Last month, the Federal Communications Commission launched a historic power grab over the Internet, euphemistically known as “net neutrality,” based on a Great Depression-era law to regulate public utilities. While entrepreneurs are pursuing cutting-edge business models and developing previously unimaginable technologies, Washington bureaucrats are reaching back eight decades to find a rationale to control a booming industry that didn’t even exist 25 years ago.
Conventional wisdom holds that government regulation is created by benevolent policymakers in order to protect the public from dangerous, exploitative private industry. But the idealistic progressives who push for an expansive regulatory state rarely follow up to see what the regulation accomplished in practice. That job is usually left to those whose warnings about incentives and unintended consequences were ignored in the first place.
People who support high-minded regulation in theory should survey how such bureaucratic “solutions” have tended to work (or not) in practice. That history gives us little reason to expect that the latest, greatest experiment in heavy-handed control will turn out any differently.
Consider one of the first attempts to control American communications. Mail delivery was humming along just fine until Congress banned privately-delivered first class mail in the 19th century. It did so not because private firms were lousy, but precisely because they were so good they were depriving the federal post office of business and hence congressmen of patronage jobs.
Or look closer at one of the textbook cases for regulation: the government's noble attempt to save us from the predatory railroad robber barons. In reality, it was federal and state subsidies to railroads, not market forces, that produced the abuses that led to the creation of the Interstate Commerce Commission, which then played a central role in bankrupting American railroads and strangling interstate commerce for decades.
Anti-trust regulations were also sold as a way to protect the little guy from the big guy. But now we know that, in practice, they’ve functioned to curtail competition, slow innovation, and stop the little guy from ever becoming a big guy.
The 1906 Meat Inspection Act, lauded as the first of many crucial "public safety" regulations, was inspired by Upton Sinclair’s fictional work The Jungle and was supported by the major meat packers who wanted to put the taxpayers on the hook for the cost of inspection. The upshot was that government inspectors actually spread deadly disease through unscientific and unsanitary methods of detecting meat quality.
Speaking of cattle, disease, and government, the sacred cow known as the Food and Drug Administration seems to actually cost more lives than it saves by keeping life-saving drugs off the market for more than a decade on average.
In 1913, Congress created the Federal Reserve System and told the country it would protect the integrity of the currency, iron out the business cycle, and promote full employment. A hundred years later, we have gotten a dollar worth perhaps a nickel of its 1913 value, a Great Depression, a Great Recession, and more volatility than in the century before the Fed.
Franklin D. Roosevelt’s New Deal was a blizzard of regulations designed to help prop up big industry and labor unions; we now know its principal effect was prolonging the Great Depression by about seven years.
The Civil Aeronautics Board, for instance, cartelized the airline industry for decades, restricting plane travel to wealthy citizens who could afford the high fares it mandated, until its dissolution in 1985. Interstate trucking also suffered from high prices under similarly byzantine rules and restrictions until it was deregulated in the 1970s and 1980s.
Remember the FCC’s Orwellian “fairness doctrine”? In the name of “fairness,” the FCC stifled diversity of opinion in broadcasting. The doctrine's abolition led to an immediate blossoming of new voices and new media, but now the same government agency that censors radio and television is putting itself in charge of making sure the Internet is "fair" and "open" and "neutral," so that corporations don't slow down our content. Like so many benign-sounding schemes before it, Internet at the speed of government is liable to be more (and, in the end, quite a bit less) than regulation activists bargained for.
In the Wall Street Journal, L. Gordon Crovitz asks, “What if at the beginning of the Web, Washington had opted for Obamanet instead of the open Internet?” The thought is appalling: “Yellow Pages publishers could have invoked ‘harm’ and ‘unjust and unreasonable’ competition from online telephone directories. This could have strangled Alta Vista and Excite, the early leaders in search, and relegated Google to a Stanford student project. Newspapers could have lobbied against Craigslist for depriving them of classified advertising. Encyclopedia Britannica could have lobbied against Wikipedia.”
One would think that with such a sorry track record, Washington would be looking for market-based ways to solve problems, instead of constantly taking on the responsibility of fixing every real or imagined problem. But such is not the nature of the beast.
So here we are in 2015 with this massive, wondrous, global network called the Internet. It’s empowering billions of people, rich and poor, with a universe of knowledge and opportunities. While virtually everyone is going online for virtually everything, from education and entertainment to shopping and employment, here come the troglodyte regulators with their 80-year-old hammers, once again, planning to “fix” it for us. No thanks.