced a la carte delivery of cable channels would be likely to kill off the new, the experimental, the eclectic.  How many people will pay for C-SPAN? The Weather Channel? The Food Channel? The Science Channel? Heck, almost any new channel takes a few years to get profitable.

There’s a deeper problem here, though, than the GAO report identifies.  The whole idea that prices should follow costs in some wooden and mechanical manner is wrong.  Suppose that cable companies’ prices and profits did rise above costs for a period of time.  This is what brings new competitors and new innovation into the market. (Remember the old-fashioned supply and demand curve, with the price point at the intersection of the two?)

So the second casualty of a la carte, after new channels, is likely to be most potential competitors to cable.  Could DBS cover its own costs if it had to deal with a market in which consumers could order ESPN, the Discovery Channel, and nothing else? Unlikely. And what about entirely new entrants to the market, taking greater risks and facing greater unknowns? Why would they even bother to try, if regulation of cable in essence restricts their own flexibility in bundling and pricing?

Would-be cable regulators should remember, nothing can replace an old-fashioned profit motive, and there’s more to economics than accounting.