The Sad History of the FCC (with Thomas Hazlett)

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00:05 Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burrus.

00:07 Aaron Ross Powell: And I’m Aaron Powell.

00:10 Trevor Burrus: Joining us today is Thomas Winslow Hazlett who holds the HH Macaulay Endowed Professorship in Economics at Clemson University, where he also directs the Information Economy Project. He is also a former Chief Economist for the Federal Communications Commission, which is relevant to the topic of today’s podcast, which is his new book, The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone. Welcome to Free Thoughts.

00:32 Thomas Hazlett: Thanks for having me.

00:33 Trevor Burrus: Now, I’m gonna give you a loaded question to begin with and you can fill in the blanks. Why is television such a vast wasteland?

[chuckle]

00:41 Thomas Hazlett: Well, it was regulated that way. That is to say that early on, there was a lot of excitement. The 1940s, early ’50s, and in fact, even just using experimental licenses issued early on from the late 1930s, there were four emergent national television networks. And when licenses were issued in the TV Allocation Table of 1952. However, there were only enough slots assigned, so that we could have three national television networks. And so we actually killed off the DuMont network and it was by regulatory design, intentional or unintentional. Certainly DuMont, it was a great entrepreneur in the television industry, both making sets and in innovative programming. He screamed bloody murder and said, “No, you’re gonna kill us.” And certainly by 1955 they were dead.

01:38 Thomas Hazlett: CBS actually put together a plan that was very good for the top two, two-​and-​a-​half networks, NBC, ABC, and CBS. ABC being the half, and left no room for a fourth competitor. And then that system actually survives all the way until the deregulation of cable. Cable was actually suppressed in the ’60s and ’70s, even though it would bring the competition that had been foreclosed in the ’60s. It was actually suppressed to protect broadcasting. So you don’t get the flowering of the video market really until the 1980s, 1990s, then with cable TV. And of course today, that’s run right into the Internet in a much less regulated mode.

02:20 Trevor Burrus: The phrase, the vast wasteland, comes from who? I wrote a paper on public broadcasting awhile back, and I knew about this famous speech, and what he really… The man who said this, he continued to believe this for his whole life [chuckle], it seemed like.

02:38 Thomas Hazlett: Well, he’s still here.

02:39 Trevor Burrus: Oh, he is, okay.

02:39 Thomas Hazlett: And Newton Minow is still dining out on the most famous speech ever given by any American regulator, I assert, May 9th, 1961, Las Vegas, Nevada National Association of Broadcasters, the assembled executives of the television industry, the chairman of the regulatory agency faces them down and challenges them saying, “I dare you to sit down in front of a TV set and watch your product for an entire day. You’ll see just an unending parade of gibberish, and you have produced, I’m sorry to say, the vast wasteland.” He blamed them and he said very specifically, he was the new sheriff in town. And there would be consequences, specifically there would be new forms, new forms to fill out for renewals to use the public’s resources.

03:32 Thomas Hazlett: But when he got back to Washington, in fact, there were no new forms. In fact, what the FCC did is it moved to suppress the competitive medium, then emerging cable TV and carry the water for the incumbent broadcast television industry. So while they were publicly hectoring cable TV and blaming the private, excuse me, broadcast television and blaming the marketplace for the vast wasteland, they were creating it, producing it, and cutting deals with broadcasters in the public interest.

04:05 Aaron Ross Powell: So what was his specific gripe about the content of this wasteland? And when he’s saying you’re gonna fill out new forms, what kind of content was he hoping they would be putting out instead?

04:15 Thomas Hazlett: Oh, educational, public affairs, information. He hated the sitcoms, the westerns, the…

04:23 Trevor Burrus: Cop shows? Pretty much everything, it sounds like.

04:26 Thomas Hazlett: The senseless comedies. Yeah, the car chases, and the commercials, certainly the endless parade of commercials. So it was a criticism of a market that was created by the restrictions and regulation in essence, and policy makers were blocking the emergence of the world of tomorrow. Now today is the Golden Age, by the way, for television. Everybody knows this, because why? We’ve had an enormous deregulation. The licensed system of broadcasting from the ’50s, ’60s and ’70s is gone. It’s supplanted and displaced by the disruptive technology, first of cable, unregulated, unlicensed, and not in the public interest. And now that’s gone and, of course, the over the top provided largely over cable TV systems, now with competing telephone company DSL and fiber to the home competitors and wireless. But that deregulated system has an abundance of competition and we get lots of informational programming, everything from C-SPAN on the one side to BBC America on the other, and of course podcasts and the net, this is all the product of deregulation.

