Bitter inequality in Latin America—the legacy of Spanish colonialism, dependence on commodity exports, and bad government from both the left and right—has long been the shame of the region. Brazil, for example, has been dogged by poverty and extremes of income rivaling that of South Africa, the world’s worst offender on this score.  Moreover, following the advice Latin America got from international development agencies—the mix of fiscal/monetary prudence, deregulation of markets, and open capital markets known as the Washington Consensus—only seemed to make inequality worse during the 1980s and 1990s.

The standard explanation is that income distribution in Latin America started in a very bad place during colonial rule. And what began as ruthless exploitation by Europeans and then locked in by the elites that succeeded them, has been sustained—even exacerbated—in recent decades by the forces of globalization. But to just about everybody’s surprise, the trend reversed sharply after 2001.

In part, the improvement is simply a product of the dates that bracket the measurement period. Latin America was recovering from the global recession in 2001, and the resulting rise in employment helped to trim back poverty. But only in part: Cornia estimates that just one third of the change can be linked to the reduction in unemployment. And tellingly, the far deeper global recession of 2008-9 did not erode the ground gained after 2001.

So what could account for the good news? In a nutshell: more competent democratic government, combined with a mild tilt toward antipoverty policies favored by the center-left.

First, the competence part. Many Latin governments used the windfall from taxes on commodity exports in the last decade to stabilize their economies, balancing their budgets and keeping inflation under control. This is a very big change from the bad old days, when politicians spent lavishly on their favored constituents during the boom years (often exacerbating inflation) and then had no cash on hand to get through recessions. Chile has even made this countercyclical budgeting process automatic, legally requiring the government to sequester revenues from copper sales in the good years.

Changes in policies toward the poor, though, have also made a big difference. Latin America lurched to the left in the last decade, most visibly in the radical-populist regimes of Hugo Chavez in Venezuela and Evo Morales in Bolivia. But during these years, center-left governments in Brazil, Chile, and Argentina pursued modest redistributive polices aimed increasing living standards for the very poor. Cornia estimates that spending on antipoverty programs explains one fifth of the reduction in inequality, while increases in the minimum wage (buttressed by increased investments in primary and secondary education) explain another fifth.

Is there a lesson here for developing countries in which income redistribution measures are widely viewed as antithetical to growth? No and yes.

One ironic reason that modest changes in policy had a significant effect in Latin America is that inequality is so pronounced. In Brazil, for example, small cash incentives offered to very poor families to send children to school significantly increased their living standard. China, for its part, must also cope with a divide between rural and urban consumption. However, nothing like that faced by Brazil because the great majority of Chinese villages already have adequate primary education and clean drinking water. And the sums needed to make a material dent in China’s rural poverty—say, by building housing or bringing medical care up to urban standards—would be quite large.

But Latin America’s largely successful foray into social democracy should be a reminder that developing economies need not ignore social justice in the name of economic efficiency—that, if carefully targeted, spending on the poor need not bust budgets or undermine incentives for growth. Hey, there might even be a lesson here for rich countries that can no longer “afford” compassion.

(This post was also published in U.S. News & World Report.)

Here’s what’s happened: The current generation of telecommunications is not only better in various ways than landlines, but considerably cheaper. So many countries in which landlines were beyond the means of the average worker have been blanketed with cell phones in the last decade, thereby leapfrogging the old technology.

Wait, it gets better. Cell phones are what is often called a “disruptive innovation“—one that has implications for productivity that go far beyond the immediate benefits of cheap, reliable communication. Indeed, a new World Bank study of cell phone use in Kenya suggests that the new technology is democratizing financial markets, opening the door to faster, more equitable economic growth.

In 1999, just 3 percent of Kenyans owned a phone of any sort; today, the figure is 93 percent (not a misprint). Phone use is thus ubiquitous in urban areas and commonplace even in remote parts of the country, generating all the obvious benefits. But the study’s authors, researchers at the World Bank’s Kenya office, focus on a benefit that is far from obvious: Just as cell phone technology bypassed landlines, electronic banking facilitated by cell phone technology is bypassing banking that depends on bricks and mortar.

