Adam Thierer's Blog, page 88

The Feds Play the Spectrum Shell Game

On CNET today, I’ve posted a long critique of the recent report by the President’s Council of Advisors on Science and Technology (PCAST) urging the White House to reverse course on a two-year old order to free up more spectrum for mobile users.

In 2010, soon after the FCC’s National Broadband Plan raised alarms about the need for more spectrum for an explosion in mobile broadband use, President Obama issued a Memorandum ordering federal agencies to free up as much as 500 MHz. of radio frequencies currently assigned to them.

After a great deal of dawdling, the National Telecommunications and Information Administration, which oversees spectrum assignments within the federal government, issued a report earlier this year that seemed to offer progress. 95 MHz. of very attractive spectrum could in fact be cleared in the ten years called for by the White House.

But reading between the lines, it was clear that the 20 agencies involved in the plan had no serious intention of cooperating. Their cost estimates for relocation (which were simply reported by NTIA without any indication of how they’d been arrived at or even whether NTIA had been given any details) appeared to be based on an amount that would make any move economically impossible.

And the NTIA’s suggestion that some of the bands could be “shared” sounded appealing until the details revealed that the feds would place impossible conditions on that sharing.

In the end, the NTIA report was 200 pages of classic smoke-and-mirrors from an entrenched bureaucracy that is expert at avoiding change.

The PCAST report seemed to throw in the cards and accept the political reality that actual spectrum clearing in the federal bands would never happen. Instead, the President’s advisors doubled down on “sharing,” and called for a new “Spectrum Access System” that would be based on sharing technologies it admitted don’t exist yet.

SAS might be a better system in the long-term, but current technical and political limitations make such a system impractical. I argue in the piece that the NTIA and PCAST reports are just providing cover for federal agencies, notably the DoD and Justice, to avoid actually having to follow the President’s order and take aggressive steps to free up spectrum that is needed now. Whether this is intentional or not I leave to more savvy tea-leaf readers.

Petitioning WH.gov: TSA’s Strip-Search Machines

Will the White House give us a substantive answer or not?

A few weeks ago, we ‘celebrated’ the one-year anniversary of a court order requiring the TSA to do a notice-and-comment rulemaking on its policy of using strip-search machines for primary screening at airports. It’s been a year and the TSA has shown no action.

The Electronic Privacy Information Center, which brought the original case, filed a petition asking the D.C. Circuit Court of Appeals to require action on the TSA’s part. The Competitive Enterprise Institute and many other friends of the court chimed in with an amicus brief highlighting issues in the case. I emceed a Cato Capitol Hill briefing on the topic.

But the real fun has been with a petition on Whitehouse.gov asking the president to make the TSA follow the law. When I put that up there, the issue took off. Stories and links went out on Ars Technica, Wired, and the Washington Times, just to name a few. People sent notices out to their email lists. And there was plenty of Tweeting, blogging, reTweeting, reblogging.

The !

If we get 25,000 signatures by August 9th, the White House will have to respond.

Crawford Criticizes America’s Infrastructure Investment Heroes for Being the Best

As budget deficits have increased, public investment in our nation’s infrastructure has declined. In just the last four yours, the “United States has fallen sharply in the World Economic Forum’s ranking of national infrastructure systems,” from 6th in 2007-2008 to 16th in 2011-2012. Our roads, bridges, rail networks, and ports are all straining to handle demand, but due to budget concerns, lawmakers have little interest in increased funding.

In contrast to the gloomy forecast for public infrastructure funding, private investment in our communications networks has been a bright spot in the economy. The Progressive Policy Institute released a report this month ranking U.S.-based companies by their U.S. capital spending in 2011. Who ranked number one and number two on this report? AT&T and Verizon. Both companies invested significantly more in U.S. infrastructure than any other U.S. company. AT&T alone invested more in the U.S. ($20.1 billion) than the 3rd and 4th ranked companies combined: Exxon Mobile ($11.7 billion) and Wal-Mart ($8.2 billion). AT&T and Verizon together invested $36.3 billion in our future. The Progressive Policy Institute calls these companies “Investment Heroes” for believing in American progress.

