James Pethokoukis

Politics and policy from inside Washington

Net neutrality ruling strikes blow for freedom

Apr 7, 2010 00:28 UTC

Right about now the White House is probably thinking about packing the courts. Just as the Roosevelt-era Supreme Court voided a key New Deal effort to regulate commerce in 1935, a U.S. appeals court just put the kibosh on a Federal Communications Commission effort to regulate the Internet. This far and no farther, the court said to further federal intervention in the American economy.

The appeals court kneecapped FCC intent to impose net neutrality as part of its grand broadband plan. Such rules would seek to prevent phone and cable companies from potentially charging providers that supply huge amounts of bandwidth-gobbling traffic. This regulatory debate has been turned into an unusual David (scrappy web firms) vs. Goliath (entrenched telecoms) morality metaphor. Despite being three times larger by market capitalization, Google, for example, still has far more “cool” cachet than Comcast, which challenged the FCC. The Davids are also Friends of Obama, giving massively to his presidential campaign.

But what it all really comes down to is who will pick up the tab for future network upgrades to handle applications such as high-definition video. In a net neutral world where prices were fixed at, essentially, zero, the telecom operators would pay — before passing costs along to consumers, of course. On the other hand, maybe operators want to charge content providers tolls for putting their traffic into express lanes. Or perhaps another business model is just around the bend. Under net neutrality, the current system would be locked into place.

Government should have high hurdles to clear before setting prices. In the end, net neutrality seems little more than rent-seeking by content providers who wish to use government to distort market forces in their favor. It’s akin to a computer maker successfully lobbying for price controls on shippers like FedEx when transporting goods from China. When it bought new planes, the shipper would have to eat the cost or pass it downstream.

The Internet tussle is unlikely finished. The FCC might ask for the decision to be reconsidered or seek review by the U.S. Supreme Court. The Obama administration could also turn to Congress to clarify the regulator’s authority. A more radical option, one advocated by consumer groups, would be for the FCC to legally reclassify broadband. Such a move would give the agency broad power to regulate the Internet like it was the old-fashioned landline telephone service. That sort of command-and-control apporach hardly seems a policy suited for the 21st century.


Striking a blow for Goliath again, Jim? How in hell a hollow victory for the monolith of mediocrity could possibly represent Freedom© is an excursion into Newspeak as craven as it is unworthy of serious consideration.

It appears to take more mental effort than your average tea-partying Yahoo can summon up to comprehend the first thing about net neutrality, whereby individual communication freely prevails without constraint of corrupt court-facilitated corporate excuse-makers. Comcast violates this principle.

Just remember what happened to Goliath in the end. That is what’s in store for Comcast – and all who fail with it.

Posted by HBC | Report as abusive

Create jobs, don’t go green

Apr 6, 2010 19:18 UTC

As usual, Joel Kotkin nicely encapsulates the problem at hand:

Now the question is whether the president can refocus on jobs. This will take, among other things, backing off the economically ruinous climate change agenda. Even the most gullible economic development officials are beginning to realize that “green jobs” are no panacea. In fact, as evident in Spain, Germany and even Denmark, over-tough green legislation can destroy the productive capacity of the most enlightened industries. Similarly in green strongholds like California and Oregon, the mounting climate change jihad could slow and even explode the incipient recovery by imposing ever more draconian regulation on businesses that can choose to migrate to less onerous locales.

There are some hopeful signs of Obama’s repositioning. His recent moves embracing nuclear power and off-shore oil drilling, however inadequate, show that he’s at least trying to triangulate between the green purists and the unreconstructed despoilers. Some sort of moderated energy legislation–there’s no way to get the more radical House version through the Senate–would reassure businesses and the public that the president has jobs as his No. 1 priority.


I agree with Liberty Lover with one caveat. Private industry necessarily makes it’s decisions with some weight on long term considerations and most weight on what will sustain their enterprise in the short term.

Fossil Fuels are a finite energy source with geographical and political aspects that can be ignored only at our peril.

Like it or not, a country’s local, state, and federal governments collectively make many decisions every day. Those decisions should place more weight on long term factors than private enterprise is able to do.

Posted by breezinthru | Report as abusive

A 25 percent rise in the yuan would create … 57,000 U.S. jobs

Apr 6, 2010 19:05 UTC

That, according to Ray Fair of Yale University. Other private estimates put the number in the hundreds of thousands, if not millions.  AEI’s Phil Levy explains the methodology involved:

Our more aggressive bidders use a crude approach. They look at the trade gap, assume that every billion dollars of trade deficit equates with a certain number of jobs, and multiply. Fair, in contrast, uses years of data to estimate a detailed model of how the global economy works. Then he reruns the model under the assumption of a 25 percent appreciation in China’s exchange rate. His model contains the same effects that the others rely on—increased demand for U.S. goods as Chinese imports become more expensive. But he sees offsetting effects as well: decreased Chinese output and imports; increased U.S. prices; decreased U.S. wealth and wages; increased U.S. interest rates. He finds the latter effects more than outweigh the former.

