Tag Archives: regulation

Is The Internet A Common Carrier?

When we think of enterprises categorized as common carriers, we tend to think of those that transport–that “carry” passengers or goods for a fee, and that serve the general public. But the term applies to services other than transportation.

Pointing out that the Internet is a common carrier is critical to discussions of net neutrality, as Tom Wheeler–a former head of the FCC–has written in an article for the Brookings Institution.

As far back as England’s emergence from feudalism around 1500, there has been a common law concept that essential services have a “duty to deal.” The operator of the ferry across the river, for instance, could not favor one lord’s traffic over another’s; everyone had access, and everyone had to pay. When the telegraph was introduced in the United States 350 years later, the concept was applied to that new essential service. The Pacific Telegraph Act of 1860 provided, “messages received from any individual, company, or corporation, or from any telegraph lines connecting with this line at either of its termini, shall be impartially transmitted in the order of their reception.” When the telephone came along, the same concept was applied to it as a common carrier.

The Communications Act of 1934, under which the FCC operates today, established in Title II’s statutory language, “It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor.” The Communications Act also established the concept that the actions of Title II carriers must be “just and reasonable.”

Wheeler says that today’s Internet Service Providers, or ISPs, want to be allowed to make their own rules– without any review as to whether those rules or their actions are “just and reasonable.”

The ongoing debate about net neutrality is usually focused on specific behaviors by ISPs–behaviors that privilege the delivery of messages that are financially beneficial to them, while slowing or even blocking those that aren’t.

As Wheeler reminds us, the term “net neutrality”– coined in 2003 by Columbia professor Tim Wu–should be understood as more expansive.

It was an innovative nomenclature that picked up on the ability of the ISPs to discriminate for their own economic advantage. Net neutrality became commonly described as whether the companies could create “fast lanes” and “slow lanes” for internet traffic. That such a problem was not hypothetical was demonstrated five years later when the Republican FCC fined Comcast for slowing the delivery of video content that could compete with cable channels.

But as Wheeler argues, limiting the conversation to blocking, throttling, and paid prioritization is misleading. The real issue pending before the FCC is “whether those that run the most powerful and pervasive platform in the history of the planet will be accountable for behaving in a “just and reasonable” manner.”

It is the conduct of the ISPs that is in question here. Because telephone companies were Title II common carriers, their behavior had to be just and reasonable. Those companies prospered under such responsibilities; as they have morphed into wired and wireless ISPs, there is no reasonable argument why they, as well as their new competitors from the cable companies, should not continue to have public interest obligations.

Don’t be misled by the all-too-convenient framing that net neutrality is all about blocking and throttling. The real issue is why such an important pathway on which so many Americans rely should be without a public interest requirement and appropriate oversight.

The public interest and the common good are two concepts that have lost considerable ground over the past few decades–and nowhere is the absence of those considerations more harmful than in the Wild West that is the current Internet. We can trace a majority of the political and social problems we face to the fragmented and un-policed  nature of the global information environment we inhabit. It’s ironic–and incredibly worrisome– that a platform invented to facilitate communication has morphed into a primary source of misinformation, conspiracy theories and algorithmic sorting.

The Communications Act of 1934–still in effect–established the  duty of “every common carrier engaged in interstate or foreign communication by wire or radio” to serve all comers “upon reasonable request.” The Act also established the rule cited by Wheeler, obliging such common carriers to act in ways that are “just and reasonable.”

According to Wheeler, the ISPs  want to continue to make their own rules without any review as to whether their actions pass the “just and reasonable” test.

Given the disproportionate impact on society of social media and internet platforms, imposing some oversight would seem to be “just and reasonable.”

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About Those Banks…

News of the recent failure of two significant banks was enough to send chills down the spines of lots of Americans–especially those of us who are retired and dependent upon funds invested in the market. No matter how conservative our investment choices may have been, it’s like being on an ocean liner: if the entire vessel sinks, we’ll all go down, prudent stateroom choices or not.

As usual, Heather Cox Richardson could be counted on to produce the clearest explanation of the situation–not just the event itself, but the government’s (thankfully competent) response.