Susan Crawford, a “radicalized” professor at Harvard Law School, apparently believes our private investment heroes are “terrible for American consumers.” In her view, the government should own and control the Internet as a public utility, just like our decaying public roadways. She believes the Internet should be part of the government’s “collective responsibility” to modern society.

Although her economics are erroneous (more on that in a moment), her willingness to trust the government with control of our primary means of communications is even more astonishing. Since the invention of the printing press in the 15th Century, governments have attempted to control freedom of speech, beginning with laws establishing controls over printers. Even with the best intentions, allowing the government to own and control our Internet networks would chill our freedom of expression, at the very minimum, and could result in warrantless wiretapping or even government content blocking. Given the rapid migration of our information society from print to electronic media, Crawford’s proposal for government wholesale control over the Internet would be tantamount to wholesale government control of the press.

If you believe that’s unthinkable, think again. According to Google, U.S. government agency requests to hand over user data have increased 76 percent since the end of 2009. Google complied with only 93 percent of user data requests by intelligence agencies and law enforcement last year. If the government controlled Google’s servers, however, it wouldn’t need Google’s permission for the other 7 percent of user data requests. The government would have direct control over all user data and Internet content, including online news.

Crawford is wrong on the economic issues as well. She is best known for her view that cable is a de facto “monopoly.” A monopoly exists when a single enterprise is the sole supplier of a particular product or service, and it’s obvious that cable isn’t the only supplier of broadband access or subscription video services. The majority of consumers (78 percent) have access to more than one fixed broadband provider (whether wired or wireless) and 81.7 percent of consumers have access to three or more mobile broadband providers as well, facts she dismisses through narrative storytelling rather than data.

She maintains that mobile broadband cannot compete with cable, even though PC Magazine’s June 2012 mobile tests revealed that AT&T’s 4G LTE network is delivering average download speeds of 13.71 Mbps. That’s more than fast enough to support the delivery of high-definition video and actually exceeds the speed limit for web browsing. According to an FCC report released this month, the time needed to load a webpage stops decreasing at about 10 Mbps. The FCC says, “For these high speed tiers, consumers are unlikely to experience much if any improvement in basic web browsing from increased speed–i.e., moving from a 10 Mbps broadband offering to a 25 Mbps offering.”

The biggest barrier to competition between mobile providers and cable is a lack of mobile broadband spectrum, the availability of which is artificially limited by – guess who? – the government. Given that the government is responsible for inhibiting the competitiveness of wireless networks, I hardly think government ownership and control of the Internet is the answer to broadband competition.

Ironically, after blogging her belief that cable is a monopoly, Crawford’s very next blog post extolled Google’s deployment of a new fiber broadband network in Kansas City. She described the move as “very smart” and “very disruptive.”

I’m confused. If Crawford recognizes that new fiber entry is smart and disruptive, why is she advocating for government control of the Internet rather than policies that would promote more private investment in all-IP technologies? Because, by her own admission, she is a “radical” who believes in “collective responsibility” for our means of communications. Competition has nothing to do with it.

How copyright is like Solyndra

I’m working on a project looking at libertarian views on copyright (more on that soon), and I’d like to solicit your feedback on an analogy I’m developing. I’ve set up a comment thread at Google+ and I’d sincerely appreciate your thoughts on this post. Email feedback is also appreciated. Here goes…

Libertarians, conservatives and other supporters of a free market tend to be critical of government programs that subsidize particular industries. For example, the loan guarantees that allowed Solyndra to set up shop. We don’t like them because they distort the market and tend to lead to rent-seeking, if not corruption.

Why do we have loan guarantees for renewable energy projects like Solyndra’s solar power technology? Quite simply it’s because we’d like to see more renewable energy technology developed; more than is profitable to develop right now. So, the government offers a subsidy to incentivize the creation of such technology, which will eventually benefit the public at large. So far so good, but there are problems with this kind of government privilege.

First, there is a knowledge problem. How do we know that we’re not already getting the right amount of investment in renewable technologies? Without a government subsidy, there would still be investment in renewable energy technologies. We just think it’s not enough. But even putting aside how we can know that, the other question is, how much investment is optimal? Without a market process to guide investment, we don’t know how much is enough. So when the government offers subsidies, it’s guessing. It’s likely offering too little or too much, with each error introducing its own inefficiencies.

