finally a few words on "net neutrality"

So I've had several people ask me to comment on the recent joint proposal by Google and Verizon for the FCC to regulate broadband internet while leaving wireless internet essentially unchanged.  I have wanted to comment on so-called net neutrality for a while because in my opinion a lot of the talking points involving this issue are very abstract and have little connection to reality.  Moreover, I think the debate comes down to the same issue that many of our current problems unfortunately come down to: a large company tries to sell the public that a regulation is "for the common good," but in reality it is simply a way to strengthen their business model or bottom line.  And enter Google.

So what is net neutrality?  According to its most fervent supporters the idea is that no internet traffic should be discriminated against based on the user or type of information.  And anyone who believes in discrimination is evil.  Hence net neutrality is a good idea because discrimination is bad.  But in all reality discrimination can be highly beneficial with regards to internet traffic.  Broadband providers have extremely complex networks that send an unimaginable amount of data from literally billions of sources.  Some is email, some is video, some is porn.  In order to keep the network from being hogged or to prevent a few high bandwidth users from slowing the access of others, it is perfectly reasonable to allow the providers to discriminate in order to properly maintain their networks.

And what's more is that the end goal of net neutrality supporters, an internet where packets are effectively treated the same regardless of source, size or user, is essentially exactly how broadband internet operates right now.  The free market has provided their end goal.  Absent a few examples like when Comcast chose to block ports used by torrent websites (in order to prevent bandwidth hogs from distributing copyrighted material illegally) or forcing people who operate email servers to upgrade to a commercial subscription, there is no serious packet discrimination that net neutrality supporters can point to and say "This is wrong.  The consumer is being hurt."  The reason for this is obvious: its not an actual problem to begin with.  There is nothing inherently wrong with forcing someone who needs to use more bandwidth to pay more.  

And like I said, enter Google.  This is company who owns youtube, provides over 8 GB of storage to anyone who uses their email service and who major source of income is based on people looking at and clicking online ads.  They are not only a bandwidth hog, but their entire business model is based on generating large amounts of traffic.  They understandably see a move by the government in the name of stopping discrimination as a way to prevent them having to realize the true costs of their network usage, and it would prevent broadband providers from either charging them more for the right to the priority access or slowing Google's packets to prevent network congestion.  In effect, people who use less bandwidth would be subsidizing google.

Now at this point, the FCC decided to step in.  Although the D.C. Circuit Court of Appeals slapped down the FCC in April when it ruled the FCC didn't have the authority to impose its net neutrality rules on Comcast based on broadband's definition as an "information service" under the Telecommunications Act of 1996, the FCC decided to simply redefine broadband as a telecommunications service under the act, giving it ample authority to regulate.  In fact, by doing so the FCC would be allowed to impose as much regulation on broadband providers as telephone companies, which includes price controls, right of access rules, and the ability to force geographical divisions and terms of service on providers.  In other words, we are taking one of the few industries that has been left unregulated, and has hence lowered prices, improved speed/service, and has grown by leaps of bounds, and imposing the heavy hand of government in order to protect the market position of a large multinational corporation.  There is little doubt that the internet is one of the great success stories of the market policing itself, both on the content side and on the access side.  Yet, according to net neutrality supporters all hell is set to break loose if the government doesn't get in there and .... ? That's just it, there isn't anything they can point to.  If it's not broke don't fix it.  They are fighting imaginary battles against imaginary villains down the road.

So although I don't believe that there are many, if any, benefits that could be derived from the net neutrality framework, I do believe it could impose a large number of negative consequences on access, competition, market efficiency, and costs of internet access.  In short, I have three major objections to the proposed regulations:

1) Network neutrality regulations threaten to set a precedent for even more intrusive regulation of the Internet;
This one is pretty obvious.  Once the FCC get their greasy little paws on something and it starts believing that it is what it does, and not the work of entrepreneurs and capital stake holders, that makes the internet open, free, expansive and a source of growth, it will inevitably argue for more control.  Sure right now they are claiming that they will regulate with a "light touch" so as to provide maximum freedom from regulation, when something inevitably goes wrong they will of course argue that they could have prevented it only if they had been in control.  They will never claim that any of these future bad consequences were due in part to their own regulations becuase that never happens - I'm pretty sure that is some kind of GOP myth or something.  If we don't nip this in the butt now, don't blame me when your transactions on amazon will be subject to FCC approval in about 15 years in order to "prevent fraud" or some bullshit along those lines.  And don't forget that little old surcharge on you bill that pays this "protection money."  But don't worry it will be hidden so that you won't be too disturbed by it.  It will come in the form of higher prices for both services and access.

