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May 14, 2009

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That article is so factual! Well, perhaps that is the real origin of the broadband failures. But aside from that breaking news, did you know that the nation's and the world's largest banks are removed from the everyday, institutions of billions of dollars, totally beyond the reproach and scrutiny of the common man. However, it is the largest banks that need us to bail them out of the hole they dug for themselves. Our leaders passed a huge $767 billion stimulus package, as installment loans to these business titans, in order to give them capital and stimulate bank lenders to start lending. Obama has put a stress test into effect that will essentially point out which of these enormous companies are weak, and which ones are on track. The largest banks better start paying their short term loans off – they were paid for by the people.To read more visit https://personalmoneystore.com/moneyblog/2009/05/07/banks-stimulus/.

KenC, that's the lamest, most gratuitous, and least coherent promotional effort I've seen all week. And I saw the new Wolverine movie within the last week.

Please don't do that.

I wonder what you think, publius, of the RIAA lawyers President Obama is appointing.

Ever since the DMCA, I think the content cartel has had a stranglehold on this government, and on what has become, essentially, an unlimited copyright.

Why can't I take something I own and do whatever the hell I want with it, including backing it up. There should be no reason I have to buy a copy of a movie for my DVD player, another for my iPod, another for watching in the car, and when the kids get a hold of them and scratch them to hell, another three to replace those.

Whatever happened to ownership?

lil - i tend to view these things structurally. politicians (even ones i like) act according to rational incentives, rather than according to what's right.

right now, you have a big powerful rich lobby pushing hard for absurd copyright laws. and there's very little organized pushback. thus, the rational thing to do is to please the rich lobby.

telecom has a similar dynamic, but it's getting better. for one, you have some real institutions (like Free Press) fighting in smart and savvy ways. in addition, there's more of an industry pushback -- in theory, the microsofts and googles of the world have a lot to gain from an open internet.

in short, i think there needs to be more institution buidling on the copyright reform front

"The justification for opening the networks was that the incumbents’ networks had been publicly subsidized for decades and that there were numerous barriers to entry (e.g., it was economically irrational to build an entirely new physical network)."

...

"But in the late 90s, broadband started hitting the prime time. Cable companies increasingly offered high-speed connections, and phone companies soon followed with DSL."

Gosh, wouldn't cable be "an entirely new physical network", of the sort we were assured was economically irrational?

I'd suggest that what's making an entirely new physical network economically irrational is government regulation, chiefly in the form of local governments' permission being required to lay the fiber or whatever. At least, there's some evidence of this, because there ARE communities with multiple competing physical cable networks. My mom lives in one of them. Theoretically impossible from the perspective related above, but it happens.

I was still involved in the telecommunications industry through most of 2002 (I had been working in that area of the software industry since 1995). And, as one does, I continued to take a more-than-peripheral interest in how things were going in that industry for a couple of years after I was working in a different area.

There was at least one big international telecoms conference where, I recall, the Bush administration made waves when it turned out that the people they were sending to it, would be the people who had been politically approved by the current administration - nothing to do with their background or history in telecoms: according to industry news, people who had attended the conference regularly were being told they couldn't go, because they weren't politically sound - they wouldn't promote the Bush administration.

At the time, I remember thinking that was pretty bad. These days, it seems fairly petty and trivial in terms of what other evil the Bush administration has done.

I post this, by the way, from my new T-Mobile dongle, which gives me a respectable rate of access to the Internet at the cost of something like £15 a month. Pretty much anywhere.

I'm kinda of surprised you take such a hard line that this counts as a partisan issue. This looks to me like it is a typical regulatory capture isse.

First, the 1996 Telecommunications Act--which you like--was passed almost unanimously when Republicans controlled both Houses. The only nays in the Senate were Feingold (D), Leahy (D), McCain (R), Simon (D), and Wellstone (D).

