Arnold Kling  

Michael Powell Resigns

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Michael Powell, the Chairman of the Federal Communications Commission, is stepping down. In my book, I included an essay on Powell's Hayekian approach at the FCC.

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."

The inside-the-Beltway approach to telecommunications regulation is micromanagement. They have a "natural monopoly" theory of telecom that is somewhat self-fulfilling. Even when the theory obviously breaks down and competition enters from new sources, the old regulatory structure is retained. Powell fought against this regulatory culture as hard as anyone could.

With the rise of the Internet, the FCC is arguably the most important (and anachronistic) Federal agency. I hope that the person who is named to replace Powell comes from far outside the K Street axis and shares Powell's willingness to question the regulatory conventional wisdom.

For Discussion. In what ways has the importance of the FCC increased in the Internet era?

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The author at LazaX in a related article titled Free Market and Monopoly writes:
    Arnold Kling in his post Michael Powell Resigns praises the ex-FCC-chairman's attempts to deregulate communication industry. Michael Powell also fought for deregulation of media. That would allow one media outlet to eventually control all newspapers, T... [Tracked on February 4, 2005 4:56 AM]
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Lawrance George Lux writes:

The Internet requires an International Cop to prosecute Crime--specifically Fraudulent practice. The FCC will retain power only so long as it integrates into a World Police net. lgl

Boonton writes:

Too bad he didn't believe in free speech as well as free markets.

Brad Hutchings writes:

With the Internet as umbrella, more telecom has fallen out of the purview of state regulators and presumably under the FCC. As we move from telecom where most Internet use was over locally regulated phone systems to telecom where most phone use is over the Internet, state regulators are pretty much irrelevant. The relevant historical lesson is that when a company (AT&T and its local RBOCs) and the government (federal and state) conspire to fully regulate and monopolize economic system as envisioned by AT&T President Thomas Vail back in 1907, it takes a sea change in technology to undo all the damage. Even divestature in the early 80s failed to bring a fraction of market benfits to telecom that the Internet finally did in the 90s. The FCC has centralized more regulatory authority over telecom, taking it from the states. Future FCCs must resist temptations to exercise it so that the net long term effect is less regulation. Perhaps Powell's name could be attached to this kind of path to deregulation.

Zoran Lazarevic writes:

Michael Powell also fought for deregulation of media. That would allow one media outlet to eventually control all newspapers, TV and radio information.

Free-market proponents don't think (or never say) that absolute monopoly is bad.

Why is that?

In a marvelous paper An Austrian Theory of Business Cycles, Ben Best says:

A more devastating and immediate attack on the American Economy, however, came from the Justice Department, which branded Microsoft Corporation a monopoly ... Microsoft lost $70 billion in market capitalization in a single day, ... Technology is an intricate web of interdependence and this is especially the case with MicroSoft. Very many company's fortunes were tied to products built around MicroSoft. The devastating damage to MicroSoft had a domino effect across the whole technology sector -- including MicroSoft's competitors and eventually the whole economy.

Apparently, Ben Best does not see the huge Microsoft monopoly (probably the largest monopoly in the world, in terms of dollars) as anything bad.

Like thousands of other software developers, I think that Microsoft's monopoly stifles new technologies through attempts to destroy them (Netscape, RealPlayer, Linux, Burst), forces developers to waste time and be inefficient by using botched up Microsoft interfaces (Windows Media Player, COM, OCX), and by keeping high prices in the absence of competition. And these are all factors that unfavorably affect economy.

I am not convinced that this world would be a better place without Microsoft. Still, it is important to be against bullying, in principle.

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