Tag Archives: regulation

I’m Shocked, Shocked!

By James Kwak

Technology-land is abuzz these days about net neutrality: the idea, supported by President Obama, (until recently) the Federal Communications Commission, and most of the technology industry, that all traffic should be able to travel across the Internet and into people’s homes on equal terms. In other words, broadband providers like Comcast shouldn’t be able to block (or charge a toll to, or degrade the quality of), say, Netflix, even if Netflix competes with Comcast’s own video-on-demand services.*

Yesterday, the Wall Street Journal reported that the FCC is about to release proposed regulations that would allow broadband providers to charge additional fees to content providers (like Netflix) in exchange for access to a faster tier of service, so long as those fees are “commercially reasonable.” To continue our example, since Comcast is certainly going to give its own video services the highest speed possible, Netflix would have to pay up to ensure equivalent video quality.

Jon Brodkin of Ars Technica has a fairly detailed yet readable explanation of why this is bad for the Internet—meaning bad for the choices available to ordinary consumers and bad for the pace of innovation in new types of content and services. Basically it’s a license to the cable providers to exploit a new revenue source, with no commitment to use those revenues to actually upgrade service. (With an effective monopoly in many metropolitan areas and speeds already faster than satellite, the local cable provider has no market pressure to upgrade service, at least not until fiber becomes more widespread.) The need to pay access fees will make it harder for new entrants on the content and services side; in the long run, these fees could actually be good for Netflix, since it won’t have to worry as much about competition. The ultimate result will be to lock in the current set of incumbents that control the Internet, ushering in the era of big, fat, incompetent monopolies.

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Tobin Project Book on Regulatory Capture

By James Kwak

One of the last things I did in law school was write a paper about the concept of “cultural capture,” which Simon and I discussed briefly in 13 Bankers as one of the elements of the “Wall Street takeover.” The basic idea was that you can observe the same outcomes that you get with traditional regulatory capture without there being any actual corruption. The hard part in writing the paper was distinguishing cultural capture from plain old ideology—regulators making decisions because of their views about the world.

Anyway, the result is being included in a collection of papers on regulatory capture organized by the Tobin Project. It will be published by Cambridge sometime this year, but for now you can download the various chapters here. It features a lineup including many authors far more distinguished than I, including Richard Posner, Luigi Zingales, Tino Cuéllar, Richard Revesz, David Moss, Dan Carpenter, Nolan McCarty, and others. Enjoy.

Americans Like Regulation

By James Kwak

It’s a well-known fact that Americans oppose government spending in the abstract yet favor virtually every government spending program. For example, last April Gallup reported that 73 percent of Americans blame the deficit on excessive spending and 48 percent wanted to reduce the deficit mainly through spending cuts (and 37 percent equally with spending cuts and tax increases). Only a few months before, however, Gallup also reported majorities opposed to cutting spending on anything—even “funding for the arts and sciences”—except foreign aid.* (This is not an isolated poll; see, for example, Washington Post-ABC News, April 2011, questions 14 and 17.)

Most government spending does go to popular programs like Social Security, Medicare, and Medicaid. I suspected, however, that most Americans would want to cut spending on federal regulatory agencies; I thought that they just overestimated the amount of spending on regulation, which is tiny compared to the large mandatory spending programs. (The Consumer Financial Protection Bureau, for example, last year put in a budget request of around $300 million—less than one-one-hundredth of a percent of total federal spending.)

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Not All Businessmen Are Smart, You Know

By James Kwak

Stephen Carter, a professor at the Yale Law School and an accomplished novelist, wrote a Bloomberg column based on a conversation with a medium-sized business owner he met on a plane. The gist of the column is that the businessman isn’t hiring more workers because he’s worried about the regulations changing on him. From this, Carter draws a general lesson about business and government:

“For medium-sized firms like his, however, there is little wiggle room to absorb the costs of regulatory change. Because he possesses neither lobbyists nor clout, he says, Washington doesn’t care whether he hires more workers or closes up shop. . . .

“Recessions have complex causes, but, as the man on the aisle reminded me, we do nothing to make things better when the companies on which we rely see Washington as adversary rather than partner.”

Jim Henley (hat tip Brad DeLong) has already pointed out the silliest thing about this column: anyone who has a growing business and isn’t hiring more people, and isn’t hiring them because he’s not sure about future regulatory changes, is making a mistake (or perhaps is in a very unusual business that is heavily exposed to some very particular and very concrete regulatory risk).

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The Problem with Biomass, Part 2

By James Kwak

I’ve already introduced you to the Springfield biomass plant proposed by Palmer Renewable Energy (PRE). The issue in that post was PRE’s witnesses’ apparent unfamiliarity with the voluminous evidence that ambient air pollution increases both the incidence and the severity of asthma, along with other diseases.

In addition, PRE is claiming that their biomass plant won’t increase air pollution, anyway. In this press release gracefully repackaged as a news story by the Springfield Republican, we read, “The average annual impact on emissions such as nitrogen dioxide, sulfur dioxide, and particulate matter would be minuscule, Valberg and Raczynski [PRE's environmental consultants] said.”

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Food and Finance

By James Kwak

I just read Michael Pollan’s book, In Defense of Food, and what struck me was the parallels between the evolution of food and the evolution of finance since the 1970s. This will only confirm my critics’ belief that I see the same thing everywhere, but bear with me for a minute.

Pollan’s account, grossly simplified, goes something like this. The dominant ideology of food in the United States is nutritionism: the idea that food should be thought of in terms of its component nutrients. Food science is devoted to identifying the nutrients in food that make us healthy or unhealthy, and encouraging us to consume more of the former and less of the latter. This is good for nutritional “science,” since you can write papers about omega-3 fatty acids, while it’s very hard to write papers about broccoli.

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The Tilted Playing Field

By James Kwak

It’s been widely noted that financial reform is now entering a new phase as the action moves from Congress to the regulatory agencies that will write the hundreds of rules necessary to implement the reforms. During the congressional fight, the financial sector had a huge advantage in money and lobbyists, but we had one advantage: the fact that there was (from time to time) a lot of media coverage, and Congressmen care at least a little about public opinion.

In the rule-writing phase, the banks still have a huge advantage in money, lobbyists, and lawyers–and are hiring as many ex-regulators as they can to press their case. As our friend Jennifer Taub writes at The Pareto Commons:

What lies ahead, over the next year and beyond, will require far larger armies of lawyers, economists, finance experts and just plain able bodies and minds to monitor and influence the rulemaking process. Rumor has it that one bank alone plans to set up 100 teams of employees, tasked with particular rule makings. And that is just one bank.

Unfortunately, however, the pressure of the public spotlight is largely off, tilting the battlefield in favor of industry.

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