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Remarks of


to the
Federal Communications Bar Association

February 24, 1999

Thank you very much for inviting me to address you today. I especially appreciate this opportunity to speak before such a large group of distinguished lawyers. It's almost as large as some of the lobbying meetings in my office.

Well, before we moved to the Portals, anyway.

As an economist, I have a long-standing professional relationship with lawyers.

Economists may tell you that we have to learn a lot of math and statistics.

Don't believe it. We spend from four to six years becoming experts in lawyer jokes, and swear a secret oath never to reveal them under pain of death.

You may have looked at some economic journal articles that look like a combination of Greek and hieroglyphics. They actually are just coded messages with the latest lawyer jokes.

And if you have ever met an economist who seems a little pale, a little quiet as he mumbles to you, it is because economists are afraid they may inadvertently tell a lawyer a joke.

So many lawyers. The temptation to break the pledge is great.

My particular specialty is econometrics. And just what is that, you ask?

Well, by illustration, I know of three econometricians who went hunting with little toy pop guns, and came across a large moose. The first econometrician fired his pop gun badly to the right. Then the second econometrician fired his pop gun badly to the left. The third econometrician didn't fire, but shouted in triumph, "We got it, we got it!"

Yes, given enough shots, an econometrician will always "get it."

Economists don't get much respect these days. I was walking downtown on a recent morning, and a bum stumbled over to me: "Excuse me, Sir. Could you spare ten dollars for a cup of coffee."

I said, "Ten dollars? For one cup of coffee?"

The bum said: "Haven't you heard? There was a severe freeze in Brazil last night, and the longshoreman have declared a strike on the East Coast. By the time I go into a coffee shop this morning, the price of a cup of coffee will have reached at least $10."

Marveling, I muttered, "With a mind like that, you could be an economist."

The bum said rather indignantly, "Sir, I may be a bum. But I ain't no fool."

Washington is quite a place, isn't it. Even a bum can look down his nose at an economist in this town.

Most of you know Washington pretty well. In many ways, that is what the FCBA is all about. You know how this city works. You know how the FCC works. When someone who understands Washington wants a communications problem solved, they ask you to fix it. You know how to do that.

Most Americans, though, do not understand Washington beyond the passing images of a few famous people on television. Most have never been to Washington, or even know anyone in Washington. It is a very distant city.

These Americans have never heard of the FCC or the FCBA. When they have a communications problem, they don't call you or me. They don't know we exist. They may not know that some communications problems are created and solved in Washington. Or to the extent they know, they may believe that they have no capacity to be listened to in Washington beyond the anonymity of a phone call, letter, or e-mail to an unknown recipient in Washington.

But these ordinary Americans, these mere citizens, have voices. Voices that can get angry at times. They talk to their friends. They talk to their acquaintances. The person next to them in the check-out line at the grocery store. The person next to them in the reception line at church. The clerk at the gas station.

You know these people. They are your parents and grandparents. Your brothers, sisters, and children. They are the people in the town you grew up in or the town you visited last summer. They might be the bum on the street in Washington.

They are the 99.999 percent of Americans that you have never met, or whom you may have met but never discussed communications law. But someday you may meet one of them, and that person may ask you what you do.

And you will say that you are a communications lawyer in Washington. And they may say, "What does that mean?"

And you might say that you work on issues before the FCC.

And they might say, "What's that?" or "What do you do there?"

And what will you say then? It's a tough question to answer for people who don't understand how Washington works.

Will you say, "Oh, I have lots of endless meetings there behind closed doors," or "I help fill out endless forms," or "litigate endless cases"?

Is there an answer that will give this mere citizen some sense of pride about what goes on in Washington? I think there is. I would like to give that answer.

Begin by saying that the FCC is an agency that simply follows the federal communications law as written by Congress.

More specifically , the FCC should follow the law narrowly as it is written in statute, consistent with the Constitution and with court decisions. We at the FCC are law-followers, not lawmakers. We are merely regulators with limited power conferred by statute. Moreover, we do not even make "policy." Congress sets federal telecommunications policy. It is our duty to follow it.

