(cc photo by compujeramey)

Rebecca Solnit on planning for an emergency:

I live in earthquake country, so I’ve been told most of my life that I must have an earthquake kit. Almost anyone anywhere would benefit from having an emergency kit on hand: the usual flashlight, blanket, coins for pay phones (cell phones and cell-phone service die quick in disaster), small bills, portable water, and so forth. To really deal with an emergency, though, you not only need to pack, but to unpack.

How many working payphones are really left in most American cities? I completely grant that in a disaster cell phone networks will probably be swamped and communication will be difficult, but I’m not sure this works very well as fallback plan.

As Karl Smith points out, there’s certainly a huge consumer surplus associated with the Internet that goes beyond its financial “worth.” But I think people are sometimes too quick to point to this sort of thing as undercutting bleak narratives about income trends. After all, consumer surplus is not a new phenomenon.

Think about your standard refrigerator/freezer. It’s sort of a miraculously useful device. Instead of your food turning stinky and rotten, it sits nicely in my fridge. The direct financial value of being able to store leftovers or freeze excess raw ingredients is significant, over and above the convenience value. You can spend a lot on one of these miraculous devices if you’re so inclined, but you can also get one for a few hundred bucks. That’s because the market for fridges is quite competitive—lots of different manufacturers, lots of different vendors—so at the less stylish end of the market, the sale price approximates the construction costs. And the construction costs are low, crazy low relative to what you’d be willing to pay to a refrigerator monopolist. If the cheapest fridge out there cost $5,000 I’d still want one and I bet you would too.

That wedge between what you actually pay and what you hypothetically would pay is the consumer surplus and it’s giant. That’s why establishing competitive markets is important. But this isn’t a new Internet-era phenomenon. And actually I think there’s a specific problem here with the Internet, namely that while competition between websites is incredibly robust, competition between Internet service providers is a joke. People sometimes look at the difficulty of charging people to read online news outlets and say that people “don’t want to pay for news.” But of course I do pay for my ability to read things on the Internet—I pay Comcast and I pay AT&T. After all, the consumer surplus of the home appliance revolution (fridges, toasters, radios, etc) was all built on the back of the giant consumer surplus associated with home electrification. But that surplus wasn’t brought to us by competitive markets, it was brought to us largely by public investment and a regulated utility model of dealing with “natural monopoly.” Absent effective regulation, a much larger share of the refrigerator surplus would have ended up in the pockets of the utilities.

On some level, I think everyone kinda knows this (certainly everyone hates AT&T) but Americans tend to be too parochial to recognize quite how badly we have it in this regard. Read, for example, Horace Dedieu on the American wireless Galapagos syndrome.

Good piece by Mike Elk lays out union enthusiasm for AT&T’s takeover of T-Mobile. Basically, AT&T is unionized while the other cell phone operators aren’t. So what’s good for AT&T is good for the Communications Workers of America and the takeover presents an opportunity to organize the T-Mobile workforce.

I was in a bit of a Twitter dialogue with ex-intern Ryan McNeely about what’s my point in bringing this kind of thing up. Mostly my point is that life is more complicated than people sometimes make it out to be. The optimal strategy for a private sector labor union is to represent the workforce of a monopolist and then team up with management to lobby for regulatory barriers to new competition. This is why the CWA aligns with AT&T on telecommunications policy, and it’s also why manufacturing unions typically favor high trade barriers. A labor union can deliver much more value to its members if the unionized entity is a predatory monopolist. Given that reality, I can hardly begrudge unions from lobbying on behalf of their members’ interests the same way that trade associations and business lobbies do. But I don’t know any progressives who think that it’s an “anti-labor” view to want a competitive telecommunications sector or that appropriate enforcement of anti-trust law is a union-busting plot. Efforts to expose domestic manufacturers to competition from foreign manufacturers or big city public school systems to competition from charter school operators tend to play quite differently with the progressive audience but it’s the exact same structural situation in all cases.

Here’s another slice of What Hath God Wrought:

The United States Post Office constituted the lifeblood of the communication system, and it was an agency of the federal government. The Constitution explicitly bestowed upon Congress the power “to establish post offices and post roads.” Delivering the mail was by far the largest activity of the federal government. The postal service of the 1820s employed more people than the peacetime armed forces and more than all the rest of the civilian bureaucracy put together. Indeed, the U.S. Post Office was one of the largest and most geographically far-flung organizations in the world at the time. Between 1815 and 1830, the number of post offices grew from three thousand to eight thousand, most of them located in tiny villages and managed by part-time postmasters. This increase came about in response to thousands of petitions to Congress from small communities demanding post offices. Since mail was not delivered to homes and had to be picked up at the post office, it was a matter of concern that the office not be too distant. Authorities in the United States were far more accommodating in providing post offices to rural and remote areas than their counterparts in Western Europe, where the postal systems served only communities large enough to generate a profitable revenue. In 1831, the French visitor Alexis de Tocqueville called the American Post Office a “great link between minds” that penetrated into “the heart of the wilderness”; in 1832, the German political theorist Francis Lieber called it “one of the most effective elements of civilization.”

