“I’m waiting for Spain to melt down the World Cup to pay off its debts, or more seriously, real defaults from Spain, Greece and maybe California and New York. Let’s get on with it and put the structural reforms behind us. That would be a true buy signal.”

— Andy Kessler, July 16, 2010

See our new commentary in RealClearMarkets looking beyond the Google-China dustup: “The Internet is the U.S./China’s new Dollar/Yuan.”

Growing up in Indiana, John Wooden was more than UCLA’s great basketball coach. He was a state legend. High school champ at Martinsville. College national champ and three-time all-American at Purdue. And then coach of South Bend Central High and of Indiana State — all before leaving for Los Angeles in 1948.

Although best known for his 10 national championships in a 12-year span at UCLA, in Indiana — at least in my little world — he was better known as a gentleman, a teacher, a leader. That’s what our fathers and coaches — and my grandfather who was captain of the Indiana University basketball team in 1942-43 — told us.

Later, when I met my wife, I learned she had attended the same tiny grammar school as John Wooden — Centerton Elementary. She had also, no doubt like so many other Hoosier students, written her eighth grade term paper about him. She loved him not for his basketball savvy but for his character.

Upon Wooden’s graduation from Centerton, his father Joshua’s gift to him was a list of maxims:

Be true to yourself. Make each day a masterpiece. Help others. Drink deeply from good books. Make friendship a fine art. Build a shelter against a rainy day.

Wooden kept the list with him for the rest of his life. Literally, and figuratively. He lived the list.

UPDATE: See this wonderful remembrance from Rich Karlgaard noting the “astonishing” parallel lives of John Wooden and Ronald Reagan.

A good conversation between Harry McCracken of Technologizer and Bob Wright of bloggingheads.tv. Topics include Apple’s ascent (and world domination?); iPhone vs. Android; whither Microsoft; Facebook’s privacy flub; etc.

“A currency union is strongest without fiscal union.”

— John H. Cochrane, May 18, 2010, in a terrific commentary on the Greek crisis and the European Union

See our commentary at Forbes.com, responding to Revision3 CEO Jim Louderback’s calls for Internet regulation.

What we have here is “mission creep.” First, Net Neutrality was about an “open Internet” where no websites were blocked or degraded. But as soon as the whole industry agreed to these perfectly reasonable Open Web principles, Net Neutrality became an exercise in micromanagement of network technologies and broadband business plans. Now, Louderback wants to go even further and regulate prices. But there’s still more! He also wants to regulate the products that broadband providers can offer.

“My guess is that the euro will survive, but no one will trust it like they used to. At the end of the day, it’s an entitlement problem. In Greece, the public sector makes up 40% or more of the work force, with short weeks, lots of vacation and lavish retirement benefits. All of that needs to be paid for with real income, not debt, and the markets are anticipating the day of reckoning. One can only hope European policy makers listen to the market. I wonder if California and Medicare are taking notes.”

— Andy Kessler, May 8, 2010

Here were my comments in the FCC’s Notice of Proposed Rule Making on “Preserving the Open Internet” — better known as “Net Neutrality”:

A Net Neutrality regime will not make the Internet more “open.” The Internet is already very open. More people create and access more content and applications than ever before. And with the existing Four Principles in place, the Internet will remain open. In fact, a Net Neutrality regime could close off large portions of the Internet for many consumers. By intruding in technical infrastructure decisions and discouraging investment, Net Neutrality could decrease network capacity, connectivity, and robustness; it could increase prices; it could slow the cycle of innovation; and thus shut the window to the Web on millions of consumers. Net Neutrality is not about openness. It is far more accurate to say it is about closing off experimentation, innovation, and opportunity.

See our new CircleID commentary on the China-Google dustup and its implications for an open Internet:

China is nowhere near closing for business as it did five centuries ago. One doubts, however, that the Ming emperor knew he was dooming his people for the next couple hundred years, depriving them of the goods and ideas of the coming Industrial Revolution. China’s present day leaders know this history. They know technology. They know turning away from global trade and communication would doom them far more surely than would an open Internet.

Akamai announced a record peak in traffic volume on its content delivery network on April 9.

In addition to reaching a milestone for peak traffic served this past Friday, the Akamai network also hit a new peak during the same day for video streaming, as well as a near high for total requests served.

• With online interest in major sporting events – including professional golf and baseball – helping to drive the surge in demand, Akamai delivered its largest ever traffic for high definition video streaming.
• Over the course of the day, Akamai logged over 500 billion requests for content, a sum equal to serving content to every human once every 20 minutes
• At peak, Akamai supported over 12 million requests per second – a rate roughly equivalent to serving content to the entire population of the United States every 30 seconds.

After yesterday’s federal court ruling against the FCC’s overreaching net neutrality regulations, which we have dedicated considerable time and effort combatting for the last seven years, Holman Jenkins says it well:

Hooray. We live in a nation of laws and elected leaders, not a nation of unelected leaders making up rules for the rest of us as they go along, whether in response to besieging lobbyists or the latest bandwagon circling the block hauled by Washington’s permanent “public interest” community.

This was the reassuring message yesterday from the D.C. Circuit Court of Appeals aimed at the Federal Communications Commission. Bottom line: The FCC can abandon its ideological pursuit of the “net neutrality” bogeyman, and get on with making the world safe for the iPad.

The court ruled in considerable detail that there’s no statutory basis for the FCC’s ambition to annex the Internet, which has grown and thrived under nobody’s control.

. . .

So rather than focusing on new excuses to mess with network providers, the FCC should tackle two duties unambiguously before it: Figure out how to liberate the nation’s wireless spectrum (over which it has clear statutory authority) to flow to more market-oriented uses, whether broadband or broadcast, while also making sure taxpayers get adequately paid as the current system of licensed TV and radio spectrum inevitably evolves into something else.

Second: Under its media ownership hat, admit that such regulation, which inhibits the merger of TV stations with each other and with newspapers, is disastrously hindering our nation’s news-reporting resources and brands from reshaping themselves to meet the opportunities and challenges of the digital age. (Willy nilly, this would also help solve the spectrum problem as broadcasters voluntarily redeployed theirs to more profitable uses.)

For years we’ve been talking about the need for more wireless bandwidth, more spectrum, and a host of creative new strategies to complement our mobile phone networks — from familiar Wi-Fi to more exotic femtocells and satellites. The continuing explosion of mobile data traffic means we need these things now more than ever. In the graph below, Cisco projects 120% compound annual growth in North American mobile data from 2009 through 2013.

The Federal Communications Commission recognized these trends and needs in its new National Broadband Plan. It set the bold goal of unleashing 500 MHz of mostly dormant wireless spectrum for more productive use in new broadband Internet and media applications.

On March 29, the FCC had a chance to begin putting its Plan into action when it approved the acquisition of SkyTerra by Harbinger Capital. The result of the merger is a new wireless company that will use both MSS satellite spectrum and so-called ATC terrestrial spectrum to deliver a new hybrid mobile service. Harbinger announced it would build a nationwide, wholesale, “open access” 4G broadband wireless network at the cost of $6 billion. Although not part of the FCC’s 500 MHz push, the new Harbinger strategy aligns nicely with the goal of more, better, and broader wireless access and options throughout the country (in this case, Canada, too).

But the FCC order, which was not voted by the full commission but issued by the bureau chiefs, contains two curious provisions. The provisions restrict Harbinger’s cooperation with two important mobile service providers and could hinder the very goal of extending more wireless coverage to more Americans. Read the rest of this entry »

“Architects of the legislation that binds the nation’s communications infrastructure in the year 2010 were born in the 1870s and 1880s. There is talk today in Washington about categorizing technologies and platforms developed in the 21st century under different Titles of legislation written by people born in the 19th century. We don’t need to jettison all the wisdom of the ancients, but perhaps there’s a better way?”

— Nick Shulz, at the Enterprise Blog, March 25, 2010

With the release of the FCC’s National Broadband Plan, we continue to hear all sorts of depressing stories about the sorry state of American broadband Internet access. But is it true?

International comparisons in such a fast-moving arena as tech and communications are tough. I don’t pretend it is easy to boil down a hugely complex topic to one right answer, but I did have some critical things to say about a major recent report that got way too many things wrong. A new article by that report’s author singled out France as especially more advanced than the U.S. To cut through all the clutter of conflicting data and competing interpretations on broadband deployment, access, adoption, prices, and speeds, however, maybe a simple chart will help.

Here we compare network usage. Not advertised speeds, which are suspect. Not prices which can be distorted by the use of purchasing power parity (PPP). Not “penetration,” which is largely a function of income, urbanization, and geography. No, just simply, how much data traffic do various regions create and consume.

