As the world of telecommunications continues to grow, the American public’s want for regulation on these relatively new technologies has become evident. The forefront of these conversations and debates usually seems to be the protection of the right to unfettered access of the internet. Large internet service providers have historically lobbied for the right to control what content they pass along and at what speeds at which they do so. The opposition to this argument, which is generally supported by the public, claims that complete access to all of the legally hosted websites in the world is a right, rather than something that needs to be purchased in a competitive market. In the last few years this argument has ended in favor of the unadjusted internet being made available to all as can be seen in the ruling made by the Federal Communications Commission (FCC) on February 26th, 2015 when internet service providers were reclassified from a Title I Information Service to a Title II Common Carrier (Berkman). This new reallocation prohibited by law internet service providers from being able to “make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services” (Communications Act of 1934, 36). This was a large change compared the original ruling in 2002 which would “Ensure that broadband services exist in a minimal regulatory environment that promotes investment and innovation.” (FCC). These two key points of investment and innovation are the backbone of economic growth in the modern marketplace. Although in most Western countries it is widely accepted that net neutrality is the best policy for public welfare, by looking into the rapidly expanding school of thought known as Austrian Economics it can be seen that the gradual loosening of restrictions set on internet service providers would create an economic surge that outweighs the public benefit of a completely open internet.

This school of economics was first developed in Vienna in the Austrian Empire. In 1871 Carl Menger published his book titled Principles of Economics. This piece is generally accepted as the origination of Austrian Economics due to its unique focus on the idea of subjective value, which is the concept that consuming a product naturally feels good to all humans. This innate homosapien infatuation with consumption is the centerpiece of this school of thought. The beauty of this school of thought is the simplicity of it. Reinhard Neck, a contemporary Austrian Economist, sums the theory well in a piece he wrote on Menger’s work when he says, “[An economic decision] starts with the individual and the individual’s needs, which form the basic driving force, together with the constraints the individual is confronted with”(219). In extension of this idea the Austrian School of Economics considers this human need to consume the ultimate optimizer. As humans make decisions on where to spend their resources they are naturally making their best possible outcome a reality. Menger extended his theory of subjective value beyond individuals as well. He claimed that when a market made of many humans is driven only by the need to consume and each person’s constraints on consumption the market itself will naturally optimize to maximize wellbeing.

 

One of the most prominent promoters of this praxeological view on economics was a Ukrainian economist named Ludwig Von Mises. He spent most of his time writing books and thesis that argued against the legitimacy of fascist, socialist, and communistic styles of government due to the fact that he was writing most of his work in the span of 1920-1950. Before the flare of socialist and fascist governments forming across in Europe, in his earliest work, Human Action, he writes about why his peers went off the trail of treating economics as a philosophical science and changed without good reason to a math heavy science. He explains that massive advancements in the hard sciences such as physics and biology in this time spurred economists to push to the point of fallacy in their search for economic theory. In his rather extensive prologue he explains why a study of humanity cannot mirror the study of a natural science.  “Every historical experience is open to various interpretations, and is in fact interpreted in different ways. The postulates of positivism and kindred schools of metaphysics are therefore illusory. It is impossible to reform the sciences of human action according to the pattern of physics and the other natural sciences.”(Mises 1.II.6-7). 

Most supporters of Modern Austrian Economics use this intense study of praxeology to argue against any sort of socialism that can be found in government such as tight regulation of non-monopolistic companies. Internet service in the United States and anywhere that internet service is not directly provided by the government is considered an oligopolistic market, which is defined by the Greg Mankiw’s Principles of Microeconomics as “a market structure in which a few firms act as sellers that provide similar or identical products”(347). Relatively quick download and upload speeds are not offered by a great number of internet service providers, and most regions in the country have even more limited options when it comes purchasing good broadband speeds. If a consumer needs fantastic internet speeds they are probably going to be limited to one or maybe two providers from which to choose. This can be seen in the clustered  bar chart pictured below that lists the service speeds available by percent of the population. 

As seen above as of 2013 only 1% of the United States population has at least three options in their provider if they need 100 Mbps in download speed. Even at the speed of 10 Mbps only 28% of customers have three options for internet service. These numbers are fairly generous as well because they only represent download speeds. Most major service providers who sell their bandwidth to residential customers (customers using internet casually at their homes) are notorious for advertising high download rates and providing significantly lower upload speeds, which can be just as important as download speeds depending on what is being done on the internet (My house in Pennsylvania averages 75 mbps download and upload speed of around 30 mbps according to ookla speed test). If someone were to be interested in having an HD video chat with a family member overseas they would need a minimum upload and download speed off about 4.5 mbps (Polycom). Assuming the average cut of download to upload speed is steady around ⅖ that would put this consumer into the 10 mbps section on the chart above, again leaving this customer a 28% chance of having more than two choices in internet provider. 


Oligopolistic markets, such as the one we currently have in the United States for ISPs,  result in companies gouging prices and having no need to actually satisfy their customers. The power of this type of market lies in the limited number of suppliers. In a perfectly competitive market with many suppliers if one firm increases the price of its product or displeases its customers the customers will purchase their product from another firm. In not long, the first firm will stop making money and be forced to drop out of the market, leaving room for a new company to enter or another firm to increase their production. The problem with an Oligopolistic market is the following: when firm A mistreats its customer there are so few suppliers of the good that not all the consumers have other options for where to buy the product. When the other firms see firm A getting away with this consumer abuse, firms B, C, and D will do the same. In economic terms this is called a Nash Equilibrium: a situation where all actors (firms) choose their best strategy based off of other actors (Mankiw Chapter 17). 

