Tales of the Sausage Factory:
Spectrum Auction Theory v. Competition Theory

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As I’ve previously reported, Congress is weighing spectrum legislation as part of the Payroll Tax Holiday and Everything Else extension. One critical change pushed by House Republicans (with the enthusiastic support of AT&T, surprise surprise . . .) involves whether the FCC should be able to keep companies that have a lot of spectrum (AT&T and Verizon) from bidding on some licenses in the future. This is called “eligibility restrictions” (i.e., are you eligible to bid in the auction or not). The FCC has authority to impose eligibility restrictions now, but generally doesn’t. As the spectrum gap between AT&T and Verizon and everyone else in the wireless world gets bigger, however, there is some talk of possibly bringing them back.

Needless to say, AT&T and its supporters think this is both unfair and bad policy. Others, such as the folks at T-Mobile (now no longer being absorbed into the Bell Borg) have responded to the fairness argument.  For myself, I am always deeply suspicious whenever incumbents start arguing about “fairness,” as it usually means “please consider this particular detail in a total vacuum without ever thinking about all the unfair advantages I have, and use my framing because I appeal to basic values and use sports metaphors like ‘level playing field.'”  But lets set that aside and do the cold-hearted  policy wonk think. As Paul Krugman occasionally likes to say “economics is not a morality tale.” And in any event, even if we decided this on “fairness,” we’d still want to know the right answers and outcomes, right?

Two usual policy arguments are advanced for no eligibility restrictions. The first is that “auctions put spectrum in the hands of those who will use it most efficiently.” The second is that auctions with open participation increase total revenue. Lets pretend for a moment the first statement is true. Based on this, I shall prove below that not only does open participation decrease revenue, but it creates a serious conflict with competition policy. If we maximize auction efficiency, it is inevitable that the largest players will win the majority of the licenses and that this problem will grow worse over time.

So meet below the line for a video blog explaining this and some serious policy trade off discussions . . . .

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My Thoughts Exactly:
The Keystone XL Pipeline — A project IG-Farben would be proud of

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You’ve heard of the Keystone tar-sands pipeline by now. You may not have heard that the Reactionary Right in the U.S. Senate is attempting to revive it yet again, after their last gambit failed.

We must not let this happen.

The Keystone XL Pipeline is planetary arson and intergenerational crime on an unprecedented scale.(PDF)

The arguments in its favor are all specious. At best, they are ignorant. At worst, they are dishonest and immoral.

Let me just address one of these arguments: jobs. Proponents of the pipeline say it will create jobs for Americans. And surely it will. Construction jobs that will disappear once the pipeline has been built. The permanent jobs created by this project will be in Canada. More importantly, since the pipeline itself is immoral, all jobs associated it will be morally tainted. The Holocaust created jobs too, remember. There were good jobs for chemical engineers and plant managers at IG Farben, where Zyklon-B gas was manufactured for shipment to Auschwitz and other well-engineered murder factories and crematoria.

If you find this rhetoric over-the-top, I respectfully suggest that you read up on the climate-change impact of this one project and ponder its implications. And then consider the risks of permanent damage to the Ogallala aquifer.

Please sign this petition now, and then pick up the phone and call your Senators. It won’t take long, and stopping Keystone is at least as important as stopping SOPA, PIPA and ACTA.

 

Neutrino:
“A false sense of precision”

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“Whenever you hear the term ‘Darwinian’ from anyone other than historians of science, assume the crash position; it’s going to get real ugly.”

The quote is from a blogger known as Mike the Mad Biologist. The title of the post is When Economists Misunderstand Biology, an entry he wrote in response to economist Russ Roberts’ piece called What is economics good for?. In Roberts’ opening paragraph, he refers to his previous argument that macroeconomics is “deeply flawed and not a science”. He goes on to describe that economist Friedrich Hayek (the original anti-Keynesian) felt that to label economics a science gave “a false sense of precision and understanding.”
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Tales of the Sausage Factory:
RIAA — Take Us Back To The Days of Illegal Price Fixing.

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One final point about Recording Industry Association of America (RIAA) CEO Cary Sherman’s NYT Op Ed on “how the Internets did us wrong.” Mr. Sherman notes that:

They [Congress] knew that music sales in the United States are less than half of what they were in 1999, when the file-sharing site Napster emerged, and that direct employment in the industry had fallen by more than half since then, to less than 10,000.

There are two caveats here worth noting. The first is that when Mr. Sherman talks about sales and the “music industry” generally he means his organization’s members — specifically the four (soon to be three) “major labels” and all of their various sub-labels and subsidiaries.

This is important because in 1999, according to the Federal Trade Commission (FTC), the major labels were engaged in an illegal price fixing scheme. The major labels agreed to discontinue their price-fixing practices as part of settlement decree in May 2000. Not surprisingly, once the major labels stopped violating antitrust law, their artificially inflated profits declined and independent competitors saw a significant rise in profits.