With the help of Britain’s Department for International Development (and tolerance of Kenya’s central bank), Safaricom, Kenya’s biggest mobile telecom company, introduced a form of E-banking in 2007 that allows phone subscribers to send money by instant message. No bank account is required. Users buy E-cash which is stored on their SIM cards from the same variety of small local shops that sell minutes. The folks at the other end of the text message can then redeem the transfer in the form of paper money from their own local Safaricom agents—or transfer it electronically to somebody else.

E-banking took off at light speed: Three out of four Kenyan adults are now registered to transfer money electronically, and one in four says he makes at least one transaction a day by phone. One reason is that Safaricom’s system (called M-PESA) has three competitors, all of whom have had the good sense to allow cheap transfers across systems. Probably the more important explanation—apart from convenience and cost—the World Bank researchers say, is fear of theft of paper money in a country in which traditional bank accounts, credit cards, and paper checking are out of reach for the great majority.

Mobile money does all the good things for productivity you might expect—among them, reducing the amount of working capital that businesses must maintain and providing financial security for households by allowing instant transfers to family members and friends. But the researchers note one major unexpected benefit, too: encouragement of savings. SIM cards can securely store up to 100,000 Kenyan Shillings—roughly $1,200. System users can also link their E-accounts to bank accounts, which offer the potential for earning interest on savings.

The study found that, other things equal, M-PESA account holders saved 12 percent more than Kenyans without accounts. That’s, of course, exceptionally important for the households involved. But it also has macroeconomic implications, increasing the potential for economic growth without reliance on foreign capital.

What works in Kenya ought to work in other developing countries. And apparently, we’ll soon find out. Vodafone, which developed M-PESA, has introduced it in Tanzania, South Africa, and Afghanistan. In Afghanistan, incidentally, it was initially used to pay policemen. One consequence: The government “discovered” that 10 percent of the people on the payroll didn’t exist.

Economists generally assume that the sources of economic growth in developing countries are very different than those in rich countries. In the former, what really matters is the transfer of workers from unproductive to productive activities—typically from farming to manufacturing and services. In the latter, it’s technological change in which workers become more productive without moving or doing something qualitatively different. The dramatic rise of E-money in Kenya suggests that both sources of growth can drive growth in developing countries—good news, indeed.

(This post was also published in U.S. News & World Report.)

Facebook is certainly hinting at a major foray into search, which is enough to keep the media wheels spinning. But the company may have nothing more in mind than some needed tweaks to its existing website search capacity. Or maybe this is much ado about nothing—other than polishing Facebook’s image as a go-getter on the eve of its IPO.

Still, the rumors du jour should serve as a reminder that no corner of information technology is safe from what Joseph Schumpeter famously called “creative destruction.” That, in turn, should remind us that the public policy governing what is OK to do in the marketplace and what’s not is based on assumptions that rarely apply to the industries powering innovation and growth in advanced industrial economies.

Antitrust policy is built on the notion that market concentration, collusion or nasty behavior toward rivals undermines efficiency by allowing producers to charge more and to block innovation. That’s not a bad rule of thumb for “old economy” industries. Before Japanese auto makers broke through the barriers, Detroit charged too much, divvying up most of the surplus between workers and managers. Worse—much worse—auto industry technology and productivity stagnated, as stakeholders sheltered their pockets of privilege from the winds of change.

But high-tech industries in general, and information technology industries in particular, are an entirely different sort of beast. Market concentration and huge profits are typically a consequence of economies of scale and returns to intellectual property, not monopoly power. (It costs no more to produce 10 million copies of Microsoft Office than 10 copies.) And while the management of the current crop of winning companies may be as eager as monopolists of yore to bar the doors to rivals, rapid technological change denies them the opportunity.

Thus IBM’s lock on mainframe computing was broken by the arrival of small-scale computing. Microsoft’s dominance of business-applications software faded with the rise of the Internet. Google’s position at the top of the latest pecking order is under siege from innovators in social networking and mobile communications. And Facebook faces ill-defined but serious threats from a dozen firms (not least of them, Twitter) eager for attention and gigabucks.

