Expect a Recession if Net Neutrality Regulations are Repealed

July 13, 2017 in Economics, Home

Consider how the internet comes to your devices. All the way from the internet service provider leading into your home there are lines underground that are dug through public land along roadsides. Like our roads, these are shared spaces that can not be owned by any individual company. Instead, through our local governments we allow this shared land to be used under contract by private companies. Now, there can’t be a dozen companies laying internet lines, just like there can’t be multiple power line companies or water main companies. As a result, we have a government imposed oligarchy or monopoly in these industries.

Let’s imagine if these other industries were left unregulated. Power companies, that have investments in certain companies, could charge competitors a higher price for power. They could shut off power intermittently. They could do the same with small businesses, who don’t have the same negotiating power as big businesses. Let’s imagine if the roads were all privately owned by one or a few companies. They could put tolls outside of businesses that don’t pay an upfront ransom. They could make a stop light last longer out front of companies that compete with companies they hold investments. They own the roads and any businesses located on those roads have to play by their rules. It would be profitable to do these things and there would be no law preventing them. Ultimately, this kind of behavior would destroy these marketplaces and the whole economy, but large businesses like internet service providers only care to increase short term profits again and again. They don’t ever consider the long term macroeconomic effects of their decisions.

There are certain markets that if left to the free market wouldn’t actually be a free market. Private businesses in these industries have the ability to siphon a lot of profit out of the economy through extreme price inflation. These industries have an inelastic demand, which means the price can rise and have a small impact on demand. When the price in these industries rise then consumers have less money to spend in other industries, which suppresses growth in all markets.

Private companies must pursue optimal profits for their shareholders. The argument being made by those who oppose net neutrality is that the companies won’t seek optimal profits by interfering with the free market, but that is not a reasonable argument. We can’t just hope they won’t do what they are built to do. The ISPs say that if unregulated they can use the increased profits to improve internet quality, but in reality they have more of an incentive to slow it down for companies that don’t pay. Also, there isn’t enough competition or demand to improve internet quality. Most people are happy with the current speeds they have. The only thing that will change is the price paid by customers and online businesses, which will increase the prices that businesses charge consumers. Actually, many small businesses in industries with elastic demand can’t increase prices and maintain a large customer base; they’d become unprofitable. All of the effects of repealing net neutrality lead to an economic recession.

Long before I would support unleashing a monopoly or oligarchy from regulations into a marketplace, I would support socialization of the marketplace. The marginal inefficiency of government run organizations far outweighs the cost of price gouging and market suppression on our economy. Currently, we have the best of both worlds. We contract private companies to efficiently run these oligarchies and monopolies under strict federal guidelines that prevent them from disrupting and oppressing other free marketplaces.

Net neutrality must remain. I will say that it’s possible that there could be some minor improvements to the regulations of ISPs. If any changes are to be made they must be examined closely to protect small businesses and prevent price inflation.

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