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 LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | Policy trade offs Apropos that ColorBasic was the first to post on this topic because recently we concluded a thread where we touched on government action in the broadband market in regards to ala carte pricing.
There is philosophical crossover with these issues, mutatis mutandis, because my original point was that ala carte was not the "efficient" way to do it otherwise the cablecos would already be doing it; and likewise, there are many reasons why broadband speeds are so slow in the United States (I maintain that population density is the main reason why), but in both cases government direction isn't all pluses.
Just to reiterate, I'm not saying no regulatory scheme should be in place (though I'd like to see more serious consideration of that idea), just that there are relative trade-offs. Mr. Basic made good points when s/he points out that the current government-created regional monopoly would allow for the government to tell the company how to price its product. I suppose under the same umbrella it's fair to say the government move to bring faster speeds.
The proverbial fly in the ointment is, of course, the stifling of innovation that comes with regulation.
All regulatory schemes in one way or another make the market more stable for the incumbent. Most involve a "rate of return" (RoR) the company is guaranteed. This guarantee means the company no longer has to put emphasis on cutting edge technology. In fact, the accounting works such that, in the electricity industry for example, because the RoR is guaranteed, they phase out their old equipment slower making for less-efficient production (old equipment=less efficient equipment).
You can see how the same would be true for the broadband industry. In fact, in light of this, it can be said that some CWA-backed regulatory regime is exactly contraindicated. Of all the fields to try to funnel through bureaucrats' minds. . .
At the World Economic Forum on the Middle East conference this spring, one speaker said “We must do more to promote failure . . . In Silicon Valley, failure is a badge of experience.” You fall on your face a couple of times — or eight times — and eventually you get it right. Failure is indispensable to entrepreneurship, to experimentation, to economic flourishing. Government intervention prevents failure making us safe and stable, but never pushing the edge.
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"It is a melancholy reflection that liberty should be equally exposed to danger whether the government have too much or too little power."—James Madison
It's right, it's free. | |
|   ColorBASIC8-bit FunPremium
join:2006-12-29
Corona, CA
1 edit | Re: Policy trade offs There's a difference between which is more efficient and which is more profitable. Cable companies don't do a la carte because it is less profitable for THEM, not because it's inefficient. It is about what makes money, not what is easy.
You will never have 100% BB deployment because rural residents aren't willing to pay their share of the deployment costs. Where deployment costs can be recouped in a resonable time, providers are deploying.
These providers aren't a charity and people should consider broadband availability when they choose where to live just as they choose where to live based on quality of schools, closeness to shopping and work etc.
IOW, people shouldn't move next to an airport and THEN bitch about the noise.
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Macintosh Users Group Serving the Inland Empire | |
| | Time4aNAPPremium
join:2007-04-09
Des Plaines, IL | Re: Policy trade offs said by ColorBASIC:...people should consider broadband availability when they choose where to live... So those people who live in underserved areas, both urban and rural, chose to be born into poverty?  | |
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Time4aNAPPremium
join:2007-04-09
Des Plaines, IL | said by LegoPower77:The proverbial fly in the ointment is, of course, the stifling of innovation that comes with regulation. That kind of political rhetoric might have sold well in 1980, but after witnessing what a quarter century of deregulation hasn't gotten us, I'm not buying.
The fact of the matter is that American industry was second to none when it was regulated to protect the consumer. Regulation didn't stifle anything. The transistor, the laser, the integrated circuit and many other innovations flourished under government regulation. What innovations have come from deregulation?
Whining about regulation allegedly stifling innovation is nothing more than misdirection from reactionaries who have no intentions of innovation. | |
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Time4aNAP 
| Re: Policy trade offs It's all about being pragmatic. Countries, like France and Japan, who have forced unbundling of the last mile through regulation have seen competition flourish and hence, better broadband for everyone. | |
| | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | Your mention of the 80s reminded me of Ronald Reagan saying something to the effect that the problem with leftists isn't that they're wrong it's just that they know so much that isn't so.
But let's go past the one-liners and look at your claims.
The first instance of federal regulation was the 1887 Interstate Commerce Act (ICA) that imposed regulations on the railroad industry.
The ICA, which created the Interstate Commerce Commission (ICC), was the product of a compromise between the shipping industry, who got all sorts of price controls imposed on the railroads, and railroad interests, who got a government-enforced cartel.
In 1965, historian Gabrial Kolko and economist Paul MacAvoy independently published papers, one at Princeton the other at MIT, that showed the effect of the ICA was to stabilize the railroad cartels, eliminate price wars, and increase average rates.