When I say "read the law narrowly," I mean that it is not our role to invent or reinvent the law. It is not our role to embroider the edges.

Some will say that the Commission should be "bold," that it should assert "leadership." All too often, "boldness" and "leadership" are code words for going beyond the law. Some will say that the FCC should be aggressive and assertive in interpreting the law, and that the courts will rein us in as necessary.

I disagree. Our system of government relies on all branches and agencies to act responsibly within the law. Can the ordinary American understand an agency that wants to spend more time in court?

If we at the FCC lack the specific authority to force an individual, company, or industry to do something in one area, we must not threaten action in a different area where we actually do have power, in order to achieve the same result. All too often, I have seen the threat of regulation in one area used to influence decisions in another area. In my view, this is outside the law. I don't believe that the ordinary American could fathom how a police officer in their home town could decide whether to give a car a parking ticket based on whether or not the owner was appealing an unrelated speeding ticket.

The Commission must also abide by the Administrative Procedure Act and its requirements for open and transparent rulemakings: No decisions behind closed doors; An agency open and transparently visible to all Americans; An agency with no secret documents or secret rules. Open process is something ordinary Americans understand.

So there you have it. The economist says that regulation is first and foremost about the law.

But even in following the law, the FCC has some discretion, particularly in the details. How should we explain discretion to ordinary Americans?

First, have humility about the power of regulation

The most powerful natural force in the universe is not an atomic explosion or a solar energy or any physical phenomenon. The most powerful natural force is the human spirit. The human spirit that can know right from wrong. That can choose to do right rather than choose to do wrong. The human spirit that can conquer atomic explosions, solar energy or any physical phenomenon by the application of ingenuity to the betterment of mankind.

The human spirit is found in every individual. In the mere citizens across America.

It is God given; it is not the creation of government. Government can allow it to flourish; or government can crush it. We in government can allow the human spirit to flourish by enforcing laws that protect the product of human ingenuity:

contracts between and among people and businesses;
property rights including,
intellectual property rights,
Laws that make sure that the rules of government apply equally to everyone.

Make no mistake, when government officials speak of how much good has come from the Telecommunications Act of 1996, it is good that largely has come by getting the government out of the way. The Act is working well, and it is working best where regulation has decreased. Competitors have entered the market not because the government ordered them to enter but because the government stopped ordering them to stay out. Government did not create competition or innovation in 1996. We simply got out of the way and allowed it to flourish. Consumers have benefited by the government playing a less prominent role in the last three years.

How much more consumers would have benefitted had the government gotten out of the way earlier, we will never know.

Markets work because the human spirit has been unharnessed to the benefit of everyone.

Governments may crow about new technologies, or innovations, or competition. Governments do not create any of this. People do. Businesses do. Government merely enforces the law.

Second, keep it simple and predictable.

The econometrician in me says that it is better to be approximately right than exactly wrong. Complexity is often the product of an effort to be overly precise, and thus I look at complex regulations with skepticism.

Consider the Commission's much touted universal service cost model. It is so complicated that only a few computer programmers in the world actually understand it. You want to change it? Hire a computer programmer.

Countless years of brain power--both inside and outside the agency--went into this model. The Commission adopted it over my objections. Oh, it was going to do wonderful things. Forward-looking prices for every unbundled element for every wire center in America. Oh, what a magnificent model.

Now let's apply it to federal universal service. Let's try one parameter level, give states money if a study area's average costs are more than 150 percent of the national average. That's a good idea. Ut-oh. When you run the numbers, only 2 states get any money. Oh, that won't be politically acceptable.

Let's try a 135% benchmark! More states are covered, but the cost is an additional 500 million dollars of which most goes to just two states. That's not politically acceptable either.

So what do we do? The Commission staff suggests arbitrarily capping the amount per state to reduce the overall size of the fund and to spread the wealth. Of the 500 million recommended by the model, 60 percent will not go where the model recommends. Even by the standards of an econometrician, that is not a very good use of a model. Perhaps the results are a little more politically acceptable, but you don't need a fancy model to get to this net result of dividing up the pie equally among a few states. Moreover, now the model is a liability because the model yielded results that are wildly different from the politically acceptable results. Either we have confidence in this complicated model and use it. Or we should abandon the model altogether and stop using it as a symbol of economic rationality to mask a political division of money.