A reminder that when big government is made to work well, the gains are gigantic. Nowadays it seems to me that publicly owned and operated post offices are basically anachronistic, but this was a crucial public service in geographically expanding and overwhelmingly rural country at a time when letters in the mail represented state of the art communications technology. And the underlying idea of the USPS, that the government should be facilitating the creation of high-quality communication, remains true today. That’s why the question of the AT&T/TMobile merger seems so important. The fact that the Computer & Communications Industry Association (Google, Microsoft, EBay, Yahoo, Facebook) is vehemently opposed to the deal strikes me as a credible indication that letting it go through would be a mistake.

Having issued a skeptical word or two in defense of the AT&T/T-Mobile merger, let me offer a skeptical word of opposition against this Heartland Institute cheerleading:

Those harping over this merger operate from a bizarre anti-business mind set. They have convinced themselves that it is the goal of every business to gobble up as much market share as possible – just so it finally has the power to abuse its customers. But no merger – not even one as large as this between T-Mobile and AT&T – repeals the corrective influence of free markets in the digital economy. In other words, no company is eager to ruin its brand no matter how big it gets.

That’s true. No company is eager to ruin its brand, but no company is eager to have low profits either. Companies balance the value of their brand against the value of high prices against the value of various kinds of costs. If there were only one cell phone operator, it would still need to worry that rapacious maltreatment of its customers would result in people simply refusing to use cell phones or else that it would tempt a new firm to enter the market. But starting up a competing cell phone operator would be difficult, risky, and expensive. You could get away with a lot of abuse before tempting someone new into the market. What’s more, as soon as the new firm was getting close to getting off the ground you could start cutting prices to pre-empt the new entrant. And the hypothetical new entrant is going to know that this might happen, which is a further deterrent to entering. The concern that a market with only two operators will be a version of that scenario is perfectly sensible and neither “bizarre” nor “anti-business.” And in general, any market with such high barriers to entry is going to feature very imperfect competition so it’s reasonable for people to scrutinize it unusually closely.

(cc photo by smith)

Cato’s Jim Harper rounds up a few links on the AT&T/T-Mobile merger and concludes “the federal government should not try to manage the development of the communications marketplace.”

Of course the Cato Institute isn’t allowed to reach any other conclusion. But what does this mean? The federal government has to have some kind of policy vis-à-vis the electromagnetic spectrum. As with monetary policy and intellectual property policy, I see this as an issue that a lot of right of center people want to resolve through first principles (small government, free market) but where the first principles don’t really get you anywhere. You could have the government do nothing, which would mean there are no exclusive spectrum licenses and everything is wide open. Or you could have the government marketize everything, which would mean you auction everything off to exclusive owners. But either way, that would be a choice and in making the choice you’d be “managing” the development of the communications marketplace. And so once the government is in the business of managing the development of the communications marketplace, there’s no obvious reason why it should be all or nothing. Why not auction some and some some unlicensed? Why not conditional auctions?

These are answerable questions, just like there are answers to questions about how copyright policy should work and how the country should manage its currency. But they’re just not questions that can be resolved by consulting the Gospel According to John Locke or intoning “government bad, markets good.”

Annie Lowrey says it’s bad for consumers:

Merging AT&T and T-Mobile would reduce competition further, creating a wireless behemoth with more than 125 million customers and nudging the existing oligopoly closer to a duopoly. The new company would have more customers than Verizon, and three times as many as Sprint Nextel. It would control about 42 percent of the U.S. cell-phone market. That means higher prices, full stop. The proposed deal is, in finance-speak, a “horizontal acquisition.” AT&T is not attempting to buy a company that makes software or runs network improvements or streamlines back-end systems. AT&T is buying a company that has the broadband it needs and cutting out a competitor to boot—a competitor that had, of late, pushed hard to compete on price. Perhaps it’s telling that AT&T has made no indications as of yet that it will keep T-Mobile’s lower rates.

What I learned one summer working at a company that did economic analysis of anti-trust issues is that there are always two sides to these stories. So to offer the optimistic take, what I would say is that in the current US cellphone Verizon is the market leader because it has the best network. AT&T had long been able to acquire a comparable strong position despite its inferior network thanks to a farsighted deal it signed with Apple years ago giving it exclusive access to the most popular phone. But the combination of Android entering the market and the iPhone going non-exclusive raised the prospect of a market in which Verizon utterly dominates on quality. Acquiring T-Mobile (“a company that has the broadband it needs”) isn’t so much about “cutting out a competitor” as it is about building a firm that’s capable of competing with Verizon.

To actually see which of those theories predominates would require a more in-depth analysis than I’m capable of doing, but these are the kind of issues the FCC and DOJ are going to have to look at. Meanwhile, as best I can tell the key issue in wireless policy in the United States continues to be our bad habit of giving valuable spectrum away for free to legacy broadcast television operators rather than putting it up for auction so it can be put to its best use. Only by freeing up more spectrum for wireless broadband can you really have more competition.