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Panel: Conservative Thought and Sustainability

November 13, 2014, 9:30 AM
R Street's Lori Sanders will be speaking at the ASBC Annual Business Summit on November 13, 2014.

America’s motor state going the wrong way on direct sales

October 20, 2014, 9:30 AM

For most of my life, the Detroit area has been the epicenter of the domestic automotive world. Unless you are the sort of person who experienced a fainting spell when the National Corvette Museum in Kentucky dropped eight historically precious Corvettes into a big sinkhole last winter (including the one-millionth model ever produced) you probably still get most of your interesting domestic car news from Michigan.

I have a friend who has been saving for a while for a Chevy pickup, her dream vehicle. Her dad and other family members drove Chevys, and it’s embedded in the family culture. A lot of my neighbors without a firm brand allegiance lust instead after the new Tesla electric vehicle that changed most everybody’s idea about what an electric car could provide in the way of thrills more traditional to the driving culture than the cultures of saving money or saving the environment.

Several years ago, I was seated at a business next to the CEO of a business that made car parts. His opinion was that American companies were the slowest to innovate of all the major car companies in the world. That was largely before cars were built in pieces all over the world, which began the erosion of the “domestic content” rules that now are mostly impeding foreign sales by American solar energy industries. But that’s a topic for another day.

The Tesla is very innovative. It may even be a game changer at some point. It offers style, exciting driving and a low-impact on the environment, all in one. Oh yes, and it comes with a new direct-to-consumer marketing strategy as well! Ooops, maybe not in Michigan.

The forces aligned against disruptive ways of satisfying consumer demand have gotten, in the space of a couple days, an amendment into a bill that passed both houses and is sitting on the governor’s desk. The amendment prohibits Tesla — in the largest state in which company doesn’t yet have a sales office — from selling directly to its prospective customers. The company has said it had been discussing an approach to sales in Michigan with political leaders in the legislature and appropriate government agencies, until the amendment was adopted and voted on with great alacrity by the General Assembly.

There was never any public debate, and news reports suggest that most members of the legislature were unaware of the impact until the auto dealers started thanking them for their votes. That is, for voting to protect Michigan customers from having more choices about what to drive.

We’ve seen a lot of this lately. It’s just plain bad faith by lawmaking bodies to not at least host some discussion on a law that puts a death sentence on what appears to be a perfectly reasonable business model. If signed by Gov. Rick Snyder, sales of a shiny new consumer product will be impossible in Michigan unless the company decides to sell through traditional dealerships. It is difficult not to notice that these middlemen are third parties that are very active politically, in what was supposed to be a pretty close election for governor this time.

When I worked in the legislature years ago, it used to be considered normal that if your side had the votes on a bill, you were at least accommodating enough to let the opposition make their case before you enacted new requirements or prohibitions. The public is well served by debate. Yet we have seen less and less of it on most of the things that matter. Even the famous cut-and-paste job that has become the federal health insurance law was accompanied by extensive public debate before the final version was sewn together.

Apparently the only part of the process that Tesla was able to engage was a conversation with the governor’s office after the bill passed. The intended election year pressure is now fully upon the governor. We will see next week whether he decides to stick with his philosophy on how markets work best for his constituents, or is forced to bow to special interest politics.

I doubt if this innovative, named for one of the greatest scientists who ever lived, can be stamped out with the rearguard action by Michigan dealers. But it can surely be inhibited by the wrong decision from the state’s leadership.

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Does Prop 103 violate itself?

October 20, 2014, 9:00 AM

The history of the American administrative state has been filled with attempts to introduce “rationality” and “discipline” to circumstances in which markets, left to their own devices, allegedly lead to socially or politically undesirable outcomes.

Brimming with good will and well-meaning intention, champions of state intervention seek to invent systems to accommodate and serve those least able to care for themselves. Californians can even directly participate in such efforts through the initiative process.

In 1988, a slim majority of California voters passed Proposition 103, a landmark initiative they were told would reform the state’s auto insurance market for the better. What they did not count on was that, more than 25 years later, Prop 103’s architects would still be standing protectively, to thwart any attempt to update the initiative to reflect changes in the market, technology and the world at-large.

Within a few years, experts now predict, self-driving and autonomous vehicles will radically change the risk profile of vehicles on California’s roads. A recent study by the Casualty Actuary Society found these vehicles could be expected to eliminate as much as 51 percent of accidents. But while that’s encouraging from a health and safety perspective, thanks in part to Prop 103, reducing accidents by such an overwhelming margin could have perverse impacts on drivers who can’t afford to upgrade to cars with more advanced safety technology.

Prop 103′s process for approving auto insurance rates is rigid. There’s a statutory hierarchy, with three mandatory rating factors that insurers must take into account above all others, the first of which is accident history. Self-driving and autonomous vehicles will experience far fewer accidents as a result of driver error, which currently is and historically always has been the cause of most accidents.

Since operators of self-driving and autonomous vehicles will experience fewer accidents, their premiums will decrease. But the benefits conferred to early adopters will be balanced out by higher rates for those who continue to drive conventional vehicles. Under Prop 103, insurance rates are a zero-sum game.

The law requires insurers to increase or decrease the significance of cost factors to comply with the rating-factor hierarchy. This “pumping and tempering” occurs independent of the actual cost associated with a rating factor. Thus, even though other rating factors will be of greater significance to self-driving and autonomous vehicles, Prop 103’s inflexibility will continue to require accident history to be the single most important determinant in the rate-making process.

The result will be that other members of the “class plan” will have to make up the reduced cost of early adopters. In a state split between vehicle operators who bear transportation risk and others who do not, Prop 103 will burden those least able to foot the bill.

If traditional drivers are made to cross-subsidize operators of self-driving and autonomous vehicles, it is likely Prop 103 will run afoul of its own judicially constructed purpose. In a 2005 state appeals court decision, Foundation for Taxpayer and Consumer Rights v. Garamendi, a discussion of the appropriateness of a legislatively enacted change to Prop 103 led the court to find that the initiative’s purpose was to protect the uninsured from arbitrary rates, so that insurance could be “fair, available and affordable.” In the context of a persistency rating factor that the court decided subsidized the insured at the expense of the uninsured, that purpose was deemed violated.

But what happens when existing language, faced with novel circumstances, leads to an identical result? Left unchanged, Prop 103 will violate its own purpose.

Perhaps, in the name of “fairness,” and to forestall the inevitable dismantling of their ugly creation, the drafters of Prop 103 will seek a ban on autonomous vehicles. For now, fortunately, they are satisfied to ignore reality and claim that “California is a long, long way from the so-called ‘autonomous vehicle.’”