05:42 Aaron Ross Powell: Let me ask, you mentioned BBC. That seems like almost a counter example to this wasteland being a product of regulation because, yes, the American TV was creating lots of junk or it wasn’t creating the kind of stuff that he wanted, but the BBC has always been very limited. It’s the government’s TV stations, but it seems to produce relatively high quality content, both of an educational sort and of prestige drama and whatnot. Why didn’t the market lead to bad TV there, in that heavily regulated system?

06:17 Thomas Hazlett: Well, it did lead to bad TV in England, just not on that dimension. Yeah, it was a very elite product, and it really was of very little interest to the average viewer. And so, yeah, if you spend enough money and have resources and hire people from Cambridge and Oxford, you can do some very interesting programming, and it does well, it doesn’t dominate in the United States, but it does well in a competitive market. BBC America and the International British Broadcasting Radio Service is very competitive. And thank goodness for that choice here. Of course, in England, they didn’t have a choice and they suppressed rock and roll music, for example, for decades or, you know, famous story of the pirate ships, broadcasting offshore to try to give British radio listeners what they wanted, blocked by the BBC.

07:01 Thomas Hazlett: And then, possibly the worst blunder in the history of regulation, they suppressed Winston Churchill from challenging the other conservative party members in the 1930s, on the question of Hitler and the Munich Agreement and Neville Chamberlain. And they literally suppressed free speech through the use of a government monopoly broadcasting agency. So, the consequences of that were substantial, let’s just put it mildly. And really from a Civil Libertarian standpoint, from a pro-​competitive economic welfare standpoint, you’re not getting really the value out of broadcasting in England that people deserve. Now, there has been considerable deregulation in England, in Europe and so forth, a lot of it coming in again, through a new technology, specifically satellite television, which is their sort of version of cable.

07:56 Trevor Burrus: Now, BBC, and a lot of these state-​owned places represent the way that these governments could take two different paths when the wireless spectrum came out. It seemed that everyone kind of thought it was a public good, it was either gonna have the government own everything or license the spectrum, and we went with the licensing of the spectrum. Can you talk a little bit about that before 1927 radio days which, if you read Supreme Court opines, and I’m a lawyer, so I have read, My Red Lion, and things like this, where it was complete chaos and everyone was just trodding on everyone else’s frequency and someone had to come in and fix that, that’s the story we’ve heard.

08:35 Thomas Hazlett: Yeah, that’s one of the most fascinating nuggets. And historically speaking, I have a chapter called Myth Calculation and so what happens in the 1920s, very interesting, first of all, radio, as a practical method for communicating, really pops in, in the 1890s with Guglielmo Marconi, Nikola Tesla, and it’s great. You know, wireless communication taking away the wire, boy, that really helps communications. And there’s not much of an issue because there’s not much use of the technology. Radios are basically sold in pairs, people are communicating point-​to-​point.

09:20 Trevor Burrus: Like walkie-​talkies?

09:21 Thomas Hazlett: Yeah. And newspapers instantly grabbed that technology. In fact, traders on Wall Street wanted wireless coming in from London market, so that they could get ahead and make arbitrage deals in New York. So, anyway there are very specific uses and all the way through World War I, it’s kind of a boutique enterprise. What changes in 1920 is a business model, broadcasting. Broadcasting is actually an agricultural term. You’re not planting the seeds specifically, you’re just broadcasting. And that’s what this new technology did, it was one-​to-​many, not point-​to-​point. And it just instantly, I mean, November 2, 1920, is the birth of broadcasting, by most historical accounts. KDK in Pittsburgh, broadcast by the way, the political results, the 1920 election. And within two years, there are 500 American Broadcasters, the business model just takes over.

10:23 Thomas Hazlett: Now, there’s interference. There is a conflict. Now, there’s a reason for some rules about who can access radio spectrum. So it’s not a boutique enterprise anymore, it’s a marketplace that does need some coordination. The initial response was vested in the US Department of Commerce, because in a 1912 statute, immediately following the Titanic disaster, the Radio Act of 1912, there actually is a jurisdiction here for the Department of Commerce to issue licenses so as to minimize interference. And, the Department of Commerce is headed, in 1921, by Herbert Hoover, a very up-​to-​date, technologically speaking, engineer, educated at Stanford University, and a very successful engineer in the private marketplace, who instantly latches on to the technology, meets with the radio industry, starts sponsoring annual radio conferences and a regime develops.

11:22 Thomas Hazlett: First come, first served common law, property rights, priority and use, right of user, adverse possession, it has different names, depending upon the legal context. But it’s a very well-​known principle of property, that if you as an entrepreneur make use of some resource, and do something valuable for society, that there’s a protection in the law, that is potential to you, on a claim for your vested interest. And, in fact, the Department of Commerce is an agency that’s charged with enforcing these rights and they do, and they say explicitly we’re going to allocate these AM radio frequencies on the basis of priority and time.