If U.S. networks were so backward — too sparse, too slow, too expensive — would Americans be generating 65% more network traffic per capita than their Western European counterparts?

Oh, wait, it’s 200 megabytes of hard “platter” storage circa 1970. You’ve got 80 of these in your iPhone.

(hat tip: Guy Kawasaki)

“If we determine that a dollar shall be our unit, we must then say with precision what a dollar is.”

— Thomas Jefferson, 1784, as quoted by Judy Shelton

With the China currency question once again in the news, I’m reposting my Wall Street Journal article from early 2009. (For a much longer treatment, see this paper.)

THE WALL STREET JOURNAL / January 26, 2009

Geithner Is Exactly Wrong on China Trade

The dollar-yuan link has been a great boon to world prosperity

by BRET SWANSON

Treasury Secretary-designate Tim Geithner’s charge that China “manipulates” its currency proves only one thing. Three decades after Deng Xiaoping’s capitalist rise, America’s misunderstanding of China remains a key source of our own crisis and socialist tilt.

The new consensus is that America failed to react to the building trade deficit with China and the global “savings glut,” which fueled our housing boom. A “passive” America allowed China to steal jobs from the U.S. while Americans binged with undervalued Chinese funny money.

This diagnosis is backwards. America did not underreact to the supposed Chinese threat. It overreacted. The problem wasn’t “global imbalances” but a purposeful dollar imbalance. Our weak-dollar policy, intended to pump up U.S. manufacturing and close the trade gap, backfired. Currency chaos led to a $30 trillion global crash, an energy shock, bank and auto failures, and possibly a new big government era. For globalization and American innovation to survive, we must first understand the Chinese story and our own monetary mistakes.

We’ve heard the refrain: China’s rapid growth was a mirage. China was stealing wealth by “manipulating” its currency. But in fact China’s rise was based on dramatic decentralization and sound money. Read the rest of this entry »

If you really want to understand the climate debate, you simply must read this book, by A.W. Montford, about a Canadian scientific detective named Steve McIntyre, who humbly but doggedly pursued the truth about the 1,000-year temperature reconstructions that generated the famed “hockey stick.”

The November 2009 email “hack” of Britain’s Climatic Research Unit that has generated so much recent news is only a brief epilogue. The real story happened day by day over the last decade as McIntyre, a retired mining engineer, and a his fellow Canadian Ross McKitrick, an economist, searched for, and then through, shabbily constructed data sets and magical algorithms, with surprising finds on almost every page.

As my friend George Gilder wrote:

The reader should know that the supposed email “scandal,” as described in the book, is in fact a rather trivial and even defensible part of the story. Few people are at their best in emails. What is shocking — and I use the word advisedly as a confirmed sceptic not easily shocked — is the so called science. I never imagined that it was quite this bad. It is shoddy beyond easy belief.

The hockey stick chart mostly reflects a defective algorithm that extends and inflates a few deceptive signals from as few as 20 cherry-picked trees in Colorado and Russia into a hockey stick chart that is replicated repeatedly through reshuffles of the same or similar defective and factitious data to capture and define two thousand years of climate history. These people simply had no plausible case and were pressed by their political sponsors to contrive a series of Potemkin charts.

Almost, but not quite, as surprising, was Montford’s narrative itself. Somehow he turned an esoteric battle over statistical methodology into a captivating “what happens next” mystery. British science writer Matt Ridley agreed:

Montford’s book is written with grace and flair. Like all the best science writers, he knows that the secret is not to leave out the details (because this just results in platitudes and leaps of faith), but rather to make the details delicious, even to the most unmathematical reader. I never thought I would find myself unable to put a book down because — sad, but true — I wanted to know what happened next in an r-squared calculation. This book deserves to win prizes.

Engrossing. Astonishing. Devastating.

Our new article at RealClearMarkets:

As Washington and the states pile up mountainous liabilities — $3 trillion for unfunded state pensions, $10 trillion in new federal deficits through 2019, and $38 trillion (or is it $50 trillion?) in unfunded Medicare promises — the U.S. needs once again to call on its chief strategic asset: radical innovation.

One laboratory of growth will continue to be the Internet. The U.S. began the 2000’s with fewer than five million residential broadband lines and zero mobile broadband. We begin the new decade with 71 million residential lines and 300 million portable and mobile broadband devices. In all, consumer bandwidth grew almost 15,000%.

Even a thriving Internet, however, cannot escape Washington’s eager eye. As the Federal Communications Commission contemplates new “network neutrality” regulation and even a return to “Title II” telephone regulation, we have to wonder where growth will come from in the 2010’s . . . .

“No moment in technology history has ever been more exciting or dangerous than now. The Internet is like a new computer running a flashy, exciting demo. We have been entranced by this demo for fifteen years. But now it is time to get to work, and make the Internet do what we want it to . . . .

“Practical business: who will win the tug of war between private machines and the Cloud? Will you store your personal information on your own personal machines, or on nameless servers far away in the Cloud, or both? Answer: in the Cloud. The Cloud (or the Internet Operating System, IOS — ‘Cloud 1.0′) will take charge of your personal machines. It will move the information you need at any given moment onto your own cellphone, laptop, pad, pod — but will always keep charge of the master copy. When you make changes to any document, the changes will be reflected immediately in the Cloud. Many parts of this service are available already.”

— David Gelernter, “Time to Start Taking the Internet Seriously”

Larry Downes, author of the excellent Laws of Disruption and a new colleague at the Tech Liberation Front, notes the proliferation of patent lawsuits in the mobile phone world and points toward this good graphic in the New York Times to help make his point, that “It’s both much worse and not as bad as it seems”:

“Only someone who has Asperger’s would read a subprime-mortgage-bond prospectus.”

— Dr. Mike Burry, in an excerpt of Michael Lewis’s new book The Big Short.

The Yo-Yos versus the Distavores. The HurriKeynes versus the Invisible Hands. And the team with more Monetary Madness appearances than any other — Stuff Happens. This was the scientific bracketology that determined the real cause of the Great Panic at the American Economic Association’s recent meetings:

(hat tip: David Warsh)

“…commercial real estate loans should not be marked down because the collateral value has declined.  It depends on the income from the property, not the collateral value.”

— Ben Bernanke, Feb. 24, 2009, finally, if tamely, acknowledging the crucial role of mark-to-market accounting in the financial death spiral.

(via Brian Wesbury)

Here’s a new exaflood metric for you — tweets per second.

From the Twitter blog:

Folks were tweeting 5,000 times a day in 2007. By 2008, that number was 300,000, and by 2009 it had grown to 2.5 million per day. Tweets grew 1,400% last year to 35 million per day. Today, we are seeing 50 million tweets per day—that’s an average of 600 tweets per second. (Yes, we have TPS reports.)

A number of interesting new articles and forums deal with our exaflood theme of the past few years.

“Striving to Map the Shape-Shifting Net” – by John Markoff – The New York Times – March 2, 2010

“Data, data, everywhere” – The Economist – Special Report on Managing Information – February 25, 2010

“Managing the Exaflood” – American Association for the Advancement of Science – February 19, 2010

“Professors Find Ways to Keep Heads Above ‘Exaflood’ of Data” – Wired Campus – The Chronicle of Higher Education – February 24, 2010

“The defenders of modern macroeconomics argue that if we just study the economy long enough, we’ll soon be able to model it accurately and design better policy. Soon. That reminds me of the permanent sign in the bar: Free Beer Tomorrow.

“We should face the evidence that we are no better today at predicting tomorrow than we were yesterday. Eighty years after the Great Depression we still argue about what caused it and why it ended.

“If economics is a science, it is more like biology than physics. Biologists try to understand the relationships in a complex system. That’s hard enough. But they can’t tell you what will happen with any precision to the population of a particular species of frog if rainfall goes up this year in a particular rain forest. They might not even be able to count the number of frogs right now with any exactness.

“We have the same problems in economics. The economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions.

“The bottom line is that we should expect less of economists. Economics is a powerful tool, a lens for organizing one’s thinking about the complexity of the world around us. That should be enough. We should be honest about what we know, what we don’t know and what we may never know. Admitting that publicly is the first step toward respectability.”

— Russ Roberts, February 27, 2010

That’s the question I ask in this Huffington Post article today.