2) Imposing such regulation will chill investment in competitive networks (such as wireless) and deny network providers the ability to differentiate their services;
This one is also pretty obvious I think.  When the FCC comes in and begins to impose rules like how you can charge your customers, how much you can charge and the types of services you must provide it inevitably limits consumers choices.  This in turn limits innovation and in essence codifies a singular business model.  Additionally, as regulation becomes more and more complex, it makes it harder and harder for anyone other than large corporations from being able effectively navigate the regulation thickets.  Currently there is a lot of innovation in the internet subscription market; besides traditional cable broadband, where there can be multiple players in a single market, there is DSL, increasing wireless broadband penetration, fiber optic infrastructure and satellite internet.  These all provide competition and innovation, preventing the types abuses that net neutrality supporters so abhor.  There is also a large risk that the regulations could have the perverse effect of cementing broadband providers market positions, thereby lowering their incentive, and the incentives of others, to invest in these alternative infrastructures.  Lastly, I addressed the lack of ability to control and maintain network stability above.

3) Network neutrality regulations confuse the unregulated Internet with the highly regulated telecom lines that it has shared with voice and cable customers 
This is similar to my first argument, but I just want to add a few more points.  Traditionally broadband was provided by cable companies and shares the line with both cable TV and telephone service.  Both these are highly regulated both with regards to network penetration and content, especially cable TV.  Therefore I find it unwise to further blur the line of the two.  If the FCC can prevent obscenity from being sent on cable TV, why should they stop there and allow it for a different service running over the same line they they now are in charge of.  Now I believe that all of this censorship is fundamentally wrong, and that it should be completely abandoned, but at the very least we shouldn't impose these stupid rules of the internet as well.  Therefore we should keep them as segregated as possible, preventing the kinds of regulatory abuse described above.

At the end of the day, this whole issue comes down to one thing for me: crony capitalism.  Look at the Google-Verizon proposal.  They want to impose net neutrality rules on the broadband providers while leaving wireless completely unregulated.  This is because it fits their business models best this way.  By allowing google to profit from forcing network providers to treat its traffic the same regardless of the effects on the network, while still allowing Verizon to discriminate traffic on its wireless networks.  This allows Verizon, whose major partner on phones like its best selling Droid is Google, to discriminate based on the type of plan purchased, importance of the traffic and the type of traffic - everything it wants to prevent for broadband.  They should rename the proposed legislation the "Google-Verizon Promotion at the Expense of Evil Comcast and AT&T Act of 2010."  There is a solution, however, and it has been working great for two decades: let the consumers decide.  If they want better or prioritized service, they can pay more for it.  If they think a broadband internet provider is being to restrictive with their network, they can switch to a DSL or wireless provider.  This would allow the market to continue to police itself and would prevent the government from inching its way further into one of the truly free markets in our society.

iran

What is happening right now in Iran may be the most important event in the world since 9/11, and perhaps it could have more long lasting effects than anything since the fall of the Berlin Wall. No other country in the world poses as large a threat to peace and stability than an Iran that is run by the mullahs. They are a few short years away from obtaining a nuclear weapon, and their current President has on numerous occasions claimed that the Holocaust was a hoax. Does anyone really think that someone like that won't use a weapon of mass destruction against Israel if he has the chance? This could be a defining moment in the history of the modern world, and it is time for the strength of the free world to stand up for democracy and show that the tyranny of the past will no longer be tolerated.

For thousands of years the large majority of humans have been dominated and controlled by a ruling elite. It is only over the past 200 years or so have the ideals of freedom, liberty, and personal autonomy spread among people around the world. And by no means have these freedoms reached the lives of many of the people around the globe. Unfortunately, billions of people still suffer from the harsh realities of totalitarian regimes where their liberty and freedom of choice are extremely limited; however, there is hope. The digital age has ushered in many new ways information can be transmitted and allowed many new forms of communication. This proliferation of information has spread to the masses the ideas of freedom, equality and liberty that have directly lead to the great advances of the past two centuries. It is no coincidence that the countries that have achieved the greatest advances and provided the highest standard of living for their citizens are also the countries that have allowed their citizens to retain the most personal liberties.

Over the past week hundreds of thousands of Iranians, mostly young students and women, have sought to end decades of intolerance, brutality and injustice and stand up for their right to collectively decide how they should be allowed to live their lives. It is imperative that people all of the world who believe in freedom support their cause. Sham elections like the one that just occurred in Iran cannot be tolerated, and people have taken to the streets to stand up against tyranny. The words of Joseph Stalin are as true today as when he said them fifty years ago: "The people who cast the votes decide nothing. The people who count the votes decide everything." Below is a picture of some of the protests in Tehran, were an estimated 120,000 people came out on Monday.


