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.

The History of Our Future

According to a report in the March 13^thedition of Communications Daily, former FCC Chairman Tom Wheeler said something at a recent Brookings Institution event which caught my eye. Mr. Wheeler, now a Visiting Fellow in Governance Studies at Brookings, said: “The rules that have worked for industrial capitalism are no longer sufficient for internet capitalism.”

I take it Mr. Wheeler made the comment, at least in part, in the context of a discussion regarding the release of his new book, "From Gutenberg to Google: The History of Our Future." I like that catchy title. I've ordered the book, and I may well like more than the title when I have a chance to read the book – probably after the FSF Eleventh Annual Telecom Policy Conference on March 26! To be candid, though, while his book is billed as a "history of the future," about which I'm not so sure, based on Mr. Wheeler's history as FCC chairman, I suspect I'll find enough with which to disagree to report back later.

In the meantime, back to the notion that the "rules that have worked for industrial capitalism are no longer sufficient for internet capitalism." I get there is an uneasiness, warranted in my view, with actions and practices of what is often referred to as "Big Tech" or, if you prefer the stock market jargon, the "FAANGs". That would be Facebook, Apple, Amazon, Netflix, and Alphabet's Google. Indeed, at one extreme, Senator Elizabeth Warren has urged the "break up" of Facebook, Google, and Amazon.

At the Brookings event, Communications Daily reports that Mr. Wheeler declared Facebook isn't a neutral carrier of information but instead exercises editorial control over what users see. In other words, he is asserting Facebook is more than a "mere platform" as the company has long maintained. Mr. Wheeler suggests that Facebook should release the open application programing interfaces showing how it gathers and publishes content. To like effect, Senator Lindsey Graham, who happens to be the Chairman of the Senate Judiciary Committee, said just last week that the algorithms used by Facebook and Google should be released and scrutinized for bias.

So, I get the uneasiness that many feel regarding social media's dark side, and I understand the need for Congress and other appropriate public policymakers to address matters such as the privacy and data security practices of Internet providers.

But I get a sense of unease, too, when Mr. Wheeler apparently suggests a new set of doctrines by conjuring up the notion of "internet capitalism." Here's Merriam-Webster's dictionary definition of capitalism:

: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

I prefer to stick with accepted precepts and first principles. In my view, we are more likely to get the law and policy right for Internet providers and platforms if we don't abandon basic precepts and first principles. For me, capitalism based largely on private decision-making in free markets is a first principle. Therefore, whatever new restrictions and remedies, if any, that may be needed to deal with today's Internet maladies should be considered in the context of the capitalist framework that has been central to the American experience since the nation's Founding. There is no reason to resort to today's suddenly fashionable socialist frame or perhaps tomorrow's fashionable "internet capitalism."

Now, it is important to emphasize, although there should be no need to do so, that Webster says capitalism is an economic system characterized "mainly" by competition in a free market. I certainly agree. Thus, it is clear that proper regulation of private entities – say, for example, properly formulated privacy regulation and data protection mandates – is not inconsistent with a traditional understanding of capitalism as favoring "competition in a free market" as the default presumption.

For capitalism to function properly – indeed for America's larger experiment as a democratic Republic to thrive – adherence to the rule of law is essential. This leads me to mention one other matter that may cause unease. At the Brookings event, Mr. Wheeler bemoaned the fact that, in his view, the fast pace of technological change is short-circuiting democratic processes so "authoritarians" can offer "slogans instead of solutions." As examples, he held up "The Wall" and "Brexit." Mr. Wheeler is not alone, of course, in raising concerns about how speech is employed – some say "weaponized" – on the Internet. But I worry because some of his words and actions during his FCC tenure supported placing more power in the hands of the government to regulate the content of speech than was warranted.

I don't want to debate the merits of any such particular policies here. Rather, the point I wish to emphasize is that, in addressing any legitimate concerns, adherence to the rule of law means nothing if it does not mean adherence to the First Amendment's free speech guarantee. Just as capitalism doesn't mean there cannot be any regulation, the First Amendment doesn't mean that there cannot be any curtailment of speech whatever. But accepted First Amendment jurisprudence makes clear that any curtailment can only be allowed if the government demonstrates a compelling justification and employs the least restrictive means possible to achieve the asserted interest.

And, above all this, which sadly is often misunderstood: The First Amendment is intended to impose limits on government's power to curtail speech, not to empower government improperly to limit the speech of private parties – and, yes, that includes Internet providers and platforms. In a rule of law regime that protects liberty, there are lines in the Constitution that must not be crossed in the name of some claimed "higher purpose," whether such purpose be in the minds of this or that Congress, President, or particular government administrative agency official.

Well, those are some thoughts provoked by my reading about the Brookings event and about Tom Wheeler's new book, "From Gutenberg to Google: The History of Our Future." Even though I may disagree with parts of it, I bet the book will be a worthwhile read. Mr. Wheeler is a long-standing amateur historian, and whether looking back in history, or forward into the future, it is important to discuss, in a civil fashion, and across all kinds of aisles, the ideas he addresses.

Oh, and finally, speaking of discussing important ideas – that's exactly what we will be doing at the Free State Foundation's Eleventh Annual Telecom Policy Conference on Tuesday, March 26, at the National Press Club. I hope you will join us. We are nearing capacity, though, so please register now if you wish to attend. You may register here, and a flyer listing the speakers is here.  

Whither Socialist Communications Policy? – Part II

With the growing infatuation with socialism in mind, on February 11, I posted a blog titled "Whither Socialist Communications Policy?"There I said: "I want to focus on what socialism might imply for communications policy, and, more specifically, for control of the channels of communications that enable the American public to connect with their families, friends, and civic groups, to engage in social and political affairs, and to inform and entertain themselves."