Among all the books, articles, and academic papers analyzing the financial meltdown, very few have pinpointed and exposed what I think was the accelerant that turned a problem into an all-out panic: namely, the zealous application of mark-to-market accounting beginning in the autumn of 2007. In this video, two of these very few — Brian Wesbury and Steve Forbes — discuss the meltdown, mark-to-market’s crucial role, and the stock market’s short and mid-term prospects. Wesbury and Forbes have also written two great books explaining the Great Panic, why it’s not as bad as you think, and how capitalism will save us.

Holman Jenkins today also picks up the theme of mark-to-market’s central role in the panic.

Wyoming wireless operator Brett Glass has 20 questions for the FCC on Net Neutrality. Some examples:

1. I operate a public Internet kiosk which, to protect its security and integrity, has no way for the user to insert or connect storage devices. The FCC’s policy statement says that a provider of Internet service must allow users to run applications of their choice, which presumably includes uploading and downloading. Will I be penalized if I do not allow file uploads and downloads on that machine?

4. I operate a wireless hotspot in my coffeehouse. I block P2P traffic to prevent one user from ruining the experience for my other customers. Do the FCC rules say that I must stop doing this?

6. I am a cellular carrier who offers Internet services to users of cell phones. Due to spectrum limitations, multimedia streaming by more than a few users would consume all of the bandwidth we have available not only for data but also for voice calls. May we restrict these protocols to avoid running out of bandwidth and to avoid disruption to telephone calls (some of which may be E911 calls or other urgent traffic)?

7. I am a wireless ISP operating on unlicensed spectrum. Because the bands are crowded and spectrum is scarce, I must limit each user’s bandwidth and duty cycle. Rather than imposing hard limits or overage charges, I would like to set an implicit limit by prohibiting P2P, with full disclosure that I am doing so. Is this permitted under the FCC’s rules?

14. I am an ISP that accelerates users’ Web browsing by rerouting requests for Web pages to a Web cache (a device which speeds up Web browsing, conceived by the same people who developed the World Wide Web) and then to special Internet connections which are asymmetrical (that is, they have more downstream bandwidth than upstream bandwidth). The result is faster and more economical Web browsing for our users. Will the FCC say that our network “discriminates” by handling Web traffic in this special way to improve users’ experience?

15. We are an ISP that improves the quality of VoIP by prioritizing VoIP packets and sending them through a different Internet connection than other traffic. This technique prevents users from experiencing problems with their telephone conversations and ensures that emergency calls will get through. Is this a violation of the FCC’s rules?

18. We’re an ISP that serves several large law offices as well as other customers. We are thinking of renting a direct  “fast pipe” to a legal research database to shorten the attorneys’ response times when they search the database. Would accelerating just this traffic for the benefit of these customers be considered “discrimination?”

19. We’re a wireless ISP. Most of our customers are connected to us using “point-to-multipoint” radios; that is, the customers’ connection share a single antenna at our end. However, some high volume customers ask to buy dedicated point-to-point connections to get better performance. Do these connections, which are engineered by virtually all wireless ISPs for high bandwidth customers, run afoul of the FCC’s rules against “discrimination?”

See our new commentary at CircleID:

The Internet has two billion global users, and the developing world is just hitting its growth phase. Mobile data traffic is doubling every year, and soon all four billion mobile phones will access the Net. In 2008, according to a new UC-San Diego study, Americans consumed over 3,600 exabytes of information, or an average of 34 gigabytes per person per day. Microsoft researchers argue in a new book, “The Fourth Paradigm,” that an “exaflood” of real-world and experimental data is changing the very nature of science itself. We need completely new strategies, they write, to “capture, curate, and analyze” these unimaginably large waves of information.

As the Internet expands, deepens, and thrives—growing in complexity and importance—managing this dynamic arena becomes an ever bigger challenge. Iran severs access to Twitter and Gmail. China dramatically restricts individual access to new domain names. The U.S. considers new Net Neutrality regulation. Global bureaucrats seek new power to allocate the Internet address space. All the while, dangerous “botnets” roam the Web’s wild west. Before we grab, restrict, and possibly fragment a unified Web, however, we should stop and think. About the Internet’s pace of growth. About our mostly successful existing model. And about the security and stability of this supreme global resource.

Excellent analysis of Google’s plan to build a few experimental fiber networks from my former colleague Barbara Esbin:

NetworkWorld reports that by constructing its own fiber network, Google “is trying to push its vision for how the Internet as a whole should operate.” I wish the company all the success in the world with GoogleNet. Business model experimentation and new entry to the broadband Internet service provider market like this should be encouraged. If this “open access” common carrier network proves to be a viable business model that attracts both customers and followers, it will be a fabulous addition to the domestic Internet ecosystem. But this vision should not be turned into unnecessary government mandates for other Internet network operators who are similarly trying to experiment with their business models in this brave new digital world.

Surprisingly, I also agree with Harold Feld’s analysis:

the telecom world is all abuzz over the news that Google will build a bunch of Gigabit test-beds. I am perfectly happy to see Google want to drop big bucks into fiber test beds. I expect this will have impact on the broadband market in lots of ways, and Google will learn a lot of cool things that will help it make lots of money at its core business — organizing information and selling that service in lots of different ways to people who value it for different reasons. But Google no more wants to be a wireline network operator than it wanted to be a wireless network operator back when it was willing to bid on C Block in the 700 MHz Auction.

So what does Google want? As I noted then: “Google does not want to be a network operator, but it wants to be a network architect.” Oh, it may end up running networks. Google has a history of stepping up to do things that further its core business when no one else wants to step up, as witnessed most recently by their submitting a bid to serve as the database manager for the broadcast white spaces devices. But what it actually wants to do is modify the behavior of the platforms on which it rides to better suit its needs. Happily, since those needs coincide with my needs, I don’t mind a bit.

I do mind.

This tax-and-budget analysis from Bruce Bartlett is wrong on many levels — in both its particulars and its overall sweep.

Bartlett claims the famous supply-side tax-cutters at The Wall Street Journal editorial page have, in a major reversal, opened the door to a Value Added Tax and thus a major expansion of overall taxation and American government. He thinks a new Journal opinion article from Columbia Business School dean Glenn Hubbard represents a big shift in the thinking of economic conservatives. I don’t see it that way at all. Read the rest of this entry »

Cisco’s latest Visual Networking Index, this one focusing mobile data traffic, projects 108% compound growth through 2014.

“I have only one project, one big idea: uncertainty. It crosses many different disciplines — math, political science, psychology, risk management — and I swing in between those, but it is always on what we call the epistemological question. There are two parts to this question: math and computation, and psychology. The second causes us to think we know more than we do. It is an endless topi. Bernanke has six problems: One, his education is in tools that aren’t helpful — and he doesn’t know it. Two, he studied the Great Depression, and he thinks he knows too much — this is nothing like the Great Depression. You can’t compare this and the Depression. Three, 99% of risk is tied to the debt/leverage and the explosion of connectivity. It’s like he did not see a truck coming right at him. Four, he has no notion of nonlinearities, and how monetary policies can be responsive in nonlinear ways. Five, he doesn’t understand fat tails. Six, he doesn’t realize that the biggest risk of failure is signified by the Federal Reserve: He thinks we need more regulation; we actually need smaller institutions. And not one person in Congress had the presence of mind to ask him these questions.”

— Nassim Nicholas Taleb, AI5000, Jan/Feb 2010

See our new analysis of Net Neutrality regulation’s possible impact on the U.S. job market.

“Rationing happens today! The question is who will do it.”

— Rep. Paul Ryan, February 2, 2010, in a terrific interview on health care reform that drills to the center of the debate.

Also see:

• “Paul Ryan’s Moment” at Ross Douthat’s blog
• Roadmap for America’s Future long term budget reform, tax reform, health care reform strategy
• “A GOP Roadmap For America’s Future” in The Wall Street Journal

“My attitude is this: if you are getting attacked by Krugman, you must be doing something right.”

— Eugene Fama, University of Chicago professor, in The New Yorker

For those of you not wishing to sift through 15,000 comments submitted to the FCC for its Net Neutrality proposed rule making, let me recommend what — so far — is the best technical filing I’ve read. It comes from Richard Bennett and Rob Atkinson of the Information Technology Innovation Foundation.

Also very useful is a new post by George Ou on content delivery and paid peering, with important policy implications.

These are among the least discussed — but most important — items in the whole Net Neutrality debate.

Separately, from the FCC’s “Open Internet” meeting at MIT last week, see summaries of each panelist’s remarks: Opening Presentations, Panel 1, Panel 2.

Here are a few good perspectives on Google’s big announcement that it will no longer censor search results for google.cn in China, a move it says could lead to a pull-out from the Middle Kingdom.