To avoid problems like these in the future, the Prop 103 model should be scrapped entirely. Failing that, to properly address the risk presented by self-driving and autonomous vehicles, different rating factors will need to be introduced and given hierarchical flexibility. Contextual factors will be of particular importance, since they likely will present the greatest hurdles to self-guidance programs. For instance, a region’s weather and the quality of its road network could both predictively relate to an autonomous vehicle’s risk profile.

Increasingly and inevitably, Prop 103 is proof that the regulatory rationale of one moment can grow stale in the next. Prop 103 has swollen useless and counterproductive government intervention. More distressing still, Prop 103 now may injure the very same economically deprived people it was passed to help.

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‘Waters of the United States’ could be most significant EPA rule you’ve never heard of

October 20, 2014, 8:30 AM

In 1972, Congress enacted the Clean Water Act to “restore and maintain the chemical, physical and biological integrity of the nation’s waters.” The federal government’s legal authority to regulate water is largely derived from the U.S. Constitution’s Commerce Clause, which theoretically limits the government’s jurisdiction to the type of navigable waterways where such commerce occurs. Sadly, the federal government is rarely content with any limitation placed on its regulatory authority.

Although the CWA defines “navigable waters” as “the waters of the United States, including the territorial seas,” federal regulators further define the “waters of the United States” to cover traditional navigable waters and all other waters that could affect interstate or foreign commerce. The current regulatory definition opens up more waters to CWA coverage but still attempts to track Congress’ Commerce Clause authority.

Now the EPA and Army Corps of Engineers are taking advantage of a particularly unclear Supreme Court ruling in Rapanos v. United States. Narrowly interpreted, the 2006 Rapanos decision gives the EPA regulatory authority over wetlands “with a continuous surface connection” to navigable waterways. Read broadly, the Rapanos decision gives the EPA authority under the CWA to regulate water with a mere “significant nexus” to navigable waterways.

As a result of the Supreme Court’s lack of clarity, the EPA and Army Corps of Engineers have proposed to expand the coverage of the CWA in an exceptionally far-reaching manner. Many conservatives, agriculture groups and even the U.S. Small Business Administration are calling for the proposed rule to be withdrawn.

On October 8, 2014, Alabama Attorney General Luther Strange joined other state attorneys general opposing the new definition. The joint letter noted that many of “the waters and lands covered [by the proposed rule] are entirely outside of Congress’ authority under the Commerce Clause, such as non-navigable intrastate waters that lack any significant nexus to a core water, trenching upon state authority, including in areas of non-economic activity.”

The Alabama Farmers Federation has also raised concerns about the impact of the proposed rule on Alabama. “The government overreach from this rule would extend beyond farms to affect businesses, homes, schools, churches – any place built on land where water runs through after a heavy rain,” said ALFA president Jimmy Parnell. “This was never the intent of the Clean Water Act, and this bypassing of Congress should not be allowed.”

Baldwin County farmer Hope Cassebaum echoed Parnell’s concerns. “Farmers don’t need any more regulations than what we have now,” said Cassebaum. “It’s sad because we already try to be the best stewards of the land that we can be.”

Elmore County farmer Richard Edgar proudly highlighted that his family has worked with the USDA’s Natural Resources Conservation Service for generations. “We have some of the first, and still well-maintained, parallel terraces which are best for the environment,” said Edgar.

At the same time, Edgar considers the EPA’s move to be more about federal control than true environmental concern. “My children are the sixth generation on this land,” he said. “We’re going to take care of our farmland because we have a legacy and hope for the future. We don’t need government telling us how to take care of it.”

The CWA has been a major success in cleaning up our national waters, but federal authority under the act is not without limit. The EPA and Army Corps of Engineers are pressing the boundaries of their federal jurisdiction to their breaking point, and Alabamians would be wise to pay attention.

Federal survey data on tobacco: It’s not about the children

October 20, 2014, 8:00 AM

I have documented for several years a continuous decline in smoking rates among American teens. Rates of smoking and use of other tobacco products among teens are so low that they no longer provide a valid basis for the draconian anti-tobacco policy prescriptions favored by the FDA and CDC.

A fresh National Survey on Drug Use and Health summary confirms low tobacco use by teens. The chart below shows that the smoking rate continued its free-fall through 2013. Cigar use also declined over the past decade to 2.3 percent in 2013, while smokeless tobacco use was flat at about 2 percent over the entire period.

These figures aren’t underestimates. As I’ve discussed previously, NSDUH estimates tend to be robust, because they include any product use over the prior 30 days.

Other NSDUH data (in the chart at bottom) point to the population that should be targeted by the FDA and CDC – those aged 18-34. The sharp jump in smoking prevalence from 11 percent at ages 16-17, to 27 percent at ages 18-20, underscores that the latter group is where the real problem starts.

Anti-tobacco forces know that problematic behaviors in adults don’t stimulate support for prohibitionist policies, so they continue to inaccurately suggest the existence of a youth-tobacco crisis.

 

How SOPA would have cost the content industry billions

October 17, 2014, 2:34 PM

Ever since the advent of Internet-based, user generated mass media, Hollywood has been fighting a losing game of whack-a-mole against ordinary online users who share copyright-protected material in ways its creator didn’t explicitly authorize.

In particular, sites like YouTube, Vimeo and Dailymotion have enabled the proliferation of covers of popular songs, parodies, mash-ups of clips from movies and/or television shows (sometimes combined with music) and even, in some cases, people actually posting full movies online.

This kind of activity has sparked aggressive lobbying for ever harsher and harsher anti-piracy and pro-copyright laws by content creators. As anyone who watched the battle over the Stop Online Piracy Act in 2012 can attest, large segments of the content-producing world were seeking a government-enforced “blacklist” system, in which Internet service providers would be forced to treat practically any alleged copyright infringement as grounds to render a site unviewable.

Which is ironic, because the would-be “victims” who argued the hardest for SOPA have made more than $1 billion from the very proliferation of creativity they once tried to kill. That’s the tally, the Financial Times reports, for revenues derived by more than 5,000 companies (including all of the major U.S. television and film studios) who participate in YouTube’s “ContentID” program.

Under the program, creators are entitled to revenue streams from advertising sold on user-generated content that makes use of copyrighted material. Since it was established in 2007, most creators have opted to monetize the content, rather than block it.

The end result is mutually beneficial for creators, users and, ultimately, consumers. In some cases, it can open new revenue streams associated, for instance, with films that might otherwise have languished in a proverbial vault of commercial flops. Users who want to get discovered for their covers of popular songs, or simply want a space to perform, need not fear take-down notices for the crime of doing nothing but singing.

