The FCC is preparing to vote this week to roll back "net neutrality" regulations adopted in 2015. Supporters of net neutrality claim the regulations protect internet traffic from discrimination and ensure broadband providers don't abuse their power as gatekeepers to the internet. Supporters also claim "[n]et neutrality is the principle that all traffic on the internet should be treated equally."
The problem, of course, is that net neutrality regulations do none of these things.
In the past, we've explored how government regulatory panels cannot and do not ensure fairness. In fact, they encourage abuse by the most powerful actors in the marketplace.
Moreover, as Peter Klein has noted, it is impossible to allocate goods "neutrally" even if government regulators were untouched by corruption.
Another problem results from the fact that internet regulation like net neutrality is just another form of central planning which requires a centralized rule-making body which must functions without the essential first-hand experience and knowledge of real-world market actors. In other words, the main conceit of central planning is this: a group of experts sitting in a room knows more than countless consumers, producers, and innovators working in the marketplace.
In a functioning marketplace, of course, consumers and producers are constantly making decisions based on available resources, current prices, and how each person subjectively values the products and services he or she wishes to buy. The complexity of the situation is enormous.
Central planners, however, act as if the wants and desires of countless consumers can be known by a small group of regulators, and thus a "fair" plan can be hatched.
From the perspective of an economist, of course, this is an impossible dream.
As Ludwig von Mises pointed out long ago, market prices — which form as a result of countless voluntary decisions in the marketplace — are an essential component of any economy. Without them, producers can't know what to produce. Net neutrality, like other centralized regulatory schemes, is built on decisions made without this key information. As a result, the policymakers at the FCC are groping around blindly, merely guessing as to what is "fair" or what the correct prices are, or how resources ought to be allocated.
Moreover, the more centralized this decision-making is, the worse the problem becomes.
In his essay, "The Use of Knowledge in Society," F.A. Hayek explains:
The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources — if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.
In other words, the world is a very complex place and it is impossible for a panel of political appointees to understand all the details and varied environments that create market prices and the way in which resources are allocated.
This is especially problematic in cases where technology changes and adapts rapidly. In these cases especially, reserving key decisions to a "central board," as Hayek calls it, destroys the ability of market actors to respond to changes in real-world circumstances:
If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization. But this answers only part of our problem. We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used.
Regulating the internet via the FCC, of course, thoroughly prevents innovators, consumers, and producers from taking advantage of the experience and knowledge of those who are actually working in the marketplace.
This isn't a problem, apparently, for those who insist that government must dictate to consumers and producers alike. After all, we have "experts."
Unfortunately, when it comes to something as complex and non-clinical as a functioning market, "experts" of the type employed by government panels are of little help. Hayek continues:
Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation.
The "experts," may indeed be experts on some precise scientific question or clinical studies. Whether or not this knowledge can be usefully applied to the marketplace and millions of consumers, however, is something else entirely.
Instead, net neutrality gives us an Olympus of experts who shall hand down their decisions to millions of market actors for whom there will be no escape from the central planners.
Who Gets To Be an Expert?
Ironically, the fallacy that the FCC can wisely employ its regulatory expertise is being called into question by supporters of net neutrality themselves.
"You don't understand how the internet works" insists an open letter to the FCC from tech gurus Steve Wozniak and Tim Berners-Lee.
Anyone familiar with the federal regulatory state, of course, should not be surprised in the least to find out that regulators don't understand the inner workings of the industries they regulate. The same might be said of the federal judiciary where judges who barely know how to turn on a computer have been handing down decisions about tech matters for decades.
Unfortunately, Wozniak and Berners-Lee fail to see the irony of their situation in pointing out the FCC isn't qualified to regulate something as intricate as the internet.
For supporters of net neutrality, of course, their problem with the current FCC is not the impossibility of a handful of government appointees regulating a vast complex of markets and industries. For those who subscribe to this naive view, this problem of central planning can be overcome by putting in "the right people."
Sure, the current crop of FCC appointees don't understand the internet, but when we get the "right" people in, everything will be fine. Those good guys will be immune to lobbying from industry interest groups, and will know exactly the right prices, regulations, and directives that will be dictated to 320 million Americans to keep everything "fair."
Needless to say, this is fanciful thinking in the extreme, and to the tech geniuses who point out the lack of internet savvy, we must also note: "you don't understand how an economy works."