Second, this seems to me much more similar to the reason we still have horrifically bad farm subsidies--concentrated benefit with diluted cost. The fact that the cost dramatically outweighs the benefit doesn't matter because it is spread out so much that it doesn't stir up much opposition. The benefit however is concentrated, so much lobbying and such centers around the few people who get the benefit.

Third, there is quite a bit of evidence that Democrats aren't particularly on the side of angels with this issue. And that many Republicans are. You noted it in some of your posts on the issue.

Basically there are lots of institutional reasons why an FCC, of either party's administration, would want a more concentrated telecommunications industry. The main reason is that it would be easier to police from their point of view. A secondary reason is that they are the people the FCC hears from most and deals with most (see the problem with farm subsidies above).

Essentially I'm pretty sure that analyzing this as a 'Republican' problem doesn't give you nearly as useful a picture as looking it as a regulatory capture problem.

I'm kinda of surprised you take such a hard line that this counts as a partisan issue. This looks to me like it is a typical regulatory capture isse.

I'm not sure where you're reading the hard line, or partisanship period, from. It's not the same post I read.

The word Republican appears only once, and that in reference to appointees of George W. Bush, whose administration is characterized as the real problem, or at least a major lost opportunity in a crucial period. If you want to maintain a mental distinction between Real True Republican and Bushian (the latter being synonymous with a particular indifference to--or enthusiasm for--regulatory capture), I think there's enough room there to do it.


"The word Republican appears only once, and that in reference to appointees of George W. Bush, whose administration is characterized as the real problem"

Which I think isn't particularly accurate. The 'real problem' is the same problem we often have with regulatory capture. The government agency hears from a small subset of people who care deeply about screwing over other people using the government's power. This happens in decidedly more leftish settings than just Bush's administration. Regulatory capture happens in Europe too for example.

There are a lot of things where I can be convinced that most Democrats will reliably act differently than most Republicans. I don't think FCC network policy is one of them. I think the best you could say is that a huge majority of both parties suck at the issue, and that of the handful that don't, a couple more of them might be Democrats.

But the main problem is that for the most part both parties suck at it.

the problem Seb isn't the 1996 Act. The problem is that the spirit and intent of the 1996 Act was completely abandoned by the Bush FCC and the DC Circuit.

Democrats have their issues too -- but the original 96-2000 Clinton FCC was much much better on all this stuff.

"but the original 96-2000 Clinton FCC was much much better on all this stuff"

But that doesn't contradict the regulatory capture hypothesis at all. When an agency gets a new power they tend to stay close to the grant of new power at first. Over time they tend to get captured by the interests they are regulating. (Some might argue that Clinton SEC was illustrative of that, but in the already captured phase)

But that doesn't contradict the regulatory capture hypothesis at all.

"Regulatory capture" isn't a very good explanation for the problems with telecom, because it interacts with an institutional expertise issue. The people Clinton appointed were at least competent -- the only competent person Bush appointed was Powell, and that was an accident -- they got rid of him as quickly as possible.

The complete lack of technical and institutional expertise (in addition to the standard outright cronyism) meant that the incumbent LECs ran rings around the institution that was supposed to be regulating them and even turned it against their competitors.

I am a law professor with a PhD in Political Science, but I worked as a lawyer for a firm representing a major telecommunications business during the period publius references, and I largely agree with his analysis (both in this post and his many prior insightful posts on telecom policy). We regularly filed stuff with the FCC and the DC Circuit saying the sky was falling, and it really was, but it never seemed to make a difference. We complained bitterly, but watched in near disbelief as the 1996 Act was gutted, and, brick by brick, the old AT&T monopoly was recreated.

Not even in my more perverse dreams did I envision the delicious irony of SBC buying the AT&T name and literally relaunching the monopoly brand.

