WASHINGTON, D.C. — The Hudson Institute is an American conservative non-profit think tank located 1km to the southeast of the White House.
Having FCC Chairman Ajit Pai discuss “the importance of economic analysis” at the Commission during a luncheon speech Wednesday (4/5) further puts the Trump Administration — and the 2-1 Republican majority’s views on economics — in full throttle as the regulatory body swiftly moves from the policies and approaches seen under previous Chairman Tom Wheeler.
For Pai, discussing the role of economics at the FCC at a conservative think tank “is a more academic topic and a more serious-minded audience than I’m used to addressing.”
Naturally, he began his keynote address by talking about sports.
His big announcement involved tackling four key problems regarding data collection and economic analysis through the creation of the “OED” — the Office of Economics and Data.
Pai was introduced by the only economist ever to serve as a Commissioner at the FCC — Harold Furchtgott-Roth, who chaired the Commission from 1997 through 2001.
He opened his address by linking “bigger, faster, stronger” baseball players and the defending World Series Champion Chicago Cubs to an idea born in the 1970s at a pork-and-beans plant in Lawrence, Kansas, to a boiler-room attendant named Bill James.
He came up with a revolutionary idea: use statistical analysis to test if the conventional wisdom about baseball was correct. James ran his analyses while keeping an eye on the furnaces during the nightshift, Pai recalled.
“It turns out that a whole lot of that conventional wisdom was wrong,” Pai said, noting that Theo Esptein — noted architect of championship teams with the Boston Red Sox before joining the Cubs — used advanced analytics to give his teams a competitive advantage.
“Imagine if Theo Epstein said tomorrow that he was going to reduce the influence of the Cubs’ analytics unit,” Pai said. “Imagine if Bill James said you didn’t need empirical data as long as you had enough anecdotal evidence. It would be unthinkable. Yet I worry that’s the path we’ve essentially been following recently at the FCC.”
Pai noted that, historically, the FCC had been a model for the use of economic analysis in federal policymaking. “We hired and empowered a world-class economics staff,” he said. “In turn, they’ve delivered policies that were a much bigger deal than a Cubs championship, unleashing hundreds of billions of dollars of consumer benefits.”
Despite this rich legacy, “staff economists are not guaranteed a seat at the policy-making table,” Pai lamented. “Increasingly during FCC proceedings, their views have become an afterthought, not an initial thought. Now is the time to restore the place of economic analysis at the FCC.”
“Staff economists are not guaranteed a seat at the policy-making table. Increasingly during FCC proceedings, their views have become an afterthought, not an initial thought. Now is the time to restore the place of economic analysis at the FCC.” — FCC Chairman Ajit Pai
In Pai’s view, spectrum license auctions are the “most notable example of good economics guiding good policy at the Commission, but hardly the only one.”
Quoting a White Paper from former FCC Chief Economist Gerald Faulhaber and Hal Singer, Pai said, “Economic analysis arguably reached its apex at the Commission in the 1990s, with an embrace of auctions . . . as well as an embrace of antitrust principles to guide regulatory intervention in areas such as wireless telephony and the nascent Internet.”
More recently, the Commission has adopted the use of reverse auctions to efficiently distribute universal service funds. “This means that ratepayers who help finance broadband deployment get the most bang for their buck, and that funds are more likely to be available to close the digital divide,” Pai said.
With the world’s first incentive auction now concluded, Pai “couldn’t agree more” with the point made by economists Faulhaber and Singer that “the economics staff at the FCC is of high-quality and no doubt the best in Washington in their understanding of the economics of telecommunications and the Internet.”
But, here’s the rub, in Pai’s eyes. “The FCC’s first-rate economists are not always used optimally,” he says. “It’s a serious opportunity cost for us and for the public.”
As Pai sees it, there are four key problems:
- 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,” Pai said. “There is no consistent approach to their use.” He adds that not only is there a lack of clarity about when and how they will be enlisted, there are no clear guiding principles for their work. “To me, the FCC should always take economics seriously, because the alternative is regulation by anecdote,” he said.
- Economists work in siloes. “This impedes their productivity and impairs agency efficiency,” Pai said.
- Cost-benefit analysis is largely ignored. “The public interest standard has become a free pass to adopt rules without a meaningful attempt to determine the net benefits,” Pai said. “The agency also hasn’t taken seriously its duty to conduct a Regulatory Flexibility Analysis during rulemakings to consider how our rules might affect small businesses.”
- Data. “The FCC has often used data poorly,” Pai said. “There’s a real opportunity to do better, both in how the data are collected, and how data are applied to make the best, most informed decisions possible.”
A REMEDY FOR A FIX
The state of the FCC’s economic analysis and data collection is not where it needs to be. So today, I’m launching a plan to fix it.
With those words, Chairman Pai announced that his starting a process to establish an Office of Economics and Data, or OED. “This office will combine economists and other data professionals from around the Commission,” Pai said. “I envision it providing economic analysis for rulemakings, transactions, and auctions; managing the Commission’s data resources; and conducting longer-term research on ways to improve the Commission’s policies.”
A working group of economists at the FCC will be charged with who will part of this office, with Commissioners Mignon Clyburn and Michael O’Rielly—as well as stakeholders outside the agency—involved.
“Based on their findings, they will develop a plan of action by this summer,” Pai says. “The Commission will then carefully consider that plan.”
Pai’s goal is to have the new office up and running by the end of 2017.
The OED would give economists early input into the decision-making process; ensure better management of data, reports, and analyses; and incorporate strategic, long-term thinking into the FCC’s processes.
“We intend to restore the tradition of staff economists spending time thinking about the future and publishing in the present influential white papers that keep us from being stuck in the past,” Pai said. “We need bright people who can focus on big-picture, out-of-the-box thinking. The FCC’s history shows how truly valuable this can be for the agency, and ultimately, for the American people.”
Not surprisingly, Pai ended his address right where he started — talking baseball.
“In baseball, as at the FCC, using analytics doesn’t dictate what your choices will be,” he said. “But, not using it means your decisions are more likely to go wrong. As the nation celebrates Opening Day, I’m delighted and excited that the FCC is getting back into the game of economic analysis.”
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