Which is not to say that Content ID itself is always perfect. It doesn’t provide users with much recourse if their video is unjustly flagged as a copyright violation even if a court might determine it falls under fair use. Disputes are referred to the rights-holder, and some video game critics raised concerns late last year that they ended up in a Sisyphean struggle over their reviews, which clearly fall under the “criticism” exception of fair use, with quibbles over such minutia as music that was licensed for use in game trailers, but not for YouTube users.

Ultimately, however, these issues represent not a problem with Content ID, but with the legal copyright regime it is required to enforce. While that fight is still in progress, these sorts of market-oriented compromises at least allow access to art that otherwise would be strangled by short-sighted rights-holders who don’t always see the financial rewards right in front of them.

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Search engines, free advertising and the content industry

October 17, 2014, 12:43 PM

In 1925, a music industry professional complained to the New York Times that the new medium of radio was destroying the industry’s business model by making songs too widely available to the public for free. The Times quoted the unnamed professional saying:

The public will not buy songs it can hear almost at will by a brief manipulation of the radio dials. If we could control completely the broadcasting of our compositions we would endeavor to prevent this saturation of the radio listeners with any particular song.[…]

We are striving to have the copyright law, which protects us from the free use of our compositions by the makers of phonograph records and music rolls, construed to cover broadcasting. The law specifies that we must be compensated if any of our songs are used by some one else for profit to them. We contend that the radio station is an enterprise founded for gain. It is not controlled by those purveying sets or parts, it is employed by organizations which use it as a medium of institutional advertising.

The music industry professional got his wish as far as copyright, and has turned out to be right in another way as well, though surely not in a way he would have expected. Radio is treated as free advertising – and primarily for music producers! This is, in fact, the main reason why terrestrial radio stations are presently statutorily exempt from paying royalties.

Today, the story of radio’s transition from content industry bete noir to one of its core advertisers is being replayed in the case of another medium that content industry professionals once lambasted as nothing but a gateway for pirates: search engines,

In a report released today by Google, the company lays out the case that search engines aren’t major driver of piracy.  The report claims that search is responsible for just 16 percent of the traffic to sites that host pirated content. By contrast, studies have shown that 64 percent of the traffic to legitimate sites comes from search engines.

To take one example, “katy perry” gets searched for 200,000 more times on Google than “free katy perry mp3.” What’s more, under new changes to the company’s search algorithm, legitimate sources of Katy Perry’s music will show up first on both searches, at no cost to Perry herself (though individual content salesmen such as Apple, Amazon or Spotify can pay to have their digital storefronts advertised prominently).

Starting in 2012, Google began “downranking” sites that receive a high volume of Digital Millennium Copyright Act take-down complaints, meaning that those results automatically are ranked lower in Google’s search algorithm. The new tweaks will go further to prioritize results for  legitimate sources of film, music and other copyrighted content, as well as offering users multiple sources from which that content can be purchased, rented or streamed. This would apply even for obvious piracy-oriented searches, such as “the big lebowski torrent.”

In short, for content producers, search engines serve as a form of free advertising, paid for either by middlemen online retailers, or by the search engine itself. As the Google report puts it:

Piracy often arises when consumer demand goes unmet by legitimate supply. As services ranging from Netflix to Spotify to iTunes have demonstrated, the best way to combat piracy is with better and more convenient legitimate services. The right combination of price, convenience and inventory will do far more to reduce piracy than enforcement can.

Consumers have a huge appetite for content, and there’s evidence that they’re willing to pay a lot for it. A report from May 2013 found that the most frequent consumers of pirated digital files actually spend 300 percent more on content than so-called “honest” consumers. This tendency for piracy itself to serve as a form of free advertising is why savvy media producers, such as the makers of HBO’s Game of Thrones, find high piracy rates flattering, rather than alarming. Once HBO’s new stand-alone streaming service launches, these users of pirated content easily could turn into legitimate consumers.

Search engines thus have a huge opportunity to exploit a market with an above-average appetite for content and expose it to more ways to purchase that content. This benefits search engines like Google, but it also benefits the content industry itself.

Of course,  as the 1925 Times quote demonstrates, the content industry hasn’t always been eager to embrace innovation. The disruptive effects of the Internet have shaken a lot of established content industry business models, which has led some of those industries into efforts at outright censorship, both through abuse of the DMCA’s take-down system and through attempts to bake censorship into the Internet itself, via new legislation and trade agreements.

Google’s report  provides some truly lurid examples of what that “abuse” looks like, such as a film company allegedly trying to get a major newspaper’s review of their film blocked in search results. Techdirt has also outlined some truly ridiculous examples of DMCA takedown requests. In view of these shameless attempts at censorship, Google’s decision to protect against DMCA abuse from both directions is prudent. It remains to be seen whether these safeguards will continue to hold, but the proliferation of information about fair use on the Internet suggests reason for optimism.

Distinguishing between fighting piracy as an industry, and fighting individual pirates, who are rarely the hardened criminals that content industry advocates paint them as, could be a major step toward a better Internet both for consumers and producers.

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Mandates, subsidies and political semantics

October 17, 2014, 11:39 AM

When the U.S. Supreme Court decided the fate of the Affordable Care Act’s individual mandate in 2012, the nation was gripped by an intimate and personal political drama worthy of Broadway or, at least, General Hospital.

Debates about insurance mandates and subsidies were elevated from obscurity to the top of the national discourse. Suddenly, having an opinion about the appropriate tools for the federal government to implement its health-care law was crucial. Partisans entrenched themselves into “pro-mandate” and “anti-mandate” camps. When Chief Justice John Roberts handed down the court’s opinion, he left both camps confused.

Mandates are seldom popular, but the legacy of that decision was to focus public vitriol at mandates generally, even in areas where a mandate might make sense. As a case in point, to stimulate and increase California’s earthquake insurance take-up rate, some form of a mandate might be necessary to adequately secure billions of dollars in mortgage loans currently backed by taxpayers.

California’s largest provider of earthquake insurance, the California Earthquake Authority, has a policy take-up rate of only around 10 percent. The nature of the policies themselves might be partly to blame for that low take-up rate. The coverage is expensive and the deductibles are quite high. Given public perception that the frequency of seismic events is low compared to other covered perils, and that most earthquake damage is unlikely to pierce the deductible, many find it hard to imagine the insurance is worth the expense. Whatever the reason, something must be done to broaden the pool of insureds.

One alternative is an earthquake-insurance mandate; the other is a taxpayer subsidy of earthquake risk. Each approach promises to bring more of the public into the earthquake insurance risk-pool, but they would achieve that in markedly different ways.

