 Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I'm Aaron Ross Powell, editor of Libertarianism.org and a research fellow here at the Cato Institute. And I'm Trevor Burrus, a research fellow at the Cato Institute Center for Constitutional Studies. Joining us today for his third Free Thoughts episode is Peter Van Dorn, a senior fellow at the Cato Institute and editor of Regulation Magazine. Today we're going to be talking about net neutrality and the history of regulations of a similar sort. But let's start by just introducing the topic. What is net neutrality and why do people seem, especially on the internet, very upset and riled up about it? If you talk to consumer advocates and some law professors, law professors without an engineering background, they perceive, they want the internet to be something called free and where every bit, right? So the internet for those who don't know is a packet switched telecommunication system. And that is in contrast to the traditional telephone system which is where an actual line, a physical circuit, and is used by anyone who has a phone conversation whereas internet communication occurs in what are called packets, which is a set of digital commands at the beginning of which and in the end of which says, where is this command coming from, i.e. what computer? And every computer in the world has a unique what's called internet protocol IP address. And then after each command, digital command is an instruction of where, which computer this instruction is supposed to go to. But every component of a video or a conversation or anything done over the internet is broken down into millions and millions of separate packets, each of which is a command to do something, whatever that is, take this period and put it here or whatever, and directions about where, to what machine is that packet directed. So it looks less like talking to you via two cups connected with a string and more like sending mail. In envelopes with addresses. Well, it's mail where your letter is broken up into shreds. And then it also goes to some sort of central carrier then read often and then put back out somewhere else kind of like mail too. Well, every node in the internet is a computer and the computer takes each packet and sends it where the address says it's supposed to go to. At the final destination, the packets are reassembled by software and hardware back into whatever it is that's supposed to be. It could be an email, it could be a video, et cetera, et cetera, et cetera. So at its heart, net neutrality, at least in the legal non-engineering community is a concept in which the internet is supposed to treat every packet the same. Not give any preference, it's speed or like bandwidth. Right, there's just a packet, it's a packet, it's a packet. So a packet from a conspiracy website is treated the same as something from Facebook or Wikipedia or something like that. So it's this very anti-discrimination equality before the law kind of concept transferred to an industry whose engineering is not understood by the lawyers who actually make these kind of intellectual pronouncements. Beneath that is a, from a consumer point of view, most consumers don't care about this kind of equality before the law concept, but they care about and have gotten used to fixed monthly prices that don't vary. And this is just an accident of history in which in the late 90s we put so much fiber into the ground, fiber optic cable that we had beyond a glut. We had so much dark fiber out there. The streets of, remember Washington was ripped up and fiber was put down the middle of every street in every city, everywhere in the United States and much of the world. Therefore the marginal cost of giving away stuff, there was zero. So there was no point to charge for congestion. There was no traffic price. Yeah, there was no congestion, there was no nothing. So you just paid your $30 a month for your internet service provider and even if you used a ton of internet versus you went to one site once a day, that's the same price. So we now have a cultural problem which is a set of economic conditions that is not sustainable is, consumers have gotten used to that. And so consumer advocates see differential pricing particularly for video, so-called bandwidth hogging content. Consumer advocates often see that as a violation of something called net neutrality. Is that the concern? Because what you're saying is we have gotten used to paying a fixed amount per month for effectively however much bandwidth as we happen to use coming from whatever services we're using. But when I see net neutrality debates, the concern is not so much that say Verizon is going to start charging people who use more bandwidth, more a month. There's going to be overage fees, but that they're going to slow down or speed up certain traffic based on the provider's ability to pay, not the consumers. So Facebook might be able to pay more so that it's going to come across the lines to me faster than Twitter would no matter how much bandwidth I happen to be using. So first two concepts I got to, you're the good student who has gotten to concepts three and four that are part of some people's objections to the internet and then they think net neutrality would solve these perceived problems. The third is vertical integration between content providers and the pipes. And this is a- I think it's a series of tubes that you're looking for, yes. In other words, the Comcast NBC merger has concerned many, many people by the worry that if you're a Comcast internet subscriber that your ability to see NBC programs would be enhanced and your ability to see anything else would be degraded without your consent or knowledge and you wouldn't be able to do anything about it and you'd be mad as hell and screaming out a window. And you might not have many options other than Comcast in your local area so you're kind of beholden to them. Consumer advocates worry about the monopoly access to the household, the last mile of pipe, and most economists and engineers are less worried about that thing because they see competition in the sense of satellite providers