12:05 Thomas Hazlett: If you’re there first, it belongs to you. Somebody might wanna come in, they can either buy your station and the frequency rights or they can negotiate for time-​sharing, a lot of time-​sharing. So, there actually is a property system, and that’s when radio develops. Okay, this is a killer application. The first, of course, in electronic communications. This is where millions of households by 1926 are buying very expensive, I should say, radio consoles to receive these signals. I mean, they’re about $1500 in today’s dollars for these big radio sets. And the market is developing. 1924 is called Radio Christmas. Madison Avenue gets ahold of this. This is gripping the zeitgeist. This is a big deal.

12:48 Thomas Hazlett: But what happens is, there’s a political coalition that develops to truncate entry. That is to say the incumbent radio broadcasters, the big ones, commercial stations, they wanted to have a mechanism to deny new participation in the market, competition. The regulators, senators, Hoover in Commerce, the White House, they want some control mechanism. They wanna be able to influence. They know this is a very influential medium of public opinion coming in. They wanna have some jurisdiction, they wanna… So the licensing idea catches on under a public interest standard that’s actually created and written, and suggested, and pushed, and lobbied by the National Association of Broadcasters, the incumbents trade association forms in 1925.

13:41 Thomas Hazlett: Anyway, so by 1927, they’ve got the law, signed by Coolidge, the brain child of Herbert Hoover, and proposed by a bipartisan coalition in Congress that wanted some governmental control over the content, and that’s what we got. We didn’t need it for the chaos because there wasn’t chaos. There was, in fact, as the Federal Radio Commission wrote in 1927, there was five years of orderly development, 1921 to ’26. Now there was a shift in the market and in fact we got a new law with what is called a “public interest standard” that means a regulatory agency. First, the Federal Radio Commission changed in 1934 without any substantial movement in the jurisdiction to what we have today, the Federal Communications Commission. That agency, members nominated by the President, confirmed by the Senate, they make a judgment on what a particular band of spectrum should be used for, the technologies deployed, even the business models, and then they assign the rights to particular parties that they think are worthy of the valuable right thereby bestowed.

14:53 Aaron Ross Powell: Given that spectrum is to some extent rivalrous, we can’t both broadcast on the same frequency. As the number of radio stations exploded, I’m just curious, how many radio stations could have realistically been in operation in this system of market-​based property? Were we in danger of bumping up against a reasonable cap at the time?

15:19 Thomas Hazlett: Yeah, so this is a great question. And in fact, what Trevor said before is apropos. The courts look at this, Supreme Court cases in 1943, the NBC case 1969, the Red Lion. It becomes accepted doctrines, some might call it dogma, that there were only a finite number of stations. I mean, the Supreme Court language is clear on this. There’s a physical scarcity, only so many stations can go on the air at the same time, and it turns out to be an incorrect assertion. I always say, “Okay, well, what’s the number? If there’s a physical limit, you tell me the number and whatever the number is, I’ll just divide it by two and say, let’s just cut them in half.” Meaning, time-​sharing agreements. Okay, they’re… Or just different distributions of the ownership. Just have two parties jointly own the same facility.

16:11 Thomas Hazlett: Now you say, “Well that’s cheating.” No, it’s not. These are the kinds of ways the spectrum is divided, there’s always lower power, there’s always better technology. You spend more on the receiver and the transmitter, you get more stations. There is no physical limit. Now, there are conflicts. And what you said before about, “Well, two stations can’t broadcast on the same frequency.” Well, yes and no. I mean, there are ways to divide the frequencies. I mean satellite radio gives you about 200 stations in a space that is not supposed to be able to give you 200 stations. They do it by certain efficiencies and economies and spending money on satellite transmission, and the receivers and so forth. And so, it’s all economics is what it comes down to.

17:00 Thomas Hazlett: Yes, you can have more, but it’s gonna cost you something. There are costs to doing this. And this is what Ronald Coase, the great economist, the late great economist, who ended up basically winning a Nobel Prize for his discoveries thinking about radio spectrum and how property rights and rules of the road are fashioned. What we like about competitive markets is that if you have ownership rights that enable people to compete and provide services for customers, and profit thereby, they tend to really get good information and make careful judgments about the trade-​offs. Do we want our customers to have to spend $10 more for a receiver to give them a little bit more diversity or higher quality, higher fidelity? What are these trade-​offs? Should the government mandate it? Well, yes, under Herbert Hoover’s system 1927, the one we still live under in broad structural respects today in terms of the legal regime, yeah, the government does decide that.