It is time for President Obama to stand up for what is right, and to show the world that the United States is dedicated to protecting liberty and democracy both at home and abroad. Ronald Reagan's presidency showed what the power of an America committed to the ideals that made this country can great can accomplish. The Soviet Empire was more powerful and a greater threat than Iran, and without firing a shot we were able to topple the regime simply by promoting ideals that all free humans would consider indispensable. By supporting the pro-democracy supporters in Iran, Obama could send the message that the U.S. still stands for freedom and all that is good in the world. We can only hope that the mullahs are not allowed to simply circumvent the will of the Iranian people, unfortunately though, I think that is what is going to happen. I just hope that historians far in the future don't look back at this day as one of greatest missed chances for securing a new era of peace and prosperity around the world.

the choice is now

I've been thinking about this for a while now.  For over two hundred years the United States has been a beacon of light in a sometimes dark world.  The reason for this is the hope and freedom America has stood for.  During his campaign President Obama campaigned on a similar message of hope.  But what has been America's "theme" been since its inception?  I think it's been the American Dream: the freedom to pursue your own interests and better your place in society through hard work and free enterprise.  This simple, but remarkably inspiring idea of a society of truly free men, has inspired millions of Americans and immigrants alike over the past two centuries.  While much of the rest of the world has been under the darkness of tyranny, oppression and totalitarian regimes, America has stood up for the ideals of life, liberty and the pursuit of happiness.

Unfortunately, many of these values seem to be eroding away in today's America.  I was inspired to write this post after reading a WSJ commentary entitled "The Real Culture War is Over Capitalism," (thanks for the recommendation Dad) but I think the current cultural class in America goes beyond capitalism, it is over individual liberty and personal autonomy in general.  Yesterday, the preliminary plans for a restructured GM and Chrysler were released to the public.  In each case the government will have large shares of the companies.  In the case of GM, the federal government will receive a 50% stake in the newly restructured company in exchange for $16.2 billion in treasury loans and $8.1 billion in GM debt.  By some estimates,  this could amount to a return-on-investment of up to $0.87 on the dollar.  Current private bondholders of GM stock, who currently own about $27.2 billion in unsecured GM credit, would receive only a 10% stake in exchange for a debt-for-equity swap.  This amounts to a return of less than five cents on the dollar.  How is this fair?  In a traditional bankruptcy both would be considered unsecured creditors, and would be treated relatively equally.  Instead the Government and their chosen "winners" (in this case the UAW who received a 39% stake after concessions in their collective bargaining agreements) make out like bandits while private investors and lenders receive the short end of the stick.  

However, the auto industry is only part of a much larger and more troubling trend.  America is moving away from the idea that hard work and doing the right thing should be rewarded.  Instead we are becoming a country where we think everyone, regardless of how well you planned for the future or took into consideration long term consequences, should prosper.  We want a Utopian society where even bad investments and ideas are rewarded.  That is not the American ideal, and in fact it is an unsustainable model.  Not every investment can succeed, and we can't prop up every failing industry.

There are millions of Americans out there who are doing the right thing.  They are homeowners who saved so that they could put a large enough down payment on their homes so that they could afford their mortgages.  They are small business owners who have made concessions so that they can navigate through the hard times.  They are all the other people who made the right, but unpopular choice.  You cannot have personal freedom without personal responsibility, and by eliminating the responsibilities associated with economic decisions, the federal government is eroding liberty from its citizens.  It may not seem like much now, and to many it may seem like the humane thing to do, but in a society of ordered liberty, any encroachment on these freedoms will cause our society to begin moving down a slippery slope.  If these concessions to our freedoms are ok now, what will be ok in 20 years? 50 years? 100 years?  If our history teaches us anything, once the federal government takes the power to control something, it never gives it back.  If we don't stand up now, then with each day and each concession we make, we move further and further from the ideals of the founding fathers and closer to the centralized planning government so feared in the classic novels 1984 and Brave New World.  

This may sound like a joke to some, but I take my freedom very seriously.  We are fortunate enough to live in the most free and fair society in the history of mankind.  I just want to keep it that way.

20 Pack, The Drinking Age, and the State of the Union

First, quite a bunch happened last night on I Love Money 2. Once again, someone on the green team (both Milf and Becky Buckwild) threw the challenge. The other members of the green team did what I thought was smart, and put those two and the weakest other team member, T-Weed, in the box. Frank the Entertainer then voided T-Weed's check. But that's when it got interesting. The guys had to choose who they thought was the most loyal guy, and the girls chose who they thought was the most loyal girl. The guys choose 20 Pack by a large margin. I thought that was a little weird. 20 Pack was an original captain, but he never took any responsibility. He just had the Entertainer choose his whole team. So I guess he has been loyal to the Entertainer, but why would Buddha vote for him? And why didn't anyone vote for Bones? He is definitely the most loyal person on the show.