and DSL lines that they think of as adequate and many consumer advocates do not see those things as that amount of access as enough competition to prevent the mischief from vertical integration. This seems to be a product of, as you said, putting down a ton of fiber, having a proto-internet being not as much database, not having things like Netflix or people like that who can take up- or YouTube who can take up huge amounts of the bandwidth. And then, so the expectations of that and then deals that were starting to be made by companies to perfer certain thing and people saying, no, it had to be back to the level playing field that it was in 1995 type of attitude. This leads me to point number four, which is economists have a term for certain kinds of products and they involve what are called two-sided markets. So a newspaper, the classic old-style delivery of content vehicle is a two-sided market in the sense that it gets revenues from consumers and it gets revenues from advertisers. And the newspaper has to decide, given it's fixed and marginal costs, how much of those costs is it trying to recover from somebody called consumers and how much of the cost is it going to recover from something called advertisers? So forward to the internet, the internet, the back, the pipes, the people who own the fiber-optic system, both what's called the backbone, which is the main links around the country as well as the last connections to households. Those providers also are in what are called two-sided markets in that they have, they deliver something called content from content providers, Netflix or your, my email, to recipients called consumers. And the internet firms can charge more to content providers, less to content providers, more to consumers, less to consumers and they have to decide what maximizes profits and revenue from their point of view. And usually, as with newspapers, right, newspapers have always not been very expensive for consumers. I mean, we do, if the New York Times did not, if we saw the New York Times budget every year and then we divided, about a million people, well, now it's less, it's 800,000 and some odd people get the New York Times each day. Take the New York Times annual budget, divide it by 800,000 and by 365 and you'd get a rather high number. And you'd have a newspaper no one would buy or maybe just, well, $10 newspaper or something like that. Oh, I bet you higher. I mean, I mean, people, advertisers pay $140, $150,000 for a one-day ad that's a page in the New York Times. I don't pay $150,000 to get the New York Times every day. So Netflix is paying its internet provider to do all sorts of things to make sure that the content, the video that people see on their home computer screens is not bumpy, blurry. Getting video to work in a packet switch system is much more difficult than getting email to work because the video can't arrive at different times, whereas the email actually can. And by times, I mean nanoseconds, right? The rate at which these packets are sent by light along the network is the speed of light. So you can do a lot per second. But reassembling all the packets into a picture of a movie so that half the country can watch all this at the same time and it all works, turns out that's more difficult than email. So Netflix is paying internet providers to do all sorts of things that I won't describe in an engineering sense to kind of enhance the probability that when you see the video at home, it actually will work from your point of view. And the question is sort of whether or not that's fair to the consumers in some way. I'm a consumer and I like $8 and whatever it is a month that the Netflix charge for online viewing on top of the usual standard old DVD business model. That additional charge, if I had to pay for all the things that get that get it right, that Netflix is paying, it would be a lot more than eight, whatever it is a month. So same thing with Visa and MasterCard, how much of the charge is on consumers and how much of the charge is on merchants. And Visa and MasterCard have concluded that since currency is a free alternative, you can't charge consumers for using plastic. But this got merchants mad. They don't like all the costs being on them and they've gone to Congress and they've gotten political relief from some of those charges. And we're seeing an equivalent kind of struggle in effect in the internet. But again, the concern isn't just about fairness or costs to consumers about our internet bills going up to compensate for the bandwidth that Netflix or YouTube uses. It's about innovation and innovation based on kind of the unique characteristics of the internet because one of the things that has made the internet such a vibrant place for innovation is the phenomenally low costs of entry as a new business. Software is cheap. Web hosting is cheap. Programming has become, it's still not easy. It still is time consuming but the tools for developing websites and web services have gotten much, much better. So it's much easier to build things. And so a Mark Zuckerberg in his dorm room can create Facebook with effectively no capital. But if suddenly in order to enter this market, he not only has to be able to build Facebook in his dorm room but he has to be able to pony up costs to Comcast and Verizon and Time Warner and all of these people in order to make Facebook fast enough, then that is going to create enormous barriers to entry for new firms and all of these amazing internet services that we have started off, a huge number of them started off as Zuckerberg in his dorm room as opposed to large corporations who have the money starting a new product. So we might cut off the vibrancy of the internet. You have stated the concern of internet neutrality advocates very well. That's exactly what they state. What they miss is that in effect economists would answer that the question is you're now posing a problem where there appear to be gains to trade between something called innovators and something called venture capitalists, right? Two questions. One is how well can the market work to put very young, talented people with no