Thursday, August 29, 2013

Labor Day 2013: Lincoln, Labor, and Liberty

I've just finished reading Rich Lowry's new book, Lincoln Unbound, and as someone who has read a lot of books on Lincoln, I happily commend it to you. 

The book's rather long subtitle is "How an Ambitious Young Railsplitter Saved the American Dream – and How We Can Do It Again." As the dust jacket puts it: 

Lincoln lived the American Dream and succeeded in opening a way to it for others. He saw in the nation's founding documents the unchanging foundation of an endlessly dynamic society. He embraced the market and the amazing transportation and communications revolutions beginning to take hold.
At the end of his enjoyable book, Mr. Lowry takes what he understands to be Lincoln's philosophical dispositions and policy perspectives and suggests how they might be applied to address today's problems. This is an interesting, thought-provoking exercise, but you'll have to get the book to see whether or not you agree. 

For today, I just want to comment on how Lincoln's thoughts concerning what he called "free labor" relate closely – indeed, are integral – to a proper understanding of our free enterprise system and property rights and to what the Declaration of Independence refers to as the "unalienable Rights" to life, liberty, and the pursuit of happiness. While Lincoln could not have anticipated Labor Day as it has evolved today, I want to suggest that his own understanding of "labor" ought to have a special resonance as we think about the meaning of this Labor Day. 

As Lincoln's thinking evolved, and especially by the time of the Lincoln - Douglas debates, Lincoln increasingly based his argument against the abomination of slavery on his understanding of the meaning of the natural rights secured, in his view, by the Declaration of Independence. But long before rising to national prominence for his stand against human bondage, Lincoln had espoused, over and over again, his belief that an individual should reap the reward of his own labor. 

As Mr. Lowry points out, in 1847 Lincoln wrote that "each individual is naturally entitled to do as he pleases with himself and the fruit of his labor." Or, as he put it in a more colloquial Lincolnism: "I always thought the man that made the corn should eat the corn." 

Lincoln's views concerning free labor – and the Declaration's affirmation of the natural right to life, liberty, and the pursuit of happiness – were grounded in the Founders' understanding and acceptance of John Locke's work, with which they were intimately familiar and often relied upon. In his famous Second Treatise of Government, Locke put it this way: 

[E]very man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.

Note the explicit way that Locke linked an individual's own labor to his property interest.

Following Locke, James Madison, the principal drafter of our Constitution, declared that individuals possess property rights "in their actual possessions, in the labor that acquires their daily subsistence, and in the hallowed remnant of time which ought to relieve their Fatigues and soothe their cares."

In his opposition to slavery, but also in a more universal sense, Lincoln repeatedly articulated the Lockean view that all individuals, of whatever race or creed, possess a natural right to enjoy the fruits of their own labor, to make those fruits their own property.

Moreover, Lincoln understood that the intertwining of free labor and property rights was essential to securing and maintaining the liberty espoused by the Declaration of Independence and guaranteed by the Constitution – and that free labor, individual initiative, and property rights are essential elements of the American free enterprise system.
Finally, in extolling the virtue of labor and property, Lincoln frequently admonished those who would set one man or class against another. As he put it in 1864 in his reply to the New York Workingmen's Democratic Republican Association:

Property is the fruit of is a positive good in the world. That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself….

As early as 1847 Lincoln had expressed the same thought this way:
[I]t has so happened in all ages of the world, that some have laboured, and others have without labour, enjoyed  a large proportion of the fruits. This is wrong and should not continue. To [secure] each labourer the whole product of his labour, or as nearly as possible, is a most worthy object of any good government.

To my mind, it is always timely to consider Lincoln. And as Labor Day approaches, it is especially timely – and useful – to consider Lincoln's views on free labor, and to contemplate the inextricably intertwined nature of labor, property rights, individual freedom, and the American free enterprise system which Lincoln championed.

Whether you are working this Labor Day, or merely contemplating Lincoln's thoughts on labor, my best wishes for an enjoyable Labor Day weekend.

Monday, August 26, 2013

Baltimore to Bet Millions from Taxpayer on Government Broadband?

