Some Old News (Net Neutrality)

In an effort to continue to add some new blog content, I'm going to cheat and recycle a blog-worthy (I hope) email I sent a few months ago in response to inquiries from a couple of folks about my opinion on a) this article by Tim B. Lee and b) the D.C. Circuit's opinion in Comcast v. FCC. My reply follows:

Tim B. Lee's (not to be confused with Internet pioneer Tim Berners-Lee) paper has a lot of good content. Where it falls apart is on its competition analysis. Lee's fundamental premise is that interfering with network openness decreases the value of the network, service providers have an interest in maximizing the value of the product they're selling, and, therefore, service providers will not want to interfere with the openness of the network. On p. 23, Lee says this will hold true even in the case of a monopoly. This analysis, I think, ignores a critical factor: the elasticity of the market. Lee's argument holds true only in an elastic market, where consumers will be highly responsive to changes in the value of the good. I would argue that broadband Internet access is a very inelastic market. If you look at usage statistics for people under the age of 65 (and even more dramatically for those under 50), virtually everyone uses the Internet. It plays an integral role in virtually every facet of people's lives--personal communication, social and family relationships, entertainment, education, work and employment-seeking, access to government services, etc. It is not something people will do without based on incremental changes in the value of the product. So if you are hypothesizing a monopoly market, consumers have very little leverage with which to discipline service providers. Service providers would have to do tremendous damage to the product value before they saw a significant change in consumer behavior. Consequently, service providers are free to consider ways in which to make the network more lucrative for themselves (charging content providers for access to exclusive fast lanes and the like), even if it moderately decreases the value of the product they are offering consumers.

To take that one step farther, if service providers can get away with decreasing the current value of the network, they have absolute freedom with respect to controlling the emergence of future services that might add value to consumers. They already have a captive market based on the present value of the offering, so they would have nothing to lose by steering future developments in ways that benefit their bottom line, even if in doing so they diminish the overall value of these developments to their consumers. This is the most concerning aspect. It would be bad to diminish the availability or value of existing Internet-based services, but it would be tragic to undermine the Internet as a source of creativity and innovation.

The crux of this dispute, at present, is video services. Based on the history of the Internet, I think we have to assume that there will continue to be unforeseen developments and emerging new services, and some of these will probably require very high bandwidth connections. But at present, the only applications that really require 30+ Mbps connections are video services (and even then this is mostly for high def, and, in the relatively near future, 3d video). Lee touches on the fact that cable and fiber-based service providers already have a walled-garden for video, but acts as if this stands separate from the net neutrality discussion. It doesn't. I have participated in discussions on net neutrality with the Assistant Secretary for NTIA (outside of the 5 FCC commissioners, probably the most influential government official on this matter), and these walled-off video services were very much a part of the discussion. And the service providers are hardly content to rest on the status of their present walled-gardens for video. Look at the pricing for FiOS or for the emerging DOCSIS 3.0 cable services. Low speed Internet connections (5-20 Mbps) are priced similarly to the prices from other Internet service providers, but the high speed connections (50+ Mbps), which could potentially threaten their video services, are always set at such a high price point that the Internet-only price exceeds the price of getting a lower-speed video connection bundled with video service. It's a pricing structure designed to protect the video services. Meanwhile, Time Warner and Comcast are openly attempting to lock down online distribution rights for cable TV content. They have stated that they will make online access to this content contingent on the user having a subscription to their video service. AT&T and Verizon have not publicly disclosed any parallel efforts, but I would be shocked if they were not working behind the scenes to lock down content of their own. And Comcast is now in the midst of a high profile effort to acquire NBC Universal, bringing in a huge library of content and programming to add their exclusive access system. Acquiring NBC will also give Comcast partial control over Hulu, which will be one of its primary online TV competitors.

All told, this is a broad and comprehensive effort to lock down a high-value, high-bandwidth data service. And the general unavailability of high speed connections combined with market uncertainty over licensing and content access issues has successfully prevented the development of any true innovative competitors in the IPTV space. Moreover, because one element of the service provider strategy is to price high speed connections out of the market, this has had the collateral effect of slowing or preventing the development of other potential high speed services and applications (this is why Google is now proposing to create a city-wide testbed for a 1 Gbps fiber-to-the-home network). Letting Internet service providers into the online content and services market completely upends our expectations, per Lee, of how they should behave to improve the value of their Internet service product. Net neutrality advocates need not restrict themselves to worrying about hypothetical future harms, the real thing is happening right in front of our faces.

In discussing the potential threat of walled-gardens, Lee raises the example of AOL. AOL famously began as a walled-garden with exclusive content, then eventually, grudgingly, gave their users access to the Internet, and finally the exclusive content was dropped entirely. According to Lee, this illustrates that walled-gardens are not profitable. The key point that Lee omits is that AOL was not a monopoly (or even a duopoly). AOL's actions were driven by intense competition, mostly with mom-and-pop Internet service providers, at a time when all it took to be an ISP was to park a computer at the end of a copper phone line. The current service providers are generally monopolists or duopolists. The cost of entry to the market is prohibitively expensive (and economically inefficient). And the incumbents are so large that their collective actions can shape the development of content and services on the Internet in a way that AOL never could. The fact that walled-gardens failed in the 1990's tells us nothing about whether they could be economically viable for Comcast, Verizon, AT&T, and TWC today.