18:00 Thomas Hazlett: And so, they make endemic mistakes even if they’re perfectly right at one point in time. Of course, they have to be wrong tomorrow, because the dynamics of the market, the technologies change. We find out more about consumer demand every day and we find about new business models, experimentation, and market progress. But, yes, if we have the old rules in place, there are limits there, and you can’t roll over into a new technology. So as we sit here today, this is 2018, right? 1952, we had the TV Allocation Table for the great new killer app of the day, broadcast television. It was thought to be a wonderful way to deliver I Love Lucy. And guess what? We still have it. We still have bandwidth allocated as if we’re delivering, I Love Lucy, with terrestrial television broadcast. If I asked my teenage daughters, “Did you watch television today?” They’ll say, “Oh yeah. Yeah. I was binge watching Gilmore Girls.” Okay. They don’t…

19:03 Trevor Burrus: It’s not a television, per se, it’s different. It’s a screen, yeah.

19:05 Thomas Hazlett: Well, of course, it’s television.

19:06 Trevor Burrus: It’s a screen but it’s not over the air.

19:07 Thomas Hazlett: Okay. And in fact, they’re right and the FCC is wrong. Okay. The FCC still thinks it’s I Love Lucy from a broadcast antenna. And in fact, the market abandoned that a generation ago to go to cable. Then, of course, we went to satellite as a two national footprints for that, in terms of how you get your video. And now, that’s all passe with over the top. And in fact, the networks that give us over the top in many cases are wireless. They would love more bandwidth. They would love to have higher definition and lower prices for a bigger market. And if their input costs were less, if their spectrum cost, if they could get their hands on more bandwidth, that market would develop. It’s literally blocked by the 1952 TV Allocation Table. So those are the kinds of trade-​offs that the regulatory process… It’s not the bureaucrats. A lot of the regulators are very hip to this, and of course, have argued.

20:05 Thomas Hazlett: I worked at the FCC. I understand. I learned a lot from engineers, lawyers, and economists, at the agency. And this is true around the world. They’ll get together and say, “How do we change this? We’re boxed in by the politics. We’re boxed in by the legal constraints.” And indeed they are. So we just adopted a system, the Herbert Hoover system that turned out not to be friendly to science, technology, and progress and we get locked in so easily. The hard part of the book, if I could just say, is actually getting the ark because there is a switch. We have. The reason we’re sitting here thinking, “Wow. Wireless is amazing. Why are they talking about how terrible?” Yeah, you’re right. Wireless is amazing when you unleash it. And I talked about the cable television deregulation, which literally happens in the mid to late 1970s.

20:58 Thomas Hazlett: And then the over-​the-​top Internet environment comes in without the public interest licensing. So you see what’s possible in terms of the huge diversity relative to the big three, the vast wasteland. Then in spectrum policy per se, when you’re actually talking about allocating airwave rights, we started about the same time, the 1970s and ’80s to finally get to the mobile market. And the mobile market was key, not just in what it represented in terms of the technology… By the way, cellular technology 1945 Bell Labs.

21:32 Trevor Burrus: Yeah. I couldn’t believe that from the book. Yeah. They was proposed.

21:35 Thomas Hazlett: Cover story in the Saturday Evening Post interview with the FCC chairman, “Oh, we’ll get the licenses out in a couple years. That’s not an issue.” Well, it takes until the ’80s. But what really happens then is with cellular. You get away from some of the politics of broadcasting and the licenses are just relaxed, liberalized, and even competitive where the licensee is not locked into a business model, or a technology, or a particular service. By the way, on your cell phone today, you’d be shocked and amazed to know that there’s never been in the United States, a rule about going from voice to text, to Internet access data. That’s just liberalization leaving it to the market to figure out what the services are. That is radically different than in 1927 or 1934 when any new technology had to ask permission, the FCC chairs have called it Mother May I.

22:29 Thomas Hazlett: Okay. Oh, I have a new service. Can I provide it under a service authorized for voice? It’s called data. Well, why does the government have to decide that? Why not let these trade-​offs be… ‘Cause obviously there’s an interference issue. You can put data over it. The voice calls are gonna have an interference issue in spectrum space. So you let the market… You put spectrum out on the hands of competitive carriers, or anybody else. Call ‘em a non-​carrier. Call ‘em an un-​carrier. And you let consumers decide among them by their patronage. It sounds sort of like capitalism. We have some experience with this. Coase was amazed that we hadn’t thought of this before. He wrote in 1959 on the topic and said, “The price system worked so well elsewhere, why not let it work here?” Well, he was a visionary at the time and they thought they really made quite…

23:16 Thomas Hazlett: He actually went to the FCC and he gave testimony on this. They asked him, “You’re an economist. What is this big idea you have in the price system?” And the first question, the actual, the first words or the first commissioner asked a question. “Tell us, Professor Coase, are you spoofing us? Is this all a big joke?” You know they thought he was off the wall with this. But it turns out that in the ’70s and ’80s, in the US and in fact, around the world, there was a move to liberalization. Just put out some ownership rights de facto. Don’t even call it private property, but just liberalize these old licenses. Don’t specify what can be done. Let the licensee figure out what the service and the technology and the business model look like. And we’ll step back, we’ll delegate that to the market. Let’s see how that works.