The girls ended up picking Saphari, which I totally didn't get. Wasn't she paymaster last week, and didn't she send home Leilene, who shed] claimed to be great friends with? That doesn't sound loyal to me. Regardless, it turned out that 20 Pack and Saphari were the new team captains. One guess who didn't get picked. Of course it was Buddha. Well at least we don't have to deal with the Entertainer constantly bitching about Buddha anymore. But the strangest pick was definitely 20 Pack's second pick, which was Buckwild. Now Buckwild has been very open with the fact that she is in an alliance with Saphari, and has thrown challenges to keep that alliance. So why the hell would 20 Pack pick her when Saphari is the captain of the other team? He is just asking for her to throw challenges down the road. I really hope she doesn't though. My biggest complaint with the season so far is how easy it is to rig the challenges. In the game's current format, since a member of the other team gets to choose who goes home, there is a large incentive to simply throw challenges. If you do it consistently, then you will never go home because the other team will want to keep you around. It's stupid. It makes the challenges meaningless, and all that mattered was which person from the green team was sent home this week.

On a non-reality TV front, I saw a special on 60 Minutes on Sunday (it came on after the Nova-Cuse game, and i was too lazy to change the channel as I was doing dishes) about the 21 year old drinking age in the U.S. Now 60 Minutes is usually a liberal, populist, crappy show designed to scare old people into thinking that young people want to kill them and that government, not personal responsibility, is the solution to all of liefs problems. However, this week they highlighted the failed system we have in the U.S. to stop drinking under the age of 21. Personally, I think a minimum drinking age is ridiculous. Everyone always makes the point that you can be drafted and go to war at age 18, but you can't drink a beer. I think there is an even more fundamental problem with a minimum drink age. As any young person will tell you, there is a very strong and entrenched market for underage drinking. People are going to do it regardless of what the government tries to do about it. Now if the enforcement penalties are made stronger, it will deter people at the margin up to a certain point. No matter what the government makes the penalties, there will always be some people who want alcohol (see prohibition).

Now when a market exists for a product, the market can be governed by one of two sets of rules: either the rules imposed by the government, or the rules of a black market controlled by an illegal, non-governmental group. When it comes to underage drinking, the supply for its black market is provided by a variety of groups: people over the age of 21, teenagers with fake ids, theft, and corrupt store owners. The problem that occurs in a black market is that there is no forum for resolving disputes created in the market. The government's court system provide this service in a governmentally regulated market, but I doubt a 17 year old is going to file a fraud claim when his 22 year old neighbor rips him off when he picks him up some delicious keystone lights. Now this isn't as big a deal for underage drinking, because there are so many suppliers the market can regulate itself. Unhappy with your neighbor's service? Just go to your cousin.

However, there are many other black markets where this is a much more serious problem.
For example, take the market for illegal gambling. Historically, this market in the U.S. has been shunned by the government and controlled by racketeering organizations like the mafia. Because the official governmental position in most jurisdictions is total prohibition, there are many fewer suppliers for the market. In order to serve this illegal market, the supplier must be well organized, powerful and able to defend its market share. Due to the government's non-participation, governmental rules will inevitably be disregarded by the market's service providers. Think about it: if you are serving an illegal market, and one with strong penalties no less, why would you act legally to maintain you market share. There are limited incentives to do so. The same can be said for today's inner city gangs controlling the illegal drug market.

The moral of the story is that when a good or service has an inherent market, there will always be people who are going to be willing to serve that market. When the government creates a prohibition for that market, they are doing nothing but taking themselves out of the game. Obviously the government prohibition will deter some people, but as the number of suppliers drops, as will happen with a prohibition, the cost of the goods or services goes up, creating a larger incentive to enter the market. Eventually the price will reach a point where it is extremely profitable to serve the market, and since the service is already illegal to provide, there are few incentives to maintain market share in a legal way. At the end of the day, the suppliers will eventually become the people who will do the most, usually violently, to maintain control over the supply.

Now I'm not saying we should immediately make drugs and gambling legal, and end the minimum drinking age, but I do think we need to rethink some failed strategies. If you could buy currently illegal drugs at the store, you would be able to take away a major source of power and wealth from inner city street gangs. It is also one of their largest sources of conflict. It may be possible to reduce the number of violent crimes related to this illegal market by allowing the government to step in and regulate its sale. Additionally, it would vastly reduce the number of jailed inmates, eliminate the costs of fighting the war on drugs that has failed over the past 40 years, and take power from violent criminals that currently control the market. Just some food for thought.

Lastly, Obama's first state of the union address is tonight. I'm definitely going to watch it and am interested in what he is going to emphasize. I'm sure I'll be back in a day or two to complain about it, but for now here is a cartoon I found funny (click to make it larger).