The Case for Free Markets

I've reproduced immediately below the brief Letter to the Editor published in yesterday's Wall Street Journal by Donald Boudreaux, a member of the Free State Foundation's prestigious Board of Academic Advisors. While brief, as usual Professor Boudreaux's piece cuts to the heart of the matter in a clear and cogent fashion.

This should be the first - and last - reading in every Econ 101 course.   

In support of some market interventions endorsed by the populists who today dominate the GOP, Glenn Hubbard counsels traditional conservatives to agree “with populist conservatives that markets don’t always work perfectly” (“The Economic Populists Have a Point,” op-ed, July 19).

I challenge Prof. Hubbard to identify a single serious conservative or libertarian scholar whose case for free markets rests on the belief that markets “always work perfectly.” Such a creature is imaginary. Not Adam Smith; not F.A. Hayek; not Milton Friedman; not Vernon Smith; not Deirdre McCloskey; not your frequent contributor, Phil Gramm; not anyone of any stature who supports free markets has ever grounded that support on the assumption of perfect markets.

The case for free markets—and against nearly all interventions desired by today’s populists—is that markets are less imperfect than governments. Most market imperfections are profit opportunities that in time attract entrepreneurs to experiment with ways to improve matters. Some experiments work, many fail. Unlike government officials, private market actors spend their own money and have no power to coerce.

Markets identify and correct mistakes more quickly than do governments, are less prone to be captured by interest groups and are more driven to strike trade-offs in mutually advantageous ways rather than in ways that compel some individuals to pay for the gains of others.

Prof. Donald J. Boudreaux

Mercatus Center, George Mason U.

Fairfax, Va.

Court Considering Whether to Extend Stay on FCC’s New Internet Regulation

July 22 was to be the date on which the FCC's new public utility rules for broadband Internet access services were to go into effect. But on July 15, the Sixth Circuit Court of Appeals issued an administrative stay order in the case of In re: MCP No. 185, postponing the effective date until at least August 5. The Sixth Circuit apparently is considering whether a further stay of the Commission’s new Internet regulation is warranted under the Major Questions Doctrine. In its July 15 order, the court invited supplemental briefings from broadband Internet service providers and the Commission regarding stare decisis and the court’s decision in 2005 NCTA v. Brand X Services. 

Pursuant to a June 28 order by the court, the parties filed briefings to the court regarding the legal authority of the Commission’s new Title II order in light of the Supreme Court’s June 28, 2024, decision in Loper Bright Enterprises v. Raimondo. In Loper Bright, the Supreme Court overruled its 1984 decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.

The Free State Foundation filed comments and reply comments in the FCC’s Safeguarding and Securing the Open Internet proceeding. Those comments explained why the Commission lacked authority to impose public utility regulation on broadband Internet access services under the Supreme Court’s Major Questions Doctrine. In short, the new Title II order was a major rule of political and economic significance, and Congress never provided the agency with a clear statement of authority to impose such sweeping restrictions on private broadband networks. In April of this year, shortly before the order’s release, I wrote a follow-up, “The FCC’s Internet Regulation Plan Fails the Major Questions Doctrine.”

 

In its legal briefings filed with the Sixth Circuit, the FCC argues that it has not expressly relied on Chevron in adopting its new Title II order but on its inherent statutory authority and the Brand X. But a relevant short passage from FSF’s comments anticipated the agency’s position in the pending litigation:  

The Commission appears to put some hope in the D.C. Circuit’s determination in its 2016 decision in US Telecom v. FCC that Brand X conclusively gave the Commission the authority to determine the proper classification of Internet access service, that the agency’s determinations involved matters of statutory ambiguity and were entitled to deference, and that there was no need to consult the Major Questions Doctrine. But the D.C. Circuit’s determination predated the emergence of the Major Questions Doctrine in Supreme Court

jurisprudence as well as the eclipse of Chevron deference, and the appeals court’s decision now appears to be inconsistent with current jurisprudence.

FSF’s comments were filed in December 2023, months before the Supreme Court’s decision was issued in Loper Bright Enterprises v. Raimondo. Even if the agency did not rely on the now-overruled Chevron Doctrine as purported legal authority for its new Title II order, the Major Questions Doctrine still poses an insuperable obstacle to the order’s legal validity. 