money in touch with older people with lots of money so that this innovation can be funded? That's question one. Question two, are there real cost differences between different ways of using the internet so that some startups in effect would impose large costs on the internet if those costs were just averaged out and so everyone's bill that's a fixed price per month would have to raise a smidgen in order to let this startup work versus the another economic conception of the way to fund these things is that the startup because of its use of the internet is actually in an engineering sense complicated and imposing real costs on the internet and thus the charges for that imposition should fall on them and then we're back to that's in effect the right way to price so entry barriers will increase but they're not made up. It's real. It's not like the internet provider is ripping off the new young entrant. Instead, we shift from the internet charges should be the way they are and they should fall on content providers that impose costs on the internet but we now then go to the first question I raise which is given those real costs how well will capital markets in effect fund these innovations and if that works out then there is no entry barrier in the way you describe because the capital markets will fund these things given that they will really add value. What if the ISPs are behaving less neutrally so sure they could say like look if you're using a ton of bandwidth or your startup is doing the kinds of things that cause congestion you should pay more. Okay but what if it's instead NBC and Comcast and NBC has its streaming video service and it would certainly prefer that people are using that and so it goes and just slows down Netflix a little bit to the point where all the people who are on Comcast get frustrated and they're like yeah I didn't like NBC's as much doesn't have as good a selection but at least it plays then we're not talking about things like you should pay for your usage. We're talking about ISPs being selective about who services get through based on their own interests. The economists, well you have phrased the concern of net neutrality advocates again very well congratulations. The two responses one is none of the three of us in this room are engineers and so I will not state the engineering possibility or impossibility of doing what you allege. Some of the articles I've read by those trained in computer science say this kind of differential packet handling i.e. we know Netflix's packets and we know our packets and we can slow theirs down and speed ours up and blah blah blah. I have read some things that say that is engineering impossible that the internet is not capable of doing that at this but I won't overstate that because I'm not enough of an engineer to know whether the things I've read are valid or not. Two I'll give an economic kind of intuition and then go to a completely different example and talk about it. Sears, at least my generation I'm old but Sears is where I go to buy appliances and lawn mowers and washers and dryers and I don't know if that's filtering down to young people or not but basically. They don't have washers and dryers. Okay appliances. I was very proud to become an adult and then get a house and then go to Sears and buy the stuff for the house and I said wow I have I have arrived. I've made it and that may seem archaic but anyway. So Sears owns and the Kenmore brand. It's own version. You see where I'm headed here which is to Sears have incentive to not sell or block the sale of Maytag and Westinghouse and all the other things that make appliances. The answer, if you've gone to Sears you know the answer is no they sell everything. They make their own brand but they know other people sell brands and they know that if they were to cut themselves off from selling other things that they don't have an interest in they'd make less money. So the question is is there enough internet competition particularly the last mile right the access to households is having a duopoly or an olagopoly rather than a monopoly. There's Comcast and there's the satellites and there's DSL and there's Verizon now in many many urban areas so most of most urban Americans have access to four providers. Is that sufficient competition so that the kind of mischief that you described even if it were possible from an engineering standpoint it's just not worth it because they can make more money by giving whatever content people want even if it's not the content they own. And that's an old story this idea of is there enough competition to make the market either efficient or efficiently nondiscriminatory or fair or something like that. That goes back to things that we've been talking we've talked about before on free thoughts and things that we've been talking about as a nation for hundreds of years. I have this quote here that I think is relevant to read from an article in regulation which we'll link in the show notes. It says 120 year old statement the paramount evil chargeable against the operation of the transportation system of the United States as now conducted is unjust discrimination between persons places commodities or particular descriptions of traffic. The underlying purpose and aim of the proposed legislation which is the 1887 act to regulate commerce is the prevention of these discriminations and it was begin about the lack of competition facilitating that kind of discrimination right. Americans have long been suspicious of transporters of things having any stake in an owning content any things they ship. So the laws governing U.S. railroads have never allowed railroads to own autos to own coal to all right so that the the big innovation in the world in the industrial revolution that really made so many things that we now take for granted possible was railroads. So railroads were seen as and all this language is still in the laws in the in the that we that elites use to describe these things I essential facility right is very big in the law that kind of thing. So we could go to our roads what would this is always an I think an interesting question for