Open Market

"As neutral as a football game in which one team gets to wear rocket boots."

This blog hasn’t exactly been timid about its distaste for Net neutrality regulations. The idea that ISPs ought to be locked into government mandated business models isn’t just an affront to property rights, it’s a threat to the growth of the high-end services that the net promises in the future. Some have called the issue confusing and complicated, but most of the confusion comes from the way neutrality advocates have distorted the issue. My commentary on the problems with notions of neutrality is up at CNS News today.  I'll even give you a running start:

America has developed a proud paternal bond with the Internet. We've watched and cheered the net''s growth from its awkward, text-heavy infancy into the capable, hard-working information network it is now. But, like many beaming parents of prodigies, we're so pleased with our creation''s current brilliance that we''re on the verge of stunting its development with overbearing restrictions. These restrictions, ushered in through innocent-sounding but insidious "net neutrality" legislation, threaten the net's maturation into the powerful technology it ought to be.

--Peter Suderman

The CAFE Fix

This past Wednesday the Department of Transportation issued its new fuel economy standards for light trucks—a category that includes SUVs, vans and pick-ups. The new standards raise the requirement for these vehicles from their current level of 21.6 mpg to 24.0 mpg in model year 2011. For the first time, very large SUVs and vans—those weighing above 8500 lbs—will be covered as well.

The program is known as CAFE, for Corporate Average Fuel Economy.  The new CAFE standards are a sizable, though perhaps not enormous, increase over the current level. However, their real impact will depend on future oil prices. If oil becomes much more expensive, the new standards will have relatively little impact—market forces will drive new-vehicle fuel economy higher regardless of CAFE. As Brookings scholar Robert Crandall points out in Regulating the Automobile (1986), that’s exactly what happened when gas prices rose in the 1970s and early 1980s. While CAFE was enacted in 1975, new-car fuel economy increased by much more than what the law demanded.

It’s when oil prices stabilize or drop that CAFE causes problems. That’s when consumers quite justifiably put greater priority on such other vehicle attributes as passenger capacity. Car-makers are happy to respond; CAFE, however, is far less responsive. It’s under those circumstances that CAFE really restricts consumer choice.

CAFE also has an unfortunate side effect. It reduces auto safety by restraining the production of larger, heavier vehicles. A 2002 National Academy of Sciences study estimated that CAFE’s lethal downsizing effects contributed to about 1,300 to 2,600 traffic fatalities per year. (Executive Summary, Finding 2) The new standards have been reformed to reduce this downsizing incentive, but CAFE remains a lethal program.  It will still kill people in the future, though not as many as without the reform.

I’ve got a short piece in today’s Atlanta Journal-Constitution on the topic. For those who wonder what car size has to do auto safety, and why Ralph Nader isn’t on our side here, there was a longer piece in the Wall St. Journal last November. And there’s a lot of background material in our CAFE Cafe, including recollections of when the holy trio of auto safety (Nader, Joan Claybrook, and Clarence Ditlow) all admitted the existence of a size-safety tradeoff.

Some questions:

• President Bush claimed, in his State of the Union address, that “America is addicted to oil”. But if we can squeeze more miles out of a gallon of gas, doesn’t that make oil even more addictive?
• Could the real problem be that politicians are addicted to politicizing oil?
• If so, is CAFE their fix?

--Sam Kazman

Backyard Biotech

Wired has an interesting article about one entrepreneur’s struggle to take bioengineering to the backyard. Jim Hagedorn, whose father founded Miracle-Gro, thinks his “transgenic turf” could revolutionize home gardening. As the article explains: 

For [Hagedorn], the lawn is not the boring domain of suburban dads and little old ladies. It's a business battlefield where innovation is crucial. When it comes to grass, people worry about watering, maintenance, and weeds, three headaches that genetic engineering - ­transgenic turf - could dramatically alleviate. "That's the big kahuna for consumer lawns," he says. "Solve those three ­issues and you're a friggin' hero!"

Hagedorn wants to be that hero, and he just might pull it off. That is, if he can keep environmentalists off his back, get a green light from nervous government regulators, and make the rest of the world understand that what went down in central Oregon is no cause for alarm.

--Peter Suderman

The Do Not Regulate List

I remember when we got our first answering machine, or simply “the machine” as we called them back then. How thrilling it was. And then came caller ID, so we could screen calls without letting our friends know we were screening; it was a happy time. Calls from unknown numbers during dinner were simply ignored. 

But not all were happy: for some, the benefit of avoiding intrusive calls did not outweigh the cost of the service.  All it did was put an unceremonious end to the American institution of prank calling one’s gym teacher. But in spite of an unwillingness to pay for consumer products capable of screening telemarketers, Americans wanted protection. Enter the Do Not Call Registry. Apparently the benefit of avoiding calls is sufficiently greater than the cost of writing one’s Congressman, if not greater than the cost of turning off the ringer.