This brings us to the D.C. Circuit's decision last week. In 1996, Congress passed a Telecommunications Act that set up a regime for competitor access to the phone companies' last mile networks, allowing them to compete with the phone companies to provide phone and Internet service over their own infrastructure. At the time there were no commercial cable Internet service providers. As the cable companies became a larger and larger part of the broadband Internet service market, the disparity between phone companies (who were forced to share their plant with competitors) and cable companies (who weren't) became pronounced. Lawsuits by competitive Internet service providers attempting to gain access to the cable companies' plant forced the FCC to make a decision as to how to reestablish parity between the phone and cable companies. By this time (2002), Bush II was in office, and the default Republican position of helping the big guys prevailed. The FCC decided to designate Internet service as an "information service". The Communications Act gives the FCC a powerful tool box of regulatory controls over "telecommunications service" (generally referred to as Title II), but very little authority over "information services". The FCC had to shamefully torture the statutory definitions for telecommunications service and information service in order to make this determination, but that is neither here nor there. Several years later, after the case of a small phone company (Madison River Communications) blocking VoIP services that competed with its voice services, the Commission realized that they might want to regulate the behavior of Internet service providers in some cases. Having excluded Internet service from Title II, they didn't really have the statutory authority to do so, but decided to release a list 4 of non-binding network openness principles. A couple years after that, various members of the public were able to definitively prove that Comcast was interfering with BitTorrent traffic on its network, and they filed complaints with the FCC. After a long proceeding, in 2008, the Commission found the Comcast had violated the 4 principles, and required them to stop. Comcast challenged in the D.C. Circuit, asserting, among other things, that the FCC lacked statutory authority to enforce the 4 principles. They were right. Immediately following the FCC's Comcast decision, I did the first draft of a memo on the decision for a client. I predicted that Comcast would win the case in exactly the manner they did. So I can't say that I disagree with the D.C. Circuit's opinion.

At this point I think there is little question that the FCC will continue to enforce net neutrality principles. It was really the only big ticket item in Barack Obama's 2008 platform that related the FCC. Obama has reiterated his commitment to net neutrality on multiple occasions since taking office. It has to be at the top of the Democratic FCC commissioners' priority lists. So, to me, the question is not if, but how. Already there is a lot of talk on Capitol Hill about creating new legislation to give the FCC authority to enforce net neutrality. However, given the state of the senate, and the other major legislative efforts under way, it seems unlikely that anything like this could become law for a year or two, if at all. One quick way for the FCC to fix the problem by themselves would be to reclassify Internet service as a Title II telecommunications service. Two of the Democratic commissioners (Copps and Clyburn) appear to be inclined to doing this. The chairman, however, has indicated reluctance to do so. Reclassification would not only allow the Commission to enforce net neutrality, but would expose service providers (now including cable providers) to a whole suite of requirements under Title II. This would be a major change in regulatory approach, and the service providers will spend hundreds of millions of dollars over the next year or two to lobby against it. And even once the Commission acts, the service providers will then tie it up in lawsuits for years (as they did to the 1996 Act, from the time it was passed until the Bush-led Commission threw in the towel). It wouldn't be a pretty picture. But I nonetheless think it would be the right thing to do.

Moving Internet services back into Title II would allow the Commission to enforce net neutrality, but more importantly it would give them the tools to force the service providers to open their network to competitors. If done well, that could negate the need for net neutrality. Net neutrality is a regulatory framework designed for non-competitive markets. In a competitive market, consumers can respond to changes in the value of goods being offered, and Lee's thesis above would actually apply. Service providers that cripple their networks in the interest of building walled-gardens will see their subscribers go elsewhere, and the market will provide sufficient discipline to ensure good behavior. The only net neutrality regulation that would be required would be a network management disclosure requirement to ensure that consumers were making informed decisions. I think net neutrality is necessary given the current state of the market, but it is not an optimal solution. Competition would be far preferable. And, of course, for the service providers, competition is a far scarier prospect that net neutrality. Consequently, what we are likely to see is Chairman Genachowski publicly wavering on whether to join with his fellow Democratic commissions in favor of classifying Internet service as a Title II service until the service providers cry uncle and agree to some sort of non-Title II regulatory framework in which the FCC will be able to enforce net neutrality. Again, not my preferred solution, but it's what I view as the most politically feasible approach for Genachowski, and it has a distinctly Obama-esque feel to it.

Hope and Change and Broadband

I am looking forward to viewing the presentation that Joe linked to in the previous post, and I am thrilled that the BWJ revival post involves the perennial favorite issue campaign financing. I hope to comment more on the state of Supreme Court jurisprudence in the coming days.

For now, however, I wanted to draw attention to a recent report from Nokia Siemens Networks entitled the Connectivity Scorecard (h/t Talking Points Memo). There is no question that America lags many other developed countries on infrastructure, as reflected in key measures such as broadband speed and penetration. But the report argues that the notion of connectivity should be expanded beyond basic infrastructure to encompass how the network is used (such as time spent online, take-rate of internet-based services, and usage of websites by businesses). And under this broader understanding of connectivity, the Connectivity Scorecard puts United States second behind only Sweden. (The U.S. was #1 in the previous two years that the report had been published. Fucking Swedes had to rain on our parade.)

I recognize there is a lot of subjectivity built into a report such as this. And it does not diminish the importance of continued investment in broadband infrastructure--nearly 20 million Americans live in areas that are not served by a single broadband provider, and only 35 percent of homes with annual incomes less than $50,000 subscribe to broadband. But perhaps we don't suck that bad. I bet Americans have more Facebook friends than other comparable countries. And probably more trolls per capita too. Seriously, though, my point is that Americans as a whole are pretty Internet-savvy, and that should count for something.