Should conservatives have supported Hillary?

Apr 6, 2010 18:12 UTC

My friend Bruce Bartlett over at the Capital Gains and Games blog asks whether conservatives should have supported Hillary Clinton in the 2008 presidential race:

I wrote a couple of columns in 2007 telling conservatives that they really should consider lending some support to Clinton if they believed, as I did, that Obama was much more liberal than her and that whoever won the Democratic primary would probably win the general election (see here and here). … So would conservatives have been better off following my advice and helping Hillary Clinton to get the Democratic nomination, rather than futilely wasting their efforts on McCain, Mitt Romney and other Republican candidates who could not win and were considered far from ideal from a conservative point of view anyway? … I think the evidence suggests that Hillary Clinton could have won the Democratic nomination with just a little bit more support, and probably would be governing significantly more conservatively than Obama. For one thing, given her disastrous experience with health care reform in 1993-1994, it’s reasonable to assume that she would have stayed away from that issue at all costs.

Me:  Bruce derives most of his evidence from the idea that Hillary’s centrism has seriously influenced the direction of Obama’s foreign policy. Now I certainly have no reason to believe Hillary wouldn’t have pushed hard on healthcare reform. She certainly spent a lot of time and resources creating a detailed plan during the campaign and then promoting it.

As for economic policy more generally, you couldn’t produce a more centrist Democratic economic team than the one Obama has assembled: Summers, Romer, Goolsbee, Geithner. No actual Republicans (probably not) but no one that “progressives” have much fondness for either. As for actual policy, Hillary would likely have favored a big stimulus plan and major healthcare reform. Would she have been tougher on the banks? Coming out of the pro-Wall Street Clinton presidency and her time as NY senator, I doubt it.

Why Henry Blodget is wrong about taxes

Apr 6, 2010 16:06 UTC

Henry Blodget says he’s pretty confident taxes are headed higher to deal with the historic rise in federal spending  and agrees with Northern Trust’s Paul Kasriel that higher rates won’t be an economy killer. Blodget quotes Kasriel:

The economy performed pretty well in the eight years ended 2000 even though the top marginal tax rate was higher in these eight years than it was in the prior eight years. The economy did not perform better because of the increase in the top marginal tax rate. Nevertheless, this increase was not sufficient to derail economic progress. In the eight years ended 2008, the economy performed relatively poorly despite the lower top marginal tax rate.  The economy did not under-perform because of the marginal tax rate cut. Nevertheless, the cut in the tax rate was not sufficient to enhance economic performance. The point of all this is that although tax rates matter, they are not all that matters.

Me: I agree that taxes matter but they are not the only thing that matters. But they do matter a lot.  Back when tax rates rose in the 1990′s, the economy was starting from a position of strength, not weakness. There was already  a powerful, self-sustaining recovery in place. Let me point out this 2009 study that examined the affect of higher marginal tax rates on the rich:

Taxes trigger a host of behavioral responses designed to minimize the burden on the individual. … all such responses are sources of inefficiency, whether they take the form of reduced labor supply, increased charitable contributions, increased expenditures for tax professionals, or a different form of business organization, and thus they add to the burden of taxes from society’s perspective.

Following the supply-side debates of the early 1980s, much attention has been focused on the revenue-maximizing tax rate. A top tax rate above X is inefficient because decreasing the tax rate would both increase the utility of the affected taxpayers with income above X and increase government revenue, which can in principle be used to benefit other taxpayers. … Using our previous … the revenue-maximizing tax rate would be 55.6%, not much higher than the combined maximum federal, state, Medicare, and typical sales tax rate in the United States of 2008.

And this is before the 2011 tax increases and the increase in taxes related to healthcare reform. We are probably now on the wrong side of the Laffer Curve.  Greg Mankiw also makes the case that Americans are not undertaxed compared with the rest of the planet’s advanced economies.


I would also add there were 3 growth drivers during the 1990’s. 1) The initial build-out of the Internet when firms spent billions on fiber, chips, software, webhosting, etc. 2) The Y2K computer conversion increased demand for some of the same equipment plus lots of high-paying software programmers. 3) Now we also found out the Clinton HUD lowered the lending standards for home ownership and set off a housing boom to boot.

The first two aren’t coming back, and who knows about the third.

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