That reality has not stopped government regulators from applying the old rules. IBM and Microsoft fought competition authorities on multiple continents, even as they lost their fleeting dominance. It’s hard to say whether the suits (more precisely, the caution induced by government scrutiny) handicapped them much in the endless race to stay at the head of the pack. Or, for that matter, whether Google will also suffer from the slings and arrows of antitrust fortune. But, with hindsight, it’s obvious that the IT behemoths must run ever faster to stay in place—and that competition regulators can’t show that their intervention has made the products of the IT industry any better or cheaper.

For one thing, in a world lacking bright lines to delineate anticompetitive from merely aggressive business behavior, good policy is inherently difficult. For another, competition policy is not set or enforced in a vacuum.

The challenge to regulators is devising smarter, more flexible enforcement of the antitrust laws in an era of rapidly evolving technology. They must be able to distinguish the fruits of innovation from old-fashioned monopoly profits. And they must withstand intense pressure from interest groups with billions to win or lose. Probably the best case for optimism is that the forces driving change in information technology are apparently very robust—that it takes a whole lot more than regulators are likely to dish out to slow progress.

(This post was also published in The Wall Street Journal.)

Back up for a moment. The European Union has been leading the charge on market-friendly measures to curb emissions that affect climate change. As part of the initiative, in 2013 it will require airlines that land or take-off from European airports to pay according to how much they spew into the atmosphere. But non-European Union airlines (and their governments) are screaming foul: In February, 26 countries (including China, Brazil, and the United States) held a pep rally in Moscow to declare their opposition.

Threats to refuse to pay, and thus to suspend flights to the European Union, don’t seem especially credible; European routes are far too important for most international airlines to risk, especially when one considers that the rules won’t favor one carrier over another. But China has taken a more ominous tack, threatening to block some $12 billion worth of aircraft sales by Airbus to Chinese airlines. (The owners of Airbus include, among others, the governments of France and Spain as well as Daimler-Benz.)

It’s hard to know what the Chinese are actually up to. On the one hand, China’s airlines could buy substitutes from Boeing, and (in the case of smaller aircraft) from Brazilian and Canadian manufacturers. On the other, China has a big stake in Airbus’s ongoing success. The company has a major production facility in China, assembling Airbus’s bread-and-butter A320 midsized airliner. Moreover, Chinese engineers are helping to design Airbus’s next-generation 350 XWB-series aircraft—an endeavor that’s bound to transfer advanced technology to China’s own aircraft industry.

What is clear is that differences in climate change policies have the potential to undermine the awesome economic gains to be had from international trade in coming years. The airline issue is a high-profile flash point. But the possibility of conflict looms from a myriad of directions as the European Union ratchets down emissions.

Take the case of ocean shipping, which produces roughly 3 percent of all greenhouse emissions worldwide. A global approach would, of course, be preferable. However, the international maritime industry is deeply split on whether and how to manage emissions containment, with developing and emerging-market countries bitterly opposed to rules that would be more costly to older, less efficient vessels. And there’s a very good chance that the European Union will be forced to go it alone here, too, which would likely lead to a showdown similar to the one unfolding over air travel.

Truth be told, there’s hardly an industry in the increasingly integrated global economy that won’t be affected by differences over climate change regulation. For example, should European Union steelmakers subjected to heavy emissions charges be forced to compete with Russian, Chinese, Brazilian, or Indian steelmakers whose governments aren’t inclined to follow the European Union’s lead on climate change? For that matter, should European Union automakers be forced to compete with Chinese or Brazilian automakers who buy their steel at home?

We think the European Union should be saluted for leading the world toward an efficient, market-based fix for climate change, and we see nothing wrong in principle with creating financial incentives to airlines to use carbon-sparing planes. But we worry that trade (or, more realistically, growth in trade), which is so important to rich countries and utterly vital to emerging-market economies seeking Western living standards, will end up as collateral damage in the battle over how emissions are curtailed and who pays.

The only way to assure a happy ending will be to bring climate change policies into closer alignment, or at least to agree to disagree in ways that don’t lead to trade wars. Good luck on that.

(This post was also published by U.S. News & World Report.)

Professor Philip Auerswald of George Mason University makes a convincing case that entrepreneurs will contribute more than we think to “the coming prosperity,” which is the title of his book just published by Oxford University Press. (Note to reader: The author recently made the pitch at the Legatum Institute in London, where Hahn is director of economics).