“Google’s Move: Does it Make Sense?” by Larry Dignan

“The Google News” by James Fallows

I agree with Dignan of Znet that this move was probably less about about China and more about policy and branding in the U.S. and Europe.

UPDATE: Much more detail on the mechanics of the attack from Wired’s Threat Level blog.

“Here’s one problem with digital collectivism: We shouldn’t want the whole world to take on the quality of having been designed by a committee. When you have everyone collaborate on everything, you generate a dull, average outcome in all things. You don’t get innovation.

“If you want to foster creativity and excellence, you have to introduce some boundaries. Teams need some privacy from one another to develop unique approaches to any kind of competition. Scientists need some time in private before publication to get their results in order. Making everything open all the time creates what I call a global mush.

“There’s a dominant dogma in the online culture of the moment that collectives make the best stuff, but it hasn’t proven to be true. The most sophisticated, influential and lucrative examples of computer code — like the page-rank algorithms in the top search engines or Adobe’s Flash — always turn out to be the results of proprietary development. Indeed, the adored iPhone came out of what many regard as the most closed, tyrannically managed software-development shop on Earth.”

— Jaron Lanier, author of the new book You Are Not a Gadget.

See this fun and quite insightful discussion of the digital 2000’s (and beyond) with Esther Dyson, Jaron Lanier, and Paul Saffo (hat tip: Adam Thierer).

Fed chairman Ben Bernanke over the weekend gave a big speech at the American Economic Association annual meeting in Atlanta. He defended his and and Alan Greenspan’s unprecedented easy money through the 2000’s and acknowledged no connection between monetary policy and the financial crash.

Economist David Malpass, however, had the whole thing nailed back in 2002. Here’s Malpass in a note today:

Today’s New York Times front page has a David Leonhardt article on the Fed entitled “If Fed Missed Bubble, How Will It See New One?”  It criticizes Chairman Bernanke’s Atlanta speech: “This lack of self-criticism is feeding Congressional hostility toward the Fed.”

I’ve attached my 2002 WSJ article on the same topic (The Fed’s Moment of Weakness).  It argued that Chairman Greenspan was “letting himself off the hook” in 2002 by saying that the Fed couldn’t anticipate asset bubbles. The 2002 article concludes that: “If the value of the dollar is allowed to fluctuate as wildly in the future, then momentum will dominate the global economy as it did in the 1990s, creating constant boom/bust cycles.”

We expect Chairman Bernanke to be reappointed and the Fed’s lagging monetary policy to continue for at least one more cycle.  For now, this feels good to financial markets (everything is up today except the dollar — gold, oil, the euro, U.S. equities and especially foreign equities in dollar terms.)  However, this gradually channels capital away from the U.S. and especially from the many small businesses (and yet-to-be-created businesses) left out of Washington’s aggressive credit rationing process.  This undercuts U.S. growth and leaves unemployment much higher than it should be.

We often say hindsight is 20/20. Monetary policy is in a sorry state when the hindsight of the insiders lags the foresight of the outsiders. By eight years and counting.

(My own contributions to the debate here and here.)

A bunch of good metrics on the decade that was from Oliver Chiang. Here are a few:

–Number of e-mails sent per day in 2000: 12 billion

–Number of e-mails sent per day in 2009: 247 billion

–Revenues from mobile data services in the first half of 2000: $105 million

–Revenues from mobile data services in the first half of 2009: $19.5 billion

–Number of text messages sent in the U.S. per day in June 2000: 400,000

–Number of text messages sent in the U.S. per day in June 2009: 4.5 billion

–Number of pages indexed by Google in 2000: 1 billion

–Number of pages indexed by Google in 2008: 1 trillion

–Amount of hard-disk space $300 could buy in 2000: 20 to 30 gigabytes

–Amount of hard-disk space $300 could buy in 2009: 2,000 gigabytes (2 terabytes)

Professors at a leading research unit put suspect data into a bad model, fail to include crucial variables, and even manufacture the most central variable to deliver the hoped-for outcome.

Climate-gate? No, call it Berkman’s broadband bungle.

In October, Harvard’s Berkman Center for the Internet and Society delivered a report, commissioned by the Federal Communications Commission, comparing international broadband markets and policies. The report was to be a central component of the Administration’s new national broadband Internet policy, arriving in February 2010.

The 231-page report was an ode to foreign broadband success and especially to the regulatory model of “open access,” a euphemism for mandated sharing of network assets at government-set prices. Although U.S. Internet innovation is flourishing, the Berkman Center found the U.S. tragically lagging other nations in consumer broadband penetration, prices, and network speeds. In a perfect set-up for a dramatic re-regulation of U.S. communications networks, Berkman concluded that open access mandates have “a positive and significant effect” on broadband penetration and that the effect is “somewhat larger . . . and more robust than previously thought.”

Just one problem. Actually many problems. The report botched its chief statistical model in half a dozen ways. It used loads of questionable data. It didn’t account for the unique market structure of U.S. broadband. It reversed the arrow of time in its country case studies. It ignored the high-profile history of open access regulation in the U.S. It didn’t conduct the literature review the FCC asked for. It excommunicated Switzerland . . . .

See my critique of this big report on international broadband at RealClearMarkets.

I loved pouring through Berkeley’s 2000 and 2003 studies estimating answers to a very big question –- How Much Information? How much digital information do we create and consume. Always lots of useful — and trivial — stuff in those reports. But where has HMI? been these last few years? Finally, UC-San Diego has picked up the torch and run with a new version, HMI? 2009.

So, you are asking, HMI? The UCSD team estimates that in 2008 outside of the workplace Americans consumed 3.6 zettabytes of information. That’s 3.6 x 10^21 bytes, or 3,600 billion billion.

“The irony of the zero-rate policy, coupled with Washington’s preference for a weak dollar, is a glut of American capital in Asia (as corporations and investors shun the weakening U.S. currency) and a shortage at home. For gold and oil, the low-rate policy works, weakening the dollar so commodity prices go up and providing traders with ample funds to buy into the expanding bubble. Those markets are almost daring the Fed to try to break out of its zero-rate box.

“But for small businesses and new workers, capital rationing is devastating, spelling business failures and painful layoffs. Thousands of start-ups won’t launch due to credit shortages, in part because the government and corporations took more credit than they needed (because it was so cheap).”

— David Maplass, The Wall Street Journal, December 4 2009

“O Lord that lends me life,
Lend me a heart replete with thankfulness.”

— William Shakespeare

Completely missing from the health care debate is a conversation about health care innovation and productivity. But not only are these legitimate factors — they are the most important factors.

Look around the world, however, and see the crucial advances being made.

“Japanese companies reinvented the process of making cars. That’s what we’re doing in health care,” Dr. Shetty says. “What health care needs is process innovation, not product innovation.”

At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a capacity virtually unheard of in the U.S., where the average hospital has 160 beds, according to the American Hospital Association.

Narayana’s 42 cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008, more than double the 1,367 the Cleveland Clinic, a U.S. leader, did in the same year. His surgeons operated on 2,777 pediatric patients, more than double the 1,026 surgeries performed at Children’s Hospital Boston.

Before we turn the whole U.S. system into a larger, more rigid and stagnant, less entrepreneurial, more costly version of Medicare, one that “bends the cost curve” up instead of down, shouldn’t we give at least a few minutes consideration to the real solution to our health care problem: technological, process, and business model innovation?

Adam Thierer makes important points about the wireless data boom . . . and the wireless spectrum crunch.

This morning, the Technology Committee of the New York City Council convened a large hearing on a resolution urging Congress to pass a robust Net Neutrality law. I was supposed to testify, but our narrowband transportation system prevented me from getting to New York. Here, however, is the testimony I prepared. It focuses on investment, innovation, and the impact Net Neutrality would have on both.

“Net Neutrality’s Impact on Internet Innovation” – by Bret Swanson – 11.20.09

If you’re interested in Net Neutrality regulation and have some time on your hands, watch this good debate at the Web 2.0 conference. The resolution was “A Network Neutrality law is necessary,” and the two opposing sides were:

Against

• James Assey – Executive Vice President, National Cable and Telecommunications Association
• Robert Quinn -  Senior Vice President-Federal Regulatory, AT&T
• Christopher Yoo – Professor of Law and Communication; Director, Center for Technology, Innovation, and Competition, UPenn Law

For

• Tim Wu – Coined the term “Network Neutrality”; Professor of Law, Columbia Law
  
• Brad Burnham – VC, Union Square Ventures
• Nicholas Economides – Professor of Economics, Stern School of Business, New York University.

I think the side opposing the resolution wins, hands down — no contest really — but see for yourself.