24:06 Thomas Hazlett: Well, guess what? It’s 2018 and it’s off the charts. The idea that you go to the App Store or Google Place and there are over a million app, a million, these are wireless apps, all of them, all of them interfere with one another. Okay? I’m talking about Angry Birds versus Spotify versus your favorite cat videos on YouTube. All that stuff interferes. And it’s damaging, it’s dangerous. It’s chaotic. But it’s all managed by the technology on the one side, the pricing on the other. And the carriers compete to provide services that actually hosts those platforms. That level of complication is completely unfathomable under the old Herbert Hoover system of Mother May I, where the government actually has to select how the spectrum is used. And that liberalization from essentially the ’70s to the current, that has unleashed a whole universe, and so you have sectors now.

25:09 Thomas Hazlett: I took a Lyft to Cato, just now. Lyft and Uber are impossible to think of without liberalization of spectrum. And by the way when people talk about Lyft and Uber, nobody talks about spectrum. That’s the sign of success. It is totally background noise. It has created a platform and a universe, a wireless universe, a way of living, a way of communicating that now builds on itself, in a virtuous circle, an ecosystem of innovation that has left the old world behind. And the challenge now is to clean up, to take those lessons and clean up that 1927 radio regime and apply it to the 21st century. That is to… Even as we speak, and we’ve learned these things. Maybe 20% of the really valuable utilizable spectrum for communications, maybe 20% has been liberalized. And vast chunks are still allocated in the old way like in the broadcast TV table.

26:10 Trevor Burrus: Yeah. They love… They gave a lot of spectrum to broadcast television.

26:13 Thomas Hazlett: And they’ve left, they’ve left about half of it there, and then a lot of it is allocated to the Department of Defense or the US Forestry Department, in Downtown New York City. And we need mechanisms that liberate that spectrum and get more of it out there, so that we can have all these applications, multiplied by orders of magnitude. And with the 5G world that’s coming in, the next generation of wireless, Fifth Generation, there’s lot of excitement about it but it needs spectrum. And it’ll do better with more spectrum. It’ll go faster, your connections will be speedier, and your quality of service will be much higher. So that’s the challenge now, and I talk a lot about it in the book, how we can liberalize the process of liberalization. Speeding the future. And we’ve learned from the lessons of the past.

27:00 Trevor Burrus: Yeah. On that, one of my favorite stories you told in the book, there’s a lot of really crazy stories. I’m always surprised when I… I’m surprised how bad the government was. ‘Cause I’m a Libertarian. I expect the government to be bad, but there were times in your book where I said, “Really!” Including WEVD, that story. What was WEVD?

27:22 Thomas Hazlett: Well, Eugene V. Debs, the famous socialist, and a group of socialist in his honor, just after he died, I believe, bought a radio station. And it’s very interesting. This is prior to 1927. And this is in the chaotic days when supposedly there was a tragedy of the commons, and so forth, and so on. In fact, there were property rights as I said, enforced first come first served by the Department of Commerce. And so the socialists in New York did get together and bought this station and they were broadcasting socialists, leaning, programming content. And as you think would be part of the mix in a country protected by First Amendment and free speech, well the Federal Radio Commission takes over and now we have public interest licensing.

28:17 Trevor Burrus: Public Interest, Convenience, and Necessity.

28:19 Thomas Hazlett: Yeah, the standard is Public Interest, Convenience, and Necessity. Another place is, it appears as Public Convenience, Interest, or Necessity but it doesn’t make any difference if the words change, ’cause they don’t mean anything anyway, they just mean what the government wants to do, and of course you need a documentary record. You need a sort of pile of paper. We looked at this, we had hearings, we had experts tell us what to do. Okay, so it’s basically the administrative procedure. Anyway, the government goes on this licensing under the 1927 Radio Act, the Federal Radio Commission is now looking at stations and thinking about renewals. And they look at WEVD, and they noticed the programming. Now what does that have to do with interfering with other stations. To figure out which stations should be allowed to take up valuable space and which should not? You need a trade, you need to look at trade-​offs. And in fact, the courts approve this, much to my amazement.

29:11 Thomas Hazlett: Now I wasn’t around exactly then, but if I had been there, you might have been amazed too. But the WEVD comes up… And this is Republican FRC, Federal Radio Commission, and they see the socialists stuff on there, and they say, “This is a propaganda station.” That’s the term they used, propaganda. And they said, “You’re a mouthpiece.” That’s another term they used. Not a term of endearment. They said… Actually, they said they didn’t wanna be judgmental when they said it. But they said it was a mouthpiece, and you’re a mouthpiece for the Socialist Party. And that’s not right because these are public airwaves. Now of course, other commercial stations have had commercially successful programming, and they weren’t a mouth… That was sort of the standard. The commercial standard. You know don’t be too heterodox. Okay.

