Broadband for All

The just passed Infrastructure Investment and Jobs Act provides $65 billion for high-speed internet to make sure that every household can access reliable broadband service. This raises, or should have raised, the question of the most cost-effective way of providing it. Many rural areas enjoy high speed internet access from satellites. These can easily be expanded to cover the entire country and are significantly cheaper than running cables to remote areas. But the other approach is for families wanting such high-speed internet access to live in areas that provided, e.g., cities.

When I taught at the University of Virginia, I choose to live ten miles out of Charlottesville on Piney Mountain. I did have electricity but no water or sewage disposal for which I had to drill a water well and dig a septic tank and system. That was an understood part of the deal of living in a semi remote area and a factor in its cost. Should everyone who chooses to live in remote areas be entitled to electricity, water, sewage, broadband, or whatever other modern convenience comes along or should those wanting such convenances have to live where they are efficiently provided?

Goodbye 2019 (and good riddance)

As 2019 and the decade of the 20 teens comes to a close, the impeachment of Donald Trump, only the third President impeached in the history of the United States, dominates the headlines.  My hope (I am a crazy optimist) and wish for my country’s sake is for Trump’s trial in the US Senate to adopt rules that most everyone will see as fair. That means giving Trump every opportunity to state and defend his case and the opposition every opportunity to state theirs. Some Republicans have denied the evidence presented in the House investigation that Trump offered favors (White House visit and military aid) to Ukraine President Zelensky if he would investigate the activities of Trump’s political opponent’s son in Ukraine. Other Republicans, such as Congressman Will Hurd, accepted the evidence but argued that the offence was not sufficiently serious to justify impeachment. Congressman Hurd’s judgement reflects the fact, I suppose, that political standards have sunk so low that we now accept that every President lies to us and abuses his authority (see the Washington Post’s Afghanistan Papers https://www.washingtonpost.com/graphics/2019/investigations/afghanistan-papers/documents-database/).  I think it would be a mistake to accept and normalize such behavior.

Here are some of the key issues of this year (at least those I wrote about) and a few of my blogs/articles about them:

Health care insurance

Given medical costs must be paid by someone (the recipient of the care, the tax payers, insurance premiums, etc.). Insurance shares the cost (the lucky who are well help pay for the unlucky who are sick). But how services are paid for (what and how much is covered by insurance, etc.) will also influence the services provided and their cost.

https://wcoats.blog/2019/08/01/health-care-in-america-2/

Trade war and protectionism

President Trump has torn up the rule book for negotiating freer and freer trade. The result so far has left us worse off.  Fed economists Aaron Flaaen and Justin Pierce found “that tariff increases enacted in 2018 are associated with relative reductions in manufacturing employment and relative increases in producer prices.” https://www.federalreserve.gov/econres/feds/files/2019086pap.pdf

Trump pulled out of the progressive Trans Pacific Partnership (TPP), negotiated a “new” North American Free Trade Agreement (whatever he calls it) that is worse than the existing NAFTA except for the new parts taken from the TPP, worsened trade with China (so far–see Federal Reserve report above), alienated potential partners who would have happily joined us in negotiating with China, and angered the EU with whom he wants a new trade agreement. His potentially illegal uses of tariffs have introduced government protection of favored industries increasing crony capitalism. He continues to weaken the World Trade Organization (WTO), which has provided the bases of increasingly free rule-based trade since WWII. The growth in trade over the last 70 years has helped lift most peoples of the world out of dire poverty.  The number of people living in extreme poverty fell from 2.2 million in 1970 to 0.7 million in 2015.

https://wcoats.blog/2019/11/18/protecting-jobs/

https://wcoats.blog/2019/08/05/econ-101-currency-manipulation/

https://wcoats.blog/2019/06/07/the-sources-of-prosperity/

Foreign wars and policy

President Trump rightly condemned our forever wars and promised retrenchment. I agree with his assessment of our excessive military aggressions and deployments abroad, but for one reason or another he has failed to deliver. The New York Times reports that: “Under President Trump, there are now more troops in the Middle East than when he took office.” https://www.nytimes.com/2019/10/21/world/middleeast/us-troops-deployments.html

Trump seems to act on impulse without serious consultation with his National Security Council, State Department or Pentagon, decimating our diplomacy. His periodic insults to our foreign allies haven’t helped either.  Nor have his love affairs with Putin, Kim Jon-un, and Xi Jinping (do you see a pattern here?).  Diplomacy is the alternative to military adventures for serving our national interests abroad. Trump has failed to fill important State Department positions and seems to pay little attention to his NSC and State Department briefings. Having removed two ambassadors to Ukraine in one year (this year) because his personal lawyer, Rudy Giuliani, thought they were insufficiently loyal to Trump, the U.S. currently has no ambassador in Ukraine.  Trump’s stewardship of our international relations has been a disaster.

