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New thinking about net neutrality

There is a legitimate argument against net neutrality.  Much as it may seem to the contrary, broadband supply is far from infinite. Rather, like everything else, broadband exists in a limited supply.

Humans, though, are funny in that though we recognize limited supply (kids rarely share dessert, after all) our wants are nearly infinite. Prices force people to make choices across their spectrum of wants and to confront the reality of scarce resources.

As demand for broadband grows faster than supply, connections will slow and prices will increase.  One proposed solution “net bias,” the opposite of net neutrality, is that sites can pay for their users to reach their site more quickly.  Despite hullaballoo to the contrary, this model does reflect efficient pricing: instead of all sites slowing down, those who value speed can pay for it.

However, net bias as a necessity for economic pricing efficiency only works as an argument in the short-term, for two reasons:

1) Supply can, and likely will, increase

2) The great social cost

As any student of introductory economics can report, in the short-run capital (like broadband supply) is fixed, while in the long-run, capital can increase. Suppose one company’s broadband capital stock stayed constant while demand increased.  In response to the new demand, the price of broadband access would have to increase.

The price increase will mean fewer units sold than would have been at the prevailing price: with the shortfall in supply, the company loses potential customers. Other companies will see an opportunity to sell to those who had previously been served and so will enter the market.  The new entrants will increase available supply and bring the price down.  Of course, the incumbent companies would be foolish to not anticipate competition sand so will increase their own capital stock over the long-term, then supply may not be so constrained as to necessitate an end to net neutrality.

An increase in capital doesn’t always mean an increasing the current technology available.  Indeed, if it did, people would still be installing telephone lines.  Ever since the first ipod came out, we have seen incredible, rapid change in consumer electronices that few people anticipated and even fewer thought was likely in their lifetime.  Substantial changes to infrastructure are far less sexy because the return is delayed, but no less likely.  Are there even any children who remember dial-up?  Ceteris paribas is an important assumption when attempting to tackle most problems, but if in the future all things were equal to now, it would be called “the present.”

I address the social cost second, not because it is less important but because when people passionately defend net neutrality it can alineate opponents from any discussion.  While I believe that considereing Economics dry and dull does the discipline a grave disservice, its reputation does have some benefits: it signals a willingness to create a level, C-Span like conversation.

There is a class of people who really think about technology.  Not just about the cool stuff technology can do, though that is a part, or ways to profit from technology, again, a part, but people who consider what technology means for humanity. I count myself with such people.

Sometimes theindividual and group interest are at odds with one another; high-risk technology provides a classic example.  Undertaking the R&D is expensive and the return is too far in the future and/or too uncertain to justify the expense.  Businesses make this, very sensible calculation, and choose other products.  Such a decision implies that private business will not fund all of the technology that can benefit society.

The Internet began as one such project; connecting computers involved R&D and no one was sure that anyone outside of academic circles would even use it.  Now using the Internet is a daily activity that has enhanced old industries and created new ones.

Unlike other technologies, no one owns the Internet; anyone with the necessary tools can access it.  Without a single owner, a unique culture of collective ownership developed.  Not only is the cost to enter the Internet free (after paying the initial cost of a device and data plan), but there is no jockeying around copyrights, patents, and protocol.

No one patented the wheel and so it could be used and modificed freeely and absent the additional cost of paying a fee to the creator.  On the contrary, pharmaceutical companies do receive patents for their drugs and so multiple companies will work to develop a drug for the same disease; working off of a rival’s knowledge is prohibitively expensive.  This is not an argument against patents or ownership rights.  Rather it is an acknowledgement that ownership can provide a benefit to the individual at a cost to the larger society, which deserves recognition.

Since the Internet came into existence devoid of such hurdles, people were free to use the initial structure and improve upon it.  They did so, not for a fee, but because it was fun and cheap to begin.  Its hard to imagine anyone starting a hobby that required purchasing a patent.

While in retrospect it shouldn’t have been a surprise, the many minds working on making the internet work better did so, by developing standard codes.  With a freely available, workable standard, people could use their creativity not only to build better code but to do new things with the code: essentially taking the wheel to make a wheel barrow.

Now, to create something of value does not necessarily require a person to be a genius at coding: Instagram is hardly on par with GoogleEarth.  And the geniuses can create some truly incredible things, like GoogleEarth, for example.

The intellectual and product value from the openness is staggering and to value it present\s a challenge similar to valuing the wheel.  Perhaps the best indication of the value of openness comes from companies who practice it, in anticipation of value.

Amazon’s KindleFire comes with enhanced gaming capabilities through the company’s GameCircle platform, an API which Amazon makes easily accessible to developers.  23 and Me, a start-up that provides people with personal genetic information recently opened its API so that developers could use its anonymized information to create new healthcare products.  Mendeley, a free online research manager and database, opens its site to third-party developers who have created over 240 research apps, over twice the number of competitor Elsevier, which maintains control over its data.

It is this culture of openness that gets net-neutrality advocates so excited and rightfully so.  The very reason the Internet has any value at all is because people could freely create the value.  The value creators are the reason people even buy Internet access: so that they can enter an increasingly rich world.

We must remember, though, that concerns over net neutrality came about during the 1990’s when people weren’t even really sure just what the Internet was.  Since the landscape has changed, both virtually and metaphorically, the understanding should too.

For example, one old proposal involves a parallel, private internet of companies who pay for speed.  However, such a model shuts out new players who may not have the capital to pay such a premium and so exist solely on the original Internet.  These companies tend to drive use- like Tumblr or Pinterest.  Some people would likely rather slower access to all of the Internet than pay into a faster Internet with less choice.  If a company cannot reasonably expect to reach a certain number of users, why pay a premium for faster delivery?

Finally, if the government does no protect net neutrality, the worry that the great currents of the internet will shuffle small sties to the side may be overblown.  While certainly a relevant worry circa 1990, the internet start-up community seems more robust than more traditional industries.  One of the great games in venture capital seems to be finding the unknown start-up with unlimited potential and offering previously unheard of capital.  Under these circumstances it seems hard to make the case that an end to net neutrality will necessarily cripple internet innovation.

As often happens when powerful people have competing interests, reasoned arguments will not make the front page of a Google search.  The likely reality to an end to net neutrality would be far less extreme than either party currently believes; hopefully the urgency on the Wikipedia page can be swapped for a more measured tone.

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