In his most recent post at Wetmachine (responding to a post by Adam Thierer at Techliberation), Harold Feld again discusses the role of market analysis in regulation. Harold notes the real world is complicated. No dispute there. He then asserts that, because the world is complicated, regulation may be necessary even in the absence of market failure. Harold believes the most relevant question is: “what are the most likely outcomes and do we care.” He says this “more complex approach is more likely to yield better results in the real world where we actually live” than the market analysis approach.
This classic technocratic approach (or perhaps merely bureaucratic approach) to regulation is based on the belief that government has a role in fine-tuning even competitive markets to produce “better” outcomes. For example, Harold lauds the FCC’s most recent Mobile Wireless Competition Report (“Report”), which supports Harold’s view of competition and regulation. In the Report, the FCC refused to make any finding regarding the state of competition in the mobile market (see my analysis here, here, and here). Instead, the FCC stated that the appropriate role for the Report was to provide “data that can form the basis for inquiries into whether policy levers could produce superior outcomes.” (Report at paragraph 3.) In other words, the FCC believes that, by technocratic fine-tuning, the government can produce “better” results than competitive markets.
The problem with this approach is that “the law generally does a bad job of fine-tuning.” Rather than produce “superior outcomes,” attempts to fine-tune the market through regulation often make things worse through the law of unintended consequences. Markets aren’t perfect – the world is indeed complicated. But markets are self-correcting. Regulators are not. As I’ve said before, “outdated regulations never die.” Exhibits A and B for regulatory inertia are the Universal Service Fund and Intercarrier Compensation regimes, which everyone agrees have been “broken” for years, but nevertheless remain as perverse examples of government attempts at “superior outcomes.”
I’m not arguing that markets produce “perfect” outcomes. But they generally do produce better outcomes than technocratic tinkering. That’s why the FCC needs to overcome its existential crisis and get back to market-based analysis.
A fair critique, but I tend to see the question as less like fine tuning and more like preventive medicine. Consider data roaming. If we like competition as a means of keeping consumer prices down,we need to keep competitors in the market and enable them to provide comparable service. We recognize this with voice. As data takes the place of voice, shouldn’t the same logic apply to data? That has nothing to do with the state of competition in the market to day, but everything to do with preserving a competitive market for the future.
Similarly, if there is an independent role of government to ensure consumer protection for such things as bill shock, that does not rest on competition. It rests on the responsibility of government to ensure a functioning market.
Finally, we cannot claim that markets will produce one effect when economics tells us it won’t. We can depend on competition to yield lower prices. But if we permit unregulated ETFs, then consumers are locked in and the anticipated switching is less likely to occur. one can argue that this is a better outcome because regulating ETFs would have bad consequences since “fine tuning” is bad. But then embrace that logic explicitly, rather than pretend that we have the same low prices we would have absent lock in.
My chief complaint lies with those who maintain that nothing could possibly be less than perfect because the market is unregulated, therefore competitive, therefore perfect. This is doubly true in a market where the primary input is restricted by federal law into a handful of licenses and we pretend that the distribution of these government monopolies by auction makes this a “free market.” It is one thing to say “leave it alone because you’re more likely to screw it up than do any good.” It is another to pretend that “we live in the bestest most perfect world imaginable, and only a fool could think otherwise.” Reasonable minds may disagree about the first, whereas the second simply defies reality.
I agree that competition does not produce perfect outcomes, at least when there is not “perfect” competition (and that probably isn’t true of any market). I believe the question is whether effective competition will produce a better outcome than attempts at fine tuning. That’s the crux of the argument where reasonable minds disagree. It’s also why I believe a finding of effective competition is so important. If the FCC makes no finding at all, as it did in the last mobile competition report, reasonable minds don’t even have an opportunity to discuss this. The FCC has made the decision of direction by default.