Yesterday I attended an event of the National Chamber Foundation and the American Enterprise Institute. The topic was “Challenges to Creating 20 Million New Jobs.” But, appropriately, and at the urging of one of the panelists, AEI president Arthur Brooks, we ended up talking about the importance of a “culture of entrepreneurship.” I mentioned I had just witnessed one of the great cultures of entrepreneurship at the three-day Gilder/Forbes Telecosm conference, this year focused on the technology companies of Israel, where a surge of venture capital and hyper-entrepreneurial activity has created a boom.

Today, David Brooks nicely captures this ethos of “futurity.” He worries that China has it, and we don’t.

It may seem like an ephemeral thing, but this eschatological faith in the future has motivated generations of Americans, just as religious faith motivates a missionary. Pioneers and immigrants endured hardship in the present because of their confidence in future plenty. Entrepreneurs start up companies with an exaggerated sense of their chances of success. The faith is the molten core of the country’s dynamism.

There are also periodic crises of faith. Today, the rise of China is producing such a crisis. It is not only China’s economic growth rate that produces this anxiety. The deeper issue is spiritual. The Chinese, though members of a famously old civilization, seem to possess some of the vigor that once defined the U.S. The Chinese are now an astonishingly optimistic people. Eighty-six percent of Chinese believe their country is headed in the right direction, compared with 37 percent of Americans.

YouTube is moving toward a 1080p Hi Def video capability, just as we long-predicted.

This video may be “1080p,” but the frame-rate is slow, and the video motion is thus not very smooth. George Ou estimates the bit-rate at 3.7 Mbps, which is not enough for real full-motion HD. But we’re moving quickly in that direction.

Intel CTO Justin Rattner

says many people underestimate America’s lead in post-graduate education. Intel has found, for example, that the skills of PhDs from Chinese universities that the company has hired do not yet match those of U.S. graduates, he says.

On the other hand, Rattner says, tougher immigration laws are weakening the U.S. advantage as a magnet for students from around the world. Many Silicon Valley companies were founded by foreign students after they got degrees from Stanford, the University of California at Berkeley, Caltech and other U.S. institutions.

“Now we tell them to go home, and don’t come back anytime soon,” Rattner says. Such a policy could have made it impossible for people like Andy Grove, Intel’s Hungarian-born former CEO, to have risen to the top of the U.S. tech scene. “Nowadays we would have packed him up and sent him home,” Rattner says.

“I hope that they (government regulators) leave it alone . . . The Internet is working beautifully as it is.”

— Tim Draper, Silicon Valley venture capitalist, who along with many other SV investors and executives signed a letter advocating new Internet regulations apparently unaware of its true content.

See our brief review of Arbor Networks’ new two-year study where they captured and analyzed 264 exabytes of Internet traffic. Highlights:

• Internet traffic growing at least 45% annually.
• Web video jumped to 52% of all Internet traffic from 42%.
• P2P, although still substantial, dropped more than any other application.
• Google, between 2007 and 2009, jumped from outside the top-ten global ISPs by traffic volume to the number 3 spot.
• Comcast jumped from outside the top-ten to number 6.
• Content delivery networks (CDNs) are now responsible for around 10% of global Internet traffic.
• This fast-changing ecosystem is not amenable to rigid rules imposed from a central authority, as would be the case under “net neutrality” regulation.

See this comprehensive new Web traffic study from Arbor Networks — “the largest study of global Internet traffic since the start of the commercial Internet.” 

Conclusion

 Internet is at an inflection point

 Transition from focus on connectivity to content
– Old global Internet economic models are evolving
– New entrants are reshaping definition / value of connectivity

 New technologies are reshaping definition of network
– “Web” / Desktop Applications, Cloud computing, CDN

 Changes mean significant new commercial, security and engineering challenges

 This is just the beginning…

These conclusions and the data Arbor tracked and reported largely followed our findings, projections, and predictions from two years ago:

• “Estimating the Exaflood – The Impact of Video and Rich Media on the Internet – A ‘zettabyte’ by 2015?”
• “Unleashing the ‘Exaflood’”
• “The Coming Exaflood”

And an update from this spring:

• “Rapid Internet Traffic Growth Continues in U.S. and Around Globe”

Also see our analysis from last winter highlighting the evolution of content delivery networks — what my colleague George Gilder dubbed “storewidth” back in 1999 — and which Arbor now says is the fastest growing source/transmitter of Net traffic.

As you’ve no doubt heard, Washington D.C. is angling for a takeover of the . . . U.S. telecom industry?!

That’s right: broadband, routers, switches, data centers, software apps, Web video, mobile phones, the Internet. As if its agenda weren’t full enough, the government is preparing a dramatic centralization of authority over our healthiest, most dynamic, high-growth industry.

Two weeks ago, FCC chairman Julius Genachowski proposed new “net neutrality” regulations, which he will detail on October 22. Then on Friday, Yochai Benkler of Harvard’s Berkman Center published an FCC-commissioned report on international broadband comparisons. The voluminous survey serves up data from around the world on broadband penetration rates, speeds, and prices. But the real purpose of the report is to make a single point: foreign “open access” broadband regulation, good; American broadband competition, bad. These two tracks — “net neutrality” and “open access,” combined with a review of the U.S. wireless industry and other investigations — lead straight to an unprecedented government intrusion of America’s vibrant Internet industry.

Benkler and his team of investigators can be commended for the effort that went into what was no doubt a substantial undertaking. The report, however,

• misses all kinds of important distinctions among national broadband markets, histories, and evolutions;
• uses lots of suspect data;
• underplays caveats and ignores some important statistical problems;
• focuses too much on some metrics, not enough on others;
• completely bungles America’s own broadband policy history; and
• draws broad and overly-certain policy conclusions about a still-young, dynamic, complex Internet ecosystem.

The gaping, jaw-dropping irony of the report was its failure even to mention the chief outcome of America’s previous open-access regime: the telecom/tech crash of 2000-02. We tried this before. And it didn’t work! The Great Telecom Crash of 2000-02 was the equivalent for that industry what the Great Panic of 2008 was to the financial industry. A deeply painful and historic plunge. In the case of the Great Telecom Crash, U.S. tech and telecom companies lost some $3 trillion in market value and one million jobs. The harsh open access policies (mandated network sharing, price controls) that Benkler lauds in his new report were a main culprit. But in Benkler’s 231-page report on open access policies, there is no mention of the Great Crash. Read the rest of this entry »

Ed Glaeser, William Kerr, and Giacomo Ponzetto have a new paper on “Clusters of Entrepreneurship.”

Employment growth is strongly predicted by smaller average establishment size, both across cities and across industries within cities, but there is little consensus on why this relationship exists. Traditional economic explanations emphasize factors that reduce entry costs or raise entrepreneurial returns, thereby increasing net returns and attracting entrepreneurs. A second class of theories hypothesizes that some places are endowed with a greater supply of entrepreneurship. Evidence on sales per worker does not support the higher returns for entrepreneurship rationale. Our evidence suggests that entrepreneurship is higher when Öxed costs are lower and when there are more entrepreneurial people.

Cisco better hope wireless “net neutrality” does not happen. It just bought a company called Starent that helps wireless carriers manage the mobile exaflood.

See this partial description of Starent’s top product:

“The Americans have not had to deal with a true economic rival since the British more than half a century ago. America today is as unaccustomed to global economic competition as the British were at their apex. The U.S. often seems lumbering and ill-suited to the demands of economic rivalry.

“The only way to avoid Britain’s fate and meet the challenge of China is to reinvigorate economic life. This is a multiyear endeavor that must be done primarily through innovation, not legislation. America needs to retool its domestic economy to build on the global success of many U.S. companies. It must focus on inventing new products and generating new ideas, rather than defending the rusty industries of yesterday. Fights over health care and climate change are the cultural equivalent of fiddling while Rome burns.

“China thrives because it is hungry, dynamic, scared of failure and convinced that it should be a leading force in the world. That is why America thrived a century ago. Today, such hunger and dynamism seem less evident in American life than petulance that the world is not cooperating.

“The U.S. is in danger of assuming that because it has been a dominant nation on the world stage, it must continue to be so. That is a recipe for becoming Britain.”

— Zachary Karabell, The Wall Street Journal, October 13, 2009

Google, IBM, and other big technology companies don’t think we’re ready for the exaflood.

It is a rare criticism of elite American university students that they do not think big enough. But that is exactly the complaint from some of the largest technology companies and the federal government.

