Much has been said about FCC Chairman Julius Genachowski’s comment, including his seeming flip-flopping, that he is concerned about one innovative business model—data caps on broadband. He said, “We should all be concerned with anything that is incompatible with the psychology of abundance.” But what has not been said is that the chairman sets up an injudicious measuring stick—broadband abundance.
That spectrum, and investment capital, is limited, and desire for more is well known. But Internet bandwidth will always be scarce. How do we know? An economic principle that has been observed over and over again.
As broadband became widely available, people immediately found ways to use it, from posting and watching video, to online gaming, to the use of a constellation of apps of “necessity.” This pace will continue as amazing new applications will demand it all; broadband supply will always be scarce and the “speed” of access will never be fast enough.
What is the economic principle being observed in these facts? Say’s Law.
Keynes defined Say’s Law as “supply creates its own demand.” Say wrote in explanation, “It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands.” Economist James Mill said it this way, “production of commodities creates, and is the one and universal cause which creates a market for the commodities produced."
So, in other words, Say’s observation was that whenever there is a supply of a valuable commodity, people find useful things to do with it. A glut, or abundance, will never occur, or if it does the market will rapidly correct itself.
As the FCC signals, via a notice asking the public how it should view data caps as part of broadband quality, that the cap issue is one that bears watching. Using the “psychology of abundance” as a means to justify opposing caps is nonsense. This standard only provides a never-ending justification for government meddling in a robust, rapidly growing market.
September 20, 2012