Mandate:

An earthquake-insurance mandate would achieve lower earthquake insurance premiums by expanding the pool of those insured. If needed, pre-funded catastrophe risk instruments would allow for an immediate infusion of contractually designated private capital after an event occurs.

Beyond the practical benefits of an earthquake insurance mandate, it is also desirable because the conduct mandated is limited and subject to private choice. Property owners would be required to obtain coverage as a condition for certain loans. Taxpayers are not placed at risk, or even implicated by an earthquake insurance mandate. Unlike the ACA mandate, in which the absence of coverage triggers a penalty, an earthquake insurance mandate would be triggered only by dealings with a public mortgage entity. This would have the added benefit of reducing mortgage-default risk that is currently shouldered by taxpayers.

Subsidy:

Subsidies, in the form of government guarantees of principal and interest on post-event bonds, serves the function of transferring risk from one group (insurers and insureds) to another (taxpayers) to achieve lower premiums. While a bond issued after an event has the advantage of being tailored to that event’s specific cost, subsidizing earthquake risk by incurring debt after an event potentially places all taxpayers on the hook for those most vulnerable and least responsive to the risk.

A post-event bond approach that implicates Californians who maintain only a nominal relationship to the risk of earthquake loss is particularly problematic. While it spreads risk, it does so in a manner that abrogates private decision-making processes. There is no reason for homeowners in Siskiyou County to pay a surcharge on their insurance because homeowners elsewhere chose to forgo earthquake coverage.

Given the shortcomings of a subsidy approach, the perception of the political hurdle posed by a mandate must be staggering. And yet, mandates and subsidies are not that dissimilar. Broadly speaking, insofar as it compels economic behavior without a relationship to the risk of loss, a subsidy is itself a mandate of a different kind.

It is ironic, then, that the earthquake-insurance subsidy, which will command broad-scale public involvement, does not carry the stigma of a mandate. Perhaps the largest hurdle to increasing the earthquake insurance take-up rate, while respecting the agency of taxpayers and property owners, at is a semantic one. Claiming that a subsidy is the only way forward because a mandate is a political nonstarter disguises the true philosophical distinction between a mortgage requirement and a taxpayer backstop – individual agency vs. public obligation.

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NSA spying harms the economy, as well

October 17, 2014, 8:00 AM

Last week, U.S. Sen. Ron Wyden, D-Ore., hosted a forum in Silicon Valley on NSA spying as a means to drum up support for proposed reform legislation that has been stalled in the Senate.

Attended by executives from Google, Microsoft, Facebook and other tech companies, the forum found a receptive audience, as these companies are worried about their prospects of doing business abroad. A 2013 report warned that American companies could lose up to $180 billion in lost technology sales as a result of the NSA spying allegations. A report in August of last year found that American cloud computer services alone could lose up to $35 billion a year in lost overseas sales as a result of the revelations.

These estimates have turned into reality, according to the Associated Press:

A few companies, including Cisco Systems Inc. and Qualcomm Inc., have said they believe they lost some deals in China and other emerging markets because of concerns about U.S. spying. Germany did cancel a contract with Verizon this summer, citing a fear that it may provide customer phone records to the NSA. Some tech startups and telecommunications companies in France and Switzerland have claimed an increase in sales to customers who are wary of U.S. providers.

Not only are foreign companies shying away from doing business with American companies, but foreign governments are as well. According to tech executives, there are concerns that foreign governments, especially European Union member states such as Germany, may place protectionist restrictions on U.S. tech companies over the NSA’s spy programs. Such protectionist policies would break the Internet, according to Google CEO Eric Schmidt.

Among the protectionist policies that U.S. tech executives fear are requirements that all European-based data only be stored on European-based systems. The goal would be to ensure the data handling remains compliant with EU privacy protections, rather than those of the United States. In April, the European Court of Justice threw out the European Union’s similar metadata collection program.

Such mandates would require American companies to build EU-specific Internet infrastructure, based in Europe. This would cost untold amounts of money for American tech companies. The alternative would find American companies shut out of the European market. The Information Technology & Innovation Foundation has estimated U.S. tech firms could lose as much as 20 percent of their revenue to foreign companies that capitalize on the fears of U.S. spying.

There are also fears that such requirements could increase the likelihood of trade wars that spill out beyond the tech sector. This could cause massive economic damage, both domestically and globally.

The solution that Sen. Wyden would like to see enacted is passage of the USA Freedom Act, which would place strict restrictions on the NSA’s ability to conduct warrantless surveillance of Americans’ e-mail and Internet communications. The bill would also end the practice of the bulk collection of Americans’ phone records. The bill is supported by most in the tech industry and by a bipartisan coalition in Congress.

However, the House-passed version of the legislation was watered down at the request of leadership of both parties. The White House is opposed to the bill and the bill has not even made the Senate calendar. Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., has proposed a substitute NSA reform bill that Wyden and others charge doesn’t go far enough.

The NSA spying program needs to be reined in for a couple of very important reasons. It is a violation of the civil liberties and the privacy of the American people. The program we’re finding has also caused damage to the American economy and may potentially damage the global economy as well. We hope that Congress will act on this issue in upcoming lame duck session after the elections.

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Why hasn’t the market for ride-sharing insurance taken off?

October 16, 2014, 1:33 PM

As ride-sharing services like Uber and Lyft continue to expand in cities around the country, the services have been dogged by questions about whether their drivers are fully insured.

Major auto insurers like State Farm, Geico and Progressive have made clear that personal policies exclude coverage for rides when a driver is paid. Some insurers will go so far as to reject any applicant who reports driving for a ride-sharing company.

Meanwhile, the kinds of commercial policies carried by full-time limo drivers can be as much as 10 times as expensive as personal auto policies, rendering them largely unaffordable for drivers who may do ride-sharing for only a couple hours per week.

The major ride-sharing services have responded by buying specialized coverage for themselves and their drivers’ liability, although some regulators and the taxi lobby have charged that even this coverage contains gaps.

But the debate does raise the question: Why don’t insurers simply create new products to accommodate this new and growing risk?

It isn’t that personal auto insurers are completely unwilling to write commercial coverage. According to data from SNL Financial, among the top 20 writers of personal auto insurance coverage in 2013, 15 also wrote commercial auto insurance. Nine companies would count among the top 20 in both lines of business.

But so far, such products have not come to market. Discussions with major auto insurance underwriters suggest four major reasons why:

Legal uncertainty

It’s still unclear whether courts will find the major ride-sharing companies liable for accidents involving their drivers. The companies have a reasonable case that they are simply acting as match-makers between independent drivers and potential riders.