Of course, when the 1890 Sherman Anti-trust Act attempted to prevent the very collusion the railroad industry was engaged in, the ICC's response was to expand and entrench their enforcement powers.
The ICA expanded twice in the 30s to include the trucking industry and the airline industry. In both cases barriers to entry were raised, competition eliminated, and prices kept relatively high. Indeed the empirical data of the last quarter century show that after the airline and trucking industries were deregulated, prices dropped drastically. Go to the local university libray and you will find a legion of articles supporting this statement.
Conversely, an empirical study of regulation in the electric industry shows that the states that were first to adopt regulations had increases in prices relative to states that were late-adopters. (George Stigler and Claire Friedland, "What Can Regulators Regulate? The Case of Electricity," Journal of Law and Economics [Oct. 1963].)
And so it goes time and again, in industry after industry. The acceptance of the use of government regulation as a method of social control engenders a struggle for control of the political and regulatory process. Everybody jokes about crooked politicians but then turn to them first when they are afraid of businessmen taking advantage of them. As my colleague once said, I'd rather the market be controlled by businessmen who, after all, can't force me to buy their products, than it be controlled by the government through force.
Firms operating under regulation are less motivated to control costs than they would be in a competitive market and they do not abandon their older, inefficient facilities as readily.
If an industry is unregulated, when there are rapid technological advances, the old facilities become obsolete before their historical cost is fully depreciated. Firms abandon obsolete facilities sooner than if there had been no advancement.
That said, it is not just the control of prices that concerns me about regulation, but the impact regulation usually has on the discovery process which is part and parcel of the unregulated market. Even if we come to the conclusion that the current market outcome is not what we want, it does not follow that intervention—even successful intervention—is the proper course of action. In a free market, the problems that we see often generate, through discovery and correction, an outcome that is superior to that of interventionism.
In this light, intervention is not only an imperfect substitute for the spontaneous market process, but it could also serve to impede the finding of a solution that may not even have been thought of by the government. Besides all that, intervention might just generate new market adjustments that give us an outcome more inferior than that of the first, unregulated one (the law of unintended consequences).
There are four aspects in which government intervention is inferior to the free market:
- Regulators are likely to not correctly judge the course the market might the were there no regulations.
- Because regulators do not operate under the same set of incentives that businessmen do, regulatory decisions will not exploit opportunities waiting to be discovered.
- Regulation may stifle the desirable discovery process generated by the market.
- Regulation distorts the market by creating new undesirable opportunities and market processes that would not be relevant in an unregulated market.
The demand for regulation is often based on the assumption that not only undesirable conditions are because of lack of regulation, but also that the market cannot be trusted to correct the situation in the future. Also, the assumption is made that there exists a better market structure and that the free market just has not, or will not accomplish it.
These assumptions are based on two misunderstandings of the market discovery process, i.e., the failure to understand that the market may have already discovered what is worth discovering (so what appears to be inefficient can be explained if the regulators had all the information the market has already discovered and taken advantage of), and the idea that unsatisfactory conditions will remain unless the government takes action. If one sees that true inefficiencies can be counted on to create the market process for their own correction, the demand for regulation diminishes.
Now, your claim that without regulation none of those wonderful things you mention would have come into being is an example of the post hoc, ergo propter hoc fallacy. The fact is we simply don't know what or how fast things would have been discovered in the absence of regulation.
Again, I'm not saying that in no case should there be regulatory action (indeed, the electric industry prior to regulation did have franchise agreements with the local governments, but the barriers to entry were kept low), I just want people to understand there are serious negatives when we use the force of government to correct perceived market failures.
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"It is a melancholy reflection that liberty should be equally exposed to danger whether the government have too much or too little power."—James Madison
It's right, it's free. | |
| | | Time4aNAPPremium
join:2007-04-09
Des Plaines, IL
1 edit | Re: Policy trade offs said by LegoPower77:Your mention of the 80s reminded me of Ronald Reagan saying something to the effect that the problem with leftists isn't that they're wrong it's just that they know so much that isn't so. Reagan also promised less government and a balanced budget. What he actually delivered was the largest new bureaucracy of all time (the RTC, whose sole purpose was to use taxpayer dollars to meet FSLIC obligations instead of recovering the stolen funds from the thieves), and the largest national debt of all time (that is, until Bush Lite broke the same promises}. I'll go with the facts over unsubstantiated name-calling any day.
(I'm skipping over the stuff from the 19th century, since it's the 21st century, and nobody is alive to verify those claims.)