At the heart of this criticism is data. Researchers and workers in fields as diverse as bio-technology, astronomy and computer science will soon find themselves overwhelmed with information. Better telescopes and genome sequencers are as much to blame for this data glut as are faster computers and bigger hard drives. . . .

Two years ago, I.B.M. and Google set out to change the mindset at universities by giving students broad access to some of the largest computers on the planet. The companies then outfitted the computers with software that Internet companies use to tackle their toughest data analysis jobs.

“It sounds like science fiction, but soon enough, you’ll hand a machine a strand of hair, and a DNA sequence will come out the other side,” said Jimmy Lin, an associate professor at the University of Maryland, during a technology conference held here last week.

The big question is whether the person on the other side of that machine will have the wherewithal to do something interesting with an almost limitless supply of genetic information.

At the moment, companies like I.B.M. and Google have their doubts.

For the most part, university students have used rather modest computing systems to support their studies. They are learning to collect and manipulate information on personal computers or what are known as clusters, where computer servers are cabled together to form a larger computer. But even these machines fail to churn through enough data to really challenge and train a young mind meant to ponder the mega-scale problems of tomorrow.

Correction: Exa-scale.

“If they imprint on these small systems, that becomes their frame of reference and what they’re always thinking about,” said Jim Spohrer, a director at I.B.M.’s Almaden Research Center.

YouTube says it now serves up well over a billion videos a day — far more than previously thought.

Holy Swedish silica/on. It’s an exa-prize!

Calling them “Masters of Light,” the Royal Swedish Academy awarded the 2009 Nobel Prize in Physics to Charles Kao, for discoveries central to the development of optical fiber, and to Willard Boyle and George Smith of Bell Labs, for the invention of the charge-coupled device (CCD) digital imager.

Perhaps more than any two discoveries, these technologies are responsible for our current era of dramatically expanding cultural content and commercial opportunities across the Internet. I call this torrent of largely visual data gushing around the Web the “exaflood.” Exa means 10¹⁸, and today monthly Internet traffic in the U.S. tops two exabytes. For all of 2009, global Internet traffic should reach 100 exabytes, equal to the contents of around 5,000,000 Libraries of Congress. By 2015, the U.S. might transmit 1,000 exabytes, the equivalent of two Libraries of Congress every second for the entire year.

Almost all this content is transmitted via fiber optics, where laser light pulsing billions of times a second carries information thousands of miles through astoundingly pure glass (silica). And much of this content is created using CCD imagers, the silicon microchips that turn photons into electrons in your digital cameras, camcorders, mobile phones, and medical devices. The basic science of the breakthroughs involves mastering the delicate but powerful reflective, refractive, and quantum photoelectric properties of both light and one of the world’s simplest and most abundant materials — sand. Also known in different forms as silica and silicon.

The innovations derived from Kao, Boyle, and Smith’s discoveries will continue cascading through global society for decades to come.

In Monday’s Wall Street Journal, I address the once-again raging topic of “net neutrality” regulation of the Web. On September 21, new FCC chair Julius Genachowski proposed more formal neutrality regulations. Then on September 25, AT&T accused Google of violating the very neutrality rules the search company has sought for others. The gist of the complaint was that the new Google Voice service does not connect all phone calls the way other phone companies are required to do. Not an earthshaking matter in itself, but a good example of the perils of neutrality regulation.

As the Journal wrote in its own editorial on Saturday:

Our own view is that the rules requiring traditional phone companies to connect these calls should be scrapped for everyone rather than extended to Google. In today’s telecom marketplace, where the overwhelming majority of phone customers have multiple carriers to choose from, these regulations are obsolete. But Google has set itself up for this political blowback.

Last week FCC Chairman Julius Genachowski proposed new rules for regulating Internet operators and gave assurances that “this is not about government regulation of the Internet.” But this dispute highlights the regulatory creep that net neutrality mandates make inevitable. Content providers like Google want to dabble in the phone business, while the phone companies want to sell services and applications.

The coming convergence will make it increasingly difficult to distinguish among providers of broadband pipes, network services and applications. Once net neutrality is unleashed, it’s hard to see how anything connected with the Internet will be safe from regulation.

Several years ago, all sides agreed to broad principles that prohibit blocking Web sites or applications. But I have argued that more detailed and formal regulations governing such a dynamic arena of technology and changing business models would stifle innovation.

Broadband to the home, office, and to a growing array of diverse mobile devices has been a rare bright spot in this dismal economy. Since net neutrality regulation was first proposed in early 2004, consumer bandwidth per capita in the U.S. grew to 3 megabits per second from just 262 kilobits per second, and monthly U.S. Internet traffic increased to two billion gigabytes from 170 million gigabytes — both 10-fold leaps. New wired and wireless innovations and services are booming.

All without net neutrality regulation.

The proposed FCC regulations could go well beyond the existing (and uncontroversial) non-blocking principles. A new “Fifth Principle,” if codified, could prohibit “discrimination” not just among applications and services but even at the level of data packets traversing the Net. But traffic management of packets is used across the Web to ensure robust service and security.

As network traffic, content, and outlets proliferate and diversify, Washington wants to apply rigid, top-down rules. But the network requirements of email and high-definition video are very different. Real time video conferencing requires more network rigor than stored content like YouTube videos. Wireless traffic patterns are more unpredictable than residential networks because cellphone users are, well, mobile. And the next generation of video cloud computing — what I call the exacloud — will impose the most severe constraints yet on network capacity and packet delay.

Or if you think entertainment unimportant, consider the implications for cybersecurity. The very network technologies that ensure a rich video experience are used to kill dangerous “botnets” and combat cybercrime.

And what about low-income consumers? If network service providers can’t partner with content companies, offer value-added services, or charge high-end users more money for consuming more bandwidth, low-end consumers will be forced to pay higher prices. Net neutrality would thus frustrate the Administration’s goal of 100% broadband.

Health care, energy, jobs, debt, and economic growth are rightly earning most of the policy attention these days. But regulation of the Net would undermine the key global platform that underlay better performance on each of these crucial economic matters. Washington may be bailing out every industry that doesn’t work, but that’s no reason to add new constraints to one that manifestly does.

— Bret Swanson

Yesterday, the Joint Project Agreement between the U.S. Department of Commerce and ICANN expired. Today, a new “Affirmation of Commitments” goes into effect.

Key points from the new Affirmation:

• ICANN will remain an independent, private-sector led organization.
• Nations from around the world will have new input through the Government Advisory Committee (GAC).
• Overall transparency and global involvement should improve.
• But this Affirmation should extinguish any notions that the UN, EU, or other international players might gain new power over ICANN.
• ICANN must focus its efforts to ensure three core objectives. That the Internet is:

1. always on
2. free and open
3. secure and stable

More big issues coming down the pike. But for now, I think, a fortuitous development.

We Hoosiers are lucky:

Perhaps most appreciated was the governor’s overhaul of the Bureau of Motor Vehicles. It’s gone from one of the worst in the country—a place, he says, “where people would take a copy of ‘Crime and Punishment’”—to one of the best, with an “average visit time of seven minutes and 36 seconds.”

I had my own experience about four years ago, before the BMV was overhauled, where I made some seven trips to the license branch and various other government offices over a period of weeks just to renew my driver’s license.

But as Kim Strassel tells us in her interview with Mitch Daniels, this is only the very tip of the iceberg. In a state challenged by our reliance on the automobile industry in particular and manufacturing in general, instead of imploding like Michigan or profligate California, we had a governor whose common sense, hard work, business savvy, and courageous budgeting has left Indiana in a much better spot than many other states. Especially given our special old-economy obstacles.

This is the ironic but very legitimate question AT&T is asking.

As Adam Thierer writes,

Whatever you think about this messy dispute between AT&T and Google about how to classify web-based telephony apps for regulatory purposes — in this case, Google Voice — the key issue not to lose site of here is that we are inching ever closer to FCC regulation of web-based apps!  Again, this is the point we have stressed here again and again and again and again when opposing Net neutrality mandates: If you open the door to regulation on one layer of the Net, you open up the door to the eventual regulation of all layers of the Net.

George Gilder and I made this point in Senate testimony five and a half years ago. Advocates of big new regulations on the Internet should be careful for what they wish.

In what is sure to be a substantial contribution to both the technical and policy debates over Net Neutrality, Richard Bennett of the Information Technology and Innovation Foundation has written a terrific piece of technology history and forward-looking analysis. In “Designed for Change: End-to-End Arguments, Internet Innovation, and the Net Neutrality Debate,” Bennett concludes:

Arguments for freezing the Internet into a simplistic regulatory straightjacket often have a distinctly emotional character that frequently borders on manipulation.

