FSF's May and Cooper's New Book Released - "The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective"

Free State Foundation President Randolph May and FSF Senior Fellow Seth Cooper's new book, The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective, has just been released by Carolina Academic Press. 

This new book explores the foundational underpinnings of intellectual property that informed the Constitution of 1787, and it explains how these concepts informed the further development of intellectual property rights from the First Congress through Reconstruction. 

The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective, is now available from Amazon and from Carolina Academic Press.

We Told You So: Title II Regulation Harms Investment

On August 25, 2015, Hal Singer, an economist at the Progressive Policy Institute, published a piece in Forbes that appears to confirm what Free State Foundation scholars have said over and over again for years – that rigid regulation of broadband Internet services providers (ISPs) almost certainly will discourage investment. From a sample of some of the largest ISPs in the United States, Mr. Singer finds that broadband (wireline and wireless) infrastructure investment fell by 8% in the first half of 2015 compared to the first half of 2014. Investment by wireline providers alone fell by 12%.

According to Mr. Singer, this is only the third time that capital expenditures by major Internet providers have gone down from the previous year. The first two times followed the “dot.com” bubble burst in 2001 and the Great Recession in 2009. Of course, now there are no such exogenous events to explain the investment drop-off. Because GDP increased over the same period and ISP revenues do not appear to be falling, Mr. Singer concludes the FCC’s adoption of public utility-like regulation of Internet providers in the 2015 Open Internet Order is the most plausible explanation for the reduction in capital expenditures.

Mr. Singer included the chart below in a tweet.

Mr. Singer, Free State Foundation scholars, and many others who opposed the imposition of public utility-like common carrier regulation on Internet providers warned that broadband investment would be adversely affected if the agency ignored the warnings. It looks like we may have been correct and, if so, the decrease in capital expenditures below what they otherwise would have been harms the nation’s overall economy, reduces the number of jobs available, and adversely impacts the quality of consumers’ Internet services.

Over the last decade, we at the Free State Foundation have said countless (yes, I really do mean countless!) times that common carrier-like regulation of ISPs would stifle investment. Therefore, I can’t say we are surprised that broadband investment already appears to have declined substantially. It was apparent for several months in advance of the Commission’s meeting that, come what may, FCC Chairman Tom Wheeler and his two Democrat colleagues were determined to apply the public utility model to Internet providers.

Here is just a sampling of the comments Free State Foundation scholars submitted to the Commission over the years in which we too specifically warned that rigid regulation of ISPs likely would discourage broadband investment.

In July 2014, Seth Cooper and I submitted comments in the matter of “Protecting and Promoting the Open Internet.” We said the following in response to the Commission’s May 2014 Notice of Proposed Rulemaking (NPRM):

Today, there is no evidence of marketplace failure or demonstrable consumer harm in the Internet ecosystem, including the Internet service provider market segment. Instead, there is competition among Internet service providers employing various technological platforms. And investment in network facilities is strong, and innovative business models are thriving. If new net neutrality mandates are adopted, there is a substantial risk that this new regulatory action will disrupt, or at least inhibit, the innovation and investment that has characterized the Internet ecosystem for the past decade or so. This, in turn, and most significantly, will harm consumer welfare.

In September 2014, Seth Cooper and I submitted reply comments in the matter of “Protecting and Promoting the Open Internet.” We said: “A Commission-imposed regulatory regime, which in the name of preventing ‘discrimination’ would enforce the effectual subsidization of heavier users by lighter users and thereby deter investment in facilities, would by no means necessarily be consumer-friendly.” In response to commenters asking the Commission to impose Title II regulation, Seth Cooper and I warned: “There is a long history demonstrating that Title II regulation represses investment and innovation and limits consumer choice.”

In January 2010, Seth Cooper and I submitted comments in the matter of “Preserving the Open Internet and Broadband Industry Practices.” We criticized the Commission’s efforts to apply century-old regulations to Internet providers: “If adopted as proposed, this new Internet regulation – which, in effect, would be much like the public utility regulation that applied to last century's voice-only telephone companies and the nineteenth century's railroads -- almost certainly would discourage investment and job creation, stymie innovation, and harm overall consumer welfare.”