I'll Have Another Hit of Hope and Change, Please

So it's been, hoo boy, over a year since I posted anything here. I'm once again going to try to get in the habit, and I figure I should start out with something strong. So here's an amazing presentation by Larry Lessig that provides a useful primer on the topics of broadband policy, cybersecurity, and copyright, then bends all three of these topics into a larger point about America's political process. It is very much worth the time to watch.



It's almost an hour long, but I think it stops 20 minutes too soon. He never answers the question of, well, what do we do now? I see that he's promoting a website for Fix Congress First. They appear to have a well-thought-out public campaign financing bill. But is that really the answer? Is there any real possibility this can get passed? (My guess: no.) Could it stand up to Supreme Court review? (Probably not, unless one or more of the conservative justices keels over while the Democrats still hold the White House.) If it did become law, would it solve the problem? That's hard to say, but at least it would be a huge improvement.

In any case, this seems like a hard thing to do as an insurgency. Lessig hits the crux of the problem when he notes that people commonly react that of course the powerful business interests run everything--it's always been like that! Certainly there has always been a certain amount of influence-trading in Washington D.C., but I have a hard time believing that it has always been like this. Nonetheless, I think the tendency among the public to believe that this is the way it always has been and always will be, until the end of time, amen, may present an insurmountable barrier for the popular uprising approach to political reform.

What I'm trying to say, in a long-winded way, is that my one source of crushing disappointment with the Obama administration has been its complete unwillingness to confront any powerful business interest. There were many things I admired about candidate Obama, but highest among them was his apparent dedication to changing Washington and improving the political process. I had hoped it would be the administration, rather than Lessig and his merry band of outlaws, spearheading the movement for political reform. I had hoped that he would confront entrenched interests and use his platform to show how badly they had served the public in the past and how directly their current interests conflicted with the public interest. None of this has happened.

Obama prevented a depression, passed landmark health care legislation and financial reform, and has done a lot of other good things. But he has done nothing in the realm of political process reform. Lessig is right that the FCC totally rolled over on the broadband plan. And Greenwald is right the administration only made it past the entrenched interests on health care reform by buying them out. And something not so different just played out on the banking regulations. It is honestly shocking to me how fearful this administration has been of entrenched business interests. Given the populist mood in the country, I should think the White House would relish a good fight with an unpopular industry (like the banks, or the health insurance companies, or Comcast). That, frankly, is the sort of press they need. But instead, when they get even a whiff of a fight like that coming, they turn tail and head for cover.

I don't know what to conclude. The Obama administration having been a letdown on this, I don't see any viable path towards political process reform in the near future. Between that and the new requirement for a super-majority to pass anything in the Senate (fodder for another blog post), the federal government has truly reached a new level of dysfunction. Despite Obama's legislative successes of the past couple years, I am deeply dismayed about the prospects of the federal government competently addressing any of the major challenges that will come its way over the next 10+ years. We are in a bad way to be sure.

Killing Grandma

I definitely want to continue this discussion and plan to share a few more thoughts soon, but in the meantime I have to pass on this very interesting article from the Washington Post addressing the public fury expressed at some of the town hall meetings over the last few weeks. The title says it all: "In America, Crazy Is a Preexisting Condition."

Thoughts on Health Care Reform

Let me first say that Veritas made an excellent commentary that addresses some very fundamental issues of health care reform and the ongoing debate. I agree that the current discussion is not being helped by fear mongering such as "socialized medicine" or "government-run health care" or "no one wants a bureaucrat between them and their doctor" (and the last would be different how from HMOs?). As Veritas points out, health care like so many other resources, is a limited resource and by definition is rationed in one form or another.

So how to do it? I heard an excellent segment recently on Fresh Air by Maggie Mahar. It's only 20 min long and well worth a listen. She highlights some of the reasons for skyrocketing costs of health care and offers some interesting solutions to at least part of the problem. A few of her points:

1) Like Veritas pointed out, going away from a fee-for-service approach vs. a lump sum payment might be one way to shift the focus to spending what is necessary and important for patient care rather than trying to make money. One perverse thought - might doctors/hospitals actually cut out certain tests or treatments in the interest of making more profit? Presumably this would be held in check by conscience as well as potential for lawsuits, but I wonder.
2) Making all insurance companies nonprofit. Another potential way to focus services on efficient, outcome based patient care rather than profit.
3) Increasing payments for primary care providers and reducing them for specialists. I certainly do see the inequity in salaries and reimbursements for procedures vs. primary care services. This may be one way to increase our supply and effectiveness of primary care providers.

I also wonder what happened to the discussion of malpractice lawsuit reform? I really like the idea of having a panel mediate such disputes and think this would go a long way towards bringing health care providers on board, even if it is a relatively small part of the cost of health care.

Speaking of the numbers, Henry Aaron has a very nice commentary in the New England Journal discussing the projected costs of the current health care bill as well as options to pay for it. This is well worth a read, and at some point Americans need to be better informed as to how we might pay for all this if we are going to do it. Adding to the deficit is really not an option at this point in my opinion. One option that has been put forth is making cuts to Medicare and Medicaid which Aaron shows to be one of the biggest areas of savings, though it remains unclear to me what these cuts would entail or mean.

On a more general note, I wonder if some (or much) of our increasing health care costs are due to lifestyle factors of Americans. Rates of obesity have skyrocketed along with its consequences of diabetes and cardiovascular disease. Perhaps we should really be targeting our funds towards prevention such as weight loss counseling and treatment and exercise programs. Reducing this burden would have tremendous effects on the long term health of Americans and I predict would go a long way towards lowering costs in the long run.