The cable-DSL duopoly was central to that development. The refusal of the FCC to enforce meaningful unbundling meant that CLECs could never economically offer the suite of services necessary to maintain an economically viable telecom business, and, as we Chicken Littles kept warning, the CLECs failed and the RBOCs turned into impregnable fortresses who hold regional monopolies on landlines and DSL, and who leverage that to great advantage in mobile (and credit cards and everything else their marketing reps can think of).

It was not just predictable, it was loudly and publicly predicted. And I think regulatory capture only explains part of it--after all, we on the CLEC side were pretty powerful insiders in and of ourselves, but somehow the FCC never cared what we said. Our sense was that a big part of the problem lay with Congress--every RBOC had a substantial Congressional delegation lobbying for their interests. SBC, based in Texas, had particular clout, so their interests as an RBOC served as a hegemon that pulled other RBOCs along in their wake. Even as big a player as the old AT&T couldn't compete, because as a national company, AT&T was the darling of no specific Congressional delegation. So the Texas crew took care of SBC, in part by dominating the FCC and the DC Circuit, and the RBOC/ILEC faction consistently defeated the CLECs. And without competition, DSL became the joke it is today--expensive and slow (esp on the upload side), and lacking in real penetration.

GOP perfidy? Yes. Regulatory capture? Yes. But, as Political Scientist Morris Fiorina pointed out long ago, Congress remains the keystone of the Washington establishment, and the structural issues there explain a multitude of sins.

Publius et al., any thoughts?

Adam, with your focus on expertise, I take it you aren't thrilled with the Obama announcement of Mignon Clyburn to the FCC?

'Regulatory Capture' - yet another phrase that's being reduced to meaninglessness because it serves the purposes of certain interests to do so.

At least as I understand it: regulatory capture happened at the SEC because there was a huge overlap between the regulators and the regulated. Somebody working on the inside now would quite likely be on the outside in five or ten years, so of course it made sense to be sympathetic to the concerns of industry.

Otoh, one cannot really speak of regulatory capture when considering the department of Fisheries and Wildlife; here, you have someone in a powerful oversight position(Gale Norton) who is contemptuous of the basic mission of the agency itself. But the actual workers in the department by and large tried to remain true to the mission. There was also, as Adam points out, considerable institutional expertise within the department itself.

So, imho, it doesn't make sense to conflate the two types of regulatory failure: the FDA and the SEC simply didn't go off the rails in the same way, to name one pairing.

"'Regulatory Capture' - yet another phrase that's being reduced to meaninglessness because it serves the purposes of certain interests to do so.

At least as I understand it: regulatory capture happened at the SEC because there was a huge overlap between the regulators and the regulated. Somebody working on the inside now would quite likely be on the outside in five or ten years, so of course it made sense to be sympathetic to the concerns of industry."

No. You aren't understanding it that well. That is one possibility of regulatory capture but that isn't the idea as a whole. It is part of public choice research. I would suggest looking up George Stigler. It is pretty much as I outlined with the farm subsidies, the high stakes winners focus their energy, the people who lose are more difuse so even though the policy is public welfare negative, it still passes.

From wikipedia: "For public choice theorists, regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether. When this imbalance of focused resources devoted to a particular policy outcome is successful at "capturing" influence with the staff or commission members of a regulatory agency so that the preferred policy outcomes of the special interest are implemented, then regulatory capture has occurred."

This describes the position of the telecoms and the consumers very well. Consumers have a small stake (individually) in making sure the FCC gets it right and there are lots of us. The telcoms on the other hand have at least hundreds of millions at stake.

Therefore they do what it takes to make sure that their concerns are addressed by the government.

The FDA is a different though related question. Failures at the FCC are at most mildly irritating to most people.

Failures of the FDA tend to make really splashy and really ugly headlines, potentially with dead people.

This causes people at the FDA to be overly cautious--making it such that even very large net social positives might be passed up to avoid even the remote appearance of social negatives.

Both this and regulatory capture are government failures (the flip side of market failures) but they are different kinds of government failures.

