BusinessWeek highlights the latest Andrew Odlyzko paper (PDF) on Net Neutrality, which makes a pretty odd argument…

The general conclusion is that some form of government intervention, to set the rules, is inevitable. (And at some point it may be welcomed by the players, just as government intervention was welcomed in the end by the railroads.)

Well, yes, government intervention was welcomed in the end by the railroads. That’s because, as Timothy B. Lee pointed out in the New York Times, whatever the good intentions of those who sought to regulate the market, the result was, as a Ralph Nader group described it, “primarily a forum at which transportation interests divide up the national transportation market.” Lee explained further at Ars Technica…

The railroads were the high-tech industry of their day, and there was a lot of concern in the 1870s and 1880s that the railroads had become too monopolistic. Congress responded by creating the Interstate Commerce Commission in 1887, giving it the power to regulate the railroads. … [Yet] the story of the ICC does not have a happy ending. After President Grover Cleveland appointed Thomas M. Cooley, a railroad ally, as its first chairman, the Commission quickly fell under the control of the railroads, gradually transforming the American transportation industry into a cartel. By 1935, when it was given oversight of the trucking industry, the commission was restricting competition and enabling price increases throughout virtually the entire surface transportation industry.

Indeed, more than 100 years later, taxpayers are still subsidizing railroads. You might begin to imagine now why the regulation was “welcomed in the end by the railroads.” If you’re still having trouble, close your eyes and count to $2,000,000,000. That’s how much taxpayer money Amtrak now receives every year. Out of your pocket.

Andrew Odlyzko is right that government intervention was eventually welcomed by the railroads. However, we don’t think “the players will like it because they can create a cartel like the railroad industry did” is a very compelling argument for net neutrality. It’s certainly not an argument we expect consumers and taxpayers to find persuasive.