At 6:15 this evening, Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and Federal Deposit Insurance Corporation (FDIC) Chairman Martin J. Gruenberg announced that Secretary Yellen has signed off on measures to enable the FDIC to fully protect everyone who had money in Silicon Valley Bank, Santa Clara, California, and Signature Bank, New York. They will have access to all of their money starting Monday, March 13. None of the losses associated with this resolution, the statement said, “will be borne by the taxpayer.”

But, it continued, “Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”

The statement ended by assuring Americans that “the U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

My immediate reaction was to give thanks that the challenge posed by these bank failures was being handled by the knowledgable and competent people in the Biden Administration, rather than by the Keystone Kops assembled by Trump.

Of course, the obvious next question was: how did this happen?

Most of us think of bank failures as harbingers of Depression, so I was surprised to read that a few banks fail every year, although Richardson reports that these are the first two  during  Biden’s presidency. (There were sixteen during Trump’s four years in office, eight of which preceded the pandemic).

Silicon Valley was the go-to bank for tech start-ups, which typically begin with a lot of cash from investors and IPO’s, and don’t need much in the way of loans.

So, rather than balancing deposits with loans that fluctuate with interest rates and thus keep a bank on an even keel, SVB’s directors took a gamble that the Federal Reserve would not raise interest rates. They invested in long-term Treasury bonds that paid better interest rates than short-term securities. But when, in fact, interest rates went up, the value of those long-term bonds sank.

Then, because SVB concentrated on start-ups, they had another problem. As interest rates go up, investors want faster returns than most start-ups can deliver. That meant that SVB’s depositors began to withdraw their money.

So SVB sold securities at a loss to cover those deposits. Other investors panicked as they saw SVB selling at a loss and losing deposits, and they, too, started yanking their money out of the bank, collapsing it. Banks that have a more diverse client base are less likely to lose everyone all at once.

There is–as you have probably guessed–a larger lesson here. The “libertarians” (I’m looking at you, Peter Thiel!) who have been vocal opponents of government regulation of the banking industry and  government relief for student loans–or really, pretty much anything government does that doesn’t benefit them personally– immediately insisted that in this case, the banks should be bailed out.

Richardson points out that in 2018, under Trump, Congress “weakened government regulations for banks like SVB and that SVB’s president had been a leading advocate for weakening those regulations.” Had those regulations been in place,  SVB would probably have remained solvent.

The Biden administration had been considering tightening the banking regulations that were loosened under Trump, and it seems likely that the need for the federal government to step in to protect the depositors at SVB and Signature Bank will make it much harder for those opposed to regulation to keep that from happening.

Was this a “bail out”? There’s an argument that making depositors whole while letting the shareholders eat their losses isn’t a bailout. The intervention was clearly needed to contain the potential for an economic collapse that would hurt everyone. Whether this is considered a bailout or not, at least the banks, and not the  taxpayers, are on the hook.

Getting rid of the hypocrisy is probably an unattainable goal….

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The End Of Free Markets?

Last month, Time Magazine published an article asserting that the “free market” was effectively dead. The author then went on to speculate over what might replace.it. (For the record, I’m pretty skeptical of definitive pronouncements of this sort–as I used to tell my students, the real world is considerably more complicated than that.)

Time’s conclusion was evidently prompted by a recent meeting in the White House between President Biden and the CEOs of some of America’s largest companies, attended by the head of the U.S. Chamber of Commerce (whose “presence was enough to rock the political landscape” according to the article.)

“Washington’s most powerful trade group is having a political identity crisis,” wrote Politico. Two weeks later, a group of 150 CEOs, unaffiliated with the Chamber, followed suit, throwing their weight behind Biden’s COVID relief bill, which sailed through Congress. They have been similarly supportive of the additional $2 trillion the administration has now proposed for infrastructure spending – but they unsurprisingly don’t want corporate tax rates to be the means for paying for it.

The article went on to say that corporate America’s support for public investment is not a new or temporary phenomenon–rather, it’s evidence of the “most profound realignment in American political economy in nearly forty years,” and it cites the rise of ethno-nationalism on the right and democratic socialism on the left as evidence of a widespread disillusionment with conventional economic wisdom.

For the record, the “conventional economic wisdom” being undermined has only been conventional for some 40 years.

