Friday, December 06, 2002

Krugman on Krack

I was chatting with some U Chicago law school professors last year when it dawned on me that they really didn't understand economics very well. I checked with the Ec. Faculty across the Midway at the U Chicago Econ dept, and it turned out I was right. I get the same feeling when I read Krugman's NYTimes columns these days. His Slate pieces were very good, and his old (MIT) website was filled with thoughtful notes jam-packed with Economic goodness.

No more. View today's screed against broadband access in general, and FCC chair Michael Powell in particular. Krugman hails the Telecom Act of 96 as a wonderful piece of legislation thwarted by incumbents to block entrant competition. While I am under no illusions about the greed of the incumbent telco industry, I am also under no illusion about the greed of entrant telco companies. Under TA96, entrants gained access to incumbent's pipes at marginal cost, which understandably halted all (incumbent) investment in new equipment, keeping costs higher and contributing (in part) to the current telco meltdown. Of course, nothing stopped entrants for investing in their own new, equipment, but somehow these paragons of virtue declined. I've covered this story here and here.

Krugman then claims that telco providers will both 1) jack up broadband prices to maximize profits AND 2) restrict access to large sections of the Internet. These two things are inherently contradictory as cutting of large sections of the Internet will lower the value of access, and so reduce telco profits. But Krugman believes that these guys are some opaque combination of evil and stupid which limits their greed, harming both their profits and the public good at the same time. I, on the other hand, beleive they are merely average in their intelligence, but limitless in the greed, so consumers are quite safe in their hands.

He finished with the old trope of "media consolidation is dangerous", which I agree with from the standpoint of the content industry, but not as a consumer. I've dealt with that here. I should add that the only arena I think media consolidation might be dangerous is the political one where a locale may only be exposed to partisan news from one side (politicians agree with me here). But given other popular concerns (no one votes, people only read stuff that they agree with, no one cares about political debate) I think even the most hysterical of alarmists would agree that the damage is likely to be limited in scope.

My Krugman related point is that there are good economic arguments about why these laymen concerns really have no basis. There might be important stuff that the economics misses, but on a profit maximizing basis none of the concerns listed in the article is likely to happen. As an economist, Krugman should either make or poke holes in the economic argument, not rehash what non-economists have already asserted about the issue.


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