libertarians to think about which is how would we think about vertical integration between general motors. Let's say we had libertopia and we had a private world and we had private roads. What would we think of GM owning roads and would GM owning roads then not allow Chrysler cars to be shipped on GM owned roads right and in fact this is the same. And the next question would be well if there was sufficient competition for roads but they said well who competes for roads who competes for roads. So so notice that in transportation and now the Internet these ancient and they're not just us by the way in my research for this talk today. I read a book that described English and US common law as having lots of concerns about these things and judgments about these things common carriers that most of us are not aware of and think. Many libertarians think all the evils in the that is something called deregulation has now changed the way the legal and or political system think about transportation and or the Internet. And but there's all this concern before the Interstate Commerce Commission in 1887 I did. I read that there were lots of common law cases about access and about price discrimination and about cost recovery and about obligations which libertarians would find odd. I think now but the legal system we usually recommend for resolution of these kinds of concerns was from our current standpoint rather pro regulatory in a common law sense about not just letting the railroad and or the stage coach firm decide what they could do without any constraint. Yeah. And that's the common carrier provision in the classic sense which everyone kind of learns about in law school really judge invented to say your specific business now has different constraints than someone else's business who has the freedom to decide discriminate against customers and discriminate on price. You as a railroad or various certain things are now no longer allowed to do that. And the actual again there's economists have thought about what what is what's the natural monopoly that leads to the market failure that results in too little competition. And many have argued that it is the right of way it is the it's in effect the continuous strip of land that is free to be used as a conveyance channel. Be it for a canal or a road or a railroad or a fiber optic system that the right of way is the entry barrier. And then given the right of way do you want three or four parallel competitors in that right of way to get you to have to avoid your concerns about entry restrictions and things like that. And we could auction off you know how much would you bid for the right to run a railroad in this corridor. Now we didn't do that what we did is we gave away land to the railroads to subsidize their initial creation and operation so that we could settle the West. Again economists have sort of concluded that we probably settled the West too soon it was there was too little population density to actually warrant the development of all these systems without a subsidy of some sort. And lots of railroad regulation was actually about subsidizing not high density lines in the East but rather in effect very underutilized railroads say East of Ohio in the early days. We've been talking about common carrier regulation but a lot of the talk about the Internet they people end up saying it should be treated as a public utility. Is public utility regulation similar to common carrier does it apply more better to the way that we think about the Internet than common carrier. Public utility and common carrier regulation are I mean common carrier comes out of a transportation tradition public utility is usually thought of as natural gas electricity and water. And one can we have in the United States a mixture of municipally owned we used to have municipally owned gas systems I don't know if there are any more. We certainly have municipally owned electric and water systems but we also have private electric and water systems. And again they were thought to be the word natural monopolies IE if you have three or four or five of these firms operating in the similar geographic environment. The cost structure of these firms is such that given the demand for their output everywhere in that output range marginal and average costs are declining. And thus firms have incentives to keep lowering prices below their current cost structure so that they could survive if there were no other firms around. And that's the natural part of natural monopoly that the market could only support one firm doing these things in any given area. So they would set rates and stuff with a commission or something like that to guarantee a rate of return but not to charge too much. So the political response to the perceived and we can talk about what the data say about whether when economists have studied public utilities did they actually find these kinds of cost structures or not. But anyway the political system responded as if that were true and then limited entry gave franchises for the operation of electricity or gas or water in a given area. And in return for that monopoly franchise you then were subject to rate regulations so that you would not abuse that franchise and charge consumers too much. So that notion that the internet is an equivalent it has a similar kind of economics and that it ought to be rate regulated in that manner does indeed underline many advocates for something called net neutrality. And in turn there are economists who've written many for me in regulation trying to outline what the history of public utility regulation actually did in the United States in gas electricity water telephones. So what do we see with that do we see consumers helped out by the interstate commerce commission and public utilities regulation and all these ills that we created these systems for were therefore mitigated and everything was. Some consumer what what we see in every system that we had was entry barriers plus a system of transfers within the regulated system from some producers and some consumers to other producers and other consumers. And that political balance was necessary