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Marketplace of Ideas

Catch up on some of the week’s big stories in economics without having to slog through all the pablum in the press:

  • How might the demise of net neutrality impact the economy? The FCC sparked a wave of soapboxing this week with its proposal to allow internet service providers to charge companies for prioritized service, rather than regulate ISPs as “common carrier” utilities like telephone companies. Will creating internet “fast lanes” stifle competition and reduce innovation, or will it allow ISPs to harness capital for investment in internet infrastructure? Senator Al Franken, who has called net neutrality the “biggest issue since freedom of religion,” says that now-successful companies such as YouTube would never have gotten a foothold on the internet if they weren’t able to compete on a level playing field with media giants. But not every internet startup requires the massive bandwidth of services such as Netflix, YouTube, or Hulu. In fact, Netflix has come out against fast-lane fees, no doubt because they could raise the company’s costs dramatically. But Republican leaders said in a letter to the FCC this week that maintaining net neutrality would “stifle one of the brightest spots in our economy” with “antiquated regulation.” Policy analyst Larry Downes agrees, arguing, “Public utilities can’t and don’t invest in the kind of fast-changing technologies that have long-defined Internet access.” Of course, there’s no guarantee that ISPs will use fast-lane revenue to pay for those investments. The real problem, says Hiawatha Bray in the Boston Globe, is a lack of competition: “Until we get more internet options, we may have to choose between overly broad federal regulation or overwhelming corporate greed.” Also cutting through the hyperbole, Re/Code has this reminder: “Internet traffic has really never been entirely equal and most people have been okay with that (or didn’t know the difference).”
  • Food prices are rising at the wholesale level, but many retailers say they’re finding it hard to pass those increases on to consumers. Deloitte’s annual American Pantry Study suggests 94 percent of consumers will keep their spending at the same level even if the economy improves. That means bargain shopping rather than taking higher prices for milk or meat at Wal-Mart. But profit margins on food are low—about 1 or 2 percent—so some chains, such as Chipotle and McDonalds, are trying to push higher costs on to consumers. Marketplace this week took a look at the cost of fast food meals in relation to workers’ wages: In the U.S., a typical McDonalds employee has to work about an hour to pay for a meal at the chain. Three meals a day, seven days a week works out to 21 hours of work, leaving 19 hours of a full-time workweek for clothing, shelter, and other necessities. Will Americans crimped by higher food prices turn to a strategy that worked during WWII? Small-scale “victory gardens” contributed an estimated 40 percent of the food consumed from 1944 and 1946. Perhaps urban farming isn’t just for hipsters.
2 Comments Post a comment
  1. Katy Delay #

    “Only if you believe there’s some idyllic ‘Main Street’ economy that hums along independent of the financial system can you argue with a straight face that we’d all be better off if the financial system had been allowed to collapse.”

    Thanks for the references to these informative books and to the fascinating debates to which they give fodder. However, I disagree with the above sentence. We will never know what would have happened if a few big banks had been allowed to collapse. It is entirely possible that we would have gone through an extremely stressful and scary but maybe shorter recession, and that perhaps the surviving banks would have begun, on their own, taking better care of other people’s money. Or perhaps the system would have collapsed. But my real point is that we will never know.

    Like

    May 19, 2014
  2. “How might the demise of net neutrality impact the economy? The FCC sparked a wave of soapboxing this week with its proposal to allow internet service providers to charge companies for prioritized service, rather than regulate ISPs as “common carrier” utilities like telephone companies.”

    This is a very interesting and nuanced topic. Absent from the writing I have seen is considering the fact that the big ISPs (e.g. AT&T or Comcast) are already regulated as common carriers for the telephone or cable services they provide over the wires (or wireless) they own. Surely, established carriers might desire more regulation to keep newcomers out or might want the status quo because it’s cheaper for them…any number of reasons. However, we shouldn’t pretend we’re adding regulation to a pristine free market – distortions abound.

    The topic calls for some “first principle” considerations. Would the free market provide adequate service?

    Like

    May 26, 2014

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