Then there was Trump’s intervention in Military justice: From the Military Times: “President Donald Trump’s decision to grant clemency in the cases of three military members tangled in war crimes cases raises questions about whether troops are being given a green light to disobey the rules of law…

Army 1st Lt. Clint Lorance, convicted of second degree murder in the death of three Afghans, was given a full pardon from president for the crimes. Army Maj. Mathew Golsteyn, who faced murder charges next year for a similar crime, was also given a full pardon for those alleged offenses.  Special Warfare Operator Chief Edward Gallagher, who earlier this fall was acquitted of a string of alleged war crimes while being convicted of posing with a dead Taliban member, had his rank restored to Chief Petty Officer by the president.”  “We-shouldnt-forget-what-whistleblower-seals-told-us-about-eddie-gallagher”  What is Trump thinking? What does he have in mind?

https://wcoats.blog/2019/12/14/nation-building-in-afghanistan/

https://wcoats.blog/2019/05/03/oslo-the-play/

https://wcoats.blog/2019/03/11/is-rep-ilhan-omar-anti-semitic/

Monetary policy and the international monetary system

While monetary policy has been relatively good for a floating exchange rate system, asset price bubbles and international currency flow imbalances persist and, in my view, are unavoidable. We need to adopt a hard anchor for the value of the dollar.  The shockingly large fiscal deficits (over one trillion dollars per annum in 2019) with a fully employed economy, when we should be running a budget surplus to provide room for deficits during the next downturn, are building serious risks for the not so distant future. Trump’s attacks on the Federal Reserve’s monetary policy will make managing those risks more difficult.

https://wcoats.blog/2019/01/25/central-banking-aware/

https://wcoats.blog/2019/03/24/central-banking-award/

https://wcoats.blog/2018/05/01/free-banking-in-the-digital-age/

https://wcoats.blog/2019/07/24/whither-libra/

https://wcoats.blog/2019/04/16/returning-to-currencies-with-hard-anchors/

Information and the Internet

The Internet has had a profound impact on how we live and do business. It is hard to imagine a day without our mobile phones. But like all new tools and technology it opens the door to new ways of doing harm as well. This is currently most conspicuous with the spreading of fake news and learning anew what news sources to trust and not trust.

https://wcoats.blog/2019/12/01/new-tools-require-new-rules/

Domestic politics and Trump

In my discussions of the Trump administration I have tried to focus on policies, some of which I like and some I don’t, rather than on Donald Trump himself, about whom I like nothing. The following focuses on Trump.

https://wcoats.blog/2019/12/27/a-letter-to-the-republican-party/

https://wcoats.blog/2019/11/20/to-whom-or-what-am-i-loyal/

My friend Jonathan Rauch explains the limitations of my efforts to focus on policies in an article well worth reading. “Believing is belonging,” https://www.nationalaffairs.com/publications/detail/rethinking-polarization

Modern Society and its challenges

If we move away from personalities and dig deeper into our human motivations that inform policy design and choices, we can’t escape the role of incentives at the center of much of the analysis of my profession–economics. I have and will continue to explore my thoughts on human nature and the role of incentives, institutions, and customs in our search for how best to live free with others seeking their own goals in our society.

https://wcoats.blog/2019/08/10/where-does-the-desire-to-explore-come-from/

https://wcoats.blog/2016/11/22/globalization-and-nationalism-good-andor-bad/

https://wcoats.blog/2016/12/31/my-political-platform-for-the-nation-2017/

Happy New Year

 

New tools require new rules?

A hammer can hit a nail on the head, or it can hit you (or your enemy) on the head. Most, if not all, tools have multiple uses, some good and some bad.  Societies adopt rules to promote the beneficial uses of technologies and discourage harmful uses. New tools/technologies necessitate a discussion of what the rules for their proper uses should be. We are now having that discussion for the uses of social media to promote and propagate ideas and information (some true and some false).