Even if they are ultimately found liable, courts also will be asked to weigh in on whether a driver who is logged in to a ride-sharing app, but not transporting a rider, will be held to the heightened standards-of-care traditionally applied to common carriers like taxicabs and limousines.

Underwriting uncertainty

Insurers have decades of data on personal driving behavior and other relevant factors — from credit scores to ZIP codes — on which to base rates. Meanwhile, commercial auto insurers have their own underwriting data, as well as relying on local licensing requirements to screen out the worst drivers.

By contrast, ride-sharing — that is, professional transportation offered by unlicensed, amateur drivers — is a new risk for which credible data does not yet exist. The elements that make one a safe driver for the purposes of a personal auto insurance policy may not be identical to those required of a driver for hire.

Regulatory uncertainty

Some states do not allow companies to insure commercial activity as a part of a personal policy. Even where it is allowed, states generally ask insurers to produce data that justifies the rates and terms they set — data that largely doesn’t yet exist.

In fact, some states, like California, will only allow insurers to consider factors that are expressly permitted by law, which confounds insurers’ ability to bring innovative products to market quickly.

Market uncertainty

It’s still unknown just how large the ride-sharing market will be. Polling conducted in August found that, even among residents of urban areas where Uber or Lyft are already operating, just 14 percent had ever used a smartphone application to order a ride.

Moreover, depending on the legal and regulatory framework that evolves, it may prove more cost-effective for ride-sharing services to purchase master policies that cover all of their drivers, rather than having each driver procure his or her own coverage.

Insurers could certainly still roll out new products in the coming months and years to better fit the ride-sharing drivers. If history is any guide, such products likely will originate in the surplus lines market, where underwriters do not face the same regulations of forms and rates.

Alternatively, ride-sharing drivers could form their own mutual insurance company, the way taxi drivers did when they formed the Public Service Mutual Casualty Insurance Corp. in 1925.

But for the major auto insurers to buy into ride-sharing in a big way — crafting new hybrid products and offering special riders or endorsements on existing personal policies — there are still a number of looming questions that need to be answered.

U.S. government celebrates half-trillion dollar deficit

October 16, 2014, 1:02 PM

Yesterday’s presentation by the U.S. Treasury was a comical spectacle—at least for those of us with sardonic senses of humor. The good news? The deficit for FY2014 (which ended Sept. 30) was 29 percent lower than the deficit was in FY2013. Increased corporate tax receipts drove much of the deficit reduction.

The bad news? The actual deficit was $483 billion, or nearly half-a trillion dollars. Only in Washington, D.C. can such a massive gap between spending and revenues be celebrated.

Despite a government shutdown and sequestration, government outlays did not go down. In fact, the Treasury reported, spending went up by $50 billion, to $3.5 trillion from $3.45 trillion the previous year.

Rather than admit that the federal government still has a spending problem, Treasury Secretary Jacob Lew and OMB Director Shaun Donovan oozed spin:

The president’s policies and a strengthening U.S. economy have resulted in a reduction of the U.S. budget deficit of approximately two-thirds–the fastest sustained deficit reduction since World War II.

Of course, as BusinessWeek pointed out, Lew’s baseline was, yes, FY2009 when the federal deficit reached its highest level ever: $1.4 trillion. This is a bit like a baseball player batting .166 in FY2014 and bragging that he raised his average by two-thirds over the past 5 years. To put FY2014’s $483 billion deficit in perspective, the deficit in FY2008 (when the economy was still in the tank) was $455 billion.

Meanwhile, the accumulated deficits continue to climb. FY2014’s half-trillion dollar deficit boosts the federal debt to a frightful $12.8 trillion. And the nation remains on a fiscally unsustainable path. CBO predicts—absent any congressionally enacted changes to current law—“by 25 years from now, rising budget deficits would push federal debt held by the public to more than 100 percent of GDP, a level seen only once before in U.S. history, just after World War II. To put the budget on a sustainable path, lawmakers will need to cut benefits from some large programs relative to current law, raise tax revenue above its historical percentage of GDP to pay for the rising cost of those programs, or adopt a combination of those approaches. Moreover, the changes in federal spending or revenues that would be required to achieve certain possible objectives for federal debt are substantial.”

One can only hope that the new Congress, which arrives in late January, will take seriously the nation’s fiscal mess. And act.

State lawmakers, doctors debate e-cigarette merits and vices

October 15, 2014, 2:57 PM

From KOB-4:

“We have a substantial understanding of how and why e-cigarettes can help smokers switch to a far lower-risk product,” said Dr. Joel Nitzkin, who testifies around the country for the industry.

Clinton and Enamorado on ‘The Fox News Effect’

October 15, 2014, 2:05 PM

Too often, political science journals publish articles focused on questions too distantly connected to real-world political phenomena. It is a modern sort of scholasticism, as my friend Professor Lawrence Mead terms it, that heavily utilizes mathematical models to ponder the existent literature on a topic.

So it was with great pleasure to find this article in the October 2014 copy of the Journal of Politics. Mssrs. Joshua Clinton and Ted Enamorado, of Vanderbilt University and Princeton University, respectively, employ statistical analysis that is not comprehensible by the average reader. But they do so to investigate an interesting empirical question: “whether position-taking behavior in Congress and the likelihood of reelection is affected by the national news media.”

The authors find that incumbent House members became “slightly less likely to support President Clinton” in districts where Fox News began broadcasting than similar representatives in similar districts where Fox News was not broadcast. For a member of Congress, the shift took a couple of years subsequent to the arrival of Fox News in his or her district, and it might well have been nothing more than rhetorical posturing in the run-up to reelection. The authors also found that Fox News did not affect whether an incumbent was reelected.

Thus, the take-away affirms that members of Congress, not surprisingly, will tack to the wind. (And in practice, I must add, politicians tend to use media as a proxy for the electorate.)

Read more at http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=9342585&fileId=S0022381614000425 (subscription required). An earlier version of the paper may be found at https://my.vanderbilt.edu/joshclinton/files/2013/06/ClintonEnamorado_JOP.pdf.

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Labor force participation rates paint a bleak economic picture

October 15, 2014, 11:56 AM

Most politicians know how to articulate their political goals. Whether it is low-cost energy, explosive job creation, less bureaucratic red tape, more personal freedom or high quality education, end results are fairly easy to identify.

Unfortunately, it is hard to get where you want to go if you do not first acknowledge where you are.

Recently, the Liberty Foundation highlighted the fact that the national Labor Force Participation Rate hit a 37-year low, with less than 63 percent of working-age Americans actively working or looking for work. The last time America had such a low labor force participation rate, “Saturday Night Fever,” starring John Travolta, was premiering for the first time in New York.