According to recent news reports, the City of Baltimore, Maryland, is looking to get itself deeper into the broadband business. Unfortunately, recent experience repeatedly demonstrates that municipal broadband projects typically put their own taxpayers deeper into debt.
Baltimore is reportedly planning to expand its expend a six-figure sum to hire a consulting firm for purposes of exploring how to expand city-owned broadband infrastructure. Apparently, the city is considering construction of additional infrastructure for leasing. One or a few "anchor tenants" would then provide broadband Internet service to residents and businesses.
Baltimore should think twice before travelling down the same debt-ridden, taxpayer-unfriendly path of prior municipal broadband projects. Several ambitious and much-hyped attempts by local governments to insert themselves into the broadband business have turned into financial debacles. And as a result, local government budgets are squeezed, requiring local taxpayer-funded bailouts. 
The list of municipal broadband busts includes: UTOPIA (Utah), Provo, Utah, Mooresville and Davidson, North Carolina, Lafayette, Lousiana, the N.C. Eastern Municipal Power Agency, and the Iowa State Telecom Network. In such cases, local taxpayers are stuck holding the bag for bad muni broadband investments after the public officials who voted for them leave office, and long after the paid consultants who pitched the projects have left town.
In "Observing Troubled Government Telecom Systems," FSF President Randolph May summed things up:
[T]he common denominator of these government-owned telecom systems is this: Because of almost universal cost overruns and less than projected demand for the services offered, taxpayers typically are left to bear the burden of the ensuing financial distress, either by providing direct subsidies from government coffers or by providing indirect subsidies through premium guarantees for bond offerings used to finance the projects.
Maryland State Senator Catherine Pugh's August 15 Baltimore Sun editorial, "The False Promise of Municipal Broadband," takes aim at the city's perilous plans and also sums up the poor track record of municipal broadband projects throughout the nation.
Immediate questions are always raised when government seeks to go into commercial enterprise, blurring the line between its public duties and private business. Even so, building and maintaining broadband networks is an expensive and risky undertaking. And in the end, the surplus of good intentions by local governments can't overcome the deficits saddling local taxpayers when pie-in-the-sky muni broadband projects go south.
The better bet is for local governments to reduce actual or effective regulatory barriers to entry for competing platforms by streamlining processes for franchising agreements, rights-of-way, and infrastructure site permitting. Let competitors in the field shoulder the risk of financing advanced broadband networks, not taxpayers.

* Endnote: A few news stories have referred to Baltimore's franchise agreement with Comcast. The agreement is sometimes described as an "exclusive franchise." That description is misleading and technically incorrect. As a general matter, the cable franchising process has historically been the source of monopolistic abuse, especially by local governments. And a local government could act in a discriminatory or corrupt manner that in effect, if not in name, establishes an exclusive franchise. However, federal law prohibits exclusive cable franchises. Section 621 of the Cable Act provides that "a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise." For that matter, Baltimore's 2004 franchise agreement with Comcast expressly declares it to be a "non-exclusive franchise." Not to be forgotten, federal law prohibits state and local regulatory barriers to entry for competing platforms such as direct broadcast satellite (DBS) and wireless. 

Wednesday, August 21, 2013

Income Migrating Out of Maryland

Very interesting new map from the Tax Foundation showing that Maryland is No. 43 --  that is, 7th from the bottom -- in terms of migration of personal income from one state to other states. According to the Tax Foundation, from 2000 - 2010, individuals leaving Maryland for other states took with them $5.5 billion in income.

That's a lot of money "out migrating"from Maryland for other more tax friendly, business friendly states. This outflow of income from Maryland positively benefits the total taxable income in the person's new state and negatively affects the income remaining in Maryland.