Free speech is revered in America for good reason. Like many other aspects of our preference for self-reliance (personal freedom), it requires that we take responsibility for sorting out what is true from what is false rather than giving over that task to government (and whoever leads it at the time). This can be a challenging task.  We must sort out who we trust to help us. Those of you my age will appreciate that we no longer have Walter Cronkite, and Huntley and Brinkley to help us filter real from fake news.

Our commitment to free speech is so fundamental to the character of America that I have written about it a number of times. https://wcoats.blog/2012/09/14/american-values-and-foreign-policy/    https://wcoats.blog/2012/09/15/further-thoughts-on-free-speech/ https://wcoats.blog/2012/09/29/freedom-of-speech-final-thoughts-for-a-while-at-least/

Various social media platforms present us with another new tool and the need to sort out how best to use it. The answer(s) will take the form of social conventions and government regulations. It is important to get the balance right.

Facebook, Twitter, Google, YouTube, Instagram, Tiktok and other platforms do not generate or provide content. They provided a very convenient and powerful means for you and me to share the content we produce. What responsibility should Mark Zuckerberg, Jack Dorsey, Larry Page, Sergey Brin, etc. have for regulating the content we post to their own platforms, which are after all private. As you saw in my earlier blogs on this subject, publishing and broadcasting our words are limited when they endanger or slander others. But these limits do not and should not limit our advocacies for policies and political beliefs as I am doing now.

The big issue today is fake news (out right lies). If you create or repeat lies, you must be responsible for what you do (but we don’t generally punish lying unless under oath). You are allowed, for example, to state on Twitter or Facebook that you believe Obama was born in Kenya despite thorough documentation that he was born in Hawaii. Perhaps you are gullible enough to actually believe it though it is false. But should Facebook and other platforms have a responsibility to block clearly fake news? What if their own biases lead them to block more Democratic Party “fake news”, or vice versa?

As a private company Facebook can more or less do what it wants but it has a strong business/financial incentive to build a reputation of fairness and to provide a platform that attracts as many users as possible. Here are their rules from their website:

“To see the full list and learn more about our policies, please review the Facebook Community Standards.  Here are a few of the things that aren’t allowed on Facebook:

  • Nudity or other sexually suggestive content.
  • Hate speech, credible threats or direct attacks on an individual or group.
  • Content that contains self-harm or excessive violence.
  • Fake or impostor profiles.
  • Spam.”

The debate at the moment is focused on political ads. Facebook has said that it will not fact check political ads and Tweeter has said that it will not run them at all.  A Washington Post editorial stated the issue this way: “Politicians should, for the most part, be able to lie on Facebook, just as anyone else is, and the public should be able to hold leaders to account. But that’s a different question from whether politicians should be able to pay to have their lies spread, based on unprecedentedly precise behavioral data, to the voters who are most likely to believe their lies.”  “Google’s reply has been more nuanced. The company will limit the criteria campaigns can use to “microtarget” ads to narrow audiences based on party affiliation or voter record. The aim is to increase accountability by letting more people see ads….”  “Tech-firms-under-fire-on-political-ads”

No one, thank heavens, wants the government to vet ads for truthfulness. Some facts are obvious and some are less so. The potential danger to free speech is illustrated by Singapore’s “fake news” law.  Singapore claimed that a post by fringe news site States Times Review (STR) contained ‘scurrilous accusations’.  Giving in to the law, Facebook attached a note to the STR post that said it “is legally required to tell you that the Singapore government says this post has false information”.  “Facebook’s addition was embedded at the bottom of the original post, which was not altered. It was only visible to social media users in Singapore.” https://www.bbc.com/news/world-asia-50613341

However, the government should provide the broad framework of a platforms responsibilities.  For example, the U.S. government requires transparency of who pays for ads in print and TV ads. The same requirement should be imposed on Internet political ads. To qualify for Facebook’s say whatever you want in a political ad policy, the candidate being supported should be required to attach his/her name as approving the ad. Limiting the use of micro targeted ads broadens the exposure and thus discipline on truth telling.  According to The Economist: “To the extent that these moves make it harder for politicians to say contradictory things to different groups of voters without anybody noticing, they are welcome. “Big-tech-changes-the-rules-for-political-adverts”

Knowing what sources of news to trust is no trivial matter. Knowing the source is helpful. Rather than fact checking the content of posts, Facebook attaches an easily viewed statement of the source.  Establishing standards for and establishing boundaries between categories of posts sound easier than they really are, but insuring transparency of who has posted something should play an important role. Flagging questionable sources, without changing the content of a post, as Facebook does, is also helpful. I hope that the discussion of the best balance (and not every platform needs to adopt the same approach) will be constructive.

