Net Neutrality: An Opposing Viewpoint

Aug 11 2018

These days it is considered a form of heresy to express a point of view that contradicts the popular idea of "Net Neutrality". However, there is nothing new about Conservatives, Libertarians, and Classical Liberals opposing the ideas of authoritarian governments placing restrictions on industry and attempting to control prices, wages, technological development, business expansion, etc.

Note that when I say "Conservative" I'm not talking about the Fox News/Rush Limbaugh type of Neo Conservatism. Real Conservatives don't advocate military action in nations they find offensive or want to institute a police state under the pretense of keeping us all safe, and sadly due to mainstream media confusing what Conservativism really is, these days most real Conservatives have to call themselves a "Constitutional Conservative" or "Conservative Libertarian" in order to keep people from thinking that we're John McCain.

Anyway, getting back to the idea of Net Neutrality, the general idea is that government regulators should control what Internet Service Providers charge, what level of service they can offer to customers, how they should treat third-party companies whose websites their customers want to visit, whether or not they are allowed to charge services like YouTube and Netflix for excessive bandwidth usage, etc. The arguments put forth by those in favor of Net Neutrality are basically the same old pro-socialism arguments about how evil corporations are, and how bad things will be if government doesn't regulate things. Sometimes you think that those who make these arguments forget that corporations are run by people, and aren't some force of evil that exists just for the sake of harming everyone.

Regardless, the blog post is about an opposing point of view, and I think the best argument against Net Neutrality is an economic one. The argument we always give against socialist policy, of course, is that a socialist economic system is not a viable economic system and is bound to failure. Or, in the words of Nicholas Freiling, quoted from this article published on the Mises Institute's Mises Wire:

This brings to mind an aspect of the socialist calculation debate, whereby Austrian economists (among others) revealed the self-destructive nature of socialism. One pillar of their argument — Mises’s specifically — is that without a market to study and observe, central planners will not know what prices to mandate for what quantities of goods. The result will be over- or under-production of regulated goods — distortive resource misallocations that ripple throughout the economy and cause excess supply and/or demand. Further, such regulations stifle investment and innovation in targeted industries, most often by indirectly capping profits.

It is not hard to see how this applies to net neutrality and regulating ISPs. By arbitrarily changing existing markets for internet service, regulators risk corrupting the fragile preconditions necessary for firms and consumers to calculate rationally, and the incentives necessary to lure investment and risk-laden innovative enterprises. The result could be excess demand in the market for internet service if regulations force prices too low, excess supply if regulations force prices too high, or stilted innovation in ISP technology altogether. Tech icon Marc Andreesen explains:

A pure net neutrality view is difficult to sustain if you also want to have continued investment in broadband networks. … If you have these pure net neutrality rules where you can never charge a company like Netflix anything, you’re not ever going to get a return on continued network investment — which means you’ll stop investing in the network. And I would not want to be sitting here 10 or 20 years from now with the same broadband speeds we’re getting today.

This is not a complex point, but it’s important in this particular context, given the importance of internet service in modern economies. A subtler but equally applicable point regards the nature of change in a dynamic world. In a sense, this is a more formal restatement of the problem with comparing market conditions to some model rooted in a concept of the economy as rotating in some static equilibrium. Economist Peter Boettke explains:

Mises [explained] how the static conditions of equilibrium only solved the problem of economic calculation by hypothesis, and that the real problem was one of calculation within the dynamic world of change, in which the lure of pure profit and the penalty of loss would serve a vital error detection and correction role in the economic process.

In the context of the issue at hand, this is particularly consequential. The market for internet service is brand new and growing and evolving quickly. To decide, in a market as young and dynamic as this, that current market prices are not fair reveals a great degree of confidence in mere “hypotheses,” as Boettke puts it, about what the ideal market for internet service should look like.

In short, if government is allowed to regulate prices, level of service, and whether or not ISP's can charge companies whose services use large amounts of bandwidth, then these are the most likely outcomes:

  • Government regulation will ensure that ISP's are not able to make enough money to expand their service, increase connection speeds, and invest in development and adoption of new technology. This will slow or halt the advancement of Internet technology, and reduce the level of service as ISP's will only be able to afford maintenance costs on their existing networks, and will be unable to deploy new infrastructure to replace old infrastructure.
  • Government regulation will set Internet prices too high for the average person, restricting who is able to afford Internet service, and limiting the number of people who can access and use the Internet.

Considering the Net Neutrality argument, I imagine that the first possibility is far more likely, and that not too far down the road we will end up in a world where our Internet service is as bad as our phone service.

For those of you who don't live in the United States, our phone service is generally horrible, with poor voice quality and service reliability problems due to aging infrastructure being the norm. Note that the regulations that made our phone service as wonderful as it is today are the same ones that Net Neutrality advocates want to restrict ISP's to, meaning that if Net Neutrality remains in place then we can expect Internet service in the United States to deteriorate similarly over time rather than improving.