The Internet is a wonderful system. It represents a new standard of global cooperation and enables forms of interaction never before possible. Thanks to the Internet, societies around the world reap the benefits of access to information, opportunities for collaboration, and modes of communication that weren’t conceivable to the public a few years ago. It’s such a wonderful system that we have to strive very hard not to make it into a fetish object, imbued with magical powers and beyond the realm of dispassionate analysis, criticism, and improvement.

At the end of the day, the Internet is simply a machine. It was built the way it was largely by a series of accidents, and it could easily have evolved along completely different lines with no loss of value to the public. Instead of separating TCP from IP in the way that they did, the academics in Palo Alto who adapted the CYCLADES architecture to the ARPANET infrastructure could have taken a different tack: They could have left them combined as a single architectural unit providing different retransmission policies (a reliable TCP-like policy and an unreliable UDP-like policy) or they could have chosen a different protocol such as Watson’s Delta-t or Pouzin’s CYCLADES TS. Had the academics gone in either of these directions, we could still have a World Wide Web and all the social networks it enables, perhaps with greater resiliency.

The glue that holds the Internet together is not any particular protocol or software implementation: first and foremost, it’s the agreements between operators of Autonomous Systems to meet and share packets at Internet Exchange Centers and their willingness to work together. These agreements are slowly evolving from a blanket pact to cross boundaries with no particular regard for QoS into a richer system that may someday preserve delivery requirements on a large scale. Such agreements are entirely consistent with the structure of the IP packet, the needs of new applications, user empowerment, and “tussle.”

The Internet’s fundamental vibrancy is the sandbox created by the designers of the first datagram networks that permitted network service enhancements to be built and tested without destabilizing the network or exposing it to unnecessary hazards. We don’t fully utilize the potential of the network to rise to new challenges if we confine innovations to the sandbox instead of moving them to the parts of the network infrastructure where they can do the most good once they’re proven. The real meaning of end-to-end lies in the dynamism it bestows on the Internet by supporting innovation not just in applications but in fundamental network services. The Internet was designed for continual improvement: There is no reason not to continue down that path.

In case my verses attempting an analysis of Quality-of-Service and “net neutrality” regulation need supplementary explanation, here’s a terrifically lucid seven-minute Internet packet primer — in prose and pictures — from George Ou. Also, a longer white paper on the same topic:

Seven-minute Flash presentation: The need for a smarter prioritized Internet

White paper: Managing Broadband Networks: A Policymaker’s Guide

Leviathan Spam

Send the bits with lasers and chips
See the bytes with LED lights

Wireless, optical, bandwidth boom
A flood of info, a global zoom

Now comes Lessig
Now comes Wu
To tell us what we cannot do

The Net, they say,
Is under attack
Stop!
Before we can’t turn back

They know best
These coder kings
So they prohibit a billion things

What is on their list of don’ts?
Most everything we need the most

To make the Web work
We parse and label
We tag the bits to keep the Net stable

The cloud is not magic
It’s routers and switches
It takes a machine to move exadigits

Now Lessig tells us to route is illegal
To manage Net traffic, Wu’s ultimate evil Read the rest of this entry »

What is the optimal economic arrangement to produce innovation and growth? And what is the optimal political arrangement needed to encourage and sustain such an economic order? I spend a lot of time thinking about these questions (as here in a paper on the rise of China). And so I’d recommend this thoughtful blog post by economist Scott Sumner. Sumner’s been blogging a lot on his recent trip to China and on the macroeconomics of the financial crisis/recession/rebound.

I disagree with a number of Sumner’s conclusions on the macro and political-economy fronts, but it’s insights like the one below that keep me reading Sumner.

Switzerland’s high level of democracy doesn’t just come from referenda, it also comes from its extreme decentralization.  This makes it a highly successful multiethnic society, and not just when compared to places like Yugoslavia and Iraq, but even in comparison to Belgium or Canada.  Another advantage of decentralization is that small places are less likely to be protectionist, as the gains from trade are much more obvious.  In addition, it is much easier to monitor and root out rent seekers in a community where most people know each other.

“TANGIBLE COMMON EQUITY, n. unknown origin. Definition unknown; purpose unknown; how it’s calculated, unknown; what federal regulators think it means, unknown. Usages: “Macbeth,” Shakespeare, W., Act II, Scene (i): “Is this TCE which I see before me…I have thee not, and yet I see thee still.”

“TARP, n. acronym. 1. A synthetic device designed to cover up an unsightly mess, or to protect perishable goods (firewood, banks) from the ravages of the elements, typically costing somewhere between $12.99 and $700 billion. 2. Prime example of how governments use otherwise anodyne acronyms, abbreviations and sports metaphors to disguise matters of controversy. See also TALF, TLGP, TURF, FHFA, BACKSTOP, WRAP, OFHEO and SPECTRE.”

— example entries from the “Devil’s Dictionary: Financial Edition,” by Matthew Rose, The Wall Street Journal, September 15, 2009

See this new paper from economists Rob Shapiro and Kevin Hassett showing how artificial limits on varied pricing of broadband could severely forestall broadband adoption.

To the extent that lower-income and middle-income consumers are required to pay a greater share of network costs, we should expect a substantial delay in achieving universal broadband access. Our simulations suggest that spreading the costs equally among all consumers — the minority who use large amounts of bandwidth and the majority who use very little — will significantly slow the rate of adoption at the lower end of the income scale and extend the life of the digital divide.

If costs are shifted more heavily to those who use the most bandwidth and, therefore, are most responsible for driving up the cost of expanding network capabilities, the digital divergence among the races and among income groups can be eliminated much sooner.

John Markoff surveys the near future prospects for Moore’s Law . . . and notes the first mention in print of the transistor, on July 1, 1948.

Do you suffer from “network deprivation”? I hope so. I do.

“In the end, perhaps the most misleading claim of the peak-oil advocates is that the earth was endowed with only 2 trillion barrels of ‘recoverable’ oil. Actually, the consensus among geologists is that there are some 10 trillion barrels out there. A century ago, only 10 percent of it was considered recoverable, but improvements in technology should allow us to recover some 35 percent — another 2.5 trillion barrels — in an economically viable way. And this doesn’t even include such potential sources as tar sands, which in time we may be able to efficiently tap.

“Oil remains abundant, and the price will likely come down closer to the historical level of $30 a barrel as new supplies come forward in the deep waters off West Africa and Latin America, in East Africa, and perhaps in the Bakken oil shale fields of Montana and North Dakota. But that may not keep the Chicken Littles from convincing policymakers in Washington and elsewhere that oil, being finite, must increase in price.”

— Michael Lynch, New York Times, August 24, 2009

“When George W. Bush nominated Ben Bernanke to be Federal Reserve Chairman in late 2005, we wrote that there was ‘at least rough justice’ in the fact that Mr. Bernanke would have to clean up a monetary bubble that he had helped to create. Alas, that was truer than even we feared, and yesterday President Obama rewarded Mr. Bernanke for his efforts by nominating him for a second four-year term.

“One request: This time around, could he make the mess and clean-up a little less bloody?

“A striking fact of the last two years of financial trouble is how accountability has differed in the public and private spheres. On Wall Street and across the country, decades-old firms have failed, fortunes have vanished, and some former captains of finance face jail or fines. In Washington, meanwhile, most regulators and Members of Congress remain on the job, often with enhanced power.”

— The Wall Street Journal, August 26, 2009

After challenging Andy Kessler over the Google Voice-Apple-AT&T dustup, I should point out some areas of agreement.

Andy writes:

Some might say it is time to rethink our national communications policy. But even that’s obsolete. I’d start with a simple idea. There is no such thing as voice or text or music or TV shows or video. They are all just data.

Right, all these markets and business models in hardware, software, and content — core network, edge network, data center, storage, content delivery, operating system, browser, local software, software as a service (SAS), professional content, amateur content, advertising, subscriptions, etc. — are fusing via the Internet. Or at least they overlap in so many areas and at any moment are on the verge of converging in others, that any attempt to parse them into discreet sectors to be regulated is mostly futile. By the time you make up new categories, the categories change.

Which naturally applies to one of the most contentious topics in Net policy:

Competition brings de facto network neutrality and open access (if you don’t like one service blocking apps, use another), thus one less set of artificial rules to be gamed.

Exactly. Net Neutrality could be an unworkably complex and rigid intrusion into this highly dynamic space. Better to let companies compete and evolve.

Kessler concludes:

Data is toxic to old communications and media pipes. Instead, data gains value as it hops around in the packets that make up the Internet structure. New services like Twitter don’t need to file with the FCC.