Adam, with your focus on expertise, I take it you aren't thrilled with the Obama announcement of Mignon Clyburn to the FCC?

Clyburn has some experience; my problem with her is that she's a cipher. Regardless, if the FCC is going to be staffed with cronies, I'd rather they at least be competent. Bush couldn't even be bothered with that.

Publius et al., any thoughts?

Pretty much nailed it.

The stripping of HTML from all the comments is really starting to get aggravating, BTW.

ONE class of failure at the FDA tends to produce ugly, flashy headlines, and sometimes dead people. The problem is, the opposite class of failure at the FDA, failure to approve drugs that should be approved, (Or even just failure to do so promptly.) is just as capable of producing dead people. Just doesn't produce the headlines...

"The problem is, the opposite class of failure at the FDA, failure to approve drugs that should be approved, (Or even just failure to do so promptly.) is just as capable of producing dead people. Just doesn't produce the headlines..."

Sure, but since the government incentives for the FDA are to avoid ugly headlines, they will strongly bias toward the first class of failure.

Ron - that's an interesting theory about the congressional delegations. I haven't thought of it like that.

I did wonder why the old AT&T and MCI weren't more effective. I thought maybe that ideology was playing more of a role -- that is, the "deregulation" business resonated.

but your theory is more consistent with a structural, public choice theory -- which I tend to find more credible

as for clyburn, it's a terrible pick. i should be writing more about it.

"as for clyburn, it's a terrible pick. i should be writing more about it."

if you've learned anything more, spill it!

No. You aren't understanding it that well. That is one possibility of regulatory capture but that isn't the idea as a whole. It is part of public choice research. I would suggest looking up George Stigler. It is pretty much as I outlined with the farm subsidies, the high stakes winners focus their energy, the people who lose are more difuse so even though the policy is public welfare negative, it still passes.

Sigh. And by that 'definition', Congress is subject to regulatory capture, the Presidency is subject to regulatory capture, the courts, etc. Nor does it matter if the agency develops a culture of sympathy as with the SEC, or if bad direction is imposed from above, say in the case of the FDA.

Congratulations, you've just defined away any usefulness the term may once have had, just as people like you have defined away meaning that is not a political dog whistle for the terms 'liberal', 'activist judges', etc. Which, come to think of it, and given your political inclinations, is probably exactly why you are doing this.

And, of course, if you look at your own sources, it seems pretty obvious that you are mistakenly conflating public choice theory with regulatory capture. But let's not let the textbook facts get in the way.

ONE class of failure at the FDA tends to produce ugly, flashy headlines, and sometimes dead people. The problem is, the opposite class of failure at the FDA, failure to approve drugs that should be approved, (Or even just failure to do so promptly.)

You mean drugs like thalidomide? Or - more recently and more relevant - vioxx? Sure, it's easy enough in hindsight to say that some drug should have been approved sooner. But it's awfully hard to balance hypothetical saves against known fails. If you've got any hard data, by all means, share it.

ScentOfViolets: "Sigh. And by that 'definition', Congress is subject to regulatory capture, the Presidency is subject to regulatory capture, the courts, etc."

I think you should give Seb's description a bit more credit than that. What he seems to be describing is the somewhat specific -- and not implausible -- center-rightist argument that there is an inverse relationship between transparency and capture.

In that narrative, there is a significant difference between the relative opaqueness of Presidential decisions, the transparency of committee hearings, and the mandated paper trail for administrative agencies. The argument has flaws (many of them focusing on the role of expertise, in point of fact), but it deserves more credit than you seem to be giving it.

Let me clarify that --

"Regulatory capture" merely describes a *state* where the government's incentives are misaligned (I'd call it both a "market failure" and a "governance failure" no matter how you slice it, but that's not the issue).

"Public choice theory" is merely one *means* by which you can reach the state of regulatory capture. The revolving door that Sebastian posits at the SEC is a distinct mechanism that's not dependent on public choice theory.