In July 2010, Seth Cooper and I filed comments in response to the Commission’s Notice of Inquiry in the matter of “Framework for Broadband Internet Service,” suggesting that reclassifying broadband as a telecommunication service “would be harmful to broadband innovation and investment.”

In October 2010, Seth Cooper and I again filed comments in response to the Commission’s Further Inquiry in the matter of “Preserving the Open Internet and Broadband Industry Practices.” We advocated for a minimalist regulatory approach to “ensure that investment and innovation in new broadband platforms and Internet services continues to grow, subject not to regulatory dictates, but rather to the dictates of the marketplace.”

In February 2008, I submitted comments in the matter of “Broadband Industry Practices,” responding to petitions from Free Press and a number of other organizations asking the Commission to initiate a rulemaking to clarify what constitutes “reasonable network management” for broadband network operators. I wrote that “the uncertainty created by the mere initiation of a rulemaking proceeding that likely would result in overly broad prohibitions will chill necessary new network investment.” I added that “the FCC must not impose common carrier-like regulations that eliminate or reduce private sector investment incentives.”

In other words, during this decade-long debate, FSF scholars have been consistent regarding the potential adverse impact of imposing common carrier-like regulation on Internet providers. (See the Further Readings below, dating back to 2006.) This is why we are not surprised that it appears that broadband ISPs already have reduced their investment. Assuming for the sake of argument that the FCC’s 2015 Internet regulation order remains in place, it is not likely that there necessarily will be continuing straight-line year-over-year declines in capital spending. But it is likely – and this is the important point, even though it is difficult to measure – that there will be less investment than there otherwise would have been.

In conclusion, as Seth Cooper and I stated in our July 2014 FCC comments:

If new net neutrality mandates are adopted, there is a substantial risk that this new regulatory action will disrupt, or at least inhibit, the innovation and investment that has characterized the Internet ecosystem for the past decade or so. This, in turn, and most significantly, will harm consumer welfare.

We don’t really relish saying “we told you so.” But we did.

Further Readings

Randolph J. May, “The Net Neutrality Controversy: A Historical Perspective,” FSF Blog (January 27, 2015).

Michael J. Horney, “Increased Fees Caused by Title II Regulations Will Depress Investment,” FSF Blog (January 6, 2015).

Michael J. Horney, “Title II Would Not Just Harm Consumers, It Would Harm Workers Too,” Perspectives from FSF Scholars, Vol. 9, No. 43 (December 17, 2014).

Randolph J. May, “Thinking the Unthinkable: Imposing the ‘Utility Model’ on Internet Providers,” Perspectives from FSF Scholars, Vol. 9, No. 32 (September 29, 2014).

Randolph J. May, “FSF Scholars React to DC Circuit’s Net Neutrality Decision,” FSF Blog (January 15, 2014).

Gus Hurwitz, “Two Sides of the Internet’s Two-Sidedness: A Consumer Welfare Perspective,” Perspectives from FSF Scholars, Vol. 8, No. 25 (September 30, 2013).

Seth L. Cooper, “FCC’s Pro-Regulatory Broadband Policy Risks Investment and Jobs,” FSF Blog (September 11, 2012).

Randolph J May and Seth L. Cooper, “New FCC Regulations Reduce Investment and Hinder Job Creation,” Perspectives from FSF Scholars, Vol. 6, No. 22 (September 13, 2011).

Randolph J. May, “Overregulating the Internet "Net Neutrality" Would Discourage Investment and Innovation,” Perspectives from FSF Scholars, Vol.5, No. 2 (January 14, 2010).

Randolph J. May, “Riding the Back of the Internet Public Utility Tiger,” FSF Blog (August 10, 2009).

Randolph J. May, “Don’t Let Net Neutrality Go Airborne,” Perspectives from FSF Scholars, Vol. 2, No. 17 (June 14, 2007).

Randolph J. May, “Net Neutrality: Of Chickens and Eggs,” FSF Blog (May 11, 2007).