 

It is reported that the Sixth Circuit panel is expected to issues a decision on or before August 5 on whether to issue a stay on the rules pending a decision on the merits.

 

Free State Foundation President Randolph May wrote about the Supreme Court’s June 2024 decision in Loper Bright Enterprises v. Raimondo in a Perspectives from FSF Scholars published on July 2, “Chevron’s Demise Curbs Agency Power, Boosts Congress’s.” Today, July 23, RealClearMarkets published Mr. May's op-ed, "Chevron's Demise Re-Aligns Administrative State With Founders' Vision." Expect FSF Scholars to have more to say about the long-awaited judicial overturn of the Chevron Doctrine and its implications for future FCC activity as well for the chronically overreaching administrative regulatory state. 

FCC's Dated View Drives Dramatic Shifts in Video Strategies

In a recent post featured in today's Policyband newsletter (subscription required), Golden West Telecommunications Cooperative explained (and apologized to its customers for) a $4 per month price increase for video services. The reason put forth: rising cable programming and retransmission consent fees. Golden West even pointed out that "[o]ther telecommunications cooperatives in South Dakota have discontinued cable TV due in part to rising costs" – an exodus part of "a broader trend" that includes WideOpenWest and Frontier Communications.

I and other Free State Foundation scholars have documented extensively the rapid and relentless ascent of streaming services and the corresponding loss of subscribers by traditional providers subject to the FCC's statutory authority. We have argued that these seismic shifts demand an aggressive deregulatory response from both Congress and the Commission. We have implicated the latter's refusal to eliminate one-sided rules – and confounding desire to impose still more one-sided rules – as an exacerbating factor in the decline of facilities-based Multichannel Video Programming Distributors (MVPDs). And we have explained how that decline harms competition and, in turn, consumers.

Not surprisingly, these marketplace trends are not slowing down. By way of example, Netflix days ago announced that it added 1.45 million subscribers in the United States and Canada during the second quarter, bringing its total to over 84 million. Traditional providers, on the other hand, experienced yet another "worst quarter ever" between January and March – an overall drop in pay television subscriptions that surpassed 12 percent – and analysts anticipate that second quarter results could be just as bleak.

Nevertheless, the FCC remains unwilling to remove its blinders and focus on the reality before it. Consequently, an increasing number of facilities-based MVPDs are adapting to the steadily more inhospitable competitive landscape by embracing an "if you can't beat them, join them" approach that deemphasizes their own legacy bundled offerings. Some, as noted above, are exiting the marketplace altogether and/or outsourcing their video operations to virtual MVPDs (vMVPDs) – WideOpenWest, for instance, has partnered with YouTube TV.

Others are striking deals with programmers and streaming platforms so that they can provide consumers the online alternatives that they prefer over traditional video packages. Examples include:

• Comcast is offering broadband customers the Xfinity StreamSaver™ bundle that includes Apple TV+, Netflix Standard with ads, and Peacock Premium with ads. As I noted in a recent post to the FSF Blog describing the available-at-retail Xumo platform, Comcast provides broadband customers with a Xumo Stream Box – which supports hundreds of third-party apps, including those of multiple vMVPDs that compete directly with its own legacy video products – at no additional cost.
• Charter gives subscribers to certain Spectrum TV® video packages access to Disney+ Basic and ESPN+. It also provides a free-for-six-months Xumo Stream Box to those that subscribe to Spectrum One Stream and add Spectrum TV.
• Altice USA last week announced the launch of Entertainment TV, a vMVPD service that offers over 80 channels for $30 per month and is available to broadband subscribers as part of its Optimum Stream product. As reported by Daniel Frankel, managing editor of Next TV, "[l]ike many cable operators, the company would prefer to leave linear video behind."

Traditional MVPDs find it increasingly challenging to win and retain customers in the vibrantly competitive battle for eyeballs that includes not just streaming alternatives, but social media platforms – particularly YouTube – and gaming. The FCC's dogged determination to saddle them with even more one-sided rules, such as unreasonable constraints on their ability to employ common billing practices, is exacerbating the situation and driving them to retrain their focus. As a result, consumer choice and overall consumer welfare are compromised.