to keep political support going for the rate regulation in each of these so for example my kind of transfer for well I'll give you so in railroads in railroads there were what are called we had value of service pricing when railroads freight railroads were regulated. And that meant that prices for low value bulk commodities like a coal and grain and basically the stuff that farmers shipped from the boonies to the urban setting the prices for shipping those things were low. The prices to ship higher valued less elastic demand manufactured goods where the shipping costs were a low percentage of their total costs. So think think of shipping corn and the percentage of that total cost to the consumer that transportation would be then think of a car and think of the price to the consumer what percent of of that bill would be transportation costs. So basically you tax the shipping of manufactured goods over short distances on railroads and you redistribute the proceeds to keep the prices charged to farmers and to other bulk commodity long distance shippers. You keep that price low and that it was in accord with the populist sentiments of the over rural represented U.S. Senate and with it prevented sort of populist uprisings because remember many of the there was more competition in urban areas in railroads than there was in rural areas. So the monopoly pricing ability in rural areas was higher. So the rate regulation kept the prices down. It overcharged urban users and urban high value added shippers and that was politically stable for almost 100 years. Now what undermine and same thing in telecom telecom involved redistribution from urban phone users and businesses to rural telecom users in a similar fashion. And what undermines these systems is competition coming out and it wasn't competition in rail because that was regulated. It was trucks when trucks arrived on the scene in the 20s what they switched over. Well the high that you started to ship these high price urban things not by rail but by truck. Well then Congress responded by regulating trucks. Right. You have to squeeze and make sure no one escapes to make sure. Yeah. With competition and different behaviors when there's a tax and transfer system embedded in a regulation and there usually is. You in effect have to prevent tax arbitrage just like we're talking now about the corporate tax and tax evasion from U.S. corporations. The history of transportation regulation was we first did railroads and then we needed to do trucks because trucks were in effect causing leakage. And then we had to do barges water the whole barge transportation system started to take stuff away from railroads and that would undermine the tax and transfer system. Same thing in telecom right we had a breakout of microwave competition against the traditional AT&T landline system. And the courts ruled that the FCC did not have the authority to restrict MCI from competing for corporate business in a private microwave system. And that's just like trucks competing against railroads. So in effect the I hope well the articles and regulation that we've had basically goes through all the history of this shows how complicated it got. Particularly in telecom to try to create open access to the monopoly part of the network and create open access which is what the 96 Telecom Act tried to do. We don't even talk about the 96 Telecom Act now because even though it's still on the books everyone agrees it's a mess and it failed and no one cares anymore. So someday we'll repeal it but the internet may face the same kinds of things. Is this like a general almost regulatory law in some weird sense that it becomes more complex as you proceed forward because in situations like this you have one item of regulation that affects some people. But then it changes the behavior of the people they're affecting. So then you add more and then you make start making micro distinctions and it becomes far more political and then the regulators have a ton of power and you get captured. It seems like it's sort of like a natural ramping up effect you'd expect from this. And as long as everyone doesn't stay on the straight and narrow and just keep using the regulated utility regulated aspect and not going outside of it or trying to innovate around it. Because as soon as that happens you can either complexify the regulations think about Uber and taxis right or you can take them away. Again as I said earlier I don't see something called regulation as distinct from something called taxation. And in fact there are articles in the literature about how regulation is often a substitute for more transparent tax and transfer systems. The relevant word being transparent right that in Peter's world at least in class I always say it's always better to have explicit tax and transfer. I mean if we're going to do it we might as well tell the voters here's what we're doing. We are taking money from you folks to give it to these folks because we collectively have a normative view that that's an appropriate thing to do. And we then could have a discussion about it we could then have what philosophies would or would not support that kind of tax and transfer system. Americans are very uncomfortable having those kinds of discussions. Most politicians realize they would not get enough support for those kinds of discussions. But Americans are also hypocritical about it in my view and that most people want stuff even though culturally they'll vote for people who claim to be against taxing and transferring. What they're really against is taxing and transferring to people they don't like. They approve of transfers to people they think are morally appropriate given whatever their views are. So in the United States we don't have an explicit large state we have an implicit large state and it's all of this runs through much of it used to the regulatory system. But we have deregulated largely transportation and energy and telecommunications. But now all the old concerns are arising again in the Internet and so to people like me in the quote you read from a hundred and whatever years ago to anyone with any