Randolph J. May, “Illogical Net Neutrality Idea,” Perspectives from FSF Scholars, Vol. 2, No. 10 (February 26, 2007).

Randolph J. May, “Sidestepping the Net Neutrality Boondoggle,” Perspectives from FSF Scholars, Vol. 2, No. 2 (January 9, 2007).

Randolph J. May, “Net Neutrality Unreality,” FSF Blog (August 17, 2006).

New Report: UberX Helps Low-Income New Yorkers

I’ve written multiple blogs explaining how the sharing economy provides access to services and income that many people would not have otherwise. This access increases the standard of living of all sharing economy users, but it has an even greater beneficial impact on low-income users compared to high-income users. (See here and here.) Free State Foundation scholars also discussed this important economic effect in our comments to the Federal Trade Commission back in May 2015.

Jared Meyer, Fellow at the Manhattan Institute, has authored a new report entitled “Uber-Positive: The Ride-Share Firm Expands Transportation Options in Low-Income New York,” presenting evidence that Uber’s service greatly benefits low-income New Yorkers. While Mr. Meyer’s report does not analyze which income group benefit more from Uber’s service, it certainly disputes the stereotype that Uber passengers are generally wealthy.

In a follow-up blog, Mr. Meyer discusses the popularity of UberX (Uber’s lowest-cost, non-luxury, and most frequently used service) in poor neighborhoods:

The largest increase in UberX rides from January 2014 to December 2014 was seen in zip codes with below-median incomes. Seven of the 11 zip codes outside core Manhattan (below Central Park North) that saw their numbers of rides grow by over 1,000% have below-median incomes.

Over the course of 2014, the historically low-income neighborhoods of Jackson Heights, Astoria, Harlem and Washington Heights all saw increases in UberX trips of over 1,200% — that’s more than 12 fold.

Mr. Meyer also disputes the stereotype that Uber is not popular in predominately black communities: “In the 29 zip codes outside of core Manhattan with one or more UberX pick-up per household during 2014, black households made up an average of 29% of households, while the average for all zip codes outside of core Manhattan was 27%.”

Mr. Meyer argues that NYC Mayor Bill de Blasio’s theory that Uber trips are creating congestion is exaggerated because in 2014 “there were around 175 million annual yellow taxi trips, and just under 9.5 million UberX trips.”

I think it’s fair to say that Uber and other ridesharing companies are having a positive impact in New York for people of all backgrounds, ethnicities, and income levels. Mayor de Blasio should take note of this report and encourage Uber’s growth, not attempt to restrict it as he has tried in the past. (See this blog for more.)

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FSF Has Employment Opportunities

The Free State Foundation, one of the nation's leading free market "law and economics" think tanks has openings for highly qualified persons for a couple of positions. See the job descriptions here. In both instances, excellent writing skills, and proven experience, are a must.

The Tortoise and the FCC...and the FCC Loses!

Once in a while -- well, more than once in a while! -- the FCC takes an action that makes you wonder. More specifically, that makes you wonder when the FCC will get serious about implementing real agency institutional reform.

Case in point.  The FCC's Wireless Bureau just issued an order approving applications filed by AT&T Mobility and KanOkla Telephone Association to assign AT&T two of KanOkla's 700MHz licenses in two local markets, one in Kansas and another in Oklahoma.

The good news is that the FCC finally approved the assignment of these two local market licenses.

The bad news? The assignment applications were filed on September 4, 2014. So it took the Commission almost a full year to grant the approvals -- even though the applications were not opposed. The FCC order states that the agency "received no filings in response to the Accepted for Filing Public Notice." In another place it reiterates that no petitions to deny or comments were filed regarding the applications.

You can read the FCC's 11-page order and decide for yourself whether it should have taken the FCC a year to act on unopposed applications relating to two local wireless markets in Kansas and Oklahoma.

I've already decided that it just shouldn't take that long.

We all know the story about the tortoise and the hare. The FCC's job is not to make the tortoise look good so often.