Will AI Help or Hinder Federal Privacy Legislative Efforts?

Efforts to pass a federal data privacy law have dragged on for many years. During that time, unrelenting technological advancement simultaneously has produced new innovations that amplify calls for clear rules and complicated congressional conversations that might lead to such legislation. Artificial Intelligence (AI) is the latest such instigator/troublemaker.

Generative AI offerings – such as OpenAI's ChatGPT, Google's Gemini, and Meta AI – depend upon Large Language Models (LLMs) trained on massive amounts of data. The more data used to train the LLM, the better the results. Consequently, generative AI raises substantial questions relating to privacy. (By way of example, the image below was created with OpenAI's DALL-E using the prompt "create an image of generative AI and data privacy.")

In her Opening Statement regarding a recent Senate Commerce, Science and Transportation Committee hearing titled "The Need to Protect Americans' Privacy and the AI Accelerant," Chair Maria Cantwell (D-WA) wrote that "[w]e are being surveilled … tracked online in the real world, through connected devices. And now, when you add AI, it is like putting fuel on a campfire in the middle of a windstorm." AI, she argued, "increases the need for passing legislation soon."

This heightened concern, however, to date has not generated legislative progress on data privacy. The American Privacy Rights Act of 2024, about which I wrote in "Congressional Leaders Return Privacy to the Front Burner," an April 2024 Perspectives from FSF Scholars, has yet to advance beyond a discussion draft. It was scheduled for markup by the House Energy and Commerce Committee on June 27, 2024, but that markup was cancelled at the last minute, a development I described in a post to the Free State Foundation's blog.

Prompting an unsettling sense of déjà vu, already one state has taken stalled congressional matters into its own hands. On May 17, 2024, Colorado Governor Jared Polis signed into law Senate Bill 24-205, "Concerning Consumer Protections in Interactions with Artificial Intelligence Systems."

Broadly speaking, Senate Bill 24-205, which goes into effect on February 1, 2026, requires that developers of "high-risk" AI systems "use reasonable care to protect consumers from any known or reasonably foreseeable risks of algorithmic discrimination."

We shall see if other states follow Colorado's lead – and, if so, whether another unwanted privacy-related "patchwork" emerges.

Xumo Streaming Devices Compel the Sunset of Set-Top Box Rules

The Free State Foundation's recent comments responding to the FCC Office of Economics and Analytics' State of Competition in the Communications Marketplace Public Notice argued that "the Commission should follow its sound decision in September 2020 to terminate the 'unlock the box' navigation device proceeding and announce that the sunset provision set forth in Section 629(e) of the 1996 Act has been satisfied." Comcast's announcement on June 27, 2024, that Xumo streaming devices, which are available for purchase at retail and now support a fourth competing virtual Multichannel Video Programming Distributor (vMVPD), is a more than compelling reason to take that long overdue step.

Enacted nearly three decades ago in a context today wholly unrecognizable, Section 629 sought "to assure the commercial availability … of converter boxes … and other equipment used by consumers to access multichannel video programming … from manufacturers, retailers, and other vendors not affiliated with any" MVPD. The Commission effectively abandoned this misguided effort four years ago, but it stopped short of triggering the sunset provision set forth in subsection (e). Consequently, the regulatory requirement that cable operators make available "separable security" remains on the books (and imposes needless costs).

Source: xumo.com

The Xumo platform, the product of a joint venture that includes Comcast and Charter, provides consumers with access to three of the largest cable services – Comcast's Xfinity, Charter's Spectrum, and Mediacom's Xtream – as well as over 250 third-party apps.

Xumo devices can be obtained directly from these providers (in some cases for free) or – critically – at retail. The Xumo Stream Box can be purchased directly from the Xumo website, while Xumo TVs manufactured by Pioneer, element, and Hisense are available on store shelves at Best Buy, Meijer, and Walmart.

