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Source link: http://archive.mises.org/2351/now-on-the-auction-block-ten-lovely-unwed-hertzs/

Now On The Auction Block: Ten Lovely Unwed Hertz’s

August 14, 2004 by

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.

Stating,

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.

Via Slashdot.

{ 7 comments }

Sean Lynch August 14, 2004 at 12:33 pm

To suggest that spectrum is not scarce is to suggest that it is noneconomic, which is ludicrous. Clearly people have conflicting planned uses for spectrum, just as they do for air. When those planned uses don’t conflict, it is true that spectrum is noneconomic. As soon as they come into conflict spectrum becomes an economic good. Are you suggesting that dividing up a contested resource and giving individuals exclusive control over different chunks of it is a bad idea?

Spectrum is most clearly an economic good similar to physical property in the case of broadcast spectrum. And spread spectrum is only one solution to the problem of channel allocation: there are a much larger number of “channels” based on the different spreading patterns, but they *all* overlap. In the end, because the channel division is stochastic, spread spectrum is actually less bandwidth efficient than approaches where spectrum is preallocated to different users such as OFDM/

While technologies like MC-CDMA (more bandwidth-efficient than spread spectrum), UWB (still unproven in a multi-user system), and MIMO (not your grandmother’s mesh network) certainly increase the number of potential users for the same chunk of spectrum, keep in mind that desires are always unlimited, while resources are always scarce. Even with the potential for networks to exist where each user carries their own weight, the capacity per user in such a network is still fixed.

Personally, I think that spectrum property rights should be derived from land ownership and first use of unclaimed spectrum, with the expectation that when a reasonable person would replace their spark-gap radio with a sine wave radio, you will too. For unclaimed spectrum, homesteading would work fine. However, what do you expect the FCC to do? Announce that they’re going to start enforcing homesteading rights? And how do you think *that* would go?

It would be nice to see all currently unused spectrum (including the amateur radio service, though saying that will probably get me kicked out of the ARRL) covered by a much looser form of part 15, perhaps with some protection for first users, but I think auctioning it off and then shutting down the FCC or only keeping them around as a radio court is probably the best solution we could expect from the FedGov.

Tim Swanson August 14, 2004 at 1:10 pm

To suggest that spectrum is not scarce is to suggest that it is noneconomic, which is ludicrous. Clearly people have conflicting planned uses for spectrum, just as they do for air. When those planned uses don’t conflict, it is true that spectrum is noneconomic. As soon as they come into conflict spectrum becomes an economic good. Are you suggesting that dividing up a contested resource and giving individuals exclusive control over different chunks of it is a bad idea?

Your statement is a false dichotomy because there are more than two choices, such as that of private enterprises interacting with another over disputes, vis-a-vis independent arbitration not connected with the FCC. Furthermore, I’m suggesting that the FCC does not have a legitimate claim over doing such an activity. I find it difficult to predict exactly what the market process would create as a system for managing radio spectrum.

As the article states, at any given time, as much as 95% of the State-owned spectrum is not being used by license holders. Promoting a system of “underlay” could be easily and economically implemented to allow others to use this.

One point I should have elaborated on is the “conflict” in which more than one user wants to use the same frequency. This can be seen as an environmental or externalities issue that could be dealt with merely by establishing the homesteading principle.

Anyways, yes spectrum can be seen as scarce, but only in a low-tech environment which is no longer the case (and in a low-tech environment, agencies like the FCC do not have some magical authority over the waves — leave it to the market). As it is today, it’s merely a regulated tragedy of the commons. Another “public goods” problem.

However, what do you expect the FCC to do? Announce that they’re going to start enforcing homesteading rights? And how do you think *that* would go?

That statement is really no different than many other arguments against privatization, that it would cause pandamonium and chaos. I don’t expect them to do anymore than what they have if not worse.

To sum up: I’m suggesting that the entire system becomes privatized, allow disputes to be resolved through private arbitration (and guessing that homesteading will be used by in large), and that new and current wireless technologies do away with much of the classical outlook in spectrum allocation/use making the issue of scarcity, a moot point.

Tim Swanson August 14, 2004 at 5:10 pm

Some additional food for thought from Clay Shirky (not an economist).

Curt Howland August 15, 2004 at 12:07 pm

Simple property rights covers radio spectrum quite easily. I can bring defend myself against someone “bleeding” into my established frequency band the same way I can when my neighbor starts using things on my side of the property line.

Large broadcasters are self-limiting, because there are only so many that can be supported in a given geographic area. And the “problem” of monopolizing ownership is beaten by anyone who offers a better product. There is also streaming media on the ‘Net to compete with for news that is of general interest.

Established protocols, such as the present commonly-used frequencies and the guardbands, will continue to be used if for no other reason than compatibility with existing hardware. A broadcaster has it in their best interests to remain at one frequency, simply because they want their customers to be able to find them. Just like a business staying at one address.

Lastly, it is important to remember that the FCC was not established to maintain peace and enforce existing “property rights”, it was created to censor, to gain money by licensing, and to prevent dissent.

The only people prevented from doing business by the FCC are the small, independent broadcaster. The “mom and pop” radio station that has no political clout or money to leverage the bureaucracy in their favor.

Steven M August 16, 2004 at 7:55 pm

This debate seems to parallel that between farmer’s interest in property and nomads. While most of the Earth used to be nomadic, virtually none of the Earth is so today. This is not because nomads had fewer or more primitive property rights, but rather because agricultural surpluses led to industrial technologies that tipped the balance from nomadism to agriculture.
Both nomadic and agricultural property rights are most appropriate for their systems.

In the Sahal desert, nomadic property rights consisted of communal lands, but tribally-owned well water. This system of property rights differs from modern agri-centric owned land, subsidized water rights; however, the nomadic system “worked” in the Sahal (did not abuse resources because it was water constrained) better than the communal system imposed by the colonialists.

This means that a limited resource will not be abused if it is use is limited by a constraint of another resource. If bandwidth were owned rather than managed, then a new property dichotomy should arise naturally with new technologies such as UWB. Spectral bandwidth resources can be pooled to form temporal-spatial electromagnetic resources and temporal-spatial rights, which are more appropriate for UWB schemes.

Government does not need to force users of the spectral to change to the new system, which would be disruptive and expensive. It is in the own best interest of the property owners to realign their ownership of spectrum into ownership of temporal-spatial rights and the contracts that they produce with those with whom they share the spectral resources would serve as the new property laws.

What government can do is to open up the 95% of the bandwidth that they are wasting to private uses and let private police, emergency personnel, etc bid on those resources just as any one else.

Sag August 18, 2004 at 4:35 pm

I personally don’t have a problem with land resolution market economics (i.e. the free market allocating resources vs. the state). The only issue that I’ve heard of about radio spectrums is what would stop others from using (hijacking)frequencies that are already in use?

I suppose the costs of disruption would lead to market cooperation to establish standards. Also to development of new technologies.

Anything missing here?

Tim, I don’t know if you’re reading this but I would really suggest that someone write something on this topic (or point me to Austrian analyses on it). It seems to be one of the main issues raised in justifying state intervention.

Francois Tremblay January 27, 2006 at 6:08 am

What is sickening is the anti-anarchist bias of the author.

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