historical knowledge this is deja vu all over again. We are confronting issues about philosophy and taxing and transferring and we are not very good at that and we seem uncomfortable with it and I'm worried. I hope we don't but I'm worried that we'll end up with a obscure technique that what appears to be a technical system for regulating Internet access and things like that and pricing it. But in fact it will be a very disguised and complicated tax and transfer system that will end up not working and unraveling and doing bizarre things in the way you described. Let's maybe expand on those fears a bit or articulate them further by taking these lessons that we've learned these kind of laws of how or seeming laws of how regulations play out and see what would happen if the net neutrality advocates got their ways. So let's say that tomorrow the FCC or Congress or somebody passes creates regulations that say ISPs can't charge content providers differently can't treat traffic differently that they have to be fully neutral. What sorts of things would we as consumers see happen with the first thing you would see is that many things people value and think are really cheap. Would suddenly not work very well because all those in effect hidden payments by content providers that they now don't know exist. I mean the Internet the claim is that the Internet has been neutral from its very beginning and now is just in the last few years being corrupted by vertical integration and or some mischief of the sorts that you've described. But again is what the stuff I've read said it's really been not that way almost from the very beginning and so there's been much more complicated differential services supplied depending on what people needed. But again in the two sided market notion that economists have people who have a large stake in content know all this because they in effect have been paying to get it delivered in ways that made the consumers think of it as just as easy as email but in fact from the Internet's point of view it was not. But consumers still just pay there whatever a month and turn the thing on and it just works. So in a regulated environment where those payments by content providers were no longer allowed either there would be content degradation on the video viewing side of the sort that would immediately cause the consumer uprising. Or there'd be arbitrage and innovation in ways that I probably can't predict so that somehow content providers wouldn't directly be doing paying but they somehow would pay somebody who would pay somebody who would pay somebody and somehow the lawyers would say that's legal. I mean regulation is a game between two disciplines. I don't know if I said but as someone who has studied and been trained in more than one discipline what I see out there in the world is the world mostly of one discipline people and where they whatever they learn in college or graduate school they then inflict on the world. Not realizing that it might be completely different than what some other discipline would do given its perspective. And the way lawyers are trained and the way economists are trained in effect play out in the regulatory environment and the fight over whether regulation is mostly something governed by and overseen by people trained in economics or whether it is governed by and overseen by people trained in law. I see it every day as part of the problem that in effect the law with its use of words to specify whether you have or have not complied. And economists always see well I can draw an equation that says we'll call it this but it's really this and I'm going to fool you lawyers about all this. So at least the history of trying to control markets through regulation is basically this cat and mouse game between something called the law and its attempt to create neutrality among things it doesn't know much about. And then markets and economists who say you want this word to look like that word I'll do whatever you want to make that happen. If we see that you mentioned the workarounds that have been out of the right word the innovations in changing how the Internet has functioned ever since the beginning. It seems that one of the effects of putting in a regulatory regime that sort of defined one practice and a different practice and you can be in category A or you can be in category B and you can be in category C is that it would keep innovation down because you would be working within the categories you're allowed or possibly trying to work around it but then worried about regulation on that side. And then it would be a question of whether or not the regulation apparatus can keep pace with the innovation inherent in the market and that would seem to create a problem. Right. The good news is for those of our listeners who know this topic very well they will be screaming now at their computer saying he's not talking about the most famous and most important FCC decision regarding the Internet which is to treat the Internet. Internet as not subject to traditional telephone regulation and that that has been so that has allowed the Internet to flourish. They made this decision in the 90s or something. It was a series of court decisions that basically said well it was an FCC decision and then a whole series of court decisions that ratified that against people who thought that was wrong. That said something called computer enhanced services weren't traditional telephone and therefore the whole FCC apparatus of rate regulation and entry controls and all of that did not apply. Everything would have been crazy different. Crazy different. Yeah. Anyway I think there's a whole long history of all those decisions and again in the articles in regulation they're rehashed how we sometimes the court I've done in some of my previous lectures with you. We've talked or discussions with you. We've talked about Supreme Court decisions that have made the world totally bad. One of them involved natural gas regulation. But on the computer the decision to keep something called the traditional copper wire network regulated and then allow computer services to be unregulated. And