Consequently, the goal of Section 629 – to make it possible for subscribers to purchase a set-top box from a third party rather than lease one directly from their provider – clearly has been achieved. (The longstanding availability of app- and browser-based options to access MVPD services similarly satisfied that objective, notwithstanding the FCC's unwillingness to acknowledge that fact.)

But wait, there's more: not only does the Xumo platform foster device-based competition, it also facilitates service-based competition. As noted above, Xumo devices recently added support for Fubo, a vMVPD that competes with traditional MVPD offerings. And that's on top of existing support for popular vMVPDs YouTube TV, Hulu + Live TV, and Sling TV.

Subsection(e) of Section 629 states that any rules adopted thereunder "shall cease to apply when the Commission determines that (1) the market for the [MVPDs] is fully competitive; (2) the market for [devices] used in conjunction with that service is fully competitive; and (3) elimination of the regulations would promote competition and the public interest."

Xumo devices singlehandedly satisfy the first two conditions, and the sunset of one-sided rules that unjustifiably impose compliance costs clearly would "promote competition and the public interest." All that is left is for the Commission to acknowledge – "determine," per the language of the statute – that which undeniably is true.

House Commerce, Commissioner Carr Target BEAD Program

In a June 2024 Perspectives from FSF Scholars, I focused a spotlight on insidious efforts by both the National Telecommunications and Information Administration (NTIA) and certain state-level bureaucracies to inject extraneous policy objectives like rate regulation and a fiber-at-any-cost bias – what I termed "devilish details" – into Broadband Equity, Access, and Deployment (BEAD) Program funding decisions. Recent news from the Hill and the FCC demonstrate that others share my concerns.

In a letter dated July 9, 2024, to NTIA Administrator Alan Davidson, House Energy and Commerce Committee Republican leaders wrote that "it appears that the NTIA may be evaluating initial proposals counter to Congressional intent and in violation of the law." And in written testimony prepared for a congressional hearing held that same day, FCC Commissioner Brendan Carr expressed his broad view that the BEAD Program "is going off the rails."

Noting the BEAD Program's unprecedented exemption from Freedom of Information Act (FOIA) requirements, House Energy and Commerce Committee Chair Cathy McMorris Rodgers (WA), Subcommittee on Communications and Technology Chair Bob Latta (OH), and Subcommittee on Oversight and Investigations Chair Morgan Griffith (VA) in their letter demanded greater visibility into why only 16 of the 56 initial proposals submitted by states and territories prior to year-end 2023 had been approved as of July 9, 2024. (The following day that total grew to 17 with the approval of Maryland's submission.)

In particular, the authors pointed to "anecdotal evidence" – the best available under the circumstances – indicating that NTIA "is directing [states] to set rates and conditioning approval of initial proposals on doing so." By way of example, they highlighted an objection by the Virginia Office of Broadband to NTIA's insistence upon "an exact price or formula" for its low-cost service option before its initial proposal would be approved, an impasse which I addressed here.

Chair McMorris Rodgers and Subcommittee Chairs Latta and Griffith therefore requested copies of "all communications between [NTIA] and state broadband offices as it relates to pending [BEAD Program] Initial Proposals" no later than July 23, 2024. They also sought information regarding "[t]he factors or conditions that are preventing state entities from having their initial proposals accepted," including "all instances where a state's initial proposal was not accepted … due in part to the BEAD's low-cost option requirement pricing as a factor in the decision."

The concerns of Commissioner Carr, meanwhile, include but are in no way constrained to rate regulation alone. Labeling the $42.45 billion BEAD program "the slowest moving federal broadband deployment program in recent history" – after nearly 1,000 days, "not one person has been connected to the Internet with those dollars" – he pointed the finger at the convoluted, multistep design of the program and reminded the Subcommittee that this "failure to launch is not only predictable, it was predicted" by various members of Congress.

(For the record, it also was predicted by numerous Free State Foundation scholars: member of the Free State Foundation's Board of Academic Advisors Michelle P. Connolly, Ph.D., FSF President Randolph J. May, FSF Director of Policy Studies and Senior Fellow Seth L. Cooper, and me.)