Second, the process by which we decide how much subsidy to offer, and to whom it is granted, is a political one. Congress decides how much is enough. It also picks winners and losers (renewable over nuclear, solar over geothermal). The result is rent-seeking, which is not only wasteful, but it almost guarantees that we won’t answer anywhere near correctly the questions of whether to subsidize, what to subsidize, and by how much.

So, given that the above argument is obvious to libertarians and conservatives, I would think they should be just as skeptical of copyright as they are of renewable energy loan guarantee programs.

Without copyright, there would still be books and songs written and movies made. It’s just that we think there wouldn’t be enough. So, the government offers a subsidy in the form of a monopoly over one’s creations in order to incentivize more creative output. (To be clear, the government is not recognizing an existing property right, it is granting a privilege. Please see Tom Bell on this point here and here.) The same questions we have about renewable energy present themselves here: How do we know we wouldn’t have “enough” creative works without copyright? And assuming we know that, how do we know the right amount of incentive to offer? Is a 14 year term, as the Founders legislated, enough? Is life of the author plus 70 years too much?

More worryingly to conservatives and libertarians, it is Congress who decides these questions. It decides how much protection to grant, and it picks winners and losers (music over fashion, composers over performers). As a result, we see in copyright some of the most transparent rent-seeking on display in Washington. A concentrated content industry seeks longer and longer terms, and greater and greater protections and enforcement, at the expense of a dispersed public. It’s a recipe for giant inefficiency and massive loss of consumer welfare.

The Constitution explicitly grants Congress the power to establish a postal service, and Congress does this by granting to the USPS a monopoly privilege (not property, I hope we can agree) to delivering first class mail and using mailboxes. Libertarians and conservatives have long understood that although Congress has the power to do this, it might want to reconsider how it exercises that power. The USPS we have is a bloated and inefficient government program, and substituting competition for monopoly would no doubt increase efficiency and consumer welfare. We know this even though we understand that with half a million career employees at the USPS, the public choice dynamic at work might keep Congress from forbearing on its power.

Libertarians and conservatives should see copyright the same way. Although the Constitution gives Congress the power to grant monopoly rights to authors, it is not required to exercise that power. Given the concentrated benefits and dispersed costs inherent in such a system of monopoly grants, copyright has similarly become a bloated and inefficient government program. We should be as skeptical of copyright as we are of Solyndra or the USPS.

What do you think of my analogy? Please let me know here.

ITU Releases a Single WCIT Document, Call Themselves Transparent

In my last update on WCIT, I noted that due to pressure generated by WCITLeaks, the Secretary-General of the ITU promised to make a recommendation to the ITU’s Council to open up access to WCIT preparatory documents. Here is what has happened since then:

Secretary-General Touré indeed made his recommendation to the Council.
The Council responded by releasing a single document, TD-64, which has already been on WCITLeaks for weeks. Indeed, it was the first document we posted.
The ITU issued a press release declaring this to be a “landmark decision.”

As I told Talking Points Memo, I am not impressed by the ITU’s landmark decision. In fact, I am more convinced than ever that the ITU is too out of touch to be trusted with any role in Internet governance.

Consider these quotes from Secretary-General Touré at May’s WSIS Forum, highlighted by Bill Smith at CircleID:

“The ITU is as transparent as organizations are.”
“The transparency of the ITU is not something that you can question.”
“We don’t really have too much to learn from anybody about multi-stakeholderism because we almost invented it.”

Troubling, no?

If you would like to see first-hand how transparent the ITU is, you can visit its site and download TD-64, the “draft of the future ITRs.” Then go to WCITLeaks.org to read all the other documents it wants to keep from you.

Parmy Olson on Anonymous and LulzSec

Parmy Olson, London Bureau chief for Forbes, discusses her new book We are Anonymous: Inside the Hacker World of Lulzsec, Anonymous and the Global Cyber Insurgency. The book is an inside look at the people behind Anonymous, explaining the movement’s origins as a group of online pranksters, and how they developed into the best known hacktivist organization in the world. Olson discusses the tension that has existed between those that would rather just engage in pranks and those that want to use Annoymous to protest different groups they see as trying to clamp down on internet freedom, as well as some of the group’s most famous campaigns like the attacks against the Church of Scientology and the campaign against Paypal and Mastercard. Olson also describes the development of LulzSec which became famous for a series of attacks in 2011 on high profile websites including Fox, PBS, Sony, and the CIA.