Telemarketing behind us, now come calls for government protection from Internet nuisances, before network and software designers have even had a proper chance to find private solutions. First came the CAN-SPAM legislation of 2003, which didn’t exactly inspire many spammers to just say, “Golly! Now that barraging you with unsolicited advertisements for various aphrodisiacs is illegal, I’m going to stop doing it!” 

Now we get proposals for things like requiring that all computers be shipped with virus protection and firewalls already installed—with government regulators determining which protection systems get the government stamp of approval. This will seriously distort market incentives for investment in better SPAM defense mechanisms. And not only will it dissuade investment in better technology, it will also incentivize sophistication in spamming and hacking techniques, making standard protections obsolete over time.

And that would be sad, because we wouldn’t get things like the SpamCube, which is available in baby pink, a fact not featured nearly prominently enough in this New York Times product review. Although there are some design and sensitivity problems according to the Times reviewer, it sounds as though many of the sensitivity issues will be worked out as more users sign up. The online SpamCube store indicates that the beta units have sold out and there are nearly 200 pre-orders for the first batch of retail units. Spam filtering is included in the cost of the unit, and phishing and virus protection for an additional $1 per week. It seems as though it’s the first non-subscription based individual use SPAM device on the market. 

More such gadgets can’t be far behind, and as the technology gets better and becomes able to adapt to the tricks of spammers and phishers and pirates, efforts at reducing Internet nuisances through bureaucratic standards and bumbling regulators will seem all the more ridiculous in retrospect. 

--Brooke Oberwetter

Apparently, only a devil would be against neutrality

Dare suggest the Internet should be anything other than a public commons, then you are the Devil according to Common Cause. The group affixed red horns and cast into hellfire everyone from the heads of AT&T and Comcast to billionaire Broadcast.com founder and Dallas Mavericks owner Mark Cuban, and invited readers to load these demons’ inboxes with complaints. At least Cuban teases Common Cause for “spamming” him about his outspokenness in defending the notion that tiered services on the Internet could be a good idea.

The Net has been loaded with paradoxes; it’s never been the case that “On the Internet, no one knows you’re a dog.” Present reader excepted (of course), we’ve always known what a bowser everybody is; Much of the Net’s anonymity is an illusion, as the ease of dropping a key-logger on your machine makes apparent. Problems like spam and identity theft are in some ways rooted in the “neutrality” that already exists, such as the lack of tiered pricing (the inability to charge spammers postage), the difficulty of online authentication.

One of the most critical steps now is to allow the possibility of a network infrastructure that approaches the intelligence of the devices with which we surf. That would help do a number of things, from incentivize the rollout of vast new mileage of infrastructure and to boost bandwidth, as well as better address online privacy and security concerns. While not the full answer, doing such things requires coming up with ways to prioritize traffic; it requires the right to experiment with tiered services, pricing, and prioritization, or so-called “discrimination.” That does not mean degrading the free flow of information that we now take for granted, but rather enhancing the network at it’s frontier, which should improve the status quo. Imposing net neutrality and blocking such moves is the path to ensuring a degraded, not an enhanced, Internet.

Stay tuned; the net neutrality debate is poised to foil telecom deregulation this year, just as it counterpart, non-discriminatory “retail wheeling” did for electricity deregulation a few years ago. But if we can’t establish that property rights matter in networks and that “infrastructure socialism,” posing as net neutrality, is a bad idea—then the Net and the services possible to us, will suffer. 

-Wayne Crews

A Doctor Writes

Theodore Dalrymple, a well-known pseudonymous commentator on British and French life, takes a look at the current French riots against workplace liberalization in The Times of London. He makes several telling points, including warnings to the British not to be so sure the same won’t happen to them, such as:

The ultimate cause of the demonstrations and strikes in the two countries is the same: the State has made promises that it is increasingly unable to keep. It has pursued policies that were bound in the end to produce not just cracks but fissures that could no longer be papered over…

Whether they know it or not, the people on the streets in France were demonstrating to keep the youth of the banlieues — who recently so amused the world for an entire fortnight with their arsonist antics — exactly where they are, namely hopeless, unemployed and feeling betrayed. For unless the French labour market is liberalised, they will never find employment and therefore integration into French society. You have only to speak to a few small businessmen or artisans in France — the petits bourgeois so vehemently despised by the snobbish intellectuals — to find out why this should be so. The French labour regulations make employment of untried persons completely uneconomic for them…

Our economy is corruptly creating public service jobs — endless co-ordinators of facilitation and facilitators of co-ordination — but not many in the private sector, the only true measure of economic health and growth. Any fool can create public sector jobs, and Mr Brown has done so: but not even the most brilliant man can make them economically productive in the long term.

Read the whole thing, as someone once said.

-- Iain Murray

Poverty: What’s Next?

