Guest Blogger: Ed Lopez

Ed Lopez, co-author with Wayne Leighton of Madmen, Intellectuals and Academic Scribblers and president of the Public Choice Society, will be guest blogging at Marginal Revolution this week. Madmen is about the process of political change, where we are, where we should go and how can we get there given the insights of public choice economics. If, to quote Jim Buchanan, public choice is “politics without romance,” then Madmen is about revolution without romance–how political change can occur in a democracy. One of my favorite stories in Madmen is about Coase’s idea to auction spectrum rights.

But to allow the market to determine even the question of assignment meant a significant change in the status quo. When he was called to testify before the agency shortly before his FCC paper was published [in 1959, AT], Coase’s reception was indicative of how political institutions—especially Congress but also the FCC—would view his idea for decades to come. Commissioner Philip Cross began with the question, “Is this all a big joke?”

A decade later one former FCC commissioner wrote:

The Commission has absolutely no intention of considering them now or in the foreseeable future. They are purely the mind-spinning of an academic bureaucrat.

Most interestingly, in 1969 the RAND Corporation commissioned Coase, along with William Meckling and Jora Minasian, to produce a report on “Problems of Radio Frequency Allocation.” The Coase/Meckling/Minasian report was written in 1969 but not released until 1995! The report had been deemed too politically sensitive to publish and had been suppressed.

Eventually, however, first academics then many politicians and then even the FCC became convinced that spectrum auctions were feasible and as it became clear that money was to made that they were also desirable. Even after the idea earned fairly widespread acceptance, however, it took many years to be implemented because the Congressional committees with oversight of the FCC and the industry did not want to give up power. The right to allocate spectrum gave the members of these committees power which they transformed into campaign contributions and political support.Spectrum auctions were not implemented until they were also crafted to give advantages to some groups that these committees wanted supported. The payoffs to the new technologies, however, were so large that even with transaction costs and rent seeking a bargain was possible, a truly Coasian bargain.