30:03 Thomas Hazlett: So they were warned and in fact they suffered, they had to curtail a lot of that programming just to maintain their license. They were warned. By the way, WCFL, Chicago Federation of Labor, same thing in Chicago, and they both backed off. The thing I like about WCFL, was eventually, finally made a deal with NBC, for programming, the big commercial network. Its time was not going to pro-​labor union causes anymore, and they end up being, the whole station, ended up being sold to Amway, I’m not making that up. Amway is where the Chicago Federation of Labor, another decidedly left-​wing propaganda station according to Federal Radio Commission ends up.

30:43 Thomas Hazlett: Anyway, WEVD, it ends up basically the same fate. They have to get out of the propaganda business, meaning the political controversy business. That’s what the regulations did. That’s where your public interest led. And it is amazing to see people today who call themselves progressive, saying that we need more public interest regulation of the airwaves. That is interesting.

31:03 Aaron Ross Powell: So that’s the, I mean it sounds like the Fairness Doctrine too.

31:06 Thomas Hazlett: Yeah, well, I love that one because as an economist I always like to correct the lawyers and the lawyers are always “Oh, the Fairness Doctrine dates to 1948 when we had this Fairness Doctrine policy for television.” Well, it turns out in 1929, as soon as the Federal Radio Commission kicks in and does these renewals, they craft a… They didn’t call it the Fairness Doctrine, but it’s the same thing and they look at the stations and say, “Are you really presenting important things that are of interest to everyone and not just your own narrow focus?” Again, mouthpiece, propaganda, that stuff comes up when there’s decided controversy. And so they go after conservatives a little bit. They go after the socialists quite obviously ’cause these people just stick out on the horizon, their heads are up.

31:48 Thomas Hazlett: And there’s some great stories historically about people who have been silenced. I say great, in the sense of “Wow, that didn’t work very well, let’s agree on that.” Particularly Civil Libertarians, no question, it’s a problem. And the public interest ends up in this vast wasteland as pronounced by the regulators themselves. Now, of course, when they’re pushing this to the market as though it’s private markets doing it, that is fanciful. In fact, not only is it this funneling, a very narrow channel, that there can only be three national television networks and they’re limiting of course voices on, over the air as well for radio. But they’re doing this quite with the acceptance and in fact, constructive engagement shall we say of the radio industry and the radio, which became by the way, the television incumbents right after, in the late ’40s, early ’50s.

32:43 Thomas Hazlett: So, yeah, there’s this conspiracy of interest between powerful private sector players and policy makers and it’s crafted with this vague standard under the public interest. It was quite obvious and in fact, there’s a wonderful book written by, the author of the 1927 Radio Act was Clarence C. Dill, a Democrat Senator from the state of Washington and he wrote a wonderful book called Radio Law when he left the Senate in 1937. And, yeah, he said basically it was the vaguest standard we could craft that would pass constitutional muster. That the courts would let us make these judgments and trade-​offs we had to have a standard and that was what we picked.

33:26 Thomas Hazlett: And in fact, he says, it came from the National Association of Broadcasters, they gave us the language. And so we wanted to control this medium of expression to some degree, and that was the degree we could control it to have these kind of a weak standard with political judgments about who could broadcast and what they could do.

33:48 Trevor Burrus: How did they go to war against like, your story about the cable which I can’t remember, some place in Pennsylvania, like how the guy first created cable. My mom grew up in the ’50s in rural Oklahoma and she only had cable for this reason, but the broadcasters seemed to have… They weren’t totally into this cable stuff for quite a while. And then for some reason, UHF keeps coming up all the time, they keep bringing up, UHF is a prominent figure in this story where they want UHF channels or trying to get more UHF channels. So how does the war against cable kind of start and where does it end up?

34:21 Thomas Hazlett: So, I talked a little bit about the 1952 TV Allocation Table and DuMont who’s the fourth and fledgling network saying, “Please give out a small number of very high-​powered station licenses.” And like there’d be in the Northeast, you might be able to give out seven in the Northeast and they would go all the way from Maine to New York and have a big footprint. The alternative was to go local, a policy of localism, where you power down the stations and you have Boston and you’ve got Providence, Rhode Island, and you’ve got Albany, New York, and you’ve got New York City. But hang on a second, if you do it that way, if you go to localism, you can’t have the high power and, in fact, you have to leave a lot of vacant channels because Channel 4 in Boston is gonna interfere with Channel 4 in Providence.