I really look forward to more discussion on this and feel like I have so much more to learn. It's a complicated issue but a very important one. And as Veritas points out, what we are doing now is simply not sustainable.

"Rationing" Is Not "Socialism" But Is Essential for Cost Control

I hope to provoke a good discussion on the health care debate by sharing a few thoughts. Rather than focusing on specific provisions that may be in the legislation (particularly because Congress itself hasn't figured them out yet), I want to explore some more fundamental questions. In what I hope will be merely the first installment on this topic, this entry argues that rationing is an essential mechanism for controlling the cost of health care. Without effective rationing, health care costs would likely be far higher than they are now and will almost certainly overwhelm us within a few decades.

Opponents of reform efforts have argued that President Obama "will ration your health care," as though rationing is part of the scary socialist nightmare that some see lurking around the corner. Much more recently, Republican Senator Chuck Grassley of Iowa (whom some consider to be critical to any bipartisan deal) stated in an interview with NPR that we need to slow down the process because "we want to make sure that seniors don't get health care rationed." That is classic fear-mongering. The undeniable fact is that we have always had rationing of health care--we should be asking how to implement it in a fair and cost-effective way.

Peter Singer, a bioethics professor, recently wrote that "[h]ealth care is a scarce resource, and all scarce resources are rationed in one way or another." Traditionally, medical care was performed on a "fee-for-service" basis, and providers were rewarded for extending every feasible treatment under the circumstances, with little regard to cost--so long as the patient could pay. Even under a fee-for-service model, medical services are rationed: You get the level of care that you can afford. As Economics Professor Uwe Reinhard noted, "free markets are not an alternative to rationing. They are just one particular form of rationing." (In this article, John Butler discusses other forms of rationing besides price, including rationing by denial, rationing by delay, and rationing by dilution.)

Beginning in the late 1960s, the "managed-care revolution" injected a gatekeeper in between the doctor and the patient with the aim of keeping costs in check. All managed-care plans ration health care services through one mechanism or another. For example, many HMOs generally rely on "utilization management" (or "utilization review") to determine what treatments or services are covered under a patient's plan, using "medical necessity" as the touchstone. Whatever the method, managed-care organizations have to come up with some way to restrict health care services in order to bring down costs--otherwise, they are not "managing care" at all. As Justice Souter observed in Pegram v. Herdrich (a 2000 Supreme Court decision addressing the ability of a patient to sue her insurance company for allegedly breaching its fiduciary duty), "no HMO organization could survive without some incentive connecting physician reward with treatment rationing."

Even assuming that managed-care organizations have a beneficial role to play, it is obvious that they have not done enough. Health care spending in America is out of control. In a 2007 report, the Congressional Budge Office (CBO) found that per capita spending on health care has grown much faster than per capita GDP over the last four decades. In 1965, total health care spending was less than 6 percent of GDP. By 2007, it rose to 16 percent. Peter Orszag, the Director of the Office of Management and Budget (and formerly the Director of the CBO) testified that we spend nearly twice the amount spent per capita than France, Canada, and Germany--and nearly two-and-a-half times the amount spent in the U.K., Italy, and Japan.

And it is only going to get worse (and fast), unless we make some serious changes. The CBO projects that, absent dramatic legal reforms, we will spend 25 percent of GDP on health care costs by 2025 and 49 percent of GDP by 2082. For the visual learners among us, here is a graph reflecting the projecting spending on health care as a percentage of GDP:








In a 2008 report, the CBO found (and most analysts agree) that "the bulk of the long-term rise resulted from the health care system’s use of new medical services that were made possible by technological advances, or what some analysts term the 'increased capabilities of medicine.'" Other factors (such as aging of the population, the rising prevalence of obesity, administrative costs, and the practice of "defensive medicine") taken together "appear to explain less than half of long-term spending growth."

David Brown of the Washington Post recently wrote an article examining the changes in treatment for coronary heart disease. He observed that the chance of dying from a heart attack has dropped from 30-40 percent in the 1960s to about 6 percent today. But the price for that improvement has been hefty. Over that same period, "the charges for treating a heart attack marched steadily upward, from about $5,700 in 1977 to $54,400 in 2007 (without adjusting for inflation)." Furthermore, according to that article only about half of the improvements in outcome can be attributed to increased spending on medical care; the other half "is the result of a more favorable 'risk profile' for Americans--less smoking, lower cholesterol, better blood pressure."

Rationing care (on some other basis besides price) is the only feasible way to control costs. It is also necessary in order for President Obama to accomplish his other stated objectives for health care reform--including "assuring affordable, quality health coverage for all Americans." As Dr. Arthur Kellermann observed in a recent interview with NPR, "in contrast to other wealthy countries, we don't ration medical care on the basis of need or anticipated benefit. In this country, we mainly ration on the ability to pay. And that is especially evident when you examine the plight of the uninsured in the United States."

I wholeheartedly agree with Professor Singer that "[t]he debate over health care reform in the United States should start from the premise that some form of health care rationing is both inescapable and desirable. Then we can ask, What is the best way to do it?" There are no easy answers, but we will certainly never escape the crushing burden of health care costs unless we begin to discuss the tough questions, like:

(1) What is the minimal level of care to which all individuals should be entitled?
(2) Assuming that "medical necessity" is not an effective standard in containing health care costs, what standard should we use?
(3) Should we consider how much longer a patient is likely to live, even if the treatment is successful?
(4) Who should decide in particular circumstances whether a specific course of treatment should be allowed?

Hopefully we can have a great exchange of ideas on these and other questions here. I encourage everyone who reads this to participate, either by posting entries, making comments, or sending emails. Together, we can save the world before bedtime!