The ICA expanded twice in the 30s to include the trucking industry and the airline industry. In both cases barriers to entry were raised, competition eliminated, and prices kept relatively high. Indeed the empirical data of the last quarter century show that after the airline and trucking industries were deregulated, prices dropped drastically. Go to the local university libray [sic] and you will find a legion of articles supporting this statement. What competition was eliminated? Trucking and airlines were the competition! In the case of the fledgling airline industry, safety concerns were the #1 barrier to increasing passenger payloads until the Jet Age. Without regulation to reassure the public, the airlines of the 30s would have gone bust back then. That they went bust under deregulation is the other side of the coin.
You also failed to mention that deregulation of these oil-dependent industries coincided with the end of the second OPEC embargo, and a period of record low fuel prices. You also failed to mention that airline passengers got a lot less service along with the lowered prices. Or that the subsidized trucking industry came at the expense of the national highway and bridge infrastructure, that was on the verge of collapse by the end of the Reagan era. Or that shifting freight from relatively efficient rail systems to trucks caused the railroad companies to fail, leading to the nationalizing of the railroad system at substantial taxpayer expense.
Even if you did factor it in, you can't put a price on the lives lost in the large number of aviation disasters and less-publicized car-truck crashes that are directly attributable to deregulation.
You can always cherry-pick to get the results that you desire. But when all factors are considered, your conclusions prove to be bogus.
Conversely, an empirical study of regulation in the electric industry shows that the states that were first to adopt regulations had increases in prices relative to states that were late-adopters. (George Stigler and Claire Friedland, "What Can Regulators Regulate? The Case of Electricity," Journal of Law and Economics [Oct. 1963].) I was going to point out how you fail to factor in other cost-determining factors, like the power sources in each state. But then I realized that the electrical power industry has always been regulated because it's a monopoly. Therefore your claim is sheer fabrication.
No matter how many times you throw the word "empirical", saying it doesn't make it true.
(anecdotal content ignored)
Firms operating under regulation are less motivated to control costs than they would be in a competitive market and they do not abandon their older, inefficient facilities as readily. I invite you to prove that assumption. First off, you're making an apples to oranges comparison, because regulation and competition are not mutually exclusive. And I'd love to read your excuse for the deregulated telcos that doggedly refuse to abandon their obsolete ways or embrace competition.
Go peddle your logical fallacies somewhere else. You're busted here. | |
| | | | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | Re: Policy trade offs I think after going away for the weekend before responding to your egregious rebuttal might make this post too late, but I just feel the need to point out some more errors you have made (not that you appear to have any interest in trying to correct them).
said by Time4aNAP: What competition was eliminated? Trucking and airlines were the competition! Uh, I don't know, restricting the airline industry to a maximum 19 trunk lines for 40 years? Sure, the industries competed against each other but within the industries to themselves, there was little to no competition. Indeed, after the Civil Aeronautics Act of 1938 passed, no entry was allowed into the scheduled interstate passenger business
Furthermore, to get around regulations, many small non-scheduled airlines sprung up. In 1947, there were around 150. As you may imagine, they took quite a bit of business from the major carriers so in 1947 they too were brought under entry and price regulations. By 1959 there were only 50 remaining. (Mary Peterson, The Regulated Consumer). Sure seems like a drag on competition, don't you think?
That the Civil Aeronautics board was holding prices up, not down, becomes clear when you see the research done on the California air travel market at the time. Between 1946 and 1965, there were up to sixteen intrastate firms who avoided regulations by transporting passengers only within California. This situation is prefect for empirical study because the unregulated airlines competed directly with regulated trunk lines to major California cities.
Economist William Jordan settled the debate in the economics profession over whether the CAB was holding rates up or down overall. He found that one non-regulated firm carried more passengers than any other carrier in all three of the largest California markets (William Jordan, Airline Regulation in America). Sounds like the unregulated market was what the consumers were choosing (higher demand implies lower price). I guess they didn’t know that they could crash more easily because the CAB hadn’t dictated the price they paid.
said by Time4aNAP: You also failed to mention that airline passengers got a lot less service along with the lowered prices. You’re right, I should have mentioned that because it offers more evidence to my point. Forbidden in engaging in price competition with one another on particular routes, the trunk lines substituted improvements in service quality—as economic theory predicts. As a frequent flyer myself, I can tell you nowadays people want cheaper prices, not an extra olive on their salads so less service for a lower price is what we get since the government has deigned to allow that.
As with the regulated airlines, evidence on the inefficiency and harmful effects of trucking regulation came partly from comparison with unregulated firms. Motor carrier transport of agricultural products was exempted from rate regulations. Not surprisingly, average revenues of the unregulated carriers were 58 percent lower than those of the regulated firms and their costs were much lower (Richard Farmer, “The Case for Unregulated Truck Transportation,” Journal of Law and Economics [1964]).
