When the federal government seeks to solve a problem, its solution seldom works and often causes unintended consequences that outweigh any benefit.
In the case of net neutrality, the Federal Communications Commission (FCC) sought to solve a problem that does not exist. And I believe it will cause unintended consequences like crony capitalism, reducing investment and stifling competition. The end result will be hurting the economy.
The Internet is one of the few big economic success stories. Its decentralized network has boosted the economy by reducing costs, increasing information sharing and increasing efficiency. Think of the cost of using Skype for a phone call, or using Expedia to find the best travel rate or paying bills online.
Yet there was no problem or crisis that caused the promulgation of the new rules. Instead, the FCC saw the potential of Internet service providers (ISPs) controlling content and charging content providers more for faster access to their subscribers. Their solution to the potential problem was to give the federal government the ability to determine the standards for "just and reasonable."
The net result of these regulations is a disruptive impact on the economic vibrancy of the Internet and its impact on economic growth.
First, the FCC has created uncertainty in the marketplace. The FCC initially determined it had no authority over the Internet. Then it bypassed Congress by stretching a 1930s regulation to include the Internet. And according the Democratic National Committee, the FCC worked in concert with the Obama White House. The sudden regulatory overreach and the politicization of an independent regulatory agency make for an uncertain environment that has a chilling impact on business investment.
Second, the new rules institutionalize crony capitalism and limits entrepreneurism and competition. By making technology companies comply with regulations designed for utilities in during the Great Depression, the FCC just created a significant compliance cost hurdle for innovators and entrepreneurs. And it freezes in time the existing market of large companies, who will use their lobbying power instead of better products and services to gain market share.
Third, regulators might start with a "light touch," but it never gets lighter — always heavier. Forbearance, or the notion of the FCC committing to not apply all the appropriate regulations to ISPs, is akin to "one size fits all" and "the check is in the mail." Sounds good but is seldom true.
Expect the FCC to eventually get into regulating pricing and profit just like other public utilities. And it just built the foundation to begin regulating free speech, especially political and religious.
Very little good and lots of bad will come about from net neutrality. These new rules are not about net neutrality, but in the words of my friend Michelle Connolly, a professor of economics at Duke University and former chief economist at the FCC, it's about net neutering.
About the Author: Edmund C. Moy
Edmund C. Moy
is the Chief Strategist of Fortress Gold Group
and was the 38th Director of the United States Mint (2006-2011). He can be followed on Twitter @EdmundCMoy.
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