The Outrage Game

As a follow-up to last week's post, Joe Klein has a fine column on the AIG bonus outrage:

There is a real crisis out there. It has existed for a while. It has been spreading slowly as factory after factory has shut down, as the gap between rich and poor ballooned, as the rich found ways to get richer betting on exotic financial instruments with all the economic substance of a roulette wheel, as the middle class found it harder to pay for college, for health care, for gasoline.

But most of the anger we see and hear comes from people who are paid to be angry, on cue, on cable television--as opposed to people with actual grievances. Suddenly, the White House press corps goes barking mad over the AIG Bonuses. It is said that the bonuses are an aspect of the bust that the "public" can understand; in truth, the bonuses are an aspect of the bust that reporters can understand. Suddenly, the Obama Administration has a "crisis." The President has to go on television and act as if he's angry, even though he knows these bonuses are the tiniest outcropping of outrageousness.

A bunch of people on Wall Street engaged in high-stakes gambling with a lot of other people's money and the reputations and stability of financial institutions that had endured for many decades. They amassed personal fortunes that the rest of us could scarcely imagine while burning down their firms and taking the entire global economy down with them. That's outrageous. That is un-fucking-believably outrageous. That a CEO at AIG who had been installed by the federal government to clean up the mess (along with some folks in the Treasury Department) decided it wasn't worth fighting in court over $150m in bonuses that the company was contractually obligated to pay--that's not outrageous.

Financial Regulation

I'm somewhat perplexed by this blog post by Richard Posner on financial regulations. Posner argues that there should be no new financial regulations until the current recession has bottomed out. There is a basic intuitive support for this argument in that additional regulations could limit risk-taking and drive up the cost of lending at a time when the federal government is desperately trying to encourage new lending. But Posner's position is focused primarily on uncertainty in the marketplace. He writes:

Any regulatory initiatives at this time will simply increase the already great uncertainty in which the financial industry is operating; and as Keynes pointed out, anything that increases uncertainty in a depression causes hoarding, which can in turn precipitate a deflation likely to deepen and protract an economic downturn.

His point is well taken, but I think he gets the matter of uncertainty backwards. The uncertainty Posner appears to be worried about is already priced into the market. The one thing that investors are not uncertain about at this point is that there will be new financial regulations. I don't think anyone doubts that at this point. The uncertainty is about what those regulations will be. The sooner the government can spell that out, the sooner this uncertainty will be diminished. The additional benefit is that the financial crisis has severely undermined public confidence in the banking system, and if the new regulations are well-crafted (or at least are broadly perceived to be), they can begin to restore some confidence. And in any case, when it comes to the Obama administration and Democratic congressional leaders, all of these concerns may be secondary to the fact that there is huge public support for financial regulations at present, leading to a desire to strike while the iron is hot.

You Are Outraged Because We Say You Are

Thanks to Al Giordano for writing this column so that I don't have to.

Whenever executive salary and bonus caps have been discussed in the context of the various bailouts and rescue packages, I have supported any draconian measure that legislators have been willing to contemplate. I think it would be difficult to overstate the moral and ethical culpability of these executives and traders in this financial disaster. And if that means they quit their jobs, big deal. There are plenty of unemployed financial workers who would be happy to have them.

But this drama over the AIG bonuses leaves me cold. I just can't bring myself to give a shit about it. Given the context we talking about here, it is small potatoes and completely unsurprising. The mad rush of media personalities and politicians to trump one anothers' expressions of outrage, on the other hand, inspires a fairly visceral reaction in me (nausea). There are few things more pathetic than the panic of a politician who suspects that he or she may be missing a populist moment, and their willingness to dive head first off a cliff in hopes of landing on the bandwagon. And I can't help but suspect that if there were real populist outrage over this it would have taken longer to build and longer for the press to pick up on it. When the media goes into full-on shrieking populist outrage mode the moment it hears about the story, it rather seems like it's the media that's outraged more than the populace.

Further Developments in the War on IPTV

A few weeks ago I noted that the networks shut down Boxee's efforts to deliver their content to viewers' TVs via Hulu's streaming web service. I speculated there as to why the networks would not want to play ball with Boxee. There is no question, on the other hand, why the cable companies are frightened of pure IPTV services, and it should come as no surprise that they are actively looking for ways to wall off content from them. Comcast and Time Warner are attempting to lock up cable TV content for online distribution (more details here). This content will be transmitted over the Internet in the same manner that a pure IPTV service would transmit it. The catch is that it will only be available to people who also subscribe to the cable companies' TV service.

Many cable TV programmers are likely to jump at this opportunity, as they've never been able to survive on a purely ad-supported basis and rely on cable carriage fees for about half their revenue. And, of course, even on that basis many cable channels could not survive if they were not tied together in cable tiers with other more popular channels (this is what much of the fight over a la carte cable revolves around). In fact, ESPN got out ahead of this game by trying (with considerable success) to strong arm ISPs into paying for its exclusive online content in a system analogous to a cable carriage agreement. What's next, regulatory battles over a la carte Internet? Oh, Kevin Martin, where have you gone?

On the other hand, for any really successful cable channels, my guess is they could do better by going it alone. This move will necessarily limit their online audience (as big as Comcast and Time Warner are, there are a lot of folks on the Internet who are not Comcast/Time Warner subscribers [though Harold Feld suggests that all MVPDs will be in on this game--anticompetitive conspiracy anyone?]). Moreover, they will be stuck in the position of subsidizing the crappy cable channels just as they have been through cable tiering all along. And if the good channels all flee, this may end up to be a pointless endeavor for the cable companies.