Auerswald argues that ideological labels in capitalist democracies are so yesterday. What really matters, in his view, is whether countries set up a more hospitable environment for entrepreneurs by not favoring entrenched interests.

If this sounds familiar, go to the head of the class. The great economist and political theorist Mancur Olson made a similar point in his book on The Rise and Decline of Nations, in which he proposed that democracies become sclerotic as they accumulate incumbents with much to lose from change. The problem is that, short of revolution or war, it’s hard to shake things up in ways that favor innovators.

But even if societies don’t get all the institutions right, Auerswald concludes that entrepreneurship can flourish. One example: the introduction of a private mobile phone network in Afghanistan, which is thriving in an environment of greed and violence. A higher percentage of Afghans, it seems, now possess cell phones than can read.

He further argues that entrepreneurship is only likely to grow in importance. This makes perfect sense. The pool of talent is growing rapidly, as more people (think China and India) move out of poverty, networking becomes easier and the cost of diffusing information declines.

It’s hard to dispute the notion that entrepreneurship, along with the accumulation of wealth, is likely to be an animating factor in coming decades. The catch is that the new riches could come at the expense of income inequality. Indeed, this already seems to be happening in many nations that are growing (and in some that aren’t). Actually, there’s a second catch: Some entrepreneurship, such as cyberwarfare and the creation of addicting designer drugs, may produce “bads” instead of “goods.”

A big unknown here is whether the increase in entrepreneurship of all kinds will be sufficient to address the major problems—everything from climate change to nuclear proliferation—that will beset the human race in this century and will more than offset the explosion of enterprise. Auerswald recognizes that, in some cases, effective government action could be key to curing what ails, but that action may come too little and too late. Thus, much depends on the flexibility of private sector, and recognition of enlightened self-interest on the part of entrepreneurs.

Speaking to the latter, we see three positive roles that entrepreneurs can play in building a better society. First, and most obvious, they can create wealth. Second, they can make it possible for the global economy to adapt to the risks inherent in change. And third, they can harness their skills to address social problems directly—consider, for example, the Gates Foundation’s path-breaking efforts in subduing malaria.

The truth is, the jury’s out. On the one hand, the knowledge/entrepreneur economy is opening astounding possibilities. On the other, the route forward to peace and prosperity is littered with landmines. But nobody will dispute the proposition that Auerswald’s careful reasoning offers a welcome antidote to now-fashionable pessimism.

(This post was also published by U.S. News & World Report.)

A rip-off, you say? A conspiracy to squeeze bigger bucks out of the nice folks who regularly watch Hulu and stream Pandora on their smartphones? The policy change may, indeed, cost a relatively small number of data guzzlers some inconvenience (when they are “throttled”) or some cash (if they step up to metered plans designed for heavy users).

But the change was inevitable: With demand for bandwidth growing at an astounding pace, the carriers simply don’t have enough capacity to satisfy everybody inclined to watch Modern Family or NFL highlights on their iPhones during their lunch breaks. Meanwhile, next-generation tablets like the brand new iPad 3 with 4G LTE are bound to make mobile video a reality for millions more. What’s more—and this is the part you’re not going to like—it’s a good thing. Pricing based on usage is vital, if mobile wireless is to deliver on its remarkable promise.

Not very long ago, wireless was mostly used for phone calls, text messaging, and an occasional peek at Yelp.com to find the closest pizza parlor. But wireless broadband opened the door to streaming video anywhere anytime, and everybody under age 35 seemed to get the message at the same time. The mobile carriers are now racing to keep up with demand for 4G service that can deliver gorgeous HD. And while they will likely get some help from Congress’s initiative to auction off a big swath of spectrum now controlled by over-the-air TV broadcasters, it’s going to cost a large fortune and take years to have an impact. Over the next few years, there’s just no way the carriers will stay ahead of demand without raising revenues and pricing by the byte-to-ration capacity.

Limits on download speeds for heavy users in the remaining unlimited data plans—the equivalent of those long lines for almost-free bread in the long-since-collapsed Soviet Union—will probably be gone in a few years because unlimited data plans will be gone. But as long as the government cooperates by selling spectrum to the highest bidders, the variety and quality of mobile wireless services will keep on expanding.