Needless to say, as part of the general magical thinking problem of the industry, Mr. Sherman and his fellows don’t believe the loss of their stranglehold on industry distribution and the rise of competitors (online and offline) has anything to do with their fading fortune. No, it is all that evil Napster and its wicked legacy of Internet piracy. But any legislators and policymakers who expect to be taken seriously ought to seriously consider using a benchmark other than the period from 1995-2000. It would be embarrassing for those not explicitly in the pay of the music industry to believe that it is the responsibility of government to return the industry to glory days of price fixing and monopoly profits.

Stay tuned . . . .

Tales of the Sausage Factory:
Mr. Sherman’s Magical Thinking

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I am always impressed with the utter unwillingness of the Entertainment industry to acknowledge the world as it actually is, rather than the world as they want it to be. Perhaps it is a side effect of being in the business of ‘selling dreams.’ In any event, I could not help but marvel at Carey Sherman’s recent New York Times Op Ed “What Wikipedia Won’t Tell You.” Even for the Entertainment Industry, it is astounding. It actually crosses the boundary from an industry-centric bias to outright magical thinking.

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Tales of the Sausage Factory:
AT&T, Anger Management and Spectrum Legislation

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Based on recent statements, it’s hard to tell whose angrier at the Federal Communications Commission (FCC) and its Chair, Julius Genachowski: AT&T’s Upper Management or the House Commerce Committee Republicans. Mere mention of Genachowski’s name converts House Commerce Committee Republicans, such as Telecom Subcommittee Chair Greg Walden (R-OR), from urbane sophisticated legislators into sputtering mad parodies of Elmer Fudd.  “Oooh that wascally Chaiwman! Always wegulating the fwee market! I’ll fix his wagon!” Meanwhile, AT&T CEO Randal Stephenson devoted the main part of his recent earnings call to repeating variations on “Juliuth, you’re desthpicable.”

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Tales of the Sausage Factory:
What The SOTU “Piracy” Reference Means: Back In The USTR With Special 301 and The Trans-Pacific Partnership Agreement.

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It don’t take much to excite the Twitterverse. Obama makes a passing reference to intellectual property enforcement as a sop to the MPAA by saying foreign piracy hurts trade, and my reader explodes with “Obama’s flipping on PIPA/SOPA! Betrayal!” While I have no reason to believe that the Administration is backing away from its current hardline position against PIPA/SOPA, it doesn’t have to in order to show MPAA some love (and remind them this is a long-term game with many fronts and that they depend on the federal government for enforcement — something to think about when considering whether to go through with the threats to cut off campaign contributions).

On the other hand, the fact that it does not require new policy, merely continuation of existing policy, should be just as disturbing for anyone who cares about Internet freedom and burdens on innovation. (I exclude from this concern the proposed beefed up task force for intercepting counterfeit goods until we hear more. If it focuses on stopping delivery of counterfeit goods at the border, then excellent! That is exactly the kind of enforcement we need to keep things like fake heart medicine out of the country. OTOH, if they try to make ICE-style seizures of domain names on dubious pretexts, then we got problems.)

What the President was talking about, and how to stop the People Who Brought You SOPA from getting what they want through the back door of trade agreements, below . . . .

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Tales of the Sausage Factory:
The PIPA Aftermath — Will Senate Democrats Drive Off A Cliff For Hollywood?

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One of the more surprising developments in PIPA/SOPA politics has been the transition of Hollywood-backed legislation from a bipartisan issue with both Republican and Democratic proponents and opponents to a partisan issue. Democrats (particularly Senate Democrats) are increasingly identified as supporting the legislation and Hollywood while Republicans increasingly frame this as an exercise in big government and crony capitalism.

On the one hand, this seems remarkably unfair given that Democratic Senator Ron Wyden (D-OR) was the first Senator to oppose PIPA and one of the chief architects of the bipartisan alliance of Senators and Representatives that kept PIPA/SOPA from advancing to the point of no return. It also ignores the role the Obama Administration played in legitimizing and galvanizing anti-PIPA/SOPA efforts (including the SOPAStrike web blackout) by strongly opposing PIPA/SOPA before the SOPAStrike, despite the naked threats of Hollywood moguls to punish the Obama campaign by cutting off any further contributions.

But too many Senate Democrats seem intent on handing Republicans a partisan victory. Whereas even Republican champions such as Rep. Lamar Smith (R-TX) and Rep. Marsha Blackburn (R-TN) have acknowledged “legitimate concerns” of opponents and have “shelved” SOPA so that it can be “scrapped” and a new approach developed, high profile Senate Democrats continue to insist that they will press on against what they regard as unwarranted opposition motivated either by financial interest, disinformation, or political opportunism. Indeed, PIPA author Senator Pat Leahy (D-VT) used his opening floor speech yesterday to chastise Republicans for their opposition to PIPA and his hope that, now that Republicans are back in Washington and away from all those annoying constituents protesting PIPA, they will return to the True Path of Reason — which lies in fanatically embracing any legislation that gets the MPAA seal of approval.