Net Neutrality

The issue of net neutrality is almost as complicated as the Internet (the network of networks) itself. As with so many topics, the debate over how best to maximize the development of and benefits from the Internet (email, World Wide Web, and all of the rest) broadly divides between those who support prescriptive rules to guide and govern its operations and those who support a more permissive role for the government stepping in only to correct actual problems. To overstate it a bit, it divides the statists from the free marketers.

The history of what we now call the Internet is quite amazing. History of the Internet. Though governments provided the seed money that got it going (in the U.S. it was the Department of Defense’s ARPANET and later the National Science Foundation’s CSNET and in the U.K. it was the National Physical Laboratory), the U.S. gradually stepped back and allowed the unregulated development of commercial and private uses of the connectivity that was developing and allowed private Internet Service Providers (ISPs) to develop the gateways (access) for almost all users (both content providers and consumers) to the Internet. This policy was imbedded in the Telecommunications Act of 1996 signed by President Clinton. That legislation, affirmed that the policy of the United States was: “to preserve the vibrant and competitive free market that presently exists for the Internet . . . unfettered by Federal or State regulation.”

From the beginning of its break away from its narrow military and scientific uses, all involved in the Internet’s development were committed to it being free and open. The Federal Communications Commission (FCC) promulgated guidelines to preserve this principle in November 2011. “The FCC’s rules focus on four primary issues:

  • Transparency. Fixed and mobile broadband providers must disclose the network management practices, performance characteristics, and terms and conditions of their broadband services;
  • No blocking. Fixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful Web sites, or block applications that compete with their voice or video telephony services; and
  • No unreasonable discrimination. Fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic.
  • Reasonable network management. ISPs may engage in reasonable network management to maintain a high quality of service for broadband Internet access.” FCC Openness Principles

In this permissive environment the Internet flourished, developing in directions and ways no one could have imagined only a few decades earlier. “But two years ago, the federal government’s approach suddenly changed. The FCC, on a party- line vote, decided to impose a set of heavy-handed regulations upon the Internet. It decided to slap an old regulatory framework called “Title II”—originally designed in the 1930s for the Ma Bell telephone monopoly—upon thousands of Internet service providers, big and small. It decided to put the federal government at the center of the Internet.” Ajit Pai’s Newseum Internet Freedom Speech

What happened? Were the principles of an open Internet with fair access to all suddenly being violated or under threat in 2015? Is the proposed return to the status quo before 2015 really a threat to the principles of net neutrality?

Like all other economic activities, every aspect of the Internet costs money that someone has to pay. Those who built and maintain the Internet Backbone (NTT, Cogent, GTT, etc.), the facilities and networks of the ISPs (Verizon, AT&T, Comcast, etc.), and the content providers (Netflix, Facebook, Snapchat, HBO, etc.) did so to make money (or at the very least to cover their costs). We all know about content and service providers who thought first about how to attract users and only later how to get them to pay (e.g., Facebook and Amazon). They gradually developed their business models over time and some worked and others didn’t. What worked best (most cost efficient use of Internet resources, etc.) was not and could not have been foreseen in the beginning of the Internet’s development. Had the regulations imposed in 2015 been imposed two decades earlier, it is very unlikely we would be enjoying the Web we have today. Freezing or constraining the business models of the key players with very prescriptive regulations is neither necessary nor wise. As Mike Montgomery put it in The Hill: “The digital world moves at the speed of light. To slow that growth to the speed of bureaucracy would have serious negative effects on the burgeoning tech industry which is creating jobs faster than almost any other industry out there.” (see the link below)

Markets function best when profits are maximized by providing the best service at the lowest cost. In such cases, which is the general case, incentives are aligned, i.e. what best serves the supplier/producer also best serves the general public/consumers. Two forces operate to insure that the Internet is open to all. The first was a broad public consensus that the Internet should be open to all on fair terms (no discrimination against—filtering out or blocking—any one or any idea or point of view). The second is that discriminating in any way blocks some customers and thus reduced profits. The incentives for ISPs to provide fair access to all aligned with the public’s expectations of and desires to have fair access.