The article traces the evolution of free market absolutism, and acknowledges that prior to the 1970s, most economists had advocated fairly robust government action—countercyclical fiscal spending, management of the currency, tactical protectionism—to create long-term prosperity. The emergence and influence of what the article calls “free market apostles” changed that, and led to what we now call Reaganomics–the notion that virtually any government regulation of the market is unhelpful, if not illegitimate. (This required some cherrypicking of Adam Smith, but hey…)

Interestingly, in what may be the most insightful portion of the article, it connected this shift to an anti-government “free market” philosophy to racial politics. The need for government to take a “hands off” approach coincided with federal efforts to ameliorate some of the most egregious economic effects of state-sanctioned racism.

In any event, while the article argues that public and expert opinion have swung against what it labels “free-market orthodoxy,” what is actually happening–at least among people who are concerned with such things– is a return to a much more nuanced understanding of market economics.

Virtually all rich countries today have mixed economies, in which certain services are “socialized”–i.e., provided communally by government–and others are left to a market subject to reasonable regulation. Americans love “either/or” politics–it’s either capitalism or socialism, freedom or tyranny. That makes for great sloganeering, but bad politics.

The issue isn’t free markets versus socialism. The actual issues confronting policymakers are much more nuanced, and fall into two broad categories: 1) which services ought to be provided by government, and which should be left to the market? and 2) what regulations are needed to ensure the proper operation of that market and which are counterproductive? Just how “free” should markets be?

People of good will will have different answers to those questions, and it would be nice if the ensuing arguments were evidence based–although I’m not holding my breath.

I do know that those evidence-based conversations are not encouraged by headlines suggesting that a new emphasis on anti-trust enforcement or other regulatory activity is tantamount to the end of the free market.

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Texas

Early in my academic career, I really came to appreciate Texas. I taught Law and Public Policy, and on those rare occasions when Indiana failed to provide a “teachable moment”– an example of truly awful policy– I could always count on Texas.

I still remember Molly Ivins’ wonderful explanation of the logic of the Texas “lege.” She noted that when gun deaths exceeded highway deaths, Texas lawmakers sprang into action–and raised the speed limit.

Ted Cruz (known around Twitter and Facebook these days as “Fled” Cruz) is a perfect example of the sort of Republican Texas routinely elects–arrogant, bigoted, and thoroughly full of himself. While he took off for Cancun, Beto O’Roark was setting up telephone outreach to elderly citizens who’d lost their power and access to clean drinking water, and AOC, the much-hated “socialist” who doesn’t live anywhere near Texas was raising two million dollars for relief efforts. (I note that, as of yesterday, it was up to five million…)

To be sure, Cruz has lots of company. Former Governor and Energy Secretary Rick Perry (who was Governor in 2011 and ignored experts who recommended winterizing the power grid) insists that Texans prefer an occasional apocalypse to the indignity of federal regulation, and a “compassionate” Republican mayor had to resign after telling freezing people who’d lost power and water to stop whining and get off their lazy asses and take care of themselves.

I don’t think it is at all unfair to claim that these buffoons are perfect representatives of today’s GOP–a party that exhibits absolutely no interest in actual governing. I agree entirely with Ryan Cooper, who wrote in The Week that  the blizzard nightmare is “Republican governance in a nutshell.”

After describing Cruz’s attempted getaway, Cooper wrote that

what Cruz did is emblematic of the Republican Party’s mode of governance. The reason Cruz felt comfortable leaving Texans to freeze solid on the sidewalks of Houston is the same reason the Texas power grid crumpled under the winter storm. Theirs is a party in which catering to the welfare of one’s constituents, or indeed any kind of substantive political agenda, has been supplanted by propaganda, culture war grievance, and media theatrics. Neither he nor anybody else in a leadership position in the party knows or cares about how to build a reliable power grid. They just want to get rich owning the libs….

People have known for decades how to winterize electrical infrastructure — after all, there is still power in Canada and Finland. The reason those investments haven’t been made in Texas is because it would have cost a lot of money, and nobody wanted to pay for it — especially because the deregulated Texas energy grid makes it hard to pay for upgrades or extra capacity.

The reason the Texas grid isn’t connected to the national system is pure GOP ideology; the grid was purposely kept within the state in order to avoid federal regulation. (It’s notable that a couple of small parts of the state that aren’t connected to the Texas-only grid–places that were subject to those hated regulations– have mostly been fine.)

