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Tuesday, July 24, 2007

On the Editorial Pages

People have, rightly, jumped all over the David Brooks column today in the New York Times that tries to spin a positive story about rising inequality. He is effectively rebutted at:

There are also questions about whether he came up with this himself, or whether he was fed (and willingly ate) the data and arguments:

If so, and it's hard to believe he did this by himself, I wonder who's feeding him?

There is another editorial today, this one in the WSJ, that also deserves a little scrutiny. Apparently Paul Krugman's column on competition among high-speed internet service providers rattled some cages and brought this response from Robert McDowell, a commissioner on the Federal Communications Commission. ("Mr. McDowell is a George W. Bush appointee. He is a former FCC lobbyist from Virginia for telephone companies.")

As you read this keep in mind that when you don't have an argument to offer in rebuttal, a common tactic is to attack the data. The scare tactics, beginning in the second paragraph with every "heavy-handed" possibility he could come up with, also point to the lack of effective counterargument Modern market-based telecommunications regulation that promotes competition through correct market incentives does not fit the "mandates" description he gives, not at all, e.g. see "Designing Incentive Regulation for the Telecommunications Industry," by David E. M. Sappington and Dennis L. Weisman. So his "heavy-handed government mandates" are nothing more than scare tactics. And when argument actual is provided, it's less than convincing:

Broadband Baloney, by Robert M. McDowell, Commentary, WSJ: American consumers are poised to reap a windfall of benefits from a new wave of broadband deployment. But you would never know it by the rhetoric of those who would have us believe that the nation is falling behind, indeed in free fall.

Looming over the horizon are heavy-handed government mandates setting arbitrary standards, speeds and build-out requirements that could favor some technologies over others, raise prices and degrade service. This would be a mistaken road to take -- although it would hardly be the first time in history that alarmists have ignored cold, hard facts in pursuit of bad policy.

Exhibit A for the alarmists are statistics from the Organization for Economic Cooperation and Development. The OECD says the U.S. has dropped from 12th in the world in broadband subscribers per 100 residents to 15th.

The OECD's methodology is seriously flawed, however. According to an analysis by the Phoenix Center, if all OECD countries including the U.S. enjoyed 100% broadband penetration -- with all homes and businesses being connected -- our rank would fall to 20th. The U.S. would be deemed a relative failure because the OECD methodology measures broadband connections per capita, putting countries with larger household sizes at a statistical disadvantage.

I need to jump in here. This whole thing about household sizes, which he makes a big deal of, is a red herring. If you look at this table you see that if you do it as subscribers per household, not per capita, France goes from having slightly more penetration than the US to slightly less. Big deal. And Japan still has higher penetration. Back to the "counterargument":

Furthermore, the OECD does not weigh a country's geographic size...

This is followed by an argument where the author, surprise, "does not weigh a country's geographic size." Comparing the number of "Wi-Fi hot spots" in the U.S. to the number in smaller countries doesn't tell us much:

The OECD conclusions really unravel when we look at wireless services, especially Wi-Fi. One-third of the world's Wi-Fi hot spots are in the U.S., but Wi-Fi is not included in the OECD study...

Most American Wi-Fi users do so with personal portable devices. It is difficult to determine how many wireless broadband users are online at any given moment, since they may not qualify as "subscribers" to anyone's service.

In short, the OECD data do not include all of the ways Americans can make high-speed connections to the Internet, therefore omitting millions of American broadband users. Europe, with its more regulatory approach, may actually end up being the laggard because of latent weaknesses in its broadband market.

The portable device usage isn't included for other countries either, so it's not clear how this adjustment would turn out without actually doing the calculations. Also, when he says "Europe ... may actually end up being the laggard," he implies Europe is not the laggard now, contrary to the impression he is trying to give. Oh well, that's what happens when you are grasping for any argument that might convince the unwary. Continuing:

Our flexible and deregulatory broadband policies provide opportunities for American entrepreneurs to construct new delivery platforms enabling them to pull ahead of our international competitors. For instance, newly auctioned spectrum for advanced wireless services will spark unparalleled growth and innovation.

Soon, we will auction even more spectrum in the broadcast TV bands to spur more broadband competition. In addition, we are in the midst of testing powerful new technologies to use in spectrum located in the "white spaces" between broadcast TV channels.

This is all wonderful news for our future.

But the point is that we are behind now. What happens in the future is a guess, not a certainty, and does not rebut the existing statistics on high-speed access that have been given. He also says:

In a competitive market, consumer demand compels businesses to innovate. ...

Yes, in a competitive market that's true. But these markets are not competitive and that's why we need incentive based regulation to ensure a robust, competitive, telecommunications market. Continuing again:

When it comes to broadband policy, let's put aside flawed studies and rankings, and reject the road of regulatory stagnation. ... Belief in entrepreneurs and a light regulatory touch is the right broadband policy for America.

Better yet, "when it comes to broadband policy, let's put aside flawed" editorials and reject scare tactics. Belief in regulation of monopoly power "is the right broadband policy for America."

Update: Tyler Cowen has more on the WSJ commentary.

    Posted by on Tuesday, July 24, 2007 at 06:12 PM in Economics, Market Failure, Policy, Regulation | Permalink  TrackBack (0)  Comments (18)


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