Knowledge Problem

Lynne Kiesling

Up early for a Saturday, for a 6:45 AM Liverpool/Chelsea game (which the good guys won 2-0, even though fave KP hottie Xabi Alonso took a knee to the mouth and had to have stitches) … so inevitably I am trolling for geeky network regulation fodder now that the game’s over.

And I have found it: several posts on the question of the continuing relevance or value of the FCC. Should it be abolished? The impetus for these posts is this Jack Shafer column in Slate, in which he argues in the affirmative, and that instead the radio spectrum should be sold off.

Although today’s FCC is nowhere near as controlling as earlier FCCs, it still treats the radio spectrum like a scarce resource that its bureaucrats must manage for the “public good,” even though the government’s scarcity argument has been a joke for half a century or longer. The almost uniformly accepted modern view is that information-carrying capacity of the airwaves isn’t static, that capacity is a function of technology and design architecture that inventors and entrepreneurs throw at spectrum. To paraphrase this forward-thinking 1994 paper (PDF), the old ideas about spectrum capacity are out, and new ones about spectrum efficiency are in.

Almost everywhere you look, spectrum does more work (or is capable of doing more work) than ever before. For instance, digital TV compresses more programming in less spectrum than its analog cousin. As the processing chips behind digital broadcasting grow more powerful, spectrum efficiency will rise. Ever-more efficient fiber-optic cables have poached long-distance telephone traffic from microwave towers, and this has freed up spectrum in the microwave spectrum for new use by cell phone companies.

Indeed. Not only has the nature and extent of spectrum’s scarcity changed because of innovation, but the ability to control interference has also improved. Technological change has drastically affected our ability to define and enforce property rights in spectrum, as well as giving us better means for “governing the commons” in cases where users decide to keep a particular slice of spectrum as a common-pool resource. Shafer then delivers the goods when he points out that Coase made these arguments over 40 years ago, and they are even more true today:

Technology alone can’t bring the spectrum feast to entrepreneurs and consumers. More capitalism—not less—charts the path to abundance. Hazlett and others, going back to economist Ronald H. Coase in 1959, have advocated the establishment of spectrum property rights and would leave it to the market to reallocate the airwaves to the highest bidders. Such a price system would tend to encourage the further expansion of spectrum capacity.

I have argued this for quite some time (see also the Telecom category of posts), although many people dismiss my arguments as being the “ravings of an extreme libertarian”. Perhaps. But one role model for me in this is Fred Kahn, who joined the Civil Aeronautics Board in the Carter administration, did the benefit-cost analysis and found the CAB to be net negative for consumers, and demonstrated enough political leadership to succeed in “turning out the lights, closing the door, and liming the soil after him so it couldn’t come back from the ashes”. And even though we all complain about how the romance has gone out of travel, Kahn’s vision and leadership have made it cheaper and easier for firms to enter the airline market and compete, and for consumers to get what they want out of the industry, which is primarily low fares. Economic growth and increased consumer surplus ensued.

So is there a Fred Kahn for the FCC? Kevin Martin ain’t it. Michael Powell could have been, I think, if he were incoming Chairman in 2007 instead of having come and gone. Congress could abolish the FCC … yeah, right, what was I thinking? Those pandering sycophants? A baboon with a random number generator would be more likely to hit upon the correct policy sooner than them. Even though all logical arguments point toward the FCC’s abolition, the political power and populism that drives outcomes in politicized industries like this are likely to dominate. Yet another reason to find a way to get as many important decisions as possible out of political processes.

Peter Klein at Organizations & Markets, Jim DeLong at PFF, and of course the irrepressible Glenn Reynolds all took note of the Shafer column. Mr. Shafer, welcome to the spectrum property rights club!