Subject: [NEXTEL-1] Hayek, Stiglitz, and Michael Powell

From: [email-masked]
Date: Wed, 29 Oct 2003 01:28:36 -0500

-------- Original Message --------
From: "sparkie_rf" <[email-masked]>
Subject:  Hayek, Stiglitz, and Michael Powell

by Arnold Kling

Everyone thinks that they are smarter than Michael Powell. The 
Chairman of the Federal Communications Commission is at least as mis-
underestimated as the man who appointed him, President George Bush.

Michael Copps, a Democrat on the FCC, routinely defies Powell, and 
on several occasions has succeeded in embarrassing him. Kevin 
Martin, appointed to the FCC by George Bush, deserted Powell on an 
important vote on telephone deregulation. The House of 
Representatives recently voted overwhelmingly to overturn a 
seemingly minor loosening of media ownership restrictions. 

Following the House vote, a front-page story in the Washington Post 
described Powell as beleaguered. "It would be impossible in 
Washington to have so much controversy over a public figure without 
some raising the possibility that he will soon step down. Some 
published reports have stated that Powell has discussed the issue 
with his staff."

Messy Competition
The FCC oversees industries in which competition is messy. 
Broadcasting and telecommunications do not resemble the economist's 
model of "perfect competition," in which there are no economies of 
scale or network effects or information asymmetries or dominant 
firms. In spite of all of these deviations from the ideal of perfect 
competition, Powell favors reducing the weight of the hand of 
government.

By defending markets even when competition is messy, Powell is being 
Hayekian. Friedrich A. Hayek, awarded the Nobel Prize in economics 
in 1974, viewed Competition as a Discovery Procedure. He 
wrote, "market theory often prevents access to a true understanding 
of competition by proceeding from the assumption of a 'given' 
quantity of scarce goods. Which goods are scarce, however, or which 
things are goods, or how scarce or valuable they are, is precisely 
one of the conditions that competition should discover." 

Powell's opponents are Stiglitzian. Joseph Stiglitz, awarded the 
Nobel Prize in 2001, wrote, "But information economics does not 
agree with Hayek's assertion that markets act efficiently. The fact 
that markets with imperfect information do not work perfectly 
provides a rationale for potential government actions."

Hayek would have the government tolerate messy competition. His 
point is that with the optimal outcome unknown, government 
resolution of issues shuts off the learning process that market 
competition provides.

Stiglitz sees the messiness in real-world economies, and he claims 
to have the right solution in every case. Even Berkeley economist 
Brad DeLong, who--like Stiglitz--served in the Clinton 
Administration, wrote that "I'm reading Joseph Stiglitz's brand-new 
Globalization and Its Discontents, and having trouble with it. It 
seems as though Stiglitz switches back and forth between different 
positions at blinding speed." Stiglitz's outlook is that markets are 
imperfect, but he is not. Where Marx offered dictatorship of the 
proletariat, Stiglitz would give us dictatorship of the Nobel 
Laureate. Between the two, we might be safer with Marx.

In Washington, the conventional wisdom is Stiglitzian. People do not 
run for office or seek appointments to high-level regulatory 
positions out of humility and respect for market processes. It is 
not surprising that the Beltway views Powell as at best eccentric 
and at worst a heretic.

The Broadband Issue
Perhaps nothing illustrates better the contrast between Powell's 
Hayekianism and his opponents' Stiglitzianism than the issue of 
broadband--the deployment of high-speed Internet connections. Powell 
is willing to let the market decide the outcome, with messy 
competition among cable companies, telephone companies, as well as 
underdogs and upstarts ranging from electrical power lines to 
wireless networks. Most important, he is willing to leave the 
decision of how much to spend on broadband up to the consumer.

Opposing this laissez-faire approach is Reed Hundt, FCC Chairman in 
the Clinton Administration. At a recent conference, Hundt sketched a 
proposal for the government to spend $40 to $50 billion to subsidize 
broadband rollout. In defending this large expenditure, Hundt 
explicitly invoked economist John Maynard Keynes, saying that it 
would provide an economic stimulus.

Hundt's proposal is Keynesian indeed. Keynes reportedly said that 
when there is unemployment, the government might as well pay workers 
to dig ditches and fill them in again. Under Hundt's proposal, many 
ditches would be dug to lay more communications cable.

Lukewarm Reception
At the conference, Hundt appeared surprised that his proposal 
received only a lukewarm reception. This was because many of the 
conference attendees were geeks who have moved on from Hundt's 
fixation with fixed-line broadband to the New, New Thing of wireless 
networks. They are finding Powell surprisingly receptive to their 
ideas. For example, even as he was proudly pulling a "Re-defeat 
George Bush" bumper-sticker out of his briefcase, telecommunications 
consultant David Isenberg was paying Powell the ultimate geek 
complement on wireless: "Powell gets it," he said.

One of Hundt's arguments against Powell's approach of setting 
different broadband providers competing against one another is 
that "somebody is bound to fail." He regarded the failure of a cable 
firm or a telephone company as unthinkable. However, several months 
earlier Isenberg co-wrote a column in USA Today saying, "Instead of 
spending billions of tax dollars propping up the telephone companies 
and delaying the inevitable, let them fail — and fast." 

The geeks are in favor of something called "open spectrum," which 
would take spectrum licenses away from incumbent owners and free it 
for wireless applications. Powell is trying to do just that. One 
recent proposal is to allow a huge swath of spectrum that was 
previously allocated to religious and educational institutions to be 
re-sold into the market. Copps, the FCC Democrat, once again stands 
in reflexive opposition, defending the status quo of FCC command-and-
control over spectrum utilization.

Rare Wisdom
In the view of the geeks, Powell is a free-market ideologue, but he 
happens to understand wireless technology. The way I look at it, the 
geeks come from a Stiglitzian culture, but they happen to understand 
Hayekian spontaneous order as it pertains to the Internet.

Congress thinks it knows the optimal fraction of the television 
market that can be owned by one media firm. Reed Hundt thinks he 
knows better than consumers themselves how much they want to pay for 
fiber to their homes. Michael Copps thinks he knows how to manage 
phone lines and how to allocate spectrum. Unlike his detractors, 
Michael Powell thinks that he knows less than the market. And in my 
view, that makes Michael Powell a man of rare and precious wisdom.

 http://arnoldkling.com/~arnoldsk/aimst5/powell.html

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