Alabama’s labor force participation is particularly discouraging. According to Liberty Foundation research aggregating Bureau of Labor Statistics (BLS) data, Alabama’s total labor force participation rate through 2013 was 58 percent. That number is down 1.3 percentage points since 2009 and 4.4 points since 2003.

African-Americans in Alabama have seen some of the sharpest declines in labor force participation. Slightly more than half of the black population is working or actively looking for work. That figure has dropped from 58.2 percent in 2009 to 52 percent in 2013.

Labor force trends are important because they can tell us more than the BLS’ official unemployment figures. The official unemployment calculation (U-3) essentially divides the total number of unemployed by the civilian labor force to arrive at an unemployment percentage. If unemployed Americans leave the workforce because they stop looking for employment, the official unemployment rate may actually improve, but the economic prospects for the individual and the economy do not.

Alabama and the United States as a whole are not even close to the economic engines they need to be to effectively employ their citizens. Americans need to wake up and realize the perilous nature of the situation. National government policies are not helping Americans find jobs, and state policies are either making it worse or not able to overcome those negative impacts.

We already face demographic hurdles with the Baby Boomers nearing retirement age and leaving the workforce. Adding massive numbers of discouraged workers to the mix will only increase the incentive for politicians to squeeze the American workforce to shoulder likely increases in government programs, benefits and social safety nets.

Unless a return to the economics of the Carter administration is the goal, the United States and Alabama should do everything in their power to make creating jobs and starting a business as easy as possible.

With upcoming elections in mind, look for politicians who actually understand labor force and unemployment dynamics. Many of them will talk about going in a positive direction, but, without an appreciation of current labor realities, it will be impossible for them to know how to get there.

‘War on Public Education’ focuses more on preserving public system than education

October 14, 2014, 2:09 PM

In case you missed it, the beleaguered Alabama Education Association does not like public school choice. The AEA has referred to the Alabama Accountability Act, which created a tax credit scholarship program in the state, as part of a “war on public education by the privatizers and those who wish to destroy public education and public educators.”

Most of the American public-education establishment tends to despise charter schools, vouchers, education tax credits and a wide variety of education programs that create more education alternatives with public dollars. They are so upset that they have declared war.

American Federation of Teachers President Randi Weingarten thinks the emergence of education as a top political issue is largely on account of public reaction to recent “market-based reforms, the top-down reforms, the testing and sanctioning.”

Weingarten has one perspective, but I am willing to bet that more than a few Americans are taking a closer look at education because our nation is falling behind. That is not due to recent reforms, but rather, a result of a historical lack of them.

The problem with the “war on public education” is that the emphasis is more on “public” than it is on “education.” The opposition to education reform is focused on preserving an established public system rather than opening up access to different ways of educating children.

Notice the use of the word “different.” I am a huge fan of school-choice programs, because they give parents options, not because they are, by their nature, superior.

We know that Alabama has some fantastic public schools and some that are failing the children who attend. Private schools run the gamut as well. The main difference is that a private school with a 70 percent graduation rate probably will not be around too long.

We are going to spend tax dollars, and a lot of them, on public education. The bigger question is whether those funds are dedicated to empowering parents to effectively educate their children or funding a baseline public education system.

The answer is between the proverbial trenches. Traditional public education has tremendous merit because it provides a system of education for everyone. It creates an important barrier to an uneducated society and a true safety net for children whose parents refuse to engage in their education. In Alabama, we need to learn and repeat the successes of our best public schools, particularly our high-poverty, high-performing Torchbearer Schools.

At the same time, parents should have public options for their children. If parents believe a charter or private school is a better choice for their child, why should they be prevented from using public resources to pursue that option? Prior to school-choice programs, pursuing such options was limited to those wealthy enough pay for them on top of their tax bill. If the state’s interest in having educated citizens is met, where that education is received should be irrelevant. Why not create more options for the average Alabamian?

In politics, declaring an ideological “war” is particularly fashionable, but it is also destructive if it means that people feel so pinned down in their respective trenches that they never take the time to stick their heads up and realize no one is shooting at them.

Alabama needs a strong traditional public education system, but it also needs publicly-supported education alternatives. We can either be mired in a “war on public education,” or we can be open to all options that could better educate children in Alabama.

Cornyn smokes patent trolls out from their bridge

October 14, 2014, 9:00 AM

Most children who’ve heard the tale of the Three Billy Goats Gruff know that if an ugly, parasitic troll comes out to get you, the best thing to do is to bide your time until your bigger, stronger sibling can knock him off the bridge with a well-placed set of horns.

Unfortunately, there’s one kind of troll that can’t be speared on the horns of more powerful competition, and that’s the patent troll. That sort of troll has a lobbyist, you see, who’ll make sure that bridges come equipped with goat-proof safety railings.

Fortunately, Senate Minority Whip John Cornyn, R-Texas, seems to be putting in an audition to act not only as the third Billy Goat Gruff, but to rip up the metaphorical bridge under which patent trolls hide. Cornyn recently vowed to resurrect anti-patent troll legislation (which failed to clear the Senate this year, despite bipartisan support) in the next Congress, in the increasingly likely-looking event that Republicans gain control of the Senate this November:

“I don’t think we’re ever going to end [the business of patent litigation], but what we can do is close some of the gaps…loopholes that allow for frivolous patent suits,” Cornyn told VentureBeat in an interview after a patent reform panel at Austin Startup Week. He added that this doesn’t apply to all patent holders, saying: “I firmly believe people have a right to litigate, and should, on patents that add value [when infringement occurs.]“

In an amusing twist, despite Cornyn’s legislation relying on Republican control, it arguably unites conservatives with some of the more liberal members of the Democratic Party. When the bill was still under consideration in the current Senate, Cornyn worked with none other than liberal firebrand Sen. Charles Schumer, D-N.Y., to draft compromise legislation.

So why didn’t this left-right alliance shatter its opposition? Why, the only reason most sensible legislation in Washington fails – because interest groups happen to have the phone number of powerful people, in this case Senate Majority Leader Harry Reid, D-Nev. As Politico reported, the compromise effort “frayed as universities and other major patent holders argued the measure would have negative consequences for the patent system,” adding that:

Reid…played a decisive, behind-the-scenes role in the legislation’s fate, according to sources on and off the Hill. Reid told [Senate Judiciary Committee Patrick] Leahy he could not put the bill on the floor given the opposition from trial lawyers, pharmaceutical companies and biotechnology giants, the sources said. Reid’s office did not comment for this story.

