Tag Archives: regulations

The One Minute Case Against “Net Neutrality”

What is “net neutrality?”

To borrow Senator Ted Stevens’s infamous analogy of the Internet to a series of tubes, imagine a network of pipes connected by switching stations. The width of a pipe (bandwidth) determines the volume of messages (packets) than can be sent through it. Packets arriving at a switching station wait in a queue until they can be forwarded to their destination. The pipe’s diameter and the volume of traffic determines the total time (latency) that messages take to reach their destination.

Advocates of “net neutrality” argue against the right of the owners of the pipes (Internet Service Providers) to discriminate between different messages or to charge recipients of messages. So for example, an ISP would not be able to favor telephone calls sent over the net over movie downloads, or charge Google extra for the traffic sent their way, or to block a business if it competes with their own services, or to block malicious or illegal websites. Implementation of such regulations would require government surveillance of Internet traffic and FCC approval of new technologies and services which might violate “neutrality.”

Regulation stifles innovation

The limitations of the original Internet protocols became apparent as it transitioned from a monopoly network designed for government use to a competitive and decentralized marketplace. One limitation is the lack of ability to prioritize certain kinds of traffic. Different kinds of communications have different bandwidth requirements. Watching movies over the web is bandwidth-intensive, but not time-critical. Teleconferences are both bandwidth intensive and time critical. Some applications like remote surgery and other time-critical services are simply impossible over the public Internet with current technology.

Advances in technology are beginning to allow traffic to be analyzed in the process of transmission, so certain traffic, such as real-time video can be prioritized, while other traffic such as file sharing or spam can be given a lower priority or dropped. Along with dramatic increases in speed and performance, technological innovation is making entirely new kinds of services possible.

Net neutrality advocates want the government to regulate how ISP’s may and may not route traffic. Pressure groups such as consumer activist groups, major websites, small ISPs, and Internet backbone providers are fighting for controls that favor them. Once the precedent of regulation is established, competition will shift to passing the most favorable legislation rather than providing the best technology and service.

Regulations breed more regulations

While communications technology has experienced exponential growth, heavily regulated and monopolized consumer phone and cable providers have been slower to improve services. Consumers fed up with expensive cable and DSL services are demanding more government controls over the pricing and behavior of their ISP’s. They argue that regulations are necessary because telecommunications companies receive monopoly privileges and other benefits from the government. But the lesson they should learn is the opposite – regulations create the need for more regulations. The solution is to abolish coercive monopolies for cable and phone service providers and allow free and open competition.

The Internet is possible because many private networks find it in their mutual self-interest to cooperate and share traffic loads. When inequalities arise, networks compensate each other for the extra load. “Neutrality” regulations force companies to act against their self-interest, inevitably leading them to complain to Congress to impose ever more detailed controls to maintain “fairness.”

The Internet is private property

The Internet is not public property. Telecommunications companies have spent billions of dollars on network infrastructure all over the world. They did so in the hope of selling communications services to customers willing to pay for them. The government has no right to effectively nationalize ISP’s by telling them how run their networks.

Proponents of a mixed economy like to invent hypothetical scenarios of ways companies could abuse customers. It is true that a free society gives people the freedom to be stupid, wrong, and malicious. The great thing about capitalism is that it also gives people the freedom for the most consumer-friendly business to win.  A regulated Internet takes away that freedom and turn it over to politicians and lobbyists.   History shows that most attempts to improve outcomes by regulating markets worsen the very problems they were intended to solve.    That is how the USA ended up with the current overpriced, monopolistic oligopoly providers.  Why do “net neutrality” advocates ridicule politicians for comparing the Internet to a “series of tubes,” and then trust them to regulate it?

Real solutions to a better Internet 

  • End local Internet monopolies which prevent small ISPs from being successful
  • Remove local and federal (FCC) regulations which prevent all but the most powerful corporations from providing telecom services
  • Allow ISPs to innovate in by forcing cities to open up their infrastructure  without the threat that their business model will be nationalized or regulated out of existence.
  • Give capitalism and free markets a chance – America has already tried everything else

Further reading:


Filed under Economics, Politics

The One Minute Case For “Price Gouging”

“Price gouging” is a derogatory term for “unfair” prices on goods, typically in an emergency.The problem is that the perception of “unfairness” is totally arbitrary and stems from an ignorance of basic economics.Rather than create “fair” outcomes, “price gouging” regulations create the very problems they are supposed to solve.

What are prices?

A price is the value demanded by a seller in exchange for a good.The money paid for goods makes production of more goods possible.When the demand for a good suddenly goes up or the supply goes down, sellers raise prices to avoid a shortage.Higher prices cause consumers to limit their consumption.Higher profits pay for money to be invested in expanding production, and encourage other producers to redirect production from other uses to the goods most urgently demanded.

The disastrous effects of price controls during disasters

Consider what happens when politicians attempt to control a run on gas precipitated by an imminent hurricane:

When price controls are imposed, the market’s ability to respond to an emergency is paralyzed  Rather than distributing gas to those who value it the most, products are distributed to those who buy it first. This encourages those with time to wait in endless lines, or the most panicky individuals to rush to fill up their cars at the first sign of trouble. Runs begun whenever a minority of people expects a rapid increases in demand, and the entire stock is quickly consumed by a few.

Whereas a free market would quickly respond to higher prices by shifting supply to the stricken area, outside sellers have no incentive to make an effort to bring additional supplies to the stricken area when prices are fixed. To recoup the higher costs of delivering gas in emergencies and offset the risk of a run, gas stations keep prices at a higher overall level for a longer time.

Price gouging saves lives

Absent price controls, gas stations raise prices in an emergency to a level where everyone who is willing to pay the new price is able to buy gas.Badly needed resources are delivered to those who need them most.Rather than buying out stocks, consumers ration usage of expensive goods.Those in the most vulnerable areas are able to pay a higher price for the gas they desperately need, while individuals who are less vulnerable wait until stocks are replenished.

Price gouging remedies shortages

In addition to distributing existing stocks more efficiently, high profits pay for the higher cost of delivering supplies to a dangerous area.They also encourage stocks in other locations to be redirected to where they are most needed.The market’s natural response to shortages is far superior to government planning of how much of everything is needed and where. This was aptly demonstrated after Hurricane Katrina, when FEMA paid truckers exorbitant amounts to ship thousands of tons of badly-needed ice around the country before finally throwing it out.

Price gouging is the best solution to price gouging

A rapid price increase in anticipation of an emergency reassures buyers that supplies will be available if necessary, resolving the problem of runs caused by false alarms. In the long run, a high price on gas during an emergency encourages consumers to be better prepared for emergencies and find alternate means of transportation and encourages and pays for suppliers to increase production.Rather than face dry pumps during emergencies, consumers in vulnerable regions will pay a slightly higher price for fuel stations and stores to maintain higher reserves.Ultimately, the market’s natural response to shortages dampens price increases and shortens waiting lines.

Further reading:


Filed under Economics, Politics