Monday, August 19, 2013

Overregulation and Innovation

Susan Crawford is a former high-ranking Obama Administration official responsible for formulating communications policy. Before leaving, her formal title was special assistant to the President for science, technology, and innovation policy. 
Now this title seems especially ironic, even misbegotten, particularly the part about "innovation policy." 
This is because last week on NPR's The Diane Rehm Show, Ms. Crawford declared that "overregulation" is "the way we make innovation happen in America." This is a rather astounding statement by a former Obama Administration official with "innovation policy" in her portfolio. It was uttered in the context of asserting, wrongly, that the U.S. is behind countries such as China with respect to broadband deployment. 
While astounding, Ms. Crawford's statement is not entirely surprising. Now back in academia as a professor at Cardozo School of Law, Ms. Crawford is an avowed, unapologetic advocate of public utility-style regulation, if not outright government ownership, of America's broadband Internet service providers, such as Verizon, Time Warner Cable, AT&T, Comcast, Cox, CenturyLink, Cablevision, and all the rest. 
In April 2012, Ms. Crawford wrote an article for Wired magazine advocating just such public utility regulation for cable broadband providers. In that piece, her regulatory advocacy was premised on the assertion that an airline gate agent had refused to allow Ms. Crawford to store her viola in the first class storage compartment or in the overhead bin. At the time I was not unsympathetic to her musical instrument's plight. But I explained in "Just Downright Flighty: The Viola and the Crazy Gate Agent" why the airline agent's action did not provide a justification for suggesting that today's broadband providers, operating in a competitive marketplace, should be regulated as if they were Ma Bell operating in the monopolistic environment of the 1970s. 
Well, with her comment suggesting that "overregulation" is the way to make innovation happen in America, Ms. Crawford is at it again. American inventors and innovators from Benjamin Franklin to Thomas Edison to Steve Jobs – and thousands more not so well known – must be turning over in their graves. 
Of course, when there is a market failure, or in instances when public safety and health are at risk, there is a place for proper regulation – but not overregulation. Even President Obama, not one to shy away from proposing (too many) regulatory solutions, seemingly appreciates the fact that unnecessary, over-zealous regulation stifles innovation. For example, in his Executive Order 13563, issued in January 2011, Mr. Obama said that America's regulatory system, while protecting public health, safety, and the environment, must promote "economic growth, innovation, competitiveness, and job creation." 
There is even a section in the Executive Order on "Integration and Innovation" which states:

Some sectors and industries face a significant number of regulatory requirements, some of which may be redundant, inconsistent, or overlapping. Greater coordination across agencies could reduce these requirements, thus reducing costs and simplifying and harmonizing rules. In developing regulatory actions and identifying appropriate approaches, each agency shall attempt to promote such coordination, simplification, and harmonization. Each agency shall also seek to identify, as appropriate, means to achieve regulatory goals that are designed to promote innovation.

The whole thrust of the entire Executive Order is to suggest that, where possible, regulatory burdens – and the associated costs of regulation – should be reduced. Certainly, nothing in the section on innovation suggests otherwise. 
And then there is this: On the same day the Executive Order was issued in January 2011, President Obama published an op-ed in the Wall Street Journal under the title, "Toward a 21st Century Regulatory System." In his op-ed, he declared that sometimes regulations get out of balance, "placing unreasonable burdens on business – burdens that have stifled innovation and have had a chilling effect on growth and jobs." Indeed, President Obama began his op-ed by stating: "For two centuries, America's free market has not only been the source of dazzling ideas and path-breaking products, it has also been the greatest force for prosperity the world has ever known." Certainly, President Obama, Ms. Crawford's former boss, doesn't seem to hold a brief for the proposition that regulation is, as Ms. Crawford put it, "the way to make innovation happen in America." 
In the post-Mao era, I doubt seriously that the Chinese, whom Ms. Crawford cites favorably by way of an example to be emulated, subscribe to that proposition. 
I cite President Obama's Executive Order and Wall Street Journal op-ed, not because Mr. Obama has always been as sensitive to the adverse impact of unnecessary regulation as he should be, but because the order and his commentary are consistent with the near universal mainstream consensus among economists and policy experts that unnecessary regulation stifles both innovation and investment. 
I repeat: For Ms. Crawford to assert that "overregulation" – or even just plain ol' regulation – is "the way we make innovation happen in America" is misguided.