Those looking for a self-parodying instance of tone deafness in the establishment Democratic Party need look no further than this story. Apparently, the mere mention of tort reform is enough to sink a bill in the minds of politicians like Reid. Let’s not even mention the irony that Reid allowed Big Pharma to kill the bill, despite belonging to a party that allegedly wants to end abuses in the health care system.

And let’s be clear: There is no issue of principle over intellectual property at the heart of this fight. Patent trolling is the sort of practice that gives intellectual property a bad name, and savvy defenders of IP realize this. Both Microsoft (a generally hawkish actor in the IP space) and Google (a generally dovish one) agreed on the need to reform the patent system so that the sort of abuse trolls specialize in would become more difficult, if not impossible. In fact, both companies were signatories on a letter to precisely this effect. For an example of how patent trolling works through abuse of the tort system, this example from the same panel where Cornyn made his remarks illustrates the problem very well:

“We have a free app in the app store and [someone] sued us for millions of dollars because they said their patent covered ‘rotating a cellphone app,’” said Rackspace VP of intellectual property Van Lindberg, who participated in the panel with Sen. Cornyn. “Well, we called them up and said this is completely bogus and we’re going to fight it. And before we could even get the words out of our mouths, they followed up to say ‘… and we’ll go away for $70,000.’”

In other words, patent trolling is more akin to the iconic image of a Mafia hit man who ends his sentence with “pity if anything were to happen to you” than to any sort of earnest defense of IP. And despite its moral turpitude, it’s a lucrative business. Since 2010, patent trolls have made three times as much money in court as real companies (i.e., companies that actually use the patents they own), earning median damages of $8.5 million through the court system, compared with $2.5 million for their real competitors.

Killing this kind of practice should be common sense. Unfortunately, because trial lawyers have a lucrative cash cow in patent trolling, the ruthless logic of donor relations means that it can probably only be stopped by Republicans, despite bipartisan opposition to the practice.

Either way, here’s hoping that John Cornyn gets to run these particular trolls out from under their bridge, before any other innovators try to go “trip, trap, trip, trap” over it and get tripped and trapped by these unrepentant abusers of the patent system.

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A welcome message from R Street’s Governance Project

October 14, 2014, 8:00 AM

The R Street Institute this month launched the Governance Project, an effort to assess and improve the state of America’s system of national self-governance, with particular attention to Congress.

The need for such inquiry should be obvious: our federal republic is showing signs of dyspepsia, if not outright dysfunction. National public policy issues, such as immigration reform, remain in a perpetual state of deadlock. Various government agencies, such as the Department of Veterans’ Affairs, the Internal Revenue Service, and the Department of Defense have been exposed with scandals and management failures. The national economy also continues to sputter while the nation’s debts and deficits remain extraordinarily high.

Why focus on Congress? To be certain, there are a variety of non-congressional factors that might be investigated for their relationship to America’s current governance problems. Single-member voting districts, “too much money in politics,” political polarization and politicians’ bad intentions are just a few of the causes commonly fingered.

We contend that focusing on Congress makes the most sense. The U.S. Constitution assigns Congress the most fundamental powers of governance, such as establishing currency and fixing its value, regulating economic activity among the states and with other nations, declaring war, taxing the public and spending those funds. The Governance Project will take an institutional approach to the problem, focusing on how Congress does what it does.

The signs that Congress is struggling to fulfill its duties are plentiful. Once again, a president is poised to engage America in a war without congressional authorization. Key posts in the executive and judicial branch go unfilled because nominees languish in the Senate. Precious congressional time is squandered on political posturing rather than lawmaking. And Congress itself only appears for work at the Capitol a few days per week, and went out of session in mid-September to run for office.

Unsurprisingly, the public holds Congress in historically abysmal regard: only 14 percent of the public currently approve of Congress’s performance.

The good news is that Congress can repair itself. Per the Constitution, the House and Senate each may “determine the rules of its proceedings.” Congress may enact a statute to structure its operations as a whole, which is something it has done in the past.

Accordingly, the Governance Project will examine some of the ways current congressional practices and rules affect its ability to govern. Topics that might be taken up include: are current Senate rules regarding, say, non-germane amendments, in need of change? Do the 1970 Legislative Reorganization Act or 1974 Congressional Budget Act need to be revised? How can current congressional actions to oversee and upgrade the operations of the federal government be improved? Can parties and organizations within Congress improve its governance? And, more fundamentally, what are the roles of Congress and individual legislators in 21st-century America?

To paraphrase Benjamin Franklin, we have a republic…if we can keep it. Congress, the first branch of government, is the center of that system. The nation’s well-being requires a well-functioning national legislature, and the Governance Project aims to help Congress to help itself.

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Washington-area appointments and promotions for Oct. 13

October 13, 2014, 12:51 PM

From the Washington Post:

The R Street Institute of the District appointed Kevin Kosar senior fellow and governance project director.

Gov. Brown forces AB 2616 to walk the plank

October 13, 2014, 10:00 AM

California’s workers’ compensation system is a political flashpoint that attracts the interest of labor, management, attorneys and insurers. Last session, a skirmish about expanding the scope of workers’ compensation ended in the prudent exercise of Gov. Brown’s veto power. Unexpectedly, the skirmish provides an excellent reason to discuss pirates! Not the modern pirates who stand ever-ready to plunder the system, but classic Arrrrr-style sailing pirates.

Men that toiled under the Jolly Roger did so outside of the law. As a result, a conventional civil justice system was unavailable to them. To ensure that those injured on the job were appropriately compensated, and to maintain the esprit de corps necessary to continue their dangerous work, pirates were the first to introduce and enjoy the benefits of something like a workers’ comp system.

As the name suggests, workers’ compensation provides restitution to workers for injuries they sustain in the course of employment. The system operates on the notion that no fault is necessary for an employer to incur the expense of paying for an injury suffered by an employee while on the job.

Pirates apportioned recompense according to the severity of the sacrifice made. An arm was worth more than a finger. According to the same principle, “handedness”, the dominance of one hand over another, was factored into compensation. Losing a left arm was considered less severe than losing a right arm. (Interestingly, left legs were less valuable than right legs).

In the decades since the days of fully rigged sailing ships and that sort of piracy, the need for workers’ comp has not diminished. In the United States, all states but Texas and (as of 2013) Oklahoma require companies with three or more to carry workers’ compensation insurance. A balance between workers’ comp and civil remedies has evolved over time.

Because no-fault workers’ comp ensures that employees injured at work receive compensation, a direct nexus between work and an injury is crucial to maintaining the actuarial integrity of the workers’ comp insurance market.