Download

“We are Anonymous: Inside the Hacker World of Lulzsec Anonymous and the Global Insurgency”, by Olson
“Olson’s Blog”
“Two Members Of Hacker Group LulzSec Plead Guilty To Cyber Attacks”, by Olson
Feds Arrest 14 ‘Anonymous’ Suspects Over PayPal Attack, Raid Dozens More, Wired

About that Online Sales Tax ‘Loophole’

Proponents of higher taxes have taken to calling the exemption that out-of-state online shoppers enjoy a “loophole,” as if it were an unintended flaw in two established court rulings that addressed the power of one state to tax residents of another.

My latest commentary at Reason.org looks at the so-called Marketplace Fairness Act, a bill that the House Judiciary Committee has scheduled for hearings tomorrow. The bill aims to help states collect sales taxes on out-of-state purchases, typically made via catalogue or, to an ever-greater extent, the Internet. Two Supreme Court decisions, Quill vs. North Dakota and National Bellas Hess vs. [Illinois] Department of Revenue, both of which pre-date Internet shopping, protect out-of-state consumers from the taxman’s reach.

As I write:

Editorials and op-eds supporting the bill, such as in the Arizone Daily Star and the Chicago Sun-Times, say it will close a “loophole” that allows Internet purchases to escape taxation. This is akin to saying the Supreme Court’s Miranda decision is a loophole for defendants to escape prosecution. No doubt some overzealous prosecutors may think so, but in truth, Miranda sharpened and affirmed the right of due process already present in the Fourth and Fifth Amendments. Likewise, in Quill and Bellas Haas, the courts sharpened and affirmed the Constitution’s commerce clause that prevents one state from taxing residents of another.

Seeing it as counterproductive to an interdependent economy, the Founders did not want states plundering each other’s residents and enterprises with taxes. Yet that’s exactly the environment the Marketplace Fairness Act sets up. New York State can tax residents of Illinois and the Prairie State can tax Hoosiers.

In doing so, the Marketplace Fairness Act ignores the constitutional underpinnings of the Quill and Bellas Hess decisions and treats the Internet sales tax issue as a procedural issue when the in fact the constitutional bar is set much higher. The giveaway, however, is the portion of the bill that requires states to simplify their state tax collection procedures before launching cross-border taxation. It’s an unusual quid pro quo, perhaps because Congress has to offer states the prerequisite of a buy-in. That’s because any attempt to impose a tax collection structure wholesale on the states would likely face a constitutional challenge on 10th Amendment grounds of state’s rights.

In reality, the states, struggling as they are with debt crises of their own making, are angling for a greater piece of the $200 billion Americans are spending with Internet merchants each year. Of course, not all of this goes untaxed; on-line retailers who have brick-and-mortar stores within a state must collect tax from residents in that state. Besides creating a mess of competing state tax grabs, this law stands to increase paperwork and complexity for thousands of small online businesses and catalogue firms, who would now be obliged to calculate taxes on some 11,000 sales tax jurisdictions throughout the country. Whether or not it’s “simplified” in line with some Congressional definition, it still stands to be the burden as noted in Quill and Bellas Hess.

But all the talk of loopholes, level playing fields and what does or does not constitute a “burden” diverts attention from the real issue. The Marketplace Fairness Act is not about the Internet, e-commerce, the marketplace or fairness–it’s about what the Constitution says about the power of state governments to tax citizens beyond their borders.

Where are the Broadband Mutuals?

I’ve argued (here and here, for instance) against worrying too much about the monopolization of Internet access. Broadband is pretty clearly an industry in which there are increasing returns to scale, and when returns to scale are severe enough, that results in natural monopoly. There are not clear welfare gains from regulatory solutions to natural monopoly problems generally, and broadband in particular is a case where many of the problems associated with monopolization are ameliorated by price discrimination.

Nevertheless, I accept that most people are not persuaded by this logic. Let me try a different tack, explaining what I would expect to see if profit-centered monopolists were really as bad for consumers as their critics claim.