Tuesday, August 13, 2013

Achieving Unanimity: Getting to "Yes" for Incentive Auctions

By Gregory J. Vogt, Visiting Fellow

The need to allocate more spectrum for mobile broadband has achieved rare, near unanimity in Washington. As the FCC implements the 600 MHz band incentive auction, however, there is a lot of chatter concerning limiting eligibility to bid on the voluntarily contributed broadcast spectrum. Achieving a “yes” on the incentive auction bargain must include rejecting such limitations because they are antithetical to the reverse auction bargain and violate free market principles.

Incentive auction legislation encourages broadcasters to voluntarily contribute spectrum in exchange for a portion of the auction revenues from the “forward auction” portion of the process. The FCC’s implementing NPRM recognizes this goal as critical to net as much as 125 MHz spectrum. Although the FCC never proposed a spectrum cap for bidders, it does ask whether some limitation should be imposed on the overall amount of 600 MHz spectrum that can be acquired by a particular bidder in the forward auction.

Smaller mobile players have been promoting bidding limitations to gain more spectrum for themselves. For instance, T-Mobile has proposed that the FCC set a “target price” on the overall receipts in the forward auction, accompanied by strict spectrum caps for large mobile providers. This is dubbed by its proponents the “Dynamic Market Rule.” In support of limitations, Sprint has argued that, based on spectrum auctions in Europe, restricting bidders may have no impact on eventual auction prices, but its paper is riddled with caveats.

Placing limitations on bidder participation is unwise. First, it almost certainly will tend to depress expected revenues, a consequence that harms taxpayers at a time of significant budget deficits. A recent study has shown that restricting potential bidders in auctions around the world probably did reduce potential receipts. The failure to achieve the reserve price in the 700 MHz D Block auction, which most probably occurred because that block was subject to a significant condition on use, should be a lesson for conducting any auction.

Second, perception that revenues will be depressed will in turn deter broadcaster willingness to volunteer spectrum, undermining the principal aim of the reverse auction to repurpose, in the FCC’s words, a “maximum amount of spectrum.”

Third, bidder limitations will skew the competitive market by granting advantages to individual market participants. Availability of insufficient mobile spectrum will harm consumers by inevitably reducing service quality and driving up broadband prices. And even though the FCC has provided some bidding credits in other auctions for small designated entities, a practice itself that raises serious issues, the agency has never adopted bidding advantages for multi-billion dollar entities with significant, highly capitalized foreign ownership.

Fourth, there is no showing that promoting competition requires handicapping certain bidders in the forward auction. Although the Justice Department speculated that a dominant firm might want to foreclose competitors from acquiring more spectrum, it makes no specific recommendations to the FCC to limit forward auction participation. Larger mobile carriers argue that limiting bidders is unnecessary because the chance of a foreclosure strategy is remote. In the end, concerns about undue market concentration should be left for adjudication by the antitrust authorities in other forums. And it should not be forgotten that the promotion of wireless broadband will strengthen competition in the overall multi-platform broadband marketplace. It is a mistake for the FCC to continue to look at wireless broadband as if it is a standalone segment separate from the broader marketplace.

Fifth, auction handicapping proposals are seriously flawed. Although the “Dynamic Market Rule” proposal is advertised as a mechanism to prove that limiting participation in an auction does not affect bid prices, its design proves that it is intended to steer spectrum to a smaller bidder, hardly a “dynamic” result. And there is no discussion as to how the FCC will decide what the “right” target price would be, i.e., what unrestricted bidding would produce as the maximum price. It would be exceedingly difficult, if not impossible, to identify the “right” target price before the auction. And the fact that failure to meet the target price would cause the rules to be adjusted to permit larger mobile bidders to win small blocks of spectrum until the target price is reached not only concedes the design failure, but compounds the problem by granting the spectrum to the favored bidder anyway. As Mike Myers’ Linda Richman would say on Coffee Talk, "the Dynamic Market Rule is neither dynamic, nor is it a market, discuss amongst yourselves."