Here I want to continue that examination.

In the first postI took as my point of departure the following statement of Robert McChesney, one of the co-founders of the advocacy group Free Press:

"What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility. We want an Internet where you don't have to have a password and that you don't pay a penny to use. It is your right to use the Internet."

Professor McChesney said this in an interviewpublished by "The Socialist Project"inThe Bullet.The Socialist Project says this about itself: "The SP opposes capitalism out of necessity and supports the anti-capitalist struggles of others out of solidarity."

In today's environment, it's worth considering what "the socialist project" – not the publication but the project– implies for communications policy. At the least it implies that the Internet would be considered a "public utility" and regulated as such. As practiced in the United States, historically, the notion of public utility regulation may encompass a range of government controls. At one end of the control continuum, it may mean regulating the service provider's rates, terms, and conditions. At the other end, it may mean government ownership of Internet networks, including control of content. Recall that, in Robert McChesney's version, socialism means "an Internet that is not private property."

In any event, a socialist communications policy means considerably more government control over communications networks than currently exists here in the United States. Think countries like Russia, China, Iran, Venezuela, and Cuba with acknowledged socialist models of government communications controls.

But now let's focus on the second part of Professor McChesney's statement: "We want an Internet where you don't have to have a password and that you don't pay a penny to use."

This "want" conjures up an inherent pitfall with socialism in practice, rather than as an ideal postulated breezily in campaign slogans. This is the notion that to satisfy various "wants," certain goods and services should be "free" and, indeed, that somehow they arefree if the government is paying for them, rather than you and me directly. The campaigns for "Medicare for All," "Free College for All," and the "Green New Deal" all rely on the seductive promise that the government itself will bear the burden of the increased societal costs imposed by the distribution of more "free" goods and services. (Note that the "Green New Deal" promises economic security for all who are "unwilling to work." Supporting all those unwilling to work, along with all these other mandatory societal transformations, won't be accomplished on the cheap.)

So, here's the reality with regard to what it means to satisfy the "want" of an Internet "that you don't pay a penny to use." Over the past two decades private sector service providers, wireline and wireless, have invested close to $2 trillion dollars of their own capital.

Thanks to this private sector investment, according to the FCC’s 2018 Communications Marketplace Report, at the end of 2017, about 94% of the U.S. population had access to fixed broadband Internet access services offering speeds of 25Mbps/3Mbps for downloads and uploads, and 70% had access to two or more providers offering such speeds. Indeed, the FCC's most recent broadband deployment report shows that, at the end of 2017, the number of Americans with access to 100 Mbps/10Mbps fixed broadband increased by nearly 20%, from 244.3 million to 290.9 million. At the same time, there was more than a 25% drop in Americans lacking access to fixed broadband.Moreover, as prices have declined,speeds have steadily increased. For example, according to a recent report from Ookla, broadband speeds, on average, increased by more than 35% in 2018.

According to a January 2017 report by Accenture, the build-out of next-generation 5G wireless broadband networks is projected to create 3 million new jobs and $500 billion in gross domestic product throughout the United States. The new 5G networks, requiring the deployment of 800,000 new small cells, are expected to deliver broadband speeds from 10 to 100 times faster than current wireless 4G networks, spurring innovations such as autonomous vehicles, smart cities and homes, and a variety of "Internet of Things" applications.

But guess what: The build-out of new 5G wireless networks won't be "free" either. Private sector wireless companies are expected to invest an additional $275 billion in 5G infrastructure, above and beyond existing investment. And, of course, the other broadband providers – cable, telephone, and satellite operators – will continue to invest relentlessly in their own high-speed broadband networks in order to try to maintain their positions in a competitive marketplace.

There should be no dispute that it should be a national objective to ensure, to the extent possible, that all Americans have access to broadband, as the Telecommunications Act of 1996 put it, "on a reasonable and timely basis." As the above figures show, achieving this important national objective is a costly endeavor – and costly on an ongoing basis as the demand for ever higher speeds and greater bandwidth continues to accelerate.

In sum, socialism wrongly implies the government itself should undertake the expenditure of the hundreds of billions of dollars required to deploy, own, and operate advanced broadband networks – and then control them – so you don't "pay a penny to use" them.

But surely this is not the best way to benefit American consumers or taxpayers as a whole. Rather, the best way is to continue to allow private sector firms to invest their own risk capital in a free marketplace as they seek to earn a return on their investment. In the current competitive broadband environment, in a technologically dynamic Internet ecosystem, these private firms, absent heavy-handed government controls, have every incentive to meet present and evolving consumer demands in the most efficient, effective, and least costly manner. They will do this at considerably less cost to American consumers and taxpayers than will government-controlled networks. That is the virtue of free market enterprise.

FINAL NOTES: No, I am not for a moment suggesting, in choosing capitalism over socialism, that there does not need to be any governmental oversight over Internet service providers. Such oversight, properly calibrated to match the need to protect against consumer harm to the extent marketplace competition is lacking, is consistent with a free market system.

And, no, I am not suggesting that despite the remarkable accomplishments of private sector broadband providers over the past two decades at deploying broadband networks ever more ubiquitously at ever higher speeds that there is not a proper role for the government in helping to close remaining digital divides. There is. For example, as readers of this space know, for well more than a decade I have been a steadfast advocate of a properly-run Lifeline program to support access to affordable communications for low-income persons. Government support for this "safety net" program is also consistent with a free market system.