Which brings us to the interesting question for the legislative season: will prominent Senate Democrats chose to make this the issue on which they will drive the Democratic Party generally off a cliff by continuing to try to “sell” PIPA/SOPA, thus embracing Republican charges of a “culture of corruption” and “crony capitalism?” Or will they finally come to their senses and publicly embrace those like Wyden who insist that measures directed against online infringement must not also threaten free speech and innovation?

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Tales of the Sausage Factory:
An Astounding Week In PIPA/SOPA Comes To A Close

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Today brought a dramatic conclusion to an extraordinary week and the culmination of months of amazing activism on PIPA/SOPA. A month ago, hardly anyone had heard of PIPA and a few more had heard of SOPA and its passage was regarded as virtually assured. Today, Harry Reid (D-NV) finally threw in the towel and called off Tuesday’s scheduled cloture vote. In the House, Lamar Smith and Marsha Blackburn, the last SOPA holdouts, threw in the towel and promised to go back to drawing board and totally rework their approach. Yes, the ill-grace with which the chief Democratic architects of PIPA in the Senate have responded, coupled with Chris Dodd’s increasing resemblance to Muppet Movie villain Tex Richman by openly threatening on Fox News to stop campaign contributions to any politician who didn’t keep pushing PIPA, make it clear PIPA’s sponsors (in both the legislative and financial sense) are as utterly unrepentant as they are in common sense. So yes, they will come back and try again and all the usual caveats that responsible people seem compelled to add to any moment of real triumph.

To which I say, feh. We can celebrate until at least Monday. No, we have hardly solved all the problems of our democracy, or even prevented the Entertainment industry from coming back to try again. However, “the work is not for you to finish, but nor are you free to set it aside.” (Pirkei Avot 2:21) Or, in the words of Matthew 6:34: “sufficient unto the day is the evil thereof.” It would be a poor world indeed where no victory is every enough, where all we see when we look ahead are the challenges and all we see when we look behind are our defeats. So let us celebrate with a whole heart, because in a mere 3 days we accomplished something wonderful.
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Tales of the Sausage Factory:
SOPASTRIKE The Day After

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Yesterday was absolutely one of those days that reminds me why I stay in public advocacy. I’m a democracy junkie. Yes, I admit it. The sight of literally millions of people remembering that they are citizens and not just consumers gets me juiced.

The good news is that by every possible metric, SOPAStrike was an enormous success. We absolutely scared the poop out of members of Congress and broke through the infamous “Washington bubble” that separates our elected officials from what is actually going on in the real world. As a result, we forced more than 20 Senators to come out publicly against PIPA/SOPA, including a number of co-sponsors withdrawing support. Fantastic!

Some of these conversions are people who hadn’t really thought much about this and are now going “I co-sponsored what? You told me this was a non-controversial bill to stop online piracy and the only opposition was Google! You totally lied to me!” But a lot of them are Senators and Representatives who would still loooove to find a way to make Hollywood happy while not getting tarred and feathered by constituents back home. The chatter on Twitter among the political set is that Pat Leahy (D-VT), who has drunk so much Hollywood Kool-Aide he pees purple, has retired to a backroom with Jon Kyl (R-AZ) to prepare a “managers amendment” that will purport to “address all the issues” (primarily the DNS blocking). The idea is to provide a fig leaf for members so that all the Senators and Representatives who caveated their opposition to PIPA/SOPA with the words “as written” can say “I had concerns, but they were addressed. Don’t worry constituents, I totally had your back and stood up to Hollywood even though I voted for the bill.”

Needless to say, the idea that you fix a lobbyist-drafted bill that is this utterly and comprehensively wrong by going into a backroom with the same lobbyists and trying to push a vote through before people can see it and debate it would be crazy anywhere but D.C. So we will need to continue pounding Senators with the clue-by-four of reason until either Reid finally calls off the cloture vote scheduled for January 24, or we win the cloture vote by keeping 41 Senators honest. My employer, Public Knowledge, has a nifty text-to-call feature you can sign up for so you can make absolutely sure you don’t forget to call your Senators on January 23.

You can find an excellent example of why pulling DNS blocking is not enough to fix PIPA/SOPA from my colleague Sherwin Siy here, and why PIPA/SOPA needs a total reset from my colleague Michael Weinberg here. Alternatively, you can watch this clip from last night’s Daily Show where Jon Stewart, as usual, manages a more in depth analysis that the supposed real news.

Stay tuned . . . .