The Commission should not risk meeting the near unanimous desire to repurpose a “maximum amount of spectrum” for mobile broadband use by tilting the auction scales toward particular bidders. Getting to “yes” on the incentive auction bargain depends on more robust participation by all willing bidders.

Friday, August 09, 2013

Cautionary Considerations Regarding FCC Outage Reporting Regulations

The FCC is now considering a proposed rulemaking thath would impose cell tower outage reporting requirements on wireless carriers. The proposal is not yet public. But according to TRDaily (July 26), the FCC's proposal is similar to one made by Consumers Union. It would require carriers to report to the FCC "non-functioning cell towers in each county, and the percentage of the carrier’s cell towers in that county that the number represents.” Apparently, the FCC would make the information public.
Both the wireless carrier and wireless infrastructure industries have raised opposition to the FCC's proposed rulemaking – or any proposed rulemaking, at this time – in ex parte filings
Again, the precise content of the FCC's proposed rulemaking has yet to be unveiled. But on a related note, my Perspectives from FSF Scholars paper "The FCC Should Keep Broadband Free From Analog-Era Outage Regulations," addressed concerns about a 2011 FCC proposed rulemaking to extend legacy network outage reporting requirements to VoIP providers and broadband ISPs.
One of the points I made in that paper was that regulations originating in the analog era of legacy telephone service are often ill-suited to today's competitive and multi-layered digital communications market. For instance:
Unlike circuit-switched systems that establish a dedicated transmission path between end users, broadband packet-switched systems use no specific path but instead use numerous paths across networks. As a result, packet-switching can avoid the effects of problems in one part of a network and allow end-users to communicate with little or no discernable disruption. Furthermore, broadband networks have built-in redundancies in infrastructure and equipment such as fiber rings and routers that automatically reroute information-storing data packets in the event of network disruption. Redundant cell towers and fiber backhaul paths to switching centers are also among the network reliability features employed by wireless broadband ISPs. Backup power supplies are also routinely used by broadband ISPs.
From a consumer standpoint, imposing new regulatory requirements on wireless carriers or infrastructure providers for equipment or other network outages offers no benefit where consumers do not actually face any loss of service or significant degradation of service. But such regulations would impose costs on carriers and infrastructure providers, and those costs would likely be passed on to consumers in the long run.
One other concern I raised with the 2011 FCC proposed rulemaking on VoIP and broadband ISP outage reporting was the lack of cost-benefit justification. It remains to be seen if the FCC's proposed rulemaking regarding wireless outage reporting is accompanied by any cost-benefit analysis.

Thursday, August 08, 2013

The TWC - CBS 'Retrans' Fight: Moving from Short Term Pain to Long Term Consumer Gain

As the dispute between Time Warner Cable and CBS drags on, obviously there is some pain being experienced by TWC's consumers as they are deprived of access to CBS content.

This "pain" is exacerbated by CBS's decision to block access by all Time Warner Cable broadband customers to the video programming available on CBS's Internet site. In a novel twist, this Internet blocking even affects TWC's broadband customers who do not subscribe to TWC's cable programming.

I am not a supporter of the FCC's net neutrality rules. In any event, by their own terms these regulations don't apply to blocking actions by Internet content providers such as CBS, only to the broadband Internet providers. Do not misunderstand. I am not suggesting any regulatory remedy here for CBS's blocking action. Aside from anything else, I believe that CBS – just like the broadband providers themselves – has a First Amendment right to grant or not grant access to its content. Nevertheless, if nothing else, CBS's action does illustrate the radical transformation the communications marketplace has undergone since Congress adopted the "must carry-retransmission regime" in the Cable Television Act of 1992.

Indeed, such a radical transformation that the Internet, as we know it today, was just a gleam in Al Gore's eye in 1992, along with a few other far-sighted technologically-savvy cognoscenti. Of course, today, as the FCC itself just recognized in its Fifteenth Video Competition Report, online ("over-the-top") Internet video is becoming increasingly prevalent, and, hence, an increasingly potent source of competition across the video marketplace. For lots of facts and figures concerning competition in the video marketplace, see the blog, "FCC Report Reconfirms the Reality of Video Market's Competitiveness," by Seth Cooper, my FSF colleague.