35:16 Thomas Hazlett: So you’ve gotta leave a whole bunch of channels blank in Boston, a whole bunch of channels blank in Providence. Guess what? Out of 12 VHF signals now, you’re way down. In fact, you might go down to three national viable networks with enough coverage to compete with one another. Remember, if you have a national market and you can only be in 30% of the market, the ones that have a 100% coverage, they’re gonna be able to obviously monetize a lot more value out of what they broadcast and they’ll have higher quality programming and now it’s not just you got a third of the market, and they have 100% possible, you’ve got a third of the market and you can’t afford to do the programming to compete to even maintain that and you spiral down.

36:00 Thomas Hazlett: And so that’s what happened in this. I don’t know if I’ve explained it properly. We have a chapter in the book that tries to do justice for this. It’s a very technical rule but it’s easy to understand and it comes out where the upstart competitors who don’t have the market share, CBS or NBC. They’re saying, “Look, have coverage for four or five, six national networks you can easily do it.” And the government says, “No, we’re going to do localism.” Now, I’ve always joked that the optimal program here is 425 local because you want…

36:37 Trevor Burrus: 435 Congressional District…

36:39 Thomas Hazlett: 435, sorry. It’s 435, yeah.

36:40 Trevor Burrus: Like the optimal tank.

36:41 Thomas Hazlett: I got to go back to civics.

[chuckle]

36:43 Thomas Hazlett: So, yeah, the optimal… Yeah, take that… A weapon system that may or may not work but it’s manufactured in 435 Congressional District. That’s the optimal offensive weapon. But exactly, so you want congressional control here, it figures prominently in the maps that are used by the regulators. You talk about politicizing a market. Well, the end of the day, you get the vast wasteland. You eliminate DuMont. Wait, we don’t have to run the experiment. We did the experiment. And so that is very anti-​competitive. Now, the government sees this and they say, “Don’t worry, we’ve already allocated all these channels in UHF.” UHF had a big handicap though. They have lower power assignments, they didn’t go as far. They were higher frequencies and most TVs of course in the early days couldn’t even get UHF reception.

37:34 Thomas Hazlett: There was the All-​Channel Receiver Act of 1962 that it actually mandates that by ’64 all the TV sold in America can get those channels. But that didn’t fix the problem because the UHF… The signals didn’t go as far. But the government’s answer, “Why is there only three? Why is it a vast wasteland?” “Oh, we have all these UHF for all these… Well, it didn’t go anywhere.” Then cable comes along.

38:00 Trevor Burrus: And cable was just a guy who first goes and picks up a bunch of the stations over the area…

38:06 Thomas Hazlett: Yeah. And tell them…

38:06 Trevor Burrus: And then runs a cable down.

38:07 Thomas Hazlett: Yeah.

38:08 Trevor Burrus: And to hook up people who can’t get them.

38:09 Thomas Hazlett: Yeah, there’s a guy in Mahanoy City, Pennsylvania, who does this, 1948 is kind of famous in the industry and he’s selling TV sets. And to sell TV sets, he actually has to take customers up to the top of a mountain. [chuckle] He worked, this guy worked part-​time for the electric company. So he actually got an electrical hook up that was up the mountain, and he got Philadelphia stations. And then of course, he figured out I can’t take everybody up there and sell them a TV one at a time by taking them for a drive. So he wires down an antenna. And so it’s a community antenna television line and he has the antenna up on the hill. He brings the line down and then people come in the shop and they say, “That’s a fantastic television and I’m gonna buy that.”

38:54 Thomas Hazlett: And he says to them, “You know, when you it home don’t… If you’re not getting reception like this, don’t call and tell me you don’t like your TV.” And they say, “Well, how can I get reception like this?” He figures out, “I’m gonna charge everybody $5 a month and I’ll extend this.” So, what happens is through the 1940s and ’50s then, TV broadcasters have no problem with cable TV because these places like Mahanoy City, Pennsylvania, that are 50 miles or so from Philadelphia and there are mountains in between. And they’re extending the TV signals from Philadelphia giving a larger market to people to see the advertising and watch broadcast TV.

39:36 Thomas Hazlett: Then what happens in the early ’60s is that some cable operators have the idea to go into places that get over-​the-​air television like San Diego, California, Cox Cable. And they microwave, LA signal, South, LA TV. And they say to the people in San Diego, “How do you like to watch the LA Dodgers and popular programming that’s on LA TV that you can’t get in San Diego?” And it’s competing with San Diego television. And they start selling cable TV competitively with broadcasting. What happens in the ’60s is that the FCC actually looks twice at regulating cable. And both times they say “no”. And in fact in the late, about ’59, they write a report that says, “We don’t even have jurisdiction. And why would you wanna stop this?” It’s just… It’s totally benign. It’s just extending, you know, it’s community antenna television. It’s not even a federal issue.