Laying the blame at the feet of the Biden Administration for "layering on red tape and advancing a wish list of progressive goals," Commissioner Carr faulted specific elements of the BEAD Program as implemented – but not found in the text of the Infrastructure Investment and Jobs Act that lead to its creation – that "pursue a climate change agenda, [diversity, equity, and inclusion] requirements, technology biases, price controls, preferences for government-run networks, and rules that will undoubtedly lead to wasteful overbuilding."

Consequently, Commissioner Carr predicted that, at the end of the day and after all the money is gone, households, particularly rural households, will remain unserved "absent major reforms" that reign in wasteful spending on unrelated Biden Administration priorities and remove unnecessary bureaucratic hurdles.

American Copyright Owners Deserve Royalties When Radio Stations Use Their Property

 On June 26, the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet held a Hearing titled "Radio, Music, and Copyrights: 100 Years of Inequity for Recording Artists." The hearing featured testimony from witnesses on two competing legislative measures introduced in the 118th Congress: the American Music Fairness Act of 2023 and the Supporting the Local Radio Freedom Act.

The American Music Fairness Act – H.R. 791 and S.253 – would finally recognize a public performance right in terrestrial AM/FM radio broadcasts of copyrighted music recordings. If passed into law, the Act would require for-profit AM/FM stations to pay royalties to owners of sound recordings for the use of their intellectual property just like online streaming services do. Smaller commercial AM/FM stations as well as non-profit stations that have less financial resources would qualify for a significantly reduced annual royalty payment of $500, $100, or $10. 

Testimony by country music star Randy Travis and his wife Mary Travis challenge the position of many radio stations that American recording artists don't deserve a public performance right for their sound recordings for radio airplay because radio broadcasts of their music promote sales of physical CDs, merchandise, and tickets. Indeed, in the age of digital streaming services, revenues from CD sales are only a fraction of what they were many years ago, and many recording artists struggle to make a living and pay their crew and other co-workers. Commercial terrestrial AM/FM radio stations profit from playing copyrighted sound recordings. Internet streaming and satellite radio services pay public performance royalties for broadcasting copyrighted sound recordings, and it makes no sense to continue giving terrestrial AM/FM radio services. 

 

At the hearing, SoundExchange CEO Michael Huppe testified to the important point about how the American Music Fairness Act would benefit American recording artists and copyright owners by unlocking significant royalties from foreign radio stations. As explained in my March 27 blog post, "Music Revenue Report Should Spur Congress to Secure Copyrights Fully":

Under existing international agreements, foreign terrestrial AM/FM radio stations do not have to pay royalties for playing copyrighted music owned by Americans so long as domestic terrestrial AM/FM radio stations in the U.S. have no obligation to pay such royalties. Passing the American Music Fairness Act would open up those foreign royalty streams to U.S. copyright owners. Importantly, the legislation is sensitive to the limited financial resources of smaller commercial and non-profit stations by treating them to a low, flat royalty rate. 

The case for the American Music Fairness Act is presented in further detail in my February 2022 Perspectives from FSF Scholars, "American Music Fairness Act Would Secure Copyrights in Sound Recordings," and in my August 2021 Perspectives from FSF Scholars, "Congress Should Secure Full Protections for Music Sound Recordings." 

 

Testimony from National Association of Broadcasters President and CEO Curtis LeGeyt endorsed the Supporting the Local Radio Freedom Act – H.ConRes.13 and Sen.Con.Res.5  – a resolution stating that Congress should not impose "any new performance fee, tax, royalty, or other charge" on a local radio station broadcasting sound recordings over the air. But Mr. LeGeyt's testimony, like the Supporting the Local Radio Freedom Act, wrongly lumps payment of royalties by a radio station for commercially exploiting someone else's copyrighted property in with fees and taxes paid to the government. NAB's position isn't new, and it doesn't overcome the just claims of the owners of copyrighted property. I addressed the critical distinction between royalties and taxes in my September 2022 blog post, "In Debate Over Radio Royalties, Congress Should Favor Property Rights."

 

The American Music Fairness Act deserves to be advanced by Congress because it is a sound policy rooted in constitutionally recognized property rights principles. The other legislative measure is not.