The answer can be summed up in one word: mutuals. Mutual companies are not especially common in today’s economy, but they are worth pondering at some length. Mutuals are firms in which customers, in virtue of their ongoing patronage of the firm, are also its owners. A mutual company generally has no other shareholders to please, and it does not typically distribute dividends. Instead, if it makes a profit it will distribute it to its customers in the form of lower prices in the future.

Managers at mutual companies have pretty cushy lives. They can’t earn multi-million dollar bonuses, and their salaries are capped by the firm’s charter or by state regulation. But the modest restrictions on compensation are made up for with quality of life. They don’t work too hard, maybe they spend a lot of the firm’s money on nice offices with plush carpet, and they don’t worry about squeezing every last penny out of the business.

The managers have weak incentives to maximize profit because of the firm’s distributed ownership. While in theory, customers could band together and oust the management team at the annual meeting, in practice it is hard to get 51 percent of the customers to sign and mail in their proxy forms. So instead of maximizing profit, the management team works hard to make sure the product works and nothing terrible goes wrong. As long as everything runs relatively smoothly, their jobs are secure and they can be out on the golf course at 3pm.

In some cases, weaker incentives to run the business efficiently are a feature, not a bug. As Eric Rasmusen pointed out in his excellent JLE article on mutual banks, the mutual form was popular in the financial sector before the New Deal, when federal deposit insurance largely displaced it. The reason is simple: a strong profit motive can lead to excess risk-taking, and depositors preferred that their banks be conservative. Managers at a mutual bank have an incentive to limit risk-taking because their profits are capped anyway. Why risk the assets of depositors when you have no upside? N.b., Washington Mutual, which collapsed in 2008, had actually demutualized in 1983, although it was allowed to keep its name.

Mutuals still exist today, but they are much less common. Vanguard is a familiar mutual company, though this fact is not to be confused with the product they sell, mutual funds. One reason the load on Vanguard funds is so low is that the managers have a very weak incentive to squeeze customers; instead, the firm focuses on basic, reliable service. Mutual companies are also common forms for utility companies in rural areas. Since utilities have increasing returns to scale and rural areas have low scale, the natural monopoly problem is particularly severe in this sector. Mutuals solve this problem by weakening the incentive to opportunistically charge a high price to rural consumers who have only one choice in service provider.

Incidentally, whenever someone challenges my extreme libertarianism by asking if I would privatize water service, I say yes: I would replace the regulated water monopoly with a mutual water company. Mutuals have some similarities to government-run firms, but also some important differences. They are similar in that the profit motive is weak, and that consumers frequently have to rely on voice more than exit to express their displeasure. However, if a mutual provides a truly horrific service, at some point a competing firm (perhaps a competing mutual) becomes a possibility. In that regard, mutuals are superior to government provision. Furthermore, mutuals don’t require me to bundle my purchases with a host of other products, whereas if I want to dump government provision of some good, I basically have to overthrow the state. Why should education spending be bundled with my water service?

My question, then, is predictable. If the state of broadband is so terrible, if broadband monopolists are engaging in harmful net neutrality violations, if infrastructure providers are using their market power to foreclose in the content market, where are the broadband mutuals? Why aren’t neighborhood associations setting up mutual companies to run high-speed local networks and buying transit from a competitive market of upstream providers? A little Googling shows that there are some broadband mutuals, but they operate mostly in rural areas, and they benefit from federal subsidies. Why don’t we see more of this corporate form?

Some possibilities:

Economies of scale make it impossible to enter the market at all. I don’t believe this one. At a minimum, we would expect real estate developers to build new neighborhoods pre-wired for mutual Internet access if they believed that such an amenity would increase the value of the property.
Regulatory barriers make it impossible in practice to enter the market. Maybe. To the extent such barriers exist, I favor removing them. But most of the critics of the broadband monopolies are not calling for deregulation; they are calling for additional regulation.
The broadband monopolies are running their businesses in basically a socially efficient manner, and there is not much room for broadband mutuals to come in and provide a better product. Most observed net neutrality violations are welfare-enhancing, and most of the weird pricing schemes are forms of price discrimination used to underwrite the large fixed costs of running an ISP.

I still think the answer is #3. But if you don’t, you should be pushing to start a mutual broadband company in your neighborhood or city, not advocating for greater regulation or state-run broadband.

