Ronald Coase vs. the Broadcast Monopolists

The late economist made the case against the FCC and similar regulatory bodies.

I will leave it to others here to discuss the broader importance of the late Ronald Coase -- the Coase theorem, his theory of the firm, and so on. I just want to note how important he was in undermining the ideas invoked when governments seize control of the electromagnetic spectrum and then either monopolize it for themselves or license it to a select group of privileged partners. Coase was one of the first economists to argue that markets rather than planners could allocate access to the spectrum. It would be an understatement to say that this was not the conventional wisdom at the time: Invited to present his ideas to the Federal Communications Commission in 1959, the first question Coase received was, "Tell us, Professor, is this all a big joke?"

Coase's work in this area began in his native U.K., with the research that culminated in the book British Broadcasting: A Study in Monopoly, and it continued in the U.S., with his famous paper on the FCC and a less-famous but still worthy follow-up on the Interdepartmental Radio Advisory Committee. His other articles touched fairly frequently on broadcast regulation, including a contrarian take on payola.

When I wrote Rebels on the Air: An Alternative History of Radio in America, one of my aims was to bring together two streams of social criticism: the economists, mostly free-marketeers, who had made the case against the necessity of spectral central planning; and the historians, mostly leftists, who had explored the ways the government had favored large corporate broadcasters at the expense of other models. Coase was the granddaddy of the first group, and even in the areas where subsequent research has supplanted his proposals he made an enormous contribution. Anyone eager to loosen the shackles of the FCC owes him a great debt.

Comments

[sarcasmic]

and the historians, mostly leftists, who had explored the ways the government had favored large corporate broadcasters at the expense of other models

But that is only because government is too weak to control the corporations that control it! If government had more power, then it could control the corporations that control it, and bring power back to the people!

[Mainer2]

This is what progressives actually believe.

[Doctor Whom]

Both on teh intertubes and in real life, I used to like to say ridiculous but ever so politically correct things to see who would agree with me. I quickly became depressed by the number of progs who did. I guess I could become a progressive politician, except for the minor detail that I have a conscience.

[Libertymike]

The FCC is our heroic Pilot of the Airwaves!

[Old Man With Candy]

What's a theorum, Lucy?

[Old Man With Candy]

You're welcome.

[Raston Bot]

JSTOR now has a free version online. Is that due to fallout over Aaron Schwartz?

[Libertymike]

Carmen Ortiz is watching.

[James Anderson Merritt]

Jesse, thanks for reminding us of Coase and his work. When I read his 1959 paper on the FCC, I was practically dumbstruck by the overlap between his arguments and my own, his illustrative analogies and my own, his conclusions and my own -- even his choice of vocabulary and phrasing and my own -- for this subject which I had pondered seriously for many years, finally developing what (I initially thought) was a fairly original opinion. Yet here was Coase, making my case in print when I was only two years old and barely able to talk. As I read through the text, I wondered why, if he were making so much sense in 1959 and is now remembered with great respect for his contributions to the economics of broadcasting and government spectrum control, we didn't already have the grand spectrum marketplace he envisioned and described so well back then. Then I came to the page where he asked that same question, and, after examining the history of congressional hearings and relevant court cases, came to basically the same answer that I independently did, decades later:

(continued in reply post)

[James Anderson Merritt]

(continued from initial post)

People were bamboozled by the tech and convinced by smooth talkers and fuzzy thinkers that broadcasting was unique, requiring different, extreme approaches than what had always worked in other areas of business and the economy. We heard similar talk about the internet during the dot-com bubble. We are hearing similar talk about health care today. At least, these are the types of arguments that are being used to SELL the comprehensive regulatory regimes and justify the assertion of plenary government authority over those areas of activity.

Of cousre, Coase also put his finger on the REAL reason for the FCC to be established and persist down through the decades: Broadcasting had more power than older media to influence human minds (i.e., was a choke point to keep people in line), just as health care is proving to be a motivator today and the internet seemed to be around the turn of the millennium. Governments must control and/or make strategic use of such facilities and phenomena at all cost. If chaos in such areas can be created, then government participation and regulation can be sold to the public, even if not strictly needed to solve whatever real problems might exist. Coase had their number in 1959: Brilliant guy!

[np]

Even if you could resolve conflicts in the spectrum, who would protect us from indecent material?

[Snark Plissken]

"Sailor Ripley, you get me some music on that radio this instant! I mean it!"

http://www.youtube.com/watch?v=TZ8ar_wuHfI

[The Late P Brooks]

the first question Coase received was, "Tell us, Professor, is this all a big joke?"

"You'll have to define 'this all' for me. If you mean this hearing, then yes."

[Jerryskids]

Coase was one of the first economists to argue that markets rather than planners could allocate access to the spectrum.

Here is an article that explains the difference between the Coase Theorem and the "Coase Theorem". If I understand this correctly, it perhaps should be pointed out that markets might not allocate resources perfectly due to the problem of transaction costs but the empirical evidence seems to show that markets do a damn sight better job than planners.

The point is that "getting the entitlements right" is devilishly difficult with the governments we actually have. Coase is forever saying that this or that proposal for a public policy entails knowing things that no economist can in fact know. He claims, with considerable empirical evidence, that in many cases laissez faire will be in practice better than what we will get from actual governments-though neither is perfect...

[Mainer2]

That's the argument though, isn't it. Because free enterprise, competition and choice don't lead to perfection, they should be rejected in favor of government control. People will reject an idea like school choice because some kids may not get a good eductation while defending the imperfect status quo.

[James Anderson Merritt]

I loved his analysis of the same-channel and adjacent-channel interference problems, and his description of the monetary/compensatory arrangements that actors would make in these cases if they had either rights-to-interfere or rights-not-to-be-interfered with. However you came down on the absolute property right question, an accommodation that maximized utility while minimizing cost could be found. This is the kind of thinking that the people who demand government ownership of the airwaves seem unable to comprehend. I was also fascinated by Hoover's and Taft's roles in (or commentary on) the radio regulation follies.

One thing that re-reading Coase's work of the mid-20th century shows clearly is that the FCC's role as broadcast censor and gatekeeper is unconstitutional, because the spectrum is no longer the scarce resource that so many in the early 20th century asserted it was. What has been in the public's best interest for several decades, now, is to "let 1000 flowers bloom." A market mechanism can do this. (To be fair, Coase argued that the market was best at handling this situation even if spectrum space WERE as scarce a resource as it appeared to be in the early 20th century.)

Today, the FCC needs to be a title-and-trespass court -- the traffic cop mentioned by Hoover and his contemporaries -- and nothing more.