Suppose Congress had established in the early 19th century a Federal Publications Commission to regulate the newspaper, magazine, and newsletter businesses. The supporters of the FPC would have argued that such regulation was necessary because paper-pulp-grade timber is a scarce resource, and this scarcity made it incumbent upon the government to determine not only who could enter the publications business but where. Hence, the FPC would issue publication licenses to the "best" applicants and deny the rest.
Whenever an aspiring publisher pointed out that timber wasn't scarce, that huge groves of trees in Canada and the western territories made it plentiful, and that he wanted to start a new publication based on this abundance, an FPC commissioner would talk him down. He'd explain that just because somebody had discovered additional timber didn't mean that the scarcity problem was over, it only meant that timber was relatively less scarce than before. He'd go on to say that the FPC needed to study how best to exploit this new timber before issuing new licenses.
Based on the notion of scarcity, the FPC would have evolved a power to prohibit licensees from using their paper for anything but publishing the kind of print product the FPC had authorized—no using that licensed paper to print party invitations or menus or handbills or facial tissue, the FPC would mandate.
And so on.
The absurd regulatory agency that I imagine here is only slightly more absurd than the Federal Communications Commission, which has exercised even greater control over the radio spectrum. Until the mid-1980s, broadcasters had to obey the "fairness doctrine," which required them to air opposing views whenever they aired a viewpoint on a controversial issue. Rather than tempt an FCC inquiry, most broadcasters simply avoided airing any controversial views.
Aside from bottling up debate, what the FCC really excelled at was postponing the creation of new technologies. It stalled the emergence of such feasible technologies as FM radio, pay TV, cell phones, satellite radio, and satellite TV, just to name a few. As Declan McCullagh wrote in 2004, if the FCC had been in charge of the Web, we'd still be waiting for its standards engineers to approve of the first Web browser.
Although today's FCC is nowhere near as controlling as earlier FCCs, it still treats the radio spectrum like a scarce resource that its bureaucrats must manage for the "public good," even though the government's scarcity argument has been a joke for half a century or longer. The almost uniformly accepted modern view is that information-carrying capacity of the airwaves isn't static, that capacity is a function of technology and design architecture that inventors and entrepreneurs throw at spectrum. To paraphrase this forward-thinking 1994 paper (PDF), the old ideas about spectrum capacity are out, and new ones about spectrum efficiency are in.
Almost everywhere you look, spectrum does more work (or is capable of doing more work) than ever before. For instance, digital TV compresses more programming in less spectrum than its analog cousin. As the processing chips behind digital broadcasting grow more powerful, spectrum efficiency will rise. Ever-more efficient fiber-optic cables have poached long-distance telephone traffic from microwave towers, and this has freed up spectrum in the microwave spectrum for new use by cell phone companies.
Other examples of spectrum efficiency: Low-power broadcasts of all sorts allow the reuse of spectrum, as everyone who uses a Wi-Fi router at work or home or listens to a low-power FM radio station knows. New technologies that share spectrum without interfering with existing licensed users exist (see this short piece about Northpoint Technology). In this bit of advocacy, an industry group gee-whizzes about the spectrum efficiencies promised by cognitive radios, smart antennas, ultrawide-band devices, mesh networks, WiMax, software-defined radios, and other real-world technology. The spectrum-bounty possibilities are so colossal that some members of the "media reform" movement even subscribe to them. The Prometheus Radio Project, best known for promoting low-power FM radio, accepts one estimate that spectrum capacity may increase 100,000-fold in coming years.
If the spectrum cow can give that much milk, why do we need regulators to ration the airwaves as parsimoniously as they do? Former FCC Chief Economist Thomas W. Hazlett accuses (PDF) the FCC of overprotecting existing spectrum users at the expense of aspiring new users. The commission generally delays making decisions about new spectrum allocations, and these delays cost the new entrants money. Hazlett eloquently catalogs the rope-a-doping offenses committed against spectrum aspirants by the FCC and the existing airwave industries in this paper (PDF).