Barrack Obama’s Worst Decision?

Two years ago, I warned that we were making a serious mistake. . . . It’s basic economics. The more heavily you regulate something, the less of it you’re likely to get. Ajit Pai, Barrack Obama appointed Chairman of the FCC

Uh. That would be a resounding “No” Mr Pai. If any of my students suggested or even hinted that less regulation gave rise to greater returns for the public, they would fail not simply my class, but any economics class anywhere in the world. Which may explain why an individual with a law degree and zero economic training should never be placed in charge of an institution requiring economic expertise.

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But, Mr Pai’s decision doesn’t even make common, much less, economic sense. Unregulated commerce. Try that. Unregulated highway intersections. Try that. How about unregulated currencies. Try that. How about unregulated law enforcement. Try it.

Which means either Mr Pai is stupid or he has drunk the Koolaid. Either he has zero understanding of the economics, or he genuinely believes in the self-regulating economy.

Neo-classical economists — which is to say, nearly all economists — also “believe in” the self-regulating economy. They “believe,” without doubt, that a self-regulating economy will send market efficiencies up to the top of the income hierarchy where these efficiencies perform most poorly. Mr Pai, by contrast, who is trained as a lawyer, not as an economist, believes that a self-regulating economy punishes individuals who invest their assets inefficiently — without ever asking the pertinent question: inefficient for whom? As the chair of a public regulatory agency, shouldn’t Mr Pai be interested in passing efficiencies on to the public?

Regulations, for example, undoubtedly place downward pressures on investor returns when Verizon, AT&T, or Comcast are compelled to share market efficiencies won by net neutrality with consumers. Even if we assume that investors, in the long run, make up lost returns in a marketplace made more efficient by net neutrality, in the short run AT&T’s or Verizon’s freedom to place gates and charge tolls for any web address they like; or to create artificial scarcity in bandwidth will give rise to immediate returns for investors — precisely because it generates market inefficiencies.

Mr Pai is imagining a circumstance where a smaller provider will throw the gates open and eliminate charges, offering a product that is faster, cheaper, and of higher quality than the giants. But this assumes that Disney, Netflix, HBO, Showtime, and other content mega-providers will even do business with the faster, cheaper, and higher quality competitor that offers them nothing in return.

If Mr Pai is not simply a shill for the industry posing as a regulator, then he is simply stupid. If he is stupid, he should be removed and replaced — I don’t know — by any one of the hundreds of thousands of first year economics students who actually understands “basic economics.”

Of course, the same could be said of Senator Paul Ryan and his crayon and pencil, stick figure, tax plan. But that’s a different story.

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