Ideology enters the discussion when people disagree over the meaning of fairness. Some people think that some classes of users (the poor, IT startups, etc.) should have the cost of their use of the Internet paid by someone else (tax payers, cross subsidies from larger, established users/suppliers, etc.). ISPs, the gateways to the Internet, have no profit incentive to provide such subsidies. Fairness for most economists is when each user pays the marginal cost of their use (plus a small profit margin).

The primary legitimate concern with respect to the net neutrality I want to see is that industry consolidation has reduced the number of ISPs to the point that over half of the country has only one (i.e. no) choice. The only competition in some areas comes from your cell phone plan. Thus there is a legitimate concern with the possibility that an ISP might charge different prices for fundamentally the same service and that those ISPs that are beginning to produce their own content might favor it over competitors’ content with faster lanes or worse.

There were indeed a few problems during the long era of light touch regulation prior to 2015. Verizon’s dispute with Netflix over download speeds and AT&T’s blocking Facetime video but not Skype on iPhones (not even an Internet issue), for example. This occurred before and were resolved before the 2015 FCC regulations on the basis of existing legislation. Excessive concentration and abuses of market power can be and have been dealt with via existing anti trust laws and state and individual civil suits.

The United States has generally allowed markets to develop fairly freely, only applying regulations to deal with real problems when they occur. I represented the IMF as an observer at a G10 Deputies Working Group on E-money meeting at the BIS in Basel Switzerland in December of 1996. The G10 Deputies are the Finance Ministers and Central Bank Governors of the ten largest economies in the world. The meeting was chaired by a young Tim Geithner, then the Deputy Assistant Secretary for International Monetary and Fiscal Policy in the U.S. Treasury Department. The meeting was to determine the regulatory approach to the prospective emergence of Electronic Money, now referred to as Cyber money. We considered reports on developments to date and took the wise decision to stand back and watch how things developed before formulating regulatory advice.

More recently the Federal Reserve’s Faster Payments Task Force project and the Federal Reserve’s cautious approach to bitcoin and other digital currencies reflects a similar attitude. That attitude, to repeat, is that no one knows for sure the direction that the development of new technologies will take in the search for maximizing their benefits thus profits. Government can at best play a supportive role of providing a flexible legal and regulatory framework within which new products and services can be explored. If problems arise, the government can review with consumers and producers how best to deal with them. The approach to regulating bitcoin and other digital currencies is still evolving.

A counter example to the above enlightened approach is the U.S. approach to Anti Money Laundering and Combating the Financing of Terrorism (AML/CFT), which has imposed enormous regulatory costs on payments of all sorts with no discernable benefits.

Those who believe that private sector behavior and the development and use of technology can be carefully and successfully regulated by government suffer what I have called hubris in other contexts. See, for example: https://works.bepress.com/warren_coats/38/. Nonetheless, in the case of so called net neutrality greater certainty about the legal and regulatory environment in which the Internet must operate would help further its development and evolution, especially if the light touch regulation under which it has developed is restored. Congress should write net neutrality into law.

An excellent discussion of these issues can be heard in this podcast on the Future of Internet regulation with FCC chairman Ajit Pai

Virtual Life after Death

Hi from Munich,

A recent spam email from a dead colleague has caused me to reflect again on the awkwardness of our Internet existence (email addresses, Facebook and Linkedin profiles etc.) after our flesh and blood, biological one has ended. It is spooky when Linkedin suggests that I might want to connect to someone I know is dead. But the continuing messages to deceased friends on their Facebook page are a touching and sometimes disturbing feature of our evolving modern lives.

A long time but still young (early 40s) friend died well over a year ago at the end of what he had reported as so far very successful chemotherapy. I did not know his family and we did not share other friends who might have notified me of his death. So when he did not return my email and phone messages I eventually checked his Facebook page. As I read through the recent posts from friends it became clear that they were saying good-bye.

I checked it again today over a year later. He still lives there. Friends continue to post messages, one on Thanksgiving and several on his Birthday and one frequent poster for no particular reason at all. For most of them it is clearly a dialog with the dead and quite touching. But I am not sure about the frequent poster. Does he know that J is dead and just keeps talking to him, or does he not know and must wonder why J never replies. I could tell him, though I do not know him, but perhaps (if he doesn’t already know) he doesn’t want to know. I am not yet fully adjusted to the Internet world.