I can actually remember much of the debate surrounding adoption of the 1992 Cable Act. As anyone else who was around then knows, or who simply researches the legislative history, the principal justification for the must carry-retransmission regime (the two were linked together) was the presumed need at the time to protect local broadcasters and the local broadcast signal. Indeed, even a cursory reading of the Supreme Court's 5-4 decision in Turner Broadcasting System v. FCC will show that, but for the Court's acceptance of the argument that Congress intended to protect the signals of local broadcast stations from what the Court then called cable's "bottleneck" power, the must carry regime would have been declared inconsistent with Turner's First Amendment rights.

With the principal justification for the must carry-retransmission regime the protection of the viability of local broadcast stations, it is somewhat odd that the current TWC-CBS "retrans" battle, along with other present-day similar ones, reportedly turns on disputes regarding the terms of carriage of non-local broadcast station programming, such as various cable TV networks, along with increasingly important digital distribution rights. I submit that the negotiations going on now could not have been imagined by the framers of the 1992 Cable Act.

My point here – and I have been consistent on this point throughout – is not to argue in favor of some regulatory "fix" or the other that tweaks the current regime to favor one party or the other. At the outset I spoke of the (hopefully) short-term "pain" being experienced by current TWC subscribers deprived of their CBS programming. But hopefully out of this experience, and similar "retrans" fights, there will be a long-term "gain" for consumers. This gain would come in the form of a realization that, in today's digital broadband Internet environment, with a competitive video marketplace, it is time to get rid of all the decades-old legacy video regulations that were put in place in an analog era when consumer choice was limited in a way not imaginable today.

Deregulation of the video marketplace, along the lines of the DeMint-Scalise "Next Generation Television Marketplace Act" introduced in the last Congress, is the ultimate solution to ensuring that consumer welfare is enhanced by negotiations between programming suppliers and program distributors in a truly free marketplace. With all the legacy regulatory backstops in place, what we're witnessing now is not what I'd call a free market negotiation.

For further reading on this point, see my July 25 blog immediately below, with still more links embedded therein for even further readings.
*   *   *
Thursday, July 25, 2013
Today I have been reading bits and pieces about the "retrans dispute" between CBS and Time Warner Cable. These retransmission disputes have a way of turning nasty and leaving pay TV viewers -- such as Time Warner Cable's subscribers in this instance -- in the dark. 

And by "in the dark" I mean the pay TV subscribers are threatened with the loss of programming on their local TV station, or actually lose it, and they generally are in the dark as to what's behind the dispute.

Here's a good post on the Madery Ridge website that is useful in explaining what's behind the dispute. I don't mean to endorse every assertion and interpretation contained in the post, but it does shed light on the problematic nature of CBS's claims -- and the claims that are often made by the broadcast television networks in these retransmission disputes.

Even in the face of sharply rising retransmission fees paid to broadcasters by pay TV providers, I certainly don't want to presume to judge what the right "negotiated" price should be to resolve the TWC - CBS dispute -- in other words, how much TWC must pay to continue to carry CBS's broadcast programming. But, as I have said many times in the context of discussing similar retransmission disputes, please don't assume that what is taking place in LA is a "free market" negotiation as the broadcasters often claim. The broadcasters retain many legacy regulatory privileges -- adopted decades ago in a much different video marketplace environment -- that provide an overlay to the negotiations. These legacy regulations prevent the bargaining from being characterized as truly free market. That's why "negotiated" above is placed in quotes.

And the fact that broadcasters have obtained their spectrum for free is no small matter. In fact, it's a big deal in a world in which only 10% of American households still obtain their television programming free "over-the-air."

Along with other FSF scholars, I have written several pieces explaining why the "retrans negotiations" are not truly free market negotiations. If you need a refresher on this important point as you try to figure out the current TWC - CBS brouhaha, see herehere, and here.
Posted by Randolph J. May at 7:45 PM, July 25, 2013