Federal Communications Commission (FCC) Chairman Ajit Pai placed a stake in the ground on Wednesday, committing himself to fix the lack of economics at the agency. Speaking (0) at the Hudson Institute, Pai announced that he is forming the Office of Economics and Data (OED) at the FCC. This is a good first step.
What is wrong with economics at the FCC?
Pai described four key problems with economics at the agency.
First, he said, “economists are not systematically incorporated into policy work at the FCC. Instead, their expertise is typically applied in an ad hoc fashion, often late in the process.” He is right. I recently spoke with several former chief economists for the agency — Democrat and Republican — and they were unanimous in this view.
He also said that the economists work in silos. There is a lot of truth to this. The agency has seven bureaus and 11 offices. Only one of the offices, Strategic Planning and Policy (1), is largely identified with economists. In actuality, economists are scattered across the agency and their work has no unifying identity.
Third, he explained that economic analysis, primarily in the form of cost-benefit analysis, is largely ignored. Actually, it is probably worse than that: Those types of analyses aren’t even done. For example, significant areas of the agency’s work in recent years — including defining broadband, deciding that internet service providers should be regulated as telephone companies, choosing asymmetric privacy rules in the online ecosystem, and pursuing the regulation of set-top boxes — contained nothing that would pass as economic analysis.
The fourth problem he identified is that the FCC doesn’t collect the right data and doesn’t carefully analyze the data it has. This is certainly true as evidenced by the difficulties (2) other analysts and I have had in finding correlations between some of the agency’s fact sheets on its data reports and the actual data in the reports.
What is Pai’s fix?
The chairman announced that he is forming the OED, which will be comprised of “economists and other data professionals from around the Commission.” The OED will provide economic analysis for rulemakings, transactions, and auctions; manage data; and conduct long-term research. He will task it with performing cost-benefit analyses of agency decisions and its data collection efforts.
It is clear from his comments that the chairman hopes to re-create the agency’s role as a thought leader in communications policy. He singled out FCC economist Even Kwerel to praise his groundbreaking work on radio spectrum auctions, something for which Kwerel is known around the world. Unfortunately, as former FCC chief economist Gerald Faulhaber and economist Hal Singer recently noted (3), the FCC staff released nearly 90 research papers since 1980 but has released none since 2012.
Will this be enough?
The chairman’s initiative is a refreshing and welcome change. I am confident that economic works will improve and perhaps even thrive while he is chairman.
But what we need is a change that makes it nearly impossible for the agency to return to the situation of the past few years, where letters from senators and videos from the White House were the primary sources (4) of economic analysis. This will require a deeper structural change.
To accomplish this, the commission will need to abolish its industry silos (5) — the wireline, wireless and media bureaus — so that turf wars cannot crowd out economic work. It would be better if the agency’s bureau structure emphasized disciplines, such as economics and engineering, to make analysis the focus of the agency’s work and to ensure that work occurs across bureau lines. Such a structure also helps ensure that staff professionals maintain their identities as professional economists, engineers, and the like, so that their loyalties are to the quality of their professional work, not to the whims of ideology.
It would also be valuable to establish a research fund so that young economists and engineers are excited to begin their careers at the agency and hopefully spend significant time there, perhaps their entire careers. Imagine what could be accomplished if the agency had multiple economists and engineers of the caliber of those cited by the chairman in his speech.
Some of these changes, such as discipline-oriented bureaus, could be embedded in the agency’s statutes to make the structure harder to undo.
Pai’s initiative and the deeper changes I identified are not permanent cures for the problems that plague the agency — bad leadership can destroy even the best organizations — but perhaps we can get the FCC back to being a world leader in rigorous thought. Pai has given the agency a start.