This article originally appeared on elidourado.com.

Revised Cybersecurity Act Makes Meaningful Progress on Privacy

By Ryan Radia and Berin Szoka

A new version of the Cybersecurity Act of 2012 was introduced last night (PDF), and a vote on the Senate floor reportedly may occur as early as next week. Although we’re still digesting the 211-page bill, its revised information sharing title stands out for its meaningful safeguards regarding what cybersecurity information may be shared by providers and its limits on how government may use shared information. Such prudence is of utmost importance in any bill that gives private entities blanket immunity from civil and criminal laws, including the common law, for activities such as cybersecurity information sharing.

By way of background, our organizations—the Competitive Enterprise Institute and TechFreedom— joined several other free market groups in sending a coalition letter to House leadership back in April regarding CISPA (which ultimately passed that chamber). While we support legislation streamlining federal laws to ensure cybersecurity information flows freely among private companies and, where appropriate, to and from the government, we urged important changes to CISPA to limit potential governmental abuses and meaningfully protect individuals’ private information. Unfortunately, most of our suggestions were not reflected in the final version of that bill.

We’re very glad to see that many of our free market principles are now reflected in Title VII of the Cybersecurity Act (the part of the bill that deals with information sharing). The bill’s sponsors adopted many significant, positive changes to Title VII to better protect privacy and individual liberties, including:

Allowing individuals harmed by governmental misuse of shared cyber threat information to sue the federal government for actual or statutory damages of $1000 (whichever is greater);
Proscribing all governmental use and sharing of cyber threat information for purposes unrelated to cybersecurity, except to avert imminent threats of death or serious bodily harm or sexual exploitation of minors;
Barring the federal government from conditioning the award of a federal grant, contract, or purchase on a private entity’s sharing of cybersecurity threat information (except in limited circumstances);
Immunizing only private entities that share cybersecurity threat information upon a reasonable and good faith belief that such sharing is authorized by the Title;
Providing for meaningful oversight of information sharing and use by the Privacy and Civil Liberties Oversight Board.

We also applaud Senators Franken, Durbin, Coons, Wyden, Blumenthal, and Sanders, whose efforts made these important revisions to the Cybersecurity Act possible. It’s not every day that CEI or TechFreedom praise members of Congress—or government in general!  We do so here because the changes to Title VII of the Cybersecurity Act will meaningfully reduce the likelihood that the bill, if enacted, will enable government to impermissibly access and abuse citizens’ private information. (For more on changes to the Cybersecurity Act, see this ACLU blog post by Michelle Richardson.)

To be sure, we still have serious concerns about Title VII of the bill — and even greater concerns about other provisions in the bill, especially those regulating cybersecurity of “critical infrastructure”. We’ll offer plenty of criticism about those provisions in coming days, but for now, seeing a few rays of light from Capitol Hill is enough to give us pause.

FCC’s Rosenworcel Calls for an Incentive Auction Approach to Reclaim Federal Spectrum

Yesterday, FCC Commissioner Rosenworcel joined fellow Commissioner Pai in calling for a clear timeline for upcoming incentive auctions. Setting a timeline for critical decisions that will affect the future of the mobile Internet for the next decade is common sense. It would ensure sound management of the agency’s resources and set appropriate expectations for Congress and the communications industry. Now that the timeline has bipartisan support, the Chairman will likely be unable to continue avoiding accountability on this issue.

She also proposed something that no one in the Obama Administration has been willing to mention: An incentive auction approach to reclaiming federal spectrum for commercial use. Bravo!

As I noted at a recent event hosted by the Advanced Communications Law and Policy Institute at New York Law School, the federal government’s greatest challenge in increasing the efficiency of its spectrum use is funding, which is exactly what incentive auctions are designed to produce. Yet, the Administration is focusing its efforts solely on spectrum sharing, which is less efficient from both a technical and economic perspective than clearing spectrum through market-based incentive auctions.

This doesn’t mean the Administration should abandon its consideration of spectrum sharing. At the recent House oversight hearing, Commissioner Rosenworcel said that incentive auctions alone would not be enough to meet our nation’s spectrum needs. But, as Commissioner Rosenworcel suggests, the Administration should be exploring options for providing federal agencies with incentives to clear spectrum as well, including through incentive auctions.