Unfortunately for Texas politicians, it’s hard to blame the “libs” for this debacle, although they’ve tried; after all, Republicans have run the state since 1994–and they’ve pretty much been owned by the state’s fossil fuel companies–especially Governor Abbott.

When the Texas power grid buckled under the strain of worse-than-expected winter cold, Texas Gov. Greg Abbott (R) went on Fox News and blamed frozen wind turbines for what was mostly a problem with natural gas–fueled power supply. Then he savaged the Electric Reliability Council of Texas (ERCOT), which manages the Texas-only power grid. But he has notably “gone easier on another culprit: an oil and gas industry that is the state’s dominant business and his biggest political contributor,” The Associated Press reports.

Abbott, in office since 2015, has raised more than $150 million in campaign contributions — the most of any governor in U.S. history — and “more than $26 million of his contributions have come from the oil and gas industry, more than any other economic sector,” AP reports. In a news conference Thursday, Abbott mostly blamed ERCOT for assuring state leaders Texas could handle the storm.

ERCOT, of course, is managed by people appointed by Abbott…

Today’s Republicans may not be good at–or interested in– governing, but they are absolute masters of shamelessly lying and blaming others when they are threatened with the consequences of an ideology that translates into “let them eat cake.”  

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Now It’s Coal Ash

The Trump administration has announced its intention to roll back an Obama-era regulation that limited the leaching of heavy metals like arsenic, lead and mercury into water supplies–heavy metals that are produced and leach into groundwater from the ash residue produced by coal-fired power plants.

I wrote about the dangers of coal ash back in 2015, quoting the Hoosier Environmental Council when they were bringing in a coal ash expert to speak at their annual “Greening the Statehouse” event.

Coal ash has special significance for Indiana, since the state leads the nation in the number of coal ash waste lagoons. There is arguably no person better in America to speak to this issue than Lisa Evans. As a coal ash expert with twenty-five years of experience in hazardous waste law, Lisa has testified before the U.S. Congress and the National Academies of Science about the risks of coal ash and federal & state policy solutions.

The Obama Administration addressed those very real risks by passing new regulations in 2015; now, a series of newer rules expected from  the Environmental Protection Agency (courtesy of the former lobbyists now running the agency) will substantially weaken  regulations meant to strengthen inspection and monitoring at coal plants, and requiring plants to install new technology to protect water supplies from contaminated coal ash.

The E.P.A. will even exempt a significant number of power plants from any of the remaining requirements, according to quotations from people familiar with the Trump administration plan.

According to one report, 

Coal ash, the residue from burning coal, is stored at more than 1,100 locations around the nation, with about 130 million tons being added each year. Unlike emissions of carbon dioxide, which many climate science deniers consider a good thing, nobody doubts the dangers of the chemicals in coal ash—including arsenic, lead, mercury, and selenium, among others. All are associated with birth defects and stunted brain growth in children. But the list of damages they can cause is far longer and includes cancer, heart damage, lung disease, respiratory distress, kidney disease, reproductive problems, gastrointestinal illness, and behavioral problems.

Hundreds of ash storage pits don’t even have a simple liner to help prevent toxins from leaching into waterways. According to a 2010 EPA assessment, people who live within a mile of unlined coal ash ponds have a 1 in 50 risk of cancer. That’s more than 2,000 times higher than what the EPA considers acceptable. Tainting of the water mostly happens in a trickle. But, occasionally, as in the 2008 Kingston Fossil Plant’s sudden release of 1.1 billion gallons of coal slurry in Tennessee, or the leakage of 82,000 tons of coal ash into North Carolina’s Dan River, the contamination comes in a catastrophic rush.

Environmental activists criticized the 2015 rule, arguing that it fell short of what is needed to effectively deal with coal ash, and failed to classify the ash as a hazardous waste, which it obviously is. It was a step forward, however.

For every forward step taken by the Obama Administration, however, Trump’s “best people” take two steps back.

Like so many efforts being made daily by the Trump Administration, this move prioritizes the bottom line of industry over the health and welfare of citizens. In this case, that preference is especially galling, because it is intended to help an industry that is dying–and dying  thanks to market forces, not excessive regulations. Nor should its death be lamented: coal is a contributor to climate change, and the relatively few remaining jobs in coal mining are unacceptably dangerous.

Once again we are reminded that nothing this administration does–nothing–advances the common good, or makes environmental or even business sense.

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