Obviously this move creates one more hurdle for IPTV providers to jump before going head-to-head with cable and telco video services. But it also creates potential net neutrality questions. This article suggests that Comcast will not treat this content any differently from other traffic for the purposes for traffic management or bandwidth caps. But if they or any other ISP were to in any respect preference this traffic, I'm calling it right now: instant FCC smack-down. This is exactly the sort of thing that net neutrality is intended to prevent.

In fact, I think the existence of monthly bandwidth caps at all will soon become highly suspect in the FCC's view. The Comcast Order hinted that monthly caps might be an acceptable network management technique. But anyone who routinely uses an Internet connection to view high def video will chew through these caps (I've seen estimates that HD video requires 4-12GB/hr (depending largely on the type of content), meaning a 250 Gb cap will last between 20-60 hours spread across all PCs and TVs in the household). In essence, monthly caps can be utilized to preference a non-IP-based video service over IP-based competitors.

ps. As you might note from my links here and in the previous post, I've been enjoying Silicon Valley Insider's Dan Frommer on this topic. He seems to be the go-to guy for this stuff.

Where Copyright Enforcement Collides With Network Management

ArsTechnica brings us this story about the fascinating next step in the arms race between online filesharing and the content industries. A new P2P client, developed by the University of Washington, integrates BitTorrent into a social-networking-type framework that renders it impractical for any user to determine the ultimate origin of files he downloads.

The way this apparently works is that a user installs the client and links to his buddies (who have likewise linked to their buddies). When he runs a search it will poll the buddies to see if anyone has the desired file. If not, it will search the buddies' buddies, expanding outward until it finds the file. The file is then routed back to the original user through each intermediate buddy and, significantly, the source of the file is anonymized at each step so that each client is aware only of its immediate neighbors. Consequently an MPAA executive searching the network for infringing files would have no idea which users to sue. They would not have IP addresses or any other identifying information for anyone beyond their immediate circle of friends (supposing, for the sake of argument, that MPAA executives have friends).

It's a great system for people who want to avoid being sued for copyright infringement. The flip side, however, is that routing files through a bunch of intermediate steps rather than directly from the ultimate source to the downloader is hugely inefficient. You burn a lot of network resources to achieve anonymity. This is where the interests of the content industries knock heads with the interests of the ISPs. The ISPs have long had a love-hate relationship with filesharing as it is a network management challenge, but also a great value proposition for their customers. This is less true now, but in the early days filesharing was one of the primary drivers for consumer adoption of broadband. Not only would ISPs be better off with the straight BitTorrent model, but BitTorrent could be optimized to prefer nearby nodes, thereby increasing its efficiency and lowering the burden of filesharing on ISPs. This can be done to some extent by software alone, but could be further enhanced through the cooperation between the software developers and the ISPs. Moreover, the FCC's decision in the Comcast case makes clear that the ISPs are on dangerous ground when they attempt to interfere with filesharing software. Optimization of filesharing software, rather than an escalating battle, seems the sounder option for them.

How this conflict gets resolved is unclear. In the near term there is little that the ISPs can do about it. But at least they may start to become involved in the policy battles over copyrights and filesharing, and one could hope that the significant collateral damage inflicted by this fight, combined with its general futility, could lead to more intelligent policy. It is interesting to note that the adverse parties in this conflict (the big ISPs and major content providers) are the same parties that appear to be aligned on the same side of the Hulu-Boxee story I posted earlier. I don't see any interplay between the two issues at this point, but it's something to watch for.

As an aside, the article quotes the creators of the software as stating that its intent is, in part, to create a platform free from the prying eyes of an oppressive government. This is likely BS. While this software would make it considerably more difficult to track a file to its source, it is not impossible. With access to the PCs of the intermediate users (or, more likely, the logs of their ISPs) it is still possible to track a file back to its original source. While this is impractical in the context of a copyright claim, it is not something I would want to stake my life or liberty on where an oppressive regime is concerned.

ps. Public service announcement: This is unbelievably awesome.

How the Surge Became One of the Biggest Swindles in the History of American Foreign Policy

In February 2006 Al Qaeda bombed the al-Askari Mosque in Samarra, Iraq. The attack was Abu Musab al-Zarqawi's crowning achievement, setting off the bloodiest and most grisly phase of the civil war in Iraq. The escalation of the war and the brutal ethnic cleansing campaigns carried out by all sides helped to turn American public opinion decisively against the war and played no small role in the wins of the Democratic party in the November 2006 mid-term elections. While many inside and outside of Washington were finally ready to start looking for an exit, the Bush administration, its legacy already inescapably tied to the war in Iraq, decided to double down. President Bush announced the troop surge on January 10, 2007, and the additional troops began entering Iraq before the end of that month.

Midway through 2007 the levels of violence began to tail off, and by the end of the year attacks and casualties had fallen to their 2004-05 levels. In September 2007 General David Petraeus and Ambassador Ryan Crocker reported to Congress that while virtually none of the political objectives of the surge had been met, the military objectives of the surge were being met. Over the course of 2008, it became conventional wisdom among political talking heads of all stripes that, notwithstanding the failure to achieve the political objectives, the surge had succeeded. John McCain prevailed in the 2008 Republican primaries largely on the basis of having been a champion for the surge. Mainstream newspapers called out Democratic candidate Barack Obama for failing to admit that he had been wrong about the surge. And Obama, for his part, seemed content to support this conventional wisdom on the basis that if the surge had worked, then it must be time to bring the troops home. This conventional wisdom has been augmented by the fact that the decline in casualties and violence has generally taken Iraq off the front pages. For the past year the conflict has been largely out of sight and out of mind, which itself serves as evidence of the apparent success of the surge and also diminishes public discussion that might lead to challenges of the conventional wisdom.