The rare exceptions in which an injury or disorder experienced away from work is considered work-related are misleadingly named “rebuttable presumptions.” In spite of their name, these presumptions require that an extraordinary evidentiary standard is met to demonstrate that an injury is not work related. In practice, a rebuttable presumption often is irrefutable.

Still, in certain limited cases, the California Legislature has seen fit to provide a narrow subset of professions, often publicly employed public safety-related professions, with rebuttable presumptions that define injuries arising as a result of their job (for instance, cancer, pneumonia and Lyme’s disease). By flipping the burden of proof, presumptions add huge expense to the workers’ comp system.

Authored by Assemblymember Nancy Skinner, D-Berkeley, A.B. 2616 sought to create a rebuttable presumption that hospital employees who contract methicillin-resistant Staphylococcus aureus (MRSA) do so while on the job. This was Skinner’s fourth attempt at providing rebuttable presumptions to hospital employees, though this attempt was less broad in its scope than some of the previous efforts.

Seen most charitably, seeking a rebuttable presumption for hospital employees presumes that the workers’ comp system currently fails to adequately compensate workers that contract MRSA. Curiously, no evidence, beyond anecdote, was offered to demonstrate the existence of such a compensation gap.

A less-charitable analysis is that the bill was introduced to provide horizontal uniformity between well-organized health and safety professions. Whatever the authentic motivation, the implication of A.B. 2516 was clear. The bill expanded the universe of professions eligible for rebuttable presumptions, and the reasons for that eligibility.

The Legislature saw fit to pass the bill along more-or-less predictable partisan lines. In Gov. Brown’s veto message, he expressed fears that extending presumptions about specific industrial risks to the private sector would create a bad precedent. He does not believe that rebuttable presumptions belong in the private sector.

Brown’s reasoning deserves some attention. There are competing rationales when it comes to the expansion of presumptions. The first is predicated on the notion that professions should receive special legislative treatment because of the nature of the peril they face and the difficulty associated with demonstrating how that peril leads to injury. Under this rationale, specific hard-to-demonstrate perils militate toward special treatment. Thus, it is simple to understand why Skinner believes that health-care workers are deserving of a rebuttable presumption.

Alternatively, if the rationale for a rebuttable presumption tracks more closely with the special nature of the work itself – publicly employed safety professions – then offering rebuttable presumptions to private sector workers is inappropriate.

The reason that conflict over the applicability of rebuttable presumptions will continue in legislative sessions to come is that the original intent of rebuttable presumptions has been made malleable by time. Unmoored from history, the expansion rationales have been made to stand as arguments on their own.

The policy question has been recast and the result will determine whether the costly and smothering social safety net applies ever more broadly to private industry.

Fundamentally, which system is more desirable? One that grants, more often than not, automatic payment on the basis of risk, or one that recognizes that specific jobs are in need of special consideration? At the risk of mixing metaphors, with their noses under the tent and short of a gubernatorial veto, is there any stopping the pirates?

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FCC’s Wheeler likes the ‘idea’ of muni broadband

October 13, 2014, 9:00 AM

Speaking at the recent National Association of Telecommunications Officers and Advisors annual meeting, Federal Communications Chairman Thomas Wheeler endorsed Lafayette, La.’s municipal fiber optic system—or more specifically, he endorsed the idea of the Lafayette Utilities System’s effort to bring competition to that southern Louisiana city of some 121,000.

Here are his remarks about LUS Fiber (full text of his speech here):

I love the story of Lafayette, La. where the local incumbent fought the city’s fiber network tooth and nail, bringing multiple court challenges and triggering a local referendum on the project. Thankfully, none of the challenges managed to prevent deployment – 62 percent of voters approved of the network in the referendum, and the Louisiana Supreme Court unanimously sided with the city – but they did delay deployment almost three years. When the network was finally built, the community experienced the benefits of competition, as the local cable operator decided to upgrade its network. Local choice and competition are about as American as you can get.

Everything Wheeler said was true, but he didn’t finish the story. That might be because of the doubts it would raise

As I reported last year in a case study on the Lafayette muni broadband project:

  • LUS Fiber is some 30 percent short of its revenue projection as set out in its business plan;
  • Is more than $160 million in debt;
  • Struggles to compete with cable, telephone, wireless and satellite service providers in terms of price, performance and service options;
  • Is relying on bigger government contracts to grow revenues.

In addition, LUS Fiber did not bring competition to Lafayette. If anything, it was a late entrant. Cox and the company then-known as BellSouth (now AT&T), were established as phone-cable-Internet providers. DirecTV and Dish Network were additional players in multichannel TV. Since LUS Fiber came on line, the upgraded broadband capabilities of wireless service providers have only added competitive pressure. In this environment, LUS’ 2004 feasibility study prediction that it would achieve 50 percent share of the market seems risible.

Even from a social good perspective, LUS Fiber has failed to deliver. Its biggest promise—the one that justified its $160 million bond issue—was that it would deliver 100 Mb/s fiber connections to all residents, including low-income households that the Lafayette government said incumbents were ignoring. That universal 100 Mb/s offer never appeared. In its first years of operation, LUS Fiber offered a $19.95 Internet-only plan, but found that it could not afford the cost of running fiber to a residence that was going to generate revenue that low. It then offered a 3 Mb/s connection at $19.95 per month for an introductory period, but that required purchase of a more expensive triple-play package. LUS ultimately ended the introductory offer in August 2012.

As of last year, the cheapest Internet-only rate LUS Fiber offered was $34.95 for 15 Mb/s. For whatever reason—most likely, the commercial realities discussed above—LUS Fiber has decided not to offer low-cost high-speed Internet service to poor households.

This is no surprise to those who have followed municipal broadband over the years. Of the hundreds of communities that have spent millions of dollars on such projects, LUS Fiber is one of the four that actually got viable FTTH service up and running (Chattanooga, Tenn.; Bristol, Va. and Provo, Utah being the other three). That’s still no guarantee of success. Bristol needed a $22 million grant from the Obama stimulus. Provo’s muni system was operational for seven years and never came close to payback. The city was more than happy to have Google Fiber take it off its hands for $1.

Wheeler’s shout-out to Lafayette comes as he’s pushing for federal pre-emption of state laws that prohibit municipal broadband projects where commercial service providers are already competing.

Certainly government can provide “competition.” But at the end of the day, it almost inevitably amounts to being a redundant broadband supplier, inferior to private-sector alternatives and entirely dependent on taxpayer resources to cover economic shortfalls. Muni broadband has been a long-term drain on city resources that could be applied more productively elsewhere.

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