osewalrus (osewalrus) wrote,
osewalrus
osewalrus

We are losing our global relevance, but we're doing more shopping!

I am feeling at my most Cassandra-ish today. Indeed, I keep checking to see if I spot Agammenon or other suspicious looking Greeks in in crested helms sneaking up behind me. Why? Because it turns out a whole bunch of Econ 101 predictions of doom and gloom I've been making over the past year or so have been coming true. No doubt the Libertarians among us will tell me it would be worse with government intervention, except the economies kicking our patooties are doing so precisely because of government intervention in their broadband market place.

Self-interested utilitarian that I am, I like living in the dominant economic power. I am not looking forward to our continued decline -- even less so when the decline is so pathetically predictable and the cure so obvious. Hence my continued struggle to bring enlightenment to the policy makers and the masses. who you would think could handle a little Econ 101.

More below cut.

About a year and a half ago, I posted a lengthy set of economic predictions in support of why we need a rule that prevents broadband access providers from messing with content (usually referred to these days as "network neutrality," but I prefer the old appellation "common carriage"). Among these predictions were:

1) Profit maximizing firms, if permitted, would seek to avoid investing in capacity upgrades, preferring to manage traffic in a way that shifted the cost of moving high-bandwidth files to others.

2) A consequence of this would be that ISPs would disrupt edge-based efforts to manage quality of service (QoS) and traffic congestion, in favor of core-based solutions that maximized revenue and reduced cost to the ISP -- even where such solutions created negative externalities to the network overall.

3) The cost of this to users -- both in terms of the monopsony rents extracted by providers and in terms of the overall drag on our economy -- constitutes a "duopoly tax" that has serious ramifications for U.S. global competitiveness.

Well, in the words of Stephen Colbert I CALLED IT! Woo Hoo! I'm #1! YES! We are spinning down the virtual toilet faster than a dead guppy!

For those that missed it (and, lets face it, if you don't follow this stuff by profession or avocation, you probably did. Comcast got caught by the Associated Press blocking transmissions of the King James Bible via BitTorrent. BitTorrent is a popular peer-to-peer (p2p) method of transmitting large files -- including pirated movies and music. But it has boatloads of legitimate uses as well, because it is an open source p2p edge-based means of sending files quicker and more efficiently. You can see my much lengthier explanation and exploration of economic ramifications on my professional blog. Furthermore, as reported by Russel Shaw on ZDNET, EFF has not only confirmed that Comcast degrades BitTorrent traffic, it has found evidence that Comcast is degreading other p2p applications as well.

Meanwhile, all of this is having the impact I predicted on our standing in the world economy. At the recent Web 2.0 summit, thee director of the Morgan Stanley Web 2.0 research team announced that the U.S. is increasingly less relevant in the global online economy. Why? Because due to our pathetic broadband, we are losing out to other countries with better broadband policies. As a result, when it comes to the applications that make up the Web 2.0 economy, the U.S. is losing out to countries like the U.K., Brazil, South Korea, Japan, and the Philippines. Which, as the article notes, is good news for the world and sucks for us.

On the other hand, the U.S. is now leading the world in online advertising. Go us! The unregulated cable companies have successfully regressed the internet from a economic driver and interactive development platform to an advertiser supported "push" platform like cable TV.

For those Libertarians that oppose government regulation on moral grounds, living in a second-rate economic power may seem a small price to pay in defense of one's principles. For those who view this as an economic rather than a moral argument, however, I will simply quote Mr. Russel Shaw's piece linked to above:
Now I want you to read this report from the EFF and tell me how the hell the free market solves this issue.

Free markets can be fine, but only if everyone behaves. But sometimes companies don’t behave, and their competitors who you might wish to run to if you get too ticked won’t behave either. Sometimes there isn’t a competitor you can jump to.

I’ll say it again. Government regulation- as in Net Neutrality- is the only surefire brake against tech monopolists doing whatever they want with your packets and your money.

So maybe some of you should deprogram your brains from the teachings of big business apologist/wack job Ayn Rand and regulation-hating Ron Paul and wake up to the real threats to your digital freedom.

That’d be, big companies who do whatever they want because they want to please their shareholders more than their customers.


If anything Shaw does not go far enough. It's not that "free markets can be fine, but only if everyone behaves." It is that unregulated profit maximizing entities are entirely predictable in their behavior, absent regulation. That's why I could predict this general turn of events (if not the specific ISP or application) over a year and a half ago, and why I'm quite confident it will continue if we don't start getting our act together.
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