Third, where there is discretion, let governmental decisions be made as close to the people as possible.

In their entire lives, most ordinary Americans never personally know a member of Congress or Senator, or even a Congressional staffer.

A Regulatory Commissioner in Washington--you have to be kidding.

For most Americans, government in Washington is something you watch on TV, something you read about in the paper, something distant, remote, that cannot hear you personally.

But it isn't you next door neighbor.

It isn't someone you know from church or in civic organizations.

I believe that the government agencies that make detailed decisions affecting the day-to day lives of people ought to be close to the people. So that the people can personally scream at them when they do something wrong.

That goes on in towns, cities, counties and state capitals across America. But frankly, it doesn't really go on in Washington.

There is another reason that I like state and local governments: innovation.

Think of the great actions of the federal government:

guaranteed freedom of speech
guaranteed freedom of religion
abolition of slavery
equal protection under the law
equal rights for women.

All of these are innovations of state government, long before the federal government adopted them.

Fourth, where regulation is required by law, try to make sure that benefits significantly exceed the costs.

When we clearly have legal authority to regulate and are respectful of federalism, I believe we must consider costs as well as benefits when deciding whether and how to regulate. Our regulation is rational only when the benefits significantly exceed the costs.

Unfortunately, such common sense is not always practiced in government. All too frequently, we adopt a new rule or set of rules and publicly tout the myriad benefits of our decision yet ignore or fail to discuss the costs.

Even if all of our decisions have benefits, it is unfortunate that we make little or no attempt to enumerate and evaluate the costs of our decisions. Our negligence of identifying, measuring, and monitoring costs hampers rational decision making in the present, and it also impairs the ability of future commissions to assess the successes, failures, and continuing necessity of the rules we adopt today.

Indeed, the cost-benefit analysis I support should be applied not only to rules that we currently are considering for adoption, but also to the rules that already are on the books. Even assuming that all of our current rules were rational when adopted (again, this may be a stretch), it is by no means clear that they remain so today.

In 1996, Congress recognized this little bit of common sense and gave us the power to forebear from existing rules under Section 10 of the Act and, under Section 11, directed us to actively weed out the rules no longer in the public interest. As you may know, I have carefully considered the FCC's responsibilities under Section 11 and our performance of the 1998 biennial review. I hope that very soon the Commission will begin planning for the year 2000 biennial review, and that our second review will rely on the principle of rational regulation.

Fifth, view new technology as an opportunity to reduce, not to expand, regulation.

It is both cliche and understatement to say that communications technology is evolving rapidly. This new technology is enabling new service. And while much has been said about so-called "convergence," I believe the term is a misnomer. Indeed, "convergence" implies that somehow all technologies and services eventually will be identical. I do not believe this is happening or will ever happen.

Rather, all forms of communications technology and service are becoming increasingly flexible so that devices and offerings heretofore capable of only one or few functions soon will be capable of many different functions. As a result, the different technologies and services can be used in competition.

Contrary to the great temptation, I believe that we regulators should not try to force-fit the new, flexible technologies and services into pre-existing regulatory constructs that, in many cases, are decades old. Rather, consistent with statutory requirements, we should welcome the advent of the new, flexible technologies and services as the competitive basis to reduce or remove regulation of the old, inflexible technologies and services.

* * * * * * *

So there you have it: when you meet mere citizens, you can hold your head high and be proud of what you do in Washington. The FCC can and ought to be an agency that simply follows the law. In exercising limited discretion within the law, the Commission should follow five straightforward principles: humility, simplicity, decision making close to the people, economic rationality, and techno-friendliness.

These are not just my views. I hope that the entire Commission would agree with these principles.

In closing, let me say how much I have appreciated the opportunity to speak to you today and how much I look forward to working with all of you for the remainder of my term.