40:28 Thomas Hazlett: In 1962, just after the “Vast Wasteland” speech, the Newton Minow FCC with Minow voting for suppression of cable reverses FCC policy and says, “To protect over-​the-​air broadcasting, and specifically the fledgling UHF stations,” the ones that nobody’s getting. We’re going to block cable TV. And for 15 years, they blocked cable TV. Now, finally in the mid-​70s, under Ford and Carter actually, this turns out, you know, in the deregulation wave of the ’70s. Anyway finally, when you deregulate cable late ’70s, early ’80s, cable builds out America. Okay, America gets wired. When do we get the 4th network? I said, “DuMont died in 1955 ’cause the FCC suppressed it through its licensing.” We don’t have a fourth network until 1986. Fox, and why does Fox come in the market 31 years later?

41:28 Trevor Burrus: UHF was, I mean, I remember getting Fox on UHF channels.

41:33 Thomas Hazlett: UHF. UHF, remember the argument of the FCC in the ’60s, “We have to suppress cable because UCF can’t stand the competition.” They didn’t wanna say VHF ’cause VHF was powerful. CBS, NBC, ABC, that was… Those were the big boys. But it’s the fledgling, the little UHF, the educational channels on UHF educational, the name for PBS now. In fact, UHF was nothing until cable could put them on and transmit next to VHF signals, then the handicap for UHF disappears. People start watching UHF. That’s why Fox comes in the market because now with the UHF channels on cable, you can get a fourth national network.

42:16 Thomas Hazlett: And then there’s Telemundo and there’s CW and, well, there’s all these broad… We actually have several, seven or eight broadcast networks today, because a cable, and then of course hundreds, literally about 1000 over-​the-​air cable TV networks. And then of course, unlimited essentially with over-​the-​top Internet.

42:35 Trevor Burrus: This is, this whole crazy story of the FCC. We gotta ask, “What about net neutrality?” Now that we see that the FCC is so not very good at determining these rules of the road, we have this new medium that’s coming out, I mean the Internet is not exactly new but an emerging one with new things and everyone’s wanting net neutrality. And reading your book, I mean, I was against net neutrality before but reading your book, I was like, “Man, I do not want the FCC to touch, I mean if Ajit Pai is there, but if it’s not him, they could do a lot of damage to the Internet if this kind of net neutrality stuff goes forward.”

43:12 Thomas Hazlett: Well, absolutely, and…

43:14 Trevor Burrus: And it would be the same story. It kind of seems like it could be the same story.

43:17 Thomas Hazlett: Yeah, well, it could be. You know, in the book, I don’t specifically talk a lot about net neutrality, but there is a regulatory overhead that hangs out there for wireless, even in an age again where wireless is the entrant. Wireless is coming in to compete particularly with 5G. They’re competing against cable and telephone company fixed-​line connections now because they’re getting faster and faster. You know, 20% of households, even as we sit here now, before 5G, it’s the 4G world. 20% of households are “smartphone only.” And of course, the younger generation, getting a lot of video on the handset, you know their eyes are better, they can see this stuff and they’re never gonna have a landline at least as we can see now, who knows? I’m not gonna make a call for 20 years. That’s what the FCC tries to do. But the point is that, the last thing in the world is you wanna put this public interest system.

44:10 Thomas Hazlett: And with these other ingredients of price control, entry controls, service and quality regulation, under Title II, then literally the 1934 Communications Act which we had to peel away. I mean, the net neutrality story is strong on its own in terms of deregulation works. In fact, the amazing thing about the idea today that to protect openness, you need regulation is that we had Title II that had to be paired back to get to legalize AOL as an ISP, even in the dial-​up age, to get broadband, we had to allow cable operators and then telephone operators were deregulated later to come in and provide high-​speed Internet. And Voice over Internet was blocked by common carrier rules. They had to be eliminated from the requirements of being a telephone carrier.

45:03 Thomas Hazlett: So there’s been a history of deregulation for Information Services, and that has been enormously successful. The market itself has developed a largely open platform, but not without vertical integration, not without pricing, not without business deals, not without things like zero rating and “Binge On”, but actually give the customers more in terms of access to services that aren’t completely priced like common carriers might. And people get mixed up about this, they think for example that FedEx, the overnight delivery business is common carrier regulated, it’s not. A lot of these markets just evolve in an open and very competitive way on their own, what the government ought to do is make it more competitive, allow more spectrum in the market, allow more players, and continue this liberalization that we’ve seen so successful over the last 30 years.

[music]

45:56 Trevor Burrus: Thanks for listening. Free Thoughts is produced by Tess Terrible. If you enjoy Free Thoughts, please rate and review us on iTunes. To learn more, visit us on the web at www​.lib​er​tar​i​an​ism​.org.