The impact on mobile wireless bills will depend on both demand and supply. On the demand side, mobile video will likely put significant upward pressure on prices. On the supply side, the FCC could alleviate supply constraints by getting spectrum out there more quickly and allowing secondary markets in spectrum to operate with a minimum of regulatory oversight.

Average mobile wireless bills may well go up, but only because the growth in use of ever-more indispensable mobile services will more than offset the decline in the price of a gigabyte. Would you really prefer to go back to the good old days, when the most valuable use of a cell phone was to tell your spouse you were stuck in traffic and would be late for dinner?

(This post was also published in U.S. News & World Report.)

Like many other economists, we think the concern with peak oil is overblown. (For a lucid explanation, check out this jargon-light article by Oxford University’s Dieter Helm.) But to cut to the chase, the explanation is straightforward: Markets generally adjust to supply and demand changes in ways that facilitate adaptation. We’ll concede, though, that a smooth adjustment is not guaranteed—that the revelation of peak oil could lead to price spikes that generate significant economic pain.

Which brings us to the real subject of this column: a recent insightful paper in the prestigious journal Nature, in which very senior scientists James Murray and David King suggest that the day of reckoning really is approaching—that “oil’s tipping point has passed.” (For the record, Murray and King are colleagues of Hahn’s). They argue that we are running out of oil accessible at low cost, and that other fuels may not fill the gap left between energy supply and demand at acceptable prices. The solution, they conclude, is to get serious fast about energy efficiency, alternatives to fossil fuels, and the containment of climate change.

Their description of the problem is first rate, but their policy analysis is less developed, likely because Nature imposes tight word constraints on authors. Murray and King suggest a bevy of policies for dealing with peak oil. Among them: oil taxes, energy conservation mandates, the promotion of nuclear power, lower speed limits, tax credits for renewables, and… you get the idea.

While their concerns are justified, we think they may conflate two very different problems—and in the confusion, risk both waste and overkill. If climate change is the issue, the simplest, most efficient fix is to tax carbon emissions. If excessive energy use is the problem, the way out is to tax energy use. No muss, no fuss (in theory, anyway); just set taxes equal to the negative spillovers created by the harmful behavior.

If a sudden jump in the price of energy is the concern, then the solution is more complicated. Still, something less than a regulatory war on energy use would be called for. One approach would be to expand buffer stocks of fuel, like the U.S. Strategic Petroleum Reserve. Another is to deepen the futures markets for energy, making it easier for enterprises (public and private) to hedge against the risk of a price spike. In any event, the bottom line is the same: policymakers should choose the right tool for the right problem, carefully weighing the potential benefits against the likely costs.

We assume that the authors prefer a smorgasbord of fixes because they are all too aware that the world of public policy is not as straightforward as economists would like it to be. (King would know: He served as Prime Minister Tony Blair’s chief science adviser). But throwing a bunch of proposals at the ceiling and seeing which ones stick seems to us a recipe for waste. Somewhere along the line, somebody has to set priorities—preferably on the basis of what delivers the most bang for the buck/pound/euro.

There is, by the way, another element to the peak-oil story that deserved more attention in the Nature piece. If we are running out of fossil fuels faster than we thought, carbon dioxide emissions may be lower than some climate models suggest and climate change may be a less immediate danger. Perhaps there is a small silver lining in this latest limits-to-growth scenario after all.

(This post was also published in U.S. News & World Report.)

We like it; actually we love it. But there are a few troubling aspects to this triumph of political log-rolling. Read on.

Almost everybody in Congress saw some virtue in extending both unemployment benefits and the payroll tax cut. The economics is a no-brainer: the fragile recovery will benefit from the ongoing stimulus, and almost all of the money will go to folks who really need it. But to vote for it, establishment Republicans—especially those in the House who must worry about Tea Party challengers—needed political cover.

Meanwhile, thanks to the exploding demand for bandwidth-hungry smartphones and tablets, the wireless carriers face serious shortages of spectrum to carry their signals. For years, they’ve been pressing Congress and the FCC to reallocate spectrum assigned to local TV stations that has been gathering dust ever since over-the-air TV went digital. But the stations and their allies on Capitol Hill have been resisting because they wanted something (hint: it’s color is green) in return for giving up turf they’ve controlled for more than half a century.