It’s a sign of how far free market advocates have helped direct the debate when any discussion of reforming welfare includes the issue of incentives. But unfortunately, in the area of policy implementation, the discussion hasn’t moved very far, if today’s event at the American Enterprise Institute on how to help low-income workers is any indication. Most of the proposals discussed involved adjusting current government structures while leaving large bureaucracies in place. This kind of piecemeal reform may be needed in the short term, but it’s unlikely to lead to a significant and sustained reduction in poverty.

Several of the panelists said that to incentivize work is a desirable goal. True enough. But work subsidies, which some endorsed, would only result in more bureaucracy and create new opportunities for rent-seeking for employers hiring subsidized workers.

While I’m not endorsing Charles Murray’s proposal to replace the welfare state with a simple $10,000 grant to every adult American, it’s an idea that definitely needs to be aired, if for no other reason to bring some bold new thinking to the topic. Better yet, though, would be a discussion on how to transition from today’s large welfare state to a freer economy with stronger job growth—and a safety net that functions as just that rather than a social engineering tool.

--Ivan Osorio

Smug Levels Rising

Last night’s South Park made an excellent point in a hilarious way. For those who didn’t see it, it was all about hybrid cars and the life-endangering cloud of smug they produce.  When the population of South Park all started driving hybrids like the “Pious,” having been morally chided to do so, their cloud of smug joined with the permanent smug cloud over San Francisco and the one produced by George Clooney’s Oscar acceptance speech to produce a perfect storm.  The South Parkers junked their hybrids, but it was too late.  After being told that hybrids were probably important, but people didn’t have to be smug about it, the citizenry said they just weren’t ready for that step and went back to gas guzzling SUVs, the bigger the better…

Oh, and San Francisco disappeared up its own backside.

The important point was that the moral argument for reduced emissions (and therefore hybrids) ignores equally important moral arguments for affordable, safe, reliable transportation. It is important that the poor, mostly minorities and immigrants, be able to purchase individual transportation to enable them to be more flexible in the labor market (the role of private vehicles in the Montgomery Bus Boycott organized by Dr. Martin Luther King is a prime example). Moreover, heavier vehicles that use more gas are safer than lighter vehicles; the National Research Council estimated that the downsizing of the national fleets after the introduction of the CAFÉ fuel economy rules caused 2000 additional deaths on the road every year. Finally, in emergencies like Hurricane Katrina, it is important that people can rely on their vehicles to evacuate quickly and they can only do so if they can afford the vehicles in the first place. At the moment, hybrids are too expensive and too small to satisfy these important considerations.

Hybrids are certainly an exciting technology and probably the way of the future as they can be made more affordable and powerful enough to power larger vehicles without reducing fuel economy too much, but at the moment a large part of their appeal seems to be motivated by a feeling of moral superiority. That is unwarranted; South Park did a great service in pricking this particular bubble of pomposity.

-- Iain Murray

Time Out of (Its) Mind

According to Time Magazine, the debate is over. Global warming is upon us--with a vengeance. Most of the story is a rehash of the usual scares combined with eulogistic profiles of the saintly types who are preparing the way for a carbon-constrained world.

An example of the sloppy research in this story comes in the section on China and India, which starts out realistically by noting how much their emissions are projected to increase (preparing the way for the next Yellow Peril scare).  However, it then cites a study that suggests they are much less energy efficient than we are. Unfortunately, this study has been debunked by renowned economist David Henderson who pointed out that the study uses Market Exchange Rate rather than Purchasing Power Parity to convert between currencies, in defiance of the accepted standard among economists. Using PPP shows roughly comparable energy efficiency.

Tellingly, the section concludes: "Maybe we can begin by living a bit more like the average Chinese or Indian--before they start living like us."

The scare relies heavily on tying any big weather event to global warming and on the latest favorite--sea level rise. Apparently, the old days were just like Camelot: "It's true! It's true! The crown has made it clear. The climate must be perfect all the year. A law was made a distant moon ago here: July and August cannot be too hot. And there's a legal limit to the snow here. In Camelot."

The species at risk and the health sections are ridiculous, but nothing new. The cover photo is of a polar bear on a tiny piece of ice. A caption of the same photo inside notes that as the ice melts, more polar bears are drowning.

Sweden is featured as the country that is leading the way to the new energy future, although the article somehow misses out on how much less energy there's going to be in that dimmer tomorrow. Nor does it mention that Sweden has been losing ground since the 1960s. 

Stunning photos, tipping points, and feedback loops:  it's here, it's now, and the message is that you should lie awake at nights worrying about this.  If you don’t, the only conclusion the crew at Time can draw is that you're totally corrupted by payoffs from Big Oil.

-- Myron Ebell

Short Correspondence

By chance, I ended up at the Radio and Television Correspondents' Association dinner last night, featuring Vice President Dick Cheney. But while the food and entertainment were excellent, I was disappointed my main man Lou Dobbs didn’t show up.

Oh, and Madeleine Albright is very short.

--Isaac Post