Friday, December 15, 2017

Several people have asked me...

Several people have asked me ... what I think about yesterday's repeal of “net neutrality”.  The left half of the world is quite predictably declaring the repeal to be a disaster that will end the Internet as we've known it.

The short version of my reaction: exactly the opposite is true.  The imposition of “net neutrality” (which is actually just code for what really happened: the first regulation of the Internet in the U.S.) is what would end the Internet as we've known it.

The hysterical reaction to this from the left is actually quite funny, as it ignores just about every observable fact on the ground.  The first amusing aspect is that we had no “net neutrality” before 2015, when the Obama administration imposed it.  Perhaps I'm unobservant, but it doesn't seem to me that the Internet suffered from all the ills proffered as the reasons for needing “net neutrality” in the first place.  Nobody in the U.S. was suffering from slow Internet on some services and not on others.  Nobody had to pay to get fast Google or Netflix.  So why all this talk about “net neutrality”?  That's very straightforward, and abundantly documented in the political debates of 2014/2015: the left had an agenda of regulating the Internet as a public utility, but they needed something to scare people into supporting it.  The real agenda – the regulation – was to gain some control over the content on the Internet.  “Net neutrality” was never their goal – regulation was the goal, and they achieved it.

And regulation is what was repealed yesterday, not specifically “net neutrality”.

So why do I think regulation was a bad idea?  Part of me wants to scream it out: if you have even the tiniest bit of business understanding, you would immediately know why regulation (including the “net neutrality” provisions, but even worse the inevitable incremental accumulation of regulatory control that would occur) is bad for business, for innovation, and for the customers of that business.  Regulation is always bad for the broadest definitions of business and customer, and always good mainly for the business incumbents, and the bureaucrats and legislators who regulate them.

But so many people seem unable to grasp this, despite the myriad examples before them.

So here's a thought experiment for those amongst my readers who have bought into the “net neutrality” hype.

Think about the parcel business.  Imagine for a moment that they had a regulation imposed upon them that required all parcels to be delivered in the same amount of time.   You can't charge more for delivering parcels faster.  You can't charge less for delivering parcels more slowly.  You can't charge more for heavy parcels, or less for lightweight ones.  You can't take more money from Amazon to deliver parcels faster.  You can't offer discounts to volume shippers.  None of that.  Just one price for one class of service.  You could call this “parcel neutrality”.  It is exactly what the 2015 imposition of “net neutrality” regulations required of the Internet service providers, but for data packets rather than parcels.

Now think about what that would mean for parcel shipping customers.  That means ... you couldn't pay extra to get that Christmas present on time.  When you need to get paperwork to a bank across the country quickly ... you couldn't.  If you're Amazon and you fill 10,000 UPS trucks a day ... you get no price break for volume.  You don't have to think about that very hard to see that it's not exactly a brilliant idea.  Pricing is a wonderful way to allocate a scarce resource (shipping capacity) intelligently according to the needs of the customers.  You know it is, because you use variable pricing all the time.

But what about from the shipping companies' perspective?  Suppose we had “parcel neutrality” – what would that mean to the shipping company?  For starters, consider their motivation to innovate to provide faster service.  Would Federal Express invest in more planes to enable better overnight service?  Of course not, because they couldn't charge any more for overnight service, so they have zero incentive to do so – they wouldn't have overnight service in the first place.  Federal Express would never have existed.  Would UPS invest in more automated parcel sorters, so they could accept higher volumes of parcels from Amazon?  Of course not, because they couldn't cut any deals with Amazon to make more money from this capability, so they'd have no incentive to do so.  In fact, “parcel neutrality” provides the most incentive to make no investment in innovation at all!  The best best course of business for the shipping companies is to exploit their current infrastructure to the max, make no investments in new infrastructure, and to pay their employees as little as possible (since their performance has no impact on revenue).

I have another phrase for “net neutrality” that I think is both more accurate and more descriptive: “net socialism”.  The underlying notion of fairness in the “net neutrality” arguments closely resembles the notions of fairness from supporters of socialism.

If you know me at all, then you know I'm the original anti-socialist. :)  So I am certainly no supporter of net socialism (or parcel socialism).  I opposed the imposition of Internet regulation in 2015, and I'm delighted to see it rolled back two years later...