Lately, however, something odd has started to happen. Thoughtful and serious people, with whom I often agree, are employing the apparent success of the surge as justification for a much longer term commitment to keeping troops in Iraq (e.g. Thomas Ricks and Andrew Sullivan). Let me put aside for the moment the fact that I don't believe that the surge was the primary cause for the decrease in violence in Iraq (in fact, it probably wasn't even the secondary cause). Even if we assume that the surge was solely responsible for the decline in violence, the fact that we are today not one iota closer to solving the basic structural political challenges of Iraq than we were three years ago should reveal the surge to all as the utter failure that it is. In truth it stands as a testament to the hollowness and stupidity of the entire endeavor in Iraq from day 1. The question of how to resolve the ethnic/sectarian divisions of Iraq was at the top of every critic's list of objections before the war started in 2003. Here we sit in 2009 and still no one has the first fucking clue how to resolve this problem. And yet Ricks and Sullivan would have us keep tens or hundreds of thousands of troops in Iraq for at least another 5 years in hopes that someone can pull a rabbit out of a hat and make everything better. I hate to be the one to break it to these fellas, it ain't gonna happen.

When I go back and look at what I wrote about Iraq two or three years ago, I see little that has occurred to change my evaluation. It's true that the decline in violence has bought us some time (although the levels of violence have been ticking up again, possibly in reaction to last month's elections). But time for what? There still appears to be little prospect for political reconciliation, meaning that whatever fallout will result from an American withdrawal will happen whether we withdraw this year or in 2015. And our presence in Iraq continues to cost us the lives of our servicemen and an immense amount of money, strain our military capacity and limit our effectiveness in Afghanistan, and hinder our efforts to repair relations with Arab and Muslim nations. The opportunity costs of remaining in Iraq are substantial, and the benefits of staying appear to be minimal. It's time to bring this misadventure to a close.

I remain of the opinion that we should be prepared to intervene again if things spiral too badly out of control, but I do not believe that we will see a serious effort towards political reconciliation until we force the issue by drawing down our forces. We have no better options than to try it and see what happens. The surge has not altered that equation. It has only delayed us, at significant cost, from asking the hard questions and making the hard decisions for the past two years. Now is the time to do what needs to be done.

Photo credit Zoriah

Understanding an Economic Apocalypse

This is tremendously useful:


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Darwin Posters

I love this:


Source.

The New Battleground for IPTV

The battle over net neutrality has always been, first and foremost, a battle about who gets to provide video services over the Internet. As such, I think that what just happened between Hulu and Boxee could have significant implications for the future of telecommunications in the US.

Spurred on by the massive success of YouTube, online video has made huge strides in recent years. We're now seeing multiple competing sources for online movies and TV. One of the last remaining hurdles for these providers to overcome is to make the move from consumers' computer monitors to their televisions. One potential route for this to happen is through gaming consoles. Another route is through dedicated hardware, basically a set-top box that connects to the Internet and serves videos. Boxee makes one such device. The key to commercial success for any such device is access to content, and Boxee had until recently been planning to get content from, among other sources, streaming video provider Hulu. Hulu carries content from numerous TV networks, including Fox, NBC, Comedy Central, PBS, and Sci Fi. One could imagine Boxee, with support for Hulu, Netflix, YouTube, and various other sources posing a legitimate threat to traditional cable and fiber video services (e.g. Comcast or FiOS).

The emergence of such a free-standing IPTV service would be an important development that could break the video content market wide open and end the stranglehold that the big cable companies and telcos currently have over it. So it is disturbing to see that the powers that control Hulu (Fox and NBC) nixed Hulu's deal with Boxee. I assume that the scenario played out more or less as Marc Hedlund describes in the article. But it's not entirely clear what the motivation of the content providers is here. I think Hedlund is probably right that the advertising contracts probably work differently for online viewing that for traditional TV viewing, and the the networks have some profit incentive to protect their TV advertising. But this should be a temporary limitation--as new contracts are entered or old contracts are renewed there is no reason why fee structures shouldn't be adjusted to reflect the new reality that Internet video may be viewed on TVs as well as computer monitors. And to that extent, one might think that the networks would have some interest in seeing Boxee get off the ground and build some viewership so that the networks would be able to turn around and sell access to those viewers to potential advertisers. Instead they seem inclined to strangle Boxee in the cradle.

It's possible this is just a negotiating tactic and the networks want to squeeze a few dollars out of Boxee before they acquiesce in the Boxee-Hulu deal. But it's also possible that there are greater philosophical differences at work. It could be that the networks are cozy with cable operators and the telcos (or are frightened of them) and don't want to rock the boat. Or that the networks are concerned about their future in a world of IPTV. There's really no such thing as a "channel" on IPTV. And what, exactly, is a television network with no channels? Ultimately I do think there would be an important role for the networks in an IPTV environment, something more akin to what movie studios do: picking potential projects, then financing, producing, and marketing them. But it would be a big change, and if we've learned anything from the struggles of old content industries on the Internet so far it's that big incumbents are extremely resistant to embracing change. Additionally, even though the networks will still be important in an IPTV universe, they will certainly be subject to new competition. It would be far cheaper and easier for independently produced content to gain an audience via IPTV than it is in the traditional video market.