that was just a reading of what the law would or would not allow according to the courts. We're really lucky in that because that basically allowed the system we now have to exist. And what some law professors have actually argued for and are now arguing in their net neutrality debate is really to change the way courts decided some 20 years ago on these enhanced services decisions. And to revisit those and then change those decisions so that the Internet is now under from a legal standpoint FCC traditional telephone jurisdiction. And then as you've asked me what would happen and I've speculated but boy no what's interesting is it appears that no regulators and no one in the business just people in law schools seem to want this to happen. But I can't find anyone else who does. How do we see most of the businesses themselves. That's an interesting I think question to pre regulation. Some of the fears that we may have and lessons we can learn from the past before regulation existing businesses living in unregulated world may resist it or may not want it. I think it's a bad idea after regulation they may retool their entire business model around the existence of the regulation. And then they probably wouldn't be in favor of deregulation like we saw in the 70s for example the airlines and the teamsters and the truckers who were existing under a regulated model were not in favor of open competition. They wanted that kind of monopoly grant from regulation and that's an important point here I think right regulation to try and fix monopoly problems can create monopoly problems. Right. I mean again mad men write the show has made everyone have a view backwards of what writing an airline was circa 1960 whatever. Well it was pleasant. It was people were beautiful. Everyone was affluent. The flight attendants were charming and the food was good. And what happened with deregulation is airlines have become greyhound buses and that's some it's not. Americans say it's unpleasant and they wish they could go back to what it looks like they're not willing to pay for it. Yeah. They can't if they're paying for it. Yeah. Well their airline I mean there have been a number of start up airlines that tried all business class service to Europe was one. That seemed and I looked at the price and I said yeah I think by the time I've never got it's bankrupt. So I mean I was reading yesterday. People are a piece about I think it's Singapore Airlines has a sweet class that twenty three thousand dollars and you have your own room and it looked pretty nice. But some of the high Emirates and Singapore are toying with the business model in which plutocrats basically pay a lot in fly long distances on there. But they're competing with an effect private and charters right. And so that what do we but you're right. I mean basically I don't need to answer your question because it was actually an answer. What do we fear in terms of sort of like recapitulate here like what do we fear what happened with regular entities in terms of consumer service price innovation. And you know how do we fear that net neutrality could do that. Well again for the list of articles you will list to accompany this discussion. People need to read those because they are a relentless history of how complicated telecom regulation was even for traditional telephones which were a less differentiated service than and then the Internet. In other words a phone call was a phone call was a phone call and phone call quality didn't vary much across a business use versus a residential use. They were packets going at light speed. They were millions of packets going at light speed. But to rate regulate an environment where quality of the outcome varies by the kind of thing the pipes are being used for. That's a regulatory nightmare and impossibility because once you set rates then the way firms will respond is the high cost services that you're not allowing cost recovery for even though you don't understand that. They will degrade the quality so that in equilibrium they still make money. If there's one dimension of service and it doesn't vary and it's simple you can regulate and you can have rates that are equal for everybody and not a whole lot of mischief occurs. But once quality of service varies across end users in ways that content providers understand but the end users don't. Then something called one price for everybody which sounds good to many Americans will cause an absolute disaster only they don't understand it. But that won't be it. I mean once that happened then again there'd be some mechanism that people firms content providers would use to kind of regulatory arbitrage around this thing because it would interfere so much that people would rebel. One of the articles by Gerald Fahl-Hauber in the bunch of regulation articles that deal with this. He was the chief economist for the FCC and then after that he's been teaching law and economics at Penn since then. He's a great article in which he said okay let's say it comes down to the question you asked. Then he said I would recommend if there really is a natural monopoly and if there really is competition difficulties of the sort we've described today. And some vertical integration occurs and then some content provider who's vertically integrated tries to not let the pipe sell the content of others that are not owned by that firm. He said he would rather live with that than a rate regulated environment because regulation preserves the status quo way beyond when it should and then innovation gets slowed and dulled. And he said a natural monopoly might be natural but there's technological change and markets change. And so the bad stuff from the monopoly which many of the questions you asked are what we've been talking about today. He feels in his gut that that wouldn't last very long whereas the mischief caused in a stagnant non-innovative rate regulated environment where the firms as you say got used to this environment like the protection like the entry barriers. We'd really be suffering from that from a much longer time even though rates might not rise as fast or faster than inflation. .