Also, after transportation of poultry was deregulated in 1952, the Agriculture Department found that shipping rates for poultry fell over 30 percent while service quality improved (George Hilton, “Transportation Regulation and Private Carriage,” Conference on Private and Unregulated Carriage [Northwestern University Transportation Center, 1963].
Your citation of the oil embargo did give me pause but I don’t think it hurts my essential point. As you can see here the price of oil really didn’t return to “normal” until the middle of the decade, but in the first year of deregulation, a whopping 2,400 firms entered the market.
said by Time4aNAP: you can't put a price on the lives lost in the large number of aviation disasters and less-publicized car-truck crashes that are directly attributable to deregulation. Ignoring your post hoc propter hoc error again, The Department of Transportation data on the trucking industry show that the fatal truck accident rate fell from 6.56 per hundred million miles in 1976 to 4.34 in 1987 (John Taylor, “Regulation of Trucking by the States,” Regulation [1994]).
Oh, and “directly attributable.” I know you aren’t going to agree with me on any of this, but you can’t say I haven’t at least done some research here. Show me yours.
said by Time4aNAP: I was going to point out how you fail to factor in other cost-determining factors, like the power sources in each state. But then I realized that the electrical power industry has always been regulated because it's a monopoly. I did make a mistake here, I incorrectly cited Stigler and Friedland when I was talking about Gregg Jarrell’s 1978 paper also in the Journal of Law and Economics, “The Demand for State Regulation of the Electric Utility Industry.”
First, he distinguished between regulations. Since electrical firms used the city streets, prior to state regulations, municipalities did grant franchises (as I mentioned in my first post in this thread). The common practice had been to grant franchises freely to virtually all aspiring electricity providers, creating conditions of open entry and low-cost. That some economies of scale were present was indicated by a tendency toward consolidations over time. (It’s important to note that there wasn’t some huge so-called electric monopoly starting out; there were, in fact, many small start-ups during this time.)
Jarrell suspected that state monopoly franchises (as opposed to the municipal licensing in the preceding paragraph) and rate regulation may have emerged not from consumer demand but from pressure by producers seeking to form a cartel. He knew if he found monopoly prices and profits before regulation that his suspicion would be proven wrong and the regulations should have resulted in falling prices and profits.
Five states had state regulation of utilities before 1912 and there were twenty-five more by 1917. The remaining states instituted state regulation over time and at a slower pace so he designated two categories, Early Regulation (ER) states (before 1917) and Late Regulation (LR) states (after 1917).
After considering the effects of population density, fuel prices, hydroelectric (cheaper) power, income of customers, and other demand conditions, he found that ER states had prices that averaged 46 percent lower than those in LR states, but by 1917 prices were only 20 percent lower—meaning the early regulation states had experienced a 26 percent increase in price after regulation.
The same case for profits. 1912 ER states had an average of 38 percent lower gross profits per KWH than LR states; but by 1917, the gross profits of the ER and LR states were the same. Jarell concluded that state utility regulation began where conditions were most competitive—not the most monopolistic, and the gainers from regulation were the utilities at the expense of consumers.
That’s why I started in the last post with the 1887 Interstate Commerce Act. (By the way, nobody being alive from then is a rather obtuse standard. One wonders how there could be any study of history under that constraint.) My essential point is that regulations are usually sought by the industry itself for the purposes of creating a government-enforced cartel.
Leftists are schizophrenic when they decry eeevil corporations and the destruction of Mom-and-Pop stores while at the same time pushing for increasingly burdensome government intervention. Indeed, the large firms have economies of scale when it comes to regulations because they have the armies of accountants and lawyers.
I’ll say it again, the acceptance of the use of government regulation as a method of social control engenders a struggle for control of the political and regulatory process. Having failed to suppress competition through market methods, executives of the largest firms turn to the political process and attempt to gain control of their markets through that avenue.
said by LegoPower77:Firms operating under regulation are less motivated to control costs than they would be in a competitive market and they do not abandon their older, inefficient facilities as readily. said by Time4aNAP:I invite you to prove that assumption. I already wrote about this in my first post and it’s just a fact of accounting: the older facilities are protected by the averaging of their cost with the cheaper newer facilities into the rate structure. Since their profit is guaranteed, they have no incentive to upgrade and, to my other point you didn’t address in your truculent post, the discovery process is dampened if not eliminated when the government seeks to regulate and stabilize.
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"It is a melancholy reflection that liberty should be equally exposed to danger whether the government have too much or too little power."—James Madison
It's right, it's free. | |
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