In any case, if the networks are inclined to fight IPTV, they are in position to set back its progress considerably. Without major network support, IPTV is likely doomed to being a supplementary service to traditional video rather than a direct competitor with it. This would be a bad result for consumers and a bad result for both the telecom market and the video content market, but sadly I'm not sure that it is irrational from the standpoint of the networks. I'm also not sure, at this point, that there is much that can be done from a regulatory standpoint to push the networks towards IPTV, but we should be on the lookout for opportunities to do so.

Brad DeLong Takes a Stand

Brad DeLong, econ professor at Berkley (and respected blogger) has written a letter to the school's administration requesting that it terminate the employment of law professor John Yoo. I thank him for it, and hope others will join him. I've found it quite disturbing for several years now that Yoo has been treated as a respectable and important member of the legal academia. The man should count himself lucky that he is not in prison for war crimes and have the good sense to otherwise remain out of sight. DeLong's letter is well worth reading. The actions Yoo took for the Bush administration were blatantly unethical, and a lot of people suffered and died behind the bogus legal cover he provided the administration. He is an embarrassment to the school and the profession. And that's to say nothing of Jay Bybee sitting on the 9th Circuit.

Being a Bully Isn't the Best Bet

First, I should note that I have been greatly enjoying Foreign Policy mag's expanded blogger lineup (Tom Ricks, Dan Drezner, Stephen Walt, and Marc Lynch). It's quite an impressive group of analysts, and part of my regular reading routine these days. Walt recently pointed out a great paper on international relations by Todd Sechser. Walt summarizes it as follows:

[G]reat powers often fail to get their way when they issue coercive threats (which is surprising at first glance), and that this problem may in fact get worse the more powerful they are. The basic logic here concerns reputation: weak states will worry about giving in to a great power’s demands (even when the demands are fairly minor), because they will fear that the great power will just demand more later. So they resist now, to enhance their reputation for being stubborn and to convince the great power to leave them alone in the future. The core of the problem is that a very powerful state can’t make a credible commitment of restraint; it can’t reassure the weak state that it really, truly, wants just a modest concession, one that the weak state might be willing to grant if it were confident that this would be the only demand. And the bigger and stronger the coercing state is, the harder it is for that state to reassure the weak power that its aims are actually limited.

It's not a shock that coercive threats against other states are generally unsuccessful (I think that's been a semi-regular theme of foreign policy discussions on this blog), but I think the point about being able to credibly commit to restraint is useful. This is one of the great values of international institutions. It has long been fashionable for conservatives (generally, but often liberals too) to scoff at the UN for hindering our ability to get things done. Ironically, the fact that working through institutions like the UN does to some extent tie our hands can make them more useful. A commitment to work through institutions in which our actions are restrained and other parties have meaningful voice makes our actions less threatening and more constructive.

Silver on Progressivism

So I have to concede that after having been a serious Nate Silver junkie throughout the election season, I hardly looked at 538.com for a couple of months after the election was over. Increasingly, however, I've been drawn back as a regular reader. I think this post goes a long way to explaining why. I have from time to time expressed a certain amount of frustration with the liberal bloggers and netroots (as here or here). The online liberal community seems to have a heavy tilt towards economic populism and hyper-partisan demagoguery that I tend to find repellent. Some of the more prominent bloggers (e.g. Matt Yglesias) are lighter on the economic populism, but still tend to be heavy-handed partisan footsoldiers. Silver comes closer to mirroring my own views than any of the other bloggers I currently read. The discussion at 538.com linked above does a pretty good job of sorting out the differences. Like Silver, Obama clearly falls into the "rational progressive" category--in fact, he probably represents the prototypical ideal of rational progressivism. I expect we'll see plenty of argument over the next 4 or 8 years between the rational progressives and the radical progressives over the direction of the Obama administration. At least I hope so, because the conservatives are, frankly, too stupid to bother arguing with lately.

Good Quote

I was just listening to some lectures on the Birth of the Modern Mind in the background while working on a take home exam from one of my Stats classes when I heard this quote.

Though the Episcopal and Presbyterian sects are the two prevailing ones in Great Britain, yet all others are very welcome to come and settle in it, and live very sociably together, though most of their preachers hate one another almost as cordially as a Jansenist damns a Jesuit.

Take a view of the Royal Exchange in London, a place more venerable than many courts of justice, where the representatives of all nations meet for the benefit of mankind. There the Jew, the Mahometan, and the Christian transact together, as though they all professed the same religion, and give the name of infidel to none but bankrupts. There the Presbyterian confides in the Anabaptist, and the Anglican depends on the Quaker's word. At the breaking up of this pacific and free assembly, some withdraw to the synagogue, and others to take a glass. This man goes and is baptized in a great tub, in the name of the Father, Son, and Holy Ghost: that man has his son's foreskin cut off, whilst a set of Hebrew words (quite unintelligible to him) are mumbled over his child. Others retire to their churches, and there wait for the inspiration of heaven with their hats on, and all are satisfied.

If there were only one religion in England, there would be despotism to fear; if there were but two, they would cut one another's throats; but there are thirty, and they live happily and in peace.

Voltaire, "Letters on the English" c. 1778

I thought it bore (indirectly admittedly) on the relation between commercialism and religious tolerance. I've been thinking a good bit on the idea that economic and commercial freedom and the prosperity that tends to accompany them have been the driving force behind the rise of political freedom and civil rights. So the quote just kind of struck me. Anyway, back to work.

Some More Rawls Discussion

Speaking of meritorious blogging content, someone smart must have submitted this email to Andrew Sullivan. :) Having appeared on Fallows' blog some time ago, I wonder if this qualifies me as an Atlantic Monthly groupie.