It’s clear that technology is a key driver of prosperity in today’s modernizing economy. Trillions of dollars in economic activity flow through the networks which make up the internet, making America’s digital economy the envy of the world. Networks are redefining the services people consume and the income people derive. For example, according to a Pew survey, 72 percent of Americans have used a sharing or on-demand service.
That’s why the Federal Communications Commission has never been more important. From last year’s Net Neutrality rules to current proceedings about set-top boxes, internet privacy and business services, FCC rules are shaping the future of the internet – and the broader economy that it fuels. Whether you agree or disagree with these regulations, everyone agrees they will have a profound impact.
That is why it’s so disconcerting to see the FCC disconnected from the economic impact of its decisions. In a report he published in July, the FCC’s very own former chief economist, Gerald Faulhaber, Ph.D., raised alarms about the agency’s dangerous turn away from economic analysis in its decision making.
In the report, Dr. Faulhaber asks: Why do the U.S. Department of Labor, the U.S. Environmental Protection Agency and the Consumer Financial Protection Bureau all conduct stringent cost-benefit analyses on their decisions while the FCC does not?
The FCC has simply become too important to the economy for it to fail to explore the economic impact of its decisions. For example, numerous economists warned the FCC that its decision to impose so-called Title II regulations on internet service providers, which treats today’s advanced broadband access in the same way as telephone services from generations ago, will have a negative impact on investment and innovation while not solving the issue we all want addressed: how to ensure that internet traffic is treated fairly across networks, regardless of where it comes from. Yet, when issuing its Open Internet Order, the FCC conducted no economic analysis of the impact its proposed rules would have on consumers, innovation or investment.
How is that possible?
The problems continue. The FCC is currently facing a major backlash from Congress, Hollywood and many innovators for its proposed new technology standards for set-top boxes.
Economists and legal analysts, including Harvard’s Laurence Tribe, are protesting a new FCC proposal to apply stifling “opt in” rules for internet privacy – distorting the market by creating arbitrary and inconsistent requirements for the same data when it is used by different companies and precluding companies from even the most mundane communications with their customers.
The agency is even considering abandoning years of economic precedent on whether and how markets should be regulated to impose rate regulations in business services where competition is thriving.
How the country utilizes spectrum is another issue where the FCC seems intent on picking winners and losers instead of maximizing the economic value of this public resource. In other words, once again, economics is taking a back seat to some other agenda.
If the FCC had undertaken rigorous economic analysis and evaluated the costs and benefits of these proposals it could have avoided these controversies and worked toward genuine consensus on pro-consumer, pro-innovation policies. That is what we should expect from a government agency that is supposed to be a subject-matter expert.
Traditionally, responsibility for managing the economy fell to the White House, the Treasury Department and the Federal Reserve — all economically expert operations. But the FCC is now elbowing its way into this mix by flexing jurisdiction over the internet and much more. But as the saying goes, with great power comes great responsibility.
So what can be done? If the White House isn’t prepared to insist the FCC factor economic impact into its decisions, it will be up to Congress.
Lawmakers have many tools at their disposal. Oversight hearings can shine a light on how the FCC makes its decisions. Congress can ask the Government Accountability Office to investigate how the FCC factors economics into its decisions – or fails to. And, of course, if Congress thinks the FCC has made decisions based on faulty or no economic reasoning, it can pass legislation to overturn faulty rules.
Hopefully the FCC will take stock of the criticism from people – like Faulhaber – who know it best, and make changes that will help the agency take the economic impact of its decisions into account.
After all, if the FCC wants to sit at the “adult table” when it comes to deciding our economic future, the very least we can expect them to do is their homework. According to Dr. Faulhaber and others, the agency hasn’t earned that seat just yet.
Mike Montgomery is executive director of CALinnovates, a San Francisco-based technology advocacy coalition.
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