In the case of the FCC, both theories apply -- in addition to that, there's a broken regulatory scheme and a lack of expertise, which I'd argue are actually different things as well.

"The revolving door that Sebastian posits at the SEC is a distinct mechanism that's not dependent on public choice theory."

Sorry -- let me clarify once again -- Sebastian didn't say that, you did. But the two things you're talking about are not exclusive, you're just accusing each other of getting the definitions wrong, which no one really did.

"You mean drugs like thalidomide?"

Well, yeah, it did take the FDA an awfully long time to get around to admitting that there was nothing wrong with thalidomide AT ALL, if the patient taking it wasn't pregnant. Which means better than half the population could take it in perfect safety.

"Sure, it's easy enough in hindsight to say that some drug should have been approved sooner."

And it's easy to compare the FDA to it's counterparts in other countries, and demonstrate that it's a whole lot slower, and yet not one whit more effective.

It's like you just don't want to admit that the failure to approve good drugs, and in a timely manner, is just as real a failure, with just as deadly of consequences, as the failure to block bad drugs.

Ah yes, the always-effective "Thalidomide's not that bad" defense.

And it's easy to compare the FDA to it's counterparts in other countries, and demonstrate that it's a whole lot slower, and yet not one whit more effective.

And yet you're on the freaking internet, and refuse to provide links that would demonstrate that. Like always. It's almost as if you expect us to simply take your assertions as facts without presenting evidence.

Brett, thalidomide was prescribed precisely to pregnant women to alleviate morning sickness (due to its antiemetic effects).

Its other uses are hardly life saving, with the possible exception of anti-angiogenesis applicability to cancer (research not yet conclusive).

Thalidomide side effects (other than danger to fetuses).

'Ah yes, the always-effective "Thalidomide's not that bad" defense.'

That's the funniest comment I've read on this blog in some time.

I think you should give Seb's description a bit more credit than that. What he seems to be describing is the somewhat specific -- and not implausible -- center-rightist argument that there is an inverse relationship between transparency and capture.

I don't know what, exactly he is describing, but he seems to think that this, contrary to what the poster writes, is 'regulatory capture':

And I think regulatory capture only explains part of it--after all, we on the CLEC side were pretty powerful insiders in and of ourselves, but somehow the FCC never cared what we said. Our sense was that a big part of the problem lay with Congress--every RBOC had a substantial Congressional delegation lobbying for their interests.

So by Sebastian's definition, the Bush administration ordering NASA to water down their global warming reports is an example of 'regulatory capture'. Congress caving in on cramdowns is 'regulatory capture'. And so on and so forth - the term has been stretched to include so much that it is effectively useless. That's like calling me a 'liberal', or Friedman calling my redneck relatives 'liberal' because they don't want to give up Social Security.

Let me go out on a limb here, and theorize that Sebastian doesn't think much of government regulation in general ;-)

"You mean drugs like thalidomide?"

Well, yeah, it did take the FDA an awfully long time to get around to admitting that there was nothing wrong with thalidomide AT ALL, if the patient taking it wasn't pregnant. Which means better than half the population could take it in perfect safety.

Are you aware of the history of thalidomide? Do you know that it was approved for use before it was banned? And that in particular:

Richardson Merrell gave the tablets to doctors on the understanding that the drug was still under investigation. 17 children in the U.S. were born with the defects.[9]

So what's the plan? Let people take whatever medication they want, and prohibit them from initiating any lawsuits against the manufacturer for any resultant damages?

ScentOfViolets, et al --

Yeah, thalidomide is the classic example of a failure of drug testing. It's a nasty teratogen and shouldn't have been approved for use by pregnant women. However, this doesn't justify treating it like plutonium, which is what happened.

The thalidomide mess was compounded by the fact that, at the time, ab*rti*n was illegal and there was no aid available most places for what we now call "special needs children". Take thalidomide at the wrong time, you're bankrupt aong with everything else.

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