Miracle of miracles, the stars aligned. Congress agreed to force the sale of the spectrum, assigning $15 billion of future proceeds to partially offset the extra spending on unemployment benefits, and another $1.75 billion to TV stations as compensation for their loss of squatters’ rights. To cement the deal, another $7 billion will go to build a state-of-the-art public safety communications network that states and localities have been yearning for since 9/11.

Telecoms get the spectrum needed to deliver on their promises of whiz-bang wireless features. Police and firefighters get better emergency communications capacity. TV station owners get their ransom. Politicians get to hang tough on deficits without becoming vulnerable on the Grinch factor. And, of course, the unemployed get a leg up on their mortgage payments. As our Jewish grandmothers probably never said, “What’s not to like?”

The payments to the TV stations are a bit hard to swallow. But, considering how hard it is to make broadcasters do anything they don’t want to do, the country’s probably getting off easy.

And the availability of more spectrum for wireless is certain to heat up the simmering controversy over whether the industry leaders—Verizon and AT&T—should face restrictions on how much spectrum they can buy. FCC Chair Julius Genachowski would apparently like to handicap the progress of the most successful providers by limiting their access to spectrum sold in future auctions. Like many other economists, we think he’s probably wrong—that the benefits of open auctions in terms of assigning spectrum to its most valued uses likely outweigh the costs—but it would be useful to see more research on this issue.

No matter where you stand on this issue, though, it’s important to keep your eyes on the prize(s). Repurposing spectrum from obsolete uses is enormously important if we are to maintain the rapid pace of innovation in wireless telecom. And, hey, it’s nice—better than nice—to boost responders’ communications capacities and to feed the unemployed as part of the bargain.

(This post was also published in U.S. News & World Report.)

Or something like that … When the airlines started doling out benefits linked to miles flown, in the late 1970s, the Internal Revenue Service took its cue from public opinion and chose not to define them as taxable, in-kind income. But as FrequentFlier.com reports, the issue isn’t quite dead. Nor, frankly, should it be. (No hate mail please; we already hate ourselves for being honest.)

Miles given as prizes in sweepstakes are definitely taxable—get lucky, and you’ll get a Form 1099 in the mail along with the chance to fly business class to Tahiti free (or, more realistically, to Cleveland at the back of the Airbus). But a recent piece in the Los Angeles Times suggests that other mileage awards may also be taxable. Citicorp, it seems, has been sending out 1099s to customers who earn miles for opening bank accounts. And if those miles are taxable, why aren’t miles for granted for opening credit card accounts—or, for that matter, for traveling on airplanes?

Why not, indeed? When pressed (and pressed and pressed) by a dogged Los Angeles Times reporter, an IRS spokesperson reluctantly acknowledged that all miles awarded as new-account bonuses are, indeed, taxable—but didn’t say anything about the responsibility of the vendors to report the transactions.

End of story? Not quite. Like Eve (and most economists), curiosity got the better of us. Why aren’t all miles earned a form of taxable in-kind income?

The IRS has a pretty good answer: miles granted for flying or using credit cards are really just consumer rebates. Seen from this perspective, it’s none of the IRS’s business whether you got a $90 rebate in the mail after you bought that $900 PC, or simply paid $810 in the first place.

Well, it isn’t quite that simple. If you bought the computer for business purposes and deducted the cost from your taxable income, you’re supposed to report the net cost—here, $810—however you paid for it. And an awful lot of airline tickets (especially the expensive ones) are bought for business use.

Don’t worry; nobody—certainly nobody in a position to change the IRS rules—listens to us. But set aside self-interest for a moment: Might not the world (or at least the air travel market) be a slightly better place if business-earned miles were, in fact, taxed?

To see why, consider the reasons mileage programs were invented. The very first program was set up in 1979 by little Texas International, just after air travel was deregulated; the idea was to give travelers a reason to switch from the brand name incumbents to a carrier derisively nicknamed “Tree Top Airlines.” But more than one could play the game. And, ironically, in matching Texas International Airline’s initiative with its own program, American found it could exploit economies of scale unavailable to the little guys.