Bill Maher Does Not Understand the Sharing Economy

In a segment during his most recent episode of HBO’s “Real Time with Bill Maher,” Bill Maher stated that the sharing economy is the result of Americans adapting to income inequality in a “greed is good world.” He also called the sharing economy the “desperate economy,” because as a millionaire himself, Bill Maher apparently thinks it is sad that people are so desperate for money that they would share their home or car. He finished the segment by saying: “The one thing we’re not sharing are the profits. Somehow they forgot to make an app for that.”

It is clear from this segment that Bill Maher does not understand how the sharing economy operates. He even called it a “barter economy” at one point.

The sharing economy incentivizes entrepreneurial activity. While “profit sharing” may not be the apt term to describe how the sharing economy makes people better off, workers in the sharing economy are contractors; therefore, they create their own work, display their own skills, and are compensated directly for their own services. Each worker is essentially operating his or her own business. The sharing economy empowers workers and consumers through the use of reputational feedback mechanisms and peer-to-peer transactions, so the profits are being spread among the millions of users every single day. (See this recent Perspectives from FSF Scholars for more on the importance of reputational feedback mechanisms.)

Bill Maher claimed that the sharing economy is increasing income inequality and that workers have no choice but to engage because of a stagnant labor market in the U.S. If this is true, it makes the sharing economy a solution for workers, not the problem Maher claimed it is. He even made the following misguided statement about Airbnb: “Do you really think anyone wants to have total strangers living in their apartment for a week?” Well, clearly some people do want this, considering that Airbnb has had over 1.5 million listings in 190 countries around the world. Maher never explained how he thinks the sharing economy is harming the poor or exacerbating income inequality. But I can tell you he is wrong.

In May 2015 Free State Foundation scholars submitted comments to the Federal Trade Commission regarding the sharing economy. In the comments, we discussed the results of a March 2015 paper entitled “Peer to Peer Rental Markets in the Sharing Economy,” which empirically found that, for a couple reasons, sharing economy markets have an even greater beneficial impact on low-income persons than high-income persons.

As we explain in our FTC comments, the sharing economy raises the standard of living for poor consumers by creating access to goods and services that they would not have otherwise:

Due to the accountability and transparency that many sharing applications provide about their users, the emergence of trust between individuals to share their goods and services has shifted consumer preferences from owning to renting. People who could not afford to own a house, car, or even a power saw can now more easily rent them from others and ultimately enjoy a higher standard of living than they would have otherwise. Additionally, people who would have owned a car or power saw in the past might now rent them instead, saving a significant portion of their income.

Of course, consumers with high-incomes gain from the sharing economy as well. But the savings accumulated from a shift in owning to renting is more valuable to consumers with lower incomes. In economic terms, this is the law of diminishing marginal returns. All else being equal, each dollar earned is valued less than the previous one.

We also explained how the sharing economy creates entrepreneurial opportunities for poor people that would not exist otherwise:

Similarly, low-income consumers who already own goods that can be rented out stand to gain more from these transactions than high-income consumers. The extra income from sharing a car with someone is much more valuable to a poor college student than it is to a wealthy professional. Airbnb, for example, makes traveling less expensive, not only because it provides competition – and often lower prices – to traditional hotels, but also because travelers can share their living space while away. In other words, as a result of the sharing economy, the same traveler on the same trip may realize economic benefits in his or her capacity as both a lessor and lessee.

If Bill Maher were to stop criticizing successful businesses, maybe he would be able to appreciate the real economic benefits that the sharing economy enables, especially the benefits it brings to low-income individuals. But the fact that Bill Maher thinks the sharing economy exacerbates income inequality makes it clear that he has no idea how the sharing economy actually operates – through reputational feedback mechanisms which enable bisymmetrical trust and enhance welfare between consumers and workers.

FSF Scholars Announce New Book on the Constitutional Foundations of Intellectual Property

Free State Foundation Senior Fellow Seth Cooper and I are pleased to announce that our new book, The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective, is now available on Amazon. 

We believe that readers, whether academics, students, policymakers, or just ordinary citizens, will find the book not only useful and informative, but interesting as well, with its blend of history, biography, philosophy, and jurisprudence.