In response to this consumer vulnerability in the market politicians decide to step in with what they think is the correct answer: regulation. In this case it is the always tightening restrictions on ISPs. Under Title II regulations service providers are left almost no room to operate without being brought to court. These regulations create one of the largest barriers to entering the market comes in the legal insurance and fees. (The other is extra taxing from local governments to use land and operate). Any increase in price can have the company spending tens of millions of dollars on legal fees to save themselves from the extremely vague punitive measures described in Title II sec. 202 section C where the penalty for “mak[ing] any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services” results in “the sum of $6,000 for each such offense and $300 for each and every day of the continuance of such offense.” (Communications act of 1964). If the most used internet service provider in the United States, Comcast, were to be decided to have been breaking these terribly vague rules they would be fined over $130 Billion if they were to be fined $6000 for each of their 22.4 million internet service subscribers (New York Post). The remote possibility of being fined $6000 per customer while each customer is most likely bringing in a maximum of $1000 revenue a year is practically the definition of a preventative risk. If the web was redefined back to a Title I information service by the FCC the lucrative nature of the business and the relatively low cost to deliver the service after the initial costs would be an enticing investment for investors. If the FCC were to go beyond that even? If one were to apply Menger’s Theory of Value, she’d conclude that as the market becomes more profitable due to less restriction, more people will start to sell the good. As more people sell the good each firm loses power in the market, until ideally we reach a perfectly competitive market

In opposition to that though, many people claim that somewhere along that line of giving the product back to the market firms would gain too much power. These people claim the ISPs would turn the network into a two way payment door, in which people providing internet content would be charged as well as the consumer. One of those people is Burnie Burns, the owner of a now flourishing production firm call Roosterteeth that he started out of his apartment in 2006, selling his videos online for a subscription fee. He is an active proponent of net neutrality and often speaks on the subject at conventions. In his normal fashion he gave a speech called “Net Neutrality from a Creator’s Perspective” at South by Southwest in 2014. During this speech he makes the claim that if it weren’t for strict net neutrality laws, companies like his own would never be able to make it out of their infancy due to the fact that ISPs would set a price to stream productions like the ones he made back in 2006. (Burns 7:00-11:00). Burns overlooks the fact that he is also a part of a market at that point. Assuming Menger’s Theory of Value holds true, if the ISPs found a new way to make money, more ISPs will enter the market. The number of large companies willing to pay to stream their services is too small and the number of small companies demanding low prices is too high to ignore. With so many people demanding next to nothing prices, the profit is still there for both sides of the deal, the provider, and the small company. 

A more competitive market would drive prices down and force these powerhouse companies to provide better service. Whether it be higher speeds, quicker customer service, lower prices, or better network reliability, the entry of new companies to the demand for the current massive ISPs would dwindle until they were forced to offer a better product or a better price. In his study of praxeology, Mises suggests that in a Capitalistic society a satisfied customers can only be satisfied for so long. Due to Menger’s theory of subjective value that was discussed earlier, the satisfied customer will only be content while he or she consumes their new product for a short time. After his or her natural urge to consume is satiated he or she will just want more. Mises expresses this concept with a simple quote about innovation and consumption under capitalism in his book The Anti Capitalistic Mentality;

“Under capitalism the common man enjoys amenities which in ages gone by were unknown and therefore inaccessible even to the richest people. But, of course, these motorcars, television sets and refrigerators do not make a man happy. In the instant in which he acquires them, he may feel happier than he did before. But as soon as some of his wishes are satisfied, new wishes spring up. Such is human nature.”

 This begins a feedback loop of customers demanding more and spending more, giving the companies a chance to expand and invest. In this case it would result in a better internet experience followed by companies laying fiber lines across the country, which increases capital for the company and lets them start to reach new customers, while keeping the companies at a perfectly competitive long run equilibrium of $0 profit. 

The expansion of a capitalistic economy relies on constant investment and innovation. When a regulatory body puts unneeded restrictions on a market, it will inevitably smother any growth that has been spurred by an original technological breakthrough. In the early 2000s the United States economy boomed behind the new found accessibility to the internet. This innovation prompted investment which in turn created massive leaps forward in the technology behind the deliverance of bandwidth. The mass availability of relatively good internet speeds is a direct result of loose regulations placed by the FCC in the infancy of the technology. This new found ability to move mass data is one of the largest increases in public welfare since the industrial revolution. These new regulations are stifling an industry that could bring the United States back to the economic powerhouse it was in the early 20th century. There are very few aspects of the economy that the United States can still dominate, but innovation in consumption technologies is the one place that American minds are controlling the market. If politicians choose to block the profitable outlets of the new technologies that we develop and decrease the size of the market, they are pulling the ability for these companies to gain investment. If investments dry, so does innovation, and if innovation grinds to a halt there is nothing that can be done with the United States’s crumbling economy. Loosening regulations on the companies that create these new technologies is the only way to fan the smoldering embers of the US economy back to a the fire that it was in the early 20th century.
