FCC Chief Economists Asks Other Economists To Speak Up With Their Ideas; and Dr. Larry Darby’s Replies

On October 27, the FCC’s Chief Economist asked for economists to “educate” the FCC on economics, in a posting on http://blog.openinternet.gov/?p=133.  He concluded: “Economists: This is your opportunity to educate me and the Commission.  Am I thinking about our task in a productive way?  What other economic issues should be on my list?”

Today, Dr. Larry Darby, Senior Fellow at ACI and former chief Economist and Bureau Chief at the FCC submitted the following response …

“You asked two questions:

Am I thinking about our task in a productive way? You referred to possible market failures; market power; investment and innovation incentives; price discrimination; two sided platforms; efficient network operation; and, social welfare effects. These are interrelated and each suggests productive, and necessary, areas of economic inquiry. The challenge to you and other Commission economists will be a) to provide a consistent analytical framework for considering these and related economic issues and b) to insist relentlessly that maximizing consumer welfare be a central element of the Commission’s inquiries and objective function. That perspective too often gets lost in “public interest” rhetoric. In that context I am delighted by your mention of two sided platforms and price discrimination, since the Commission’s recognition of the role of each as sources of consumer welfare will be critical. Relatedly, perhaps the most productive task for Commission economists is to bring to bear the enormous amount of intelligence available in the economics literature as means of offsetting economically baseless conjectures by non practitioners.

What other economic issues should be on my list? Regulatory debates continue to center on market imperfections and the extent/type of government action needed to offset them. There is, however, an enormous economic and political science literature addressing imperfections in government processes and actions. Joe Stiglitz, Nobel prize-winner and former CEA Chairman of the President’s Council of Economic Advisors recently wrote: “Anyone who has watched the U.S. government in the last seven years is well aware not only of the possibility of government failure but also of its reality.” An important economic and policy issue going forward will be the need for, and the extent to which, the Commission’s policy decisions reflect a) clear and consistent assessments of different kinds of institutional failure and b) balancing at the consumer welfare implications of the infirmities of both private and public action.

Finally, I cannot emphasize enough the need for more facts and analysis respecting “innovation.” The record in several proceedings is full of assertions about innovations – their relative importance, their source, their motivators, the impact of regulation thereon, etc. Most of these are neither supported nor supportable by reference to the vast economic literature on the matter. Given the dynamic nature of information markets, the Commission cannot responsibly decide many of the issues before it on the basis of speculation and conjecture.”

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