And new features for apps like Google Voice are only limited by the imagination.

The Internet is disrupting communications companies. Although yesterday I defended the service providers, who are also the key investors in all-important Net infrastructure, it is true their legacy business models are under assault from the inexorable forces of quantum technologies. Web video assaults the cable companies’ discrete channel line-ups. Big bandwidth banished “long distance” voice and, as Kessler says, will continue disrupting voice calling plans. On the other hand, the robust latency and jitter requirements of voice and video, and the realities of cybersecurity will continue to modify the generalized principle that bits are bits.

Even if we can see where things are going — more openness, more modularity, more “bits are bits” — we can’t for the most part mandate these things by law. We have to let them happen. And in many cases, as with the Apple-AT&T iPhone, it was an integrated offering (the exclusive handset arrangement) that yielded an unprecedented unleashing of a new modular mobile phone arena. Those 100,000 new “apps” and a new, open Web-based mobile computing model. Integration and modularity are in constant tension and flux, building off one another, pulling and pushing on one another. Neither can claim ultimate virtue. We have to let them slug it out.

As I wrote yesterday, innovation yin and yang.

“The flow of capital away from the U.S. is broad, deep and long-term. Investors can buy 20-year debt denominated in Brazilian reals or Chinese yuan, a monumental shift in the allocation of long-term capital. U.S. companies are shifting operations offshore in order to build and innovate more profitably. Meanwhile, the U.S. government is trapping billions of tech dollars — the lifeblood of innovation — offshore through an excessive repatriation tax. This is blocking much-needed industry consolidation, because an acquirer is forced to pay for the offshore cash without getting access to it.”

— David Malpass, August 20, 2009

There are two key mistakes in the public policy arena that we don’t talk enough about. They are two apparently opposite sides of the same fallacious coin.

Call the first fallacy “innovation blindness.” In this case, policy makers can’t see the way new technologies or ideas might affect, say, the future cost of health care, or the environment. The result is a narrow focus on today’s problems rather than tomorrow’s opportunities. The orientation toward the problem often exacerbates it by closing off innovations that could transcend the issue altogether.

The second fallacy is “innovation assumption.” Here, the mistake is taking innovation for granted. Assume the new technology will come along even if we block experimentation. Assume the entrepreneur will start the new business, build the new facility, launch the new product, or hire new people even if we make it impossibly expensive or risky for her to do so. Assume the other guy’s business is a utility while you are the one innovating, so he should give you his product at cost — or for free — while you need profits to reinvest and grow.

Reversing these two mistakes yields the more fruitful path. We should base policy on the likely scenario of future innovation and growth. But then we have to actually allow and encourage the innovation to occur.

All this sprung to mind as I read Andy Kessler’s article, “Why AT&T Killed Google Voice.” For one thing, Google Voice isn’t dead . . . but let’s start at the beginning.

Kessler is a successful investor, an insightful author, and a witty columnist. I enjoy seeing him each year at the Gilder/Forbes Telecosm Conference, where he delights the crowd with fast-paced, humorous commentaries on finance and technology. Here, however, Kessler falls prey to the innovation assumption fallacy.

Kessler argues that Google Voice, a new unified messaging application that combines all your phone numbers into one and can do conference calls and call transcripts, is going to overturn the entire world of telecom. Then he argues that Apple and AT&T attempted to kill Google Voice by blocking it as an “app” on Apple’s iPhone App Store. Why? Because Google Voice, according to Kessler, can do everything the telecom companies and Apple can do — better, even. These big, slow, old companies felt threatened to their core and are attempting to stifle an innovation that could put them out of business. We need new regulations to level the playing field.

Whoa. Wait a minute.

Google Voice seems like a nice product, but it is largely a call-forwarding system. I’ve already had call forwarding, simultaneous ring, Web-based voice mail, and other unified messaging features for five years. Good stuff. Maybe Google Voice will be the best of its kind.

There are just all sorts of fun and productive things happening all across the space. It was the very AT&T-Apple-iPhone combo that created “visual voice mail,” which allowed you to see and choose individual messages instead of wading through long queues of unwanted recordings.

But let’s move on to think about much larger issues.

Suggesting we can enjoy Google’s software innovations without the network innovations of AT&T, Verizon, and hundreds of service providers and technology suppliers is like saying that once Microsoft came along we no longer needed Intel. Read the rest of this entry »

The Technology Liberation Front is five today. Go check out these courageous defenders of Internet freedom, of which I am a too-infrequent yet proud comrade-in-arms.

Stanford economist Paul Romer has had lots of good ideas over the years. Particularly his ideas about the importance of ideas in the economy. But his “Charter City” idea explored at the recent TED conference is one of the best yet.

Maybe I like it so much because it so closely tracks the concepts offered in my long paper of last August called “Entrepreneurship and Innovation in China – 1978-2008 – Thirty Years of Decentralized Economic Growth”, a follow-on article in The Wall Street Journal, and a previous essay “Breaking Metcalfe’s Law” on the economic importance of the exchange of ideas.

Romer uses China’s “free zones” envisioned by Deng Xiaoping and initially implemented by one Jiang Zemin as the chief example of how his charter cities would work in practice. He explains how they might cut the political-economic Gordian knot of societies too stuck in the past to make obviously needed rule changes that open the floodgates of ideas and entrepreneurship. These were the key themes of my paper.

Also check out this working paper by Romer that surveys the economic growth literature (hat tip: Growthology).

Watch Tyler Cowen talk about his new book to Will Wilkinson. The book’s title, Create Your Own Economy, sounds like just another self-help business pamphlet. But you’ll see Cowen isn’t talking about business or money at all — at least not directly. His subjects are autism, “neurodiversity,” Adam Smith’s division of labor, and the Internet’s ability to match more people with their highly specific talents and passions. Far from the latest trope that “Google [or the Web] is making us stupid,” Cowen argues the the Web helps a vast variety of previously undiscovered intelligences, or “neuro profiles,” flourish.

See my new Forbes.com commentary on the Microsoft-Yahoo search partnership:

Ballmer appears now to get it. “The more searches, the more you learn,” he says. “Scale drives knowledge, which can turn around and drive innovation and relevance.”

Microsoft decided in 2008 to build 20 new data centers at a cost of $1 billion each. This was a dramatic commitment to the cloud. Conceived by Bill Gates’s successor, Ray Ozzie, the global platform would serve up a new generation of Web-based Office applications dubbed Azure. It would connect video gamers on its Xbox Live network. And it would host Microsoft’s Hotmail and search applications.

The new Bing search engine earned quick acclaim for relevant searches and better-than-Google pre-packaged details about popular health, transportation, location and news items. But with just 8.4% of the market, Microsoft’s $20 billion infrastructure commitment would be massively underutilized. Meanwhile, Yahoo, which still leads in news, sports and finance content, could not remotely afford to build a similar new search infrastructure to compete with Google and Microsoft. Thus, the combination. Yahoo and Microsoft can share Ballmer’s new global infrastructure.

Do we really understand just how fast technology advances over time? And the magnitude of price changes and innovations it yields?

Especially in the realm of public policy, we often obsess over today’s seemingly intractable problems without realizing that technology and economic growth often show us a way out.

In several recent presentations in Atlanta and Seattle, I’ve sought to measure the growth of a key technological input — consumer bandwidth — and to show how the pace of technological change in other arenas is likely to continue remaking our world for the better . . . if we let it.

Bandwidth Boom – NARUC Seattle – Bret Swanson – 07.22.09

Fascinating stuff from UC-San Diego’s V.S. Ramachandran, who has pioneered the understanding of mirror neurons using almost primitive experiments with store-bought mirrors . . . among many other wonders . . .

We recently estimated the dramatic gains in “consumer bandwidth” — our ability to communicate and take advantage of the Internet. So we note this new study from the Internet Innovation Alliance, written by economists Mark Dutz, Jonathan Orszag, and Robert Willig, that estimates a consumer surplus from U.S. residential broadband Internet access of $32 billion. “Consumer surplus” is the net benefit consumers enjoy, basically the additional value they receive from a product compared to what they pay.

“There’s also no denying that these distribution deals have benefited consumers. More than 30 devices have been introduced to compete with the iPhone since its debut in 2007. The fact that one carrier has an exclusive has forced other companies to find partners and innovate. In response, the price of the iPhone has steadily fallen. The earliest iPhones cost more than $500; last month, Apple introduced a $99 model.

“If this is a market malfunction, let’s have more of them. Isn’t Washington busy enough re-ordering the rest of the economy?”

– The Wall Street Journal, July 7, 2009