Spectrum Policy – On the same wavelength, is an article from The Economist which discusses the various schools of thought in terms of the radio spectrum, licensing, technologies, regulation and the kitchen sink. It is a hot economic and political potato as billions of dollars and gauranteed monopolies are potentially at stake. Starting off, the FCC. This agency believes it has the authority to enforce its edicts onto the marketplace. Unfortunately, because this economic interventionism has become entrenched in the minds of businessmen throughout the decades, questions regarding is legitimate existence do not enter into the liberalization arena.
The next major change in this understanding came in 1959, when Ronald Coase, later a Nobel laureate in economics, argued that the market was far better than governments at allocating the scarce resource of electromagnetic spectrum, and that auctioning spectrum to the highest bidder was therefore superior to simply giving licences away.
Among other things, this is a non sequitur. While Mises and others have argued, a priori, markets are more efficient than coercive agents at allocating scarce resources (and the 20th century showed empirically), it does not follow that some bureaucratic de facto top-down politicos have the authority to auction off property they do not own (the notion that radio spectrum is physical property (scarce) is also debatable, more on that later).
The author and more importantly, market participants, make the mistake in believing that the current radio spectrum regime is the product of the free-market. It is not. The FCC did not create the radio spectrum nor does it have some homesteading claim to the near-infinitesimal ranges found within it. It is simply, a bureaucratic machination, which oddly enough believes it can distribute something it does not own.
Assuming for the moment that the radio spectrum is scarce, a hypothetically similar analogy would be that of land. For example: January 1, 1792 rolls around. The Department of Land is erected, directors are appointed, plans are outlined, policies are written, pencils are sharpened and interns are hired. Among other things, the Department of Land states that it will begin to auction off land to the highest bidder, because after all, selling land it does not own is superior to simply giving away land it does not own.
You do not have to be a nutty arm-chair libertarian to see the various problems with this scenario. Homesteading has been and continues to be an effective and arguably “just” solution to handling the issue of who gets what land. There is no need to have any centrally planned method to distribute land and the question as to how the Department of Land can somehow claim legitimate ownership over large swaths of land could finally be given genuine attention.
What has happened and what continues to occur is that the State auctions off spectrum as if it is land, to a few select companies and then QED, calls it a triumph to the market process. What should be asked is, if the FCC did not exist, how would these market transactions occur (if at all), how would spectrum rights be recognized and enforced, etc. In times of conflict (like “frequency bleeding” which really is a result of dumb antennas), instead of allowing private property owners to mediate and trade with one another, the FCC has artificially stepped in and created a series of seemingly insurmountable hurdles to jump over (such as the big bling barriers to entry)
That said, the article does explain a number of practical solutions to both the technological and economical aspects to this quagmire of spectrum scarcity. And rather than repeating or delving into the nitty gritty details of the technological inventions currently on the market, I recommend reading the solutions available in the Economist article (they are towards the end of the “Commons, minus the tragedy” section).
Another notable point, the radio spectrum is yet another victim of the “natural monopolies” argument that hinders the development and competitiveness of utilities markets throughout the industrialized world. Even with a Magic 8-ball it is difficult to predict the future, however, empirically there is very little reason to believe that the State-backed spectrum monopolies would operate differently than the notorious regulated public utilities, such as natural gas or water, i.e. high prices, low quality. Moreover, one of the reasons that cell phone rates and the like continue to fall while simultaneously adding more features is the very fact that there is at least some semblance of competition remaining in the regulated marketplace.
Before I go any further I should mention that, only a sicko would suggest radio spectrum anarchy. Because, obviously gangs of plutocrats would centralize and dictate what could and could not be said over the airwaves, censoring vast quantities of speech, arbitrarily choosing times in which sensitive material could be presented to audiences and ultimately imposing Puritanical standards onto a hapless population of coerced lemmings. Additionally, even the most grizzled plutocrats might have a heart and issue, in exchange for a bribe or two, revocable licenses for use of their spectrum, thus birthing a perpetual battle of “ruthless lobbying.”
Can you hear me now? Good.
Going back to the supposed free-market nature of the current system, exactly how does the FCC determine what the market price is for the radio spectrum? The auction process is simply smoke and mirrors as there is simply no way to calculate the market price without an actual voluntary market process between consumers and producers — and the FCC in this case, are in the words of Coase, simply an unnecessary transaction cost.
And much to the dismay of planners everywhere, a hypothetical nirvana-like New Zealand market does not exist; therefore one cannot point at an existing alternative and say, “Hey, Ruritanians and Laputanians are paying measurably less for their cell phone plans. We’re all getting ripped off here in regulated Canukistan!” Though I suppose that is a good thing for central planners as no one can do just that, show Canukistanians an alternative to the current opportunity costs, thus making the regulators jobs obsolete.
Actually, I will give Statists some credit and would like to thank them for something. I find it immensely funny imagining business executives, dressed in their finest, running around with property titles to various frequencies, trying to glue them to invisible signals: “Stop 3.14192 ghz, I own you! Get back here with the rest of them. Let me brand you before you go out and graze.” The FCC-diet certainly takes a load off their feet.
Which brings up another point to discuss at another time, the parallel to “intellectual property” regarding the scarcity issue (yes yes, I know, without a Copyright Office you would have anarchy in which marauding organizations would claim to own metaphysical symbols and Polka).
In the end, market-based technological innovations and discoveries such as spread spectrum, smart antennas, mesh networks and cognitive radios will of course usher humanity into a blissful age of perfect harmony where everyone has red-hair, blogs all day and eats Subway for both lunch and dinner.