The big airlines soon discovered that their own programs were worth more to travelers because they flew more places and could thus offer free travel to neater destinations. Who wants free seats to Philadelphia on NoNameExpress, when United and Delta were giving away first-class to Paris? Probably more important, the biggies also discovered that the programs could also help sustain brand loyalty by offering upgrades to the most frequent customers.

The consequence: frequent flier programs tended to increase concentration in the airline market and to make it more difficult for new carriers to enter the fray. Start-ups can still stay aloft—think Spirit, Sun Country, and Allegiant—but typically by exploiting a niche too small to interest the megacarriers. Jet Blue is an exception, a little carrier that lived to reach middle size. But it managed that feat by using some very clever marketing techniques, including adding then-unprecedented amenities to coach class, and staying under the radar screens of the large carriers until it had achieved viable scale.

So the failure to tax miles earned through business travel delivers a double whammy. First, it reduces tax revenues at a time when we can ill-afford it. And it reduces taxes in a regressive way: The biggest beneficiaries, after all, are frequent business travelers on the high end of the income spectrum. Second, it subsidizes a marketing strategy that has increased concentration in the air travel market.

Not the biggest problem confronting modern capitalism. But the next time you find yourself grumbling about the high cost of flying on a route dominated by a single airline, remember those frequent flier programs you treasure helped make the display of market power possible. Yes (once again) we have met the enemy—and he is us.

(This post was also published in U.S. News & World Report.)

But the fact that we astonish ourselves everyday with the latest jaw-dropper in wireless telecommunication doesn’t mean it will always be thus. Nobody has a crystal ball when it comes to predicting how wireless media will be used down the road.

But we do know that legislators and regulators in Washington will have a big impact on the pace and direction of wireless innovation through their management of electromagnetic spectrum—what was called the “airwaves” long before Apple or Google or Verizon were on the scene.

Spectrum is scarce—that is, the amount of information that can be pushed through those metaphoric airwaves is limited by economics and the state of technology. So most economists support auctioning spectrum to the highest bidder in order to make sure it ends up in the hands of those who value it most. Indeed, many have favored it ever since Nobel laureate economist Ronald Coase came up with the idea a half-century ago.

But the market for wireless networks, while competitive, has two clear industry leaders—Verizon and AT&T. And some telecom analysts argue that consumers would be better off if the auctions were set up to favor smaller companies, perhaps keeping the two industry leaders out of the game entirely.

We think the potential costs of such discrimination against the giants outweigh any plausible benefits. In fact, it’s hard to think of a market in which the old saw—don’t fix it if it ain’t broke—fits better. Usage on wireless networks has been exploding—including usage by low-income groups and minorities. At the same time, charges for both voice and data use have been falling even as reliability and geographic coverage have been improving.

The risk here is that freezing the industry leaders in place while giving competitors indirect subsidies (in the form of less-than-competitive prices for spectrum) would slow innovation. Indeed, both of the industry leaders are racing to acquire the spectrum to broaden access to “4G” service—the sort needed to watch video without hiccups and to seamlessly manage a host of other sophisticated smartphone and tablet functions.

But the Federal Communications Commission, which has the last word on most mobile regulation (unless Congress pulls rank), has other priorities. It is apparently inclined to throw sand in the gears of Verizon and AT&T in the name of increasing competition.

In response, the House Republicans have introduced a bill that would limit the FCC’s discretion on spectrum auctions, giving everybody equal opportunity to participate in any auction. That strikes us as a reasonable place to start, since it makes sense to place the burden of proof on those who think discrimination against large firms in spectrum auctions would do more good than harm. Moreover, the “proof” in question should be practical, not theoretical—actual experience in which discrimination in auctions of government resources has served the interests of consumers.

Spectrum allocation—like so many issues that falls under the rubric of economic regulation in Washington—is excruciatingly boring for almost everybody except the policy wonks who toil in the blogosphere and the lawyers/lobbyists/consultants who build country homes on the proceedings. But ignorance here is not bliss. We’ve all had a great ride on wireless technology over the past few decades. Some bad decisions now, though, could take much of the wind out of its sails.

(This post was first published on U.S. News & World Report.)