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Wonkbook: The FCC is trying to thread the needle on net neutrality

Welcome to Wonkbook, Wonkblog’s morning policy news primer by Puneet Kollipara. To subscribe by e-mail, click here. Send comments, criticism or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here.

Wonkbook’s Number of the Day: 397.7 million. That's the U.S. supply of crude oil in barrels, the highest value since the Great Depression thanks to the shale boom.

Wonkbook’s Chart of the Day: This chart analyzing CBO data shows that Obamacare's Medicaid expansion is a better deal for the states than previously thought.

Wonkbook's Top 5 Stories: (1) The FCC's middle-ground attempt on net neutrality; (2) how big is the U.S. middle class?; (3) what the administration's clemency initiative does; (4) the feds' gradual clampdown on e-cigarettes; and (5) a slowing housing market.

1. Top story: Is the third time the charm for the FCC?

Revised proposal would let Web firms pay for 'fast lane.' "The proposal from Federal Communications Commission Chairman Tom Wheeler would mark a new phase in a struggle over fair Internet practices in which the agency has insisted on equal treatment of online traffic from large and small providers of video and other Web content....Wheeler is proposing to judge the handling of Web media by service providers...on a case-by-case basis, said the official....The FCC wants to know whether it should allow fee-for-access arrangements for the final connection to subscribers, the official said. The FCC has been seeking to replace a rule voided in January by a U.S. court that has come to be commonly known as 'net neutrality.'" Todd Shields in Bloomberg.

The FCC is trying to carve a middle ground. "This latest plan is likely to be viewed as an effort to find a middle ground, as the FCC has been caught between its promise to keep the Internet open and broadband providers' desire to explore new business models in a fast-changing marketplace. It likely won't satisfy everyone, however." Gautham Nagesh in The Wall Street Journal.

And indeed, Internet advocates flipped out. "Open-Internet advocates are calling foul on new rules that would allow broadband companies to strike special deals for preferential treatment....Net-neutrality advocates argue that Internet startups might not be able to afford to pay for such special treatment, potentially stifling innovation on the Internet, which has spawned one of the greatest periods of technological development in U.S. history, generating hundreds of billions of dollars in economic growth." Sam Gustin in Time Magazine.

@binarybits: I don't understand what this accomplishes. If you're allowing "fast lanes" why regulate at all?

FCC will seek public comment before moving forward. Grant Gross in PC World.

How could the move affect consumers' Web experience? "The move could dramatically reshape the Web experiences of consumers, where videos for, Facebook or YouTube might be delivered more smoothly because of payments to broadband providers such as Comcast, AT&T and Verizon. The streaming videos of a smaller competitor could be halted with buffering and low-quality images if those firms aren't able to pay ISPs access to faster Internet lanes into American homes." Cecilia Kang and Brian Fung in The Washington Post.

How the FCC is trying to get around its previous judicial headaches. "The D.C. Circuit Court of Appeals invalidated the first two of those rules in January, saying the commission didn't prove it had the legal authority to impose such restrictions on information services. The ruling specifically left room, however, for the commission to impose an anti-blocking rule if it allowed ISPs and websites the freedom to negotiate deals that prioritized some sites' traffic over others'. Wheeler appears to be taking up the court's suggestion." Jon Healey in the Los Angeles Times.

Other tech reads:

Why Netflix wins if the Supreme Court sides with Aereo. Andrea Peterson in The Washington Post.

The Supreme Court's cluenessness on technology makes them better justices. Timothy B. Lee in Vox.

WILHELM: Remember what Netflix said. "It’s worth remembering Netflix’s recent comments on what net neutrality should mean. The company indicated that the mere treating of all content the same once it makes it onto an ISP’s network is 'weak' net neutrality. In Netflix’s view, net neutrality should also extend to 'peering agreements,' forcing ISPs to accept all incoming traffic onto their networks without charging a fee. What the FCC apparently wants to put into place would therefore be something akin to 'very weak' net neutrality. Call the FCC’s new plan the homeopathic version of net neutrality....ISPs will love the plan." Alex Wilhelm in TechCrunch.

HOLLISTER: Why FCC chair's reassurances are off the mark. "The FCC's position is that it is merely trying to defend net neutrality by keeping internet service providers from blocking legal traffic outright, and keeping them from unreasonably discriminating against traffic they'd rather not serve...only this time in a way that will hold up in court....The that the FCC intends to say that it's okay to discriminate against traffic if content providers don't pay the ISPs a 'commercially reasonable' fee. While the FCC chairman says that 'behavior that harms consumers or competition will not be permitted,' any fee might risk harming both, even if it's tiny." Sean Hollister in The Verge.

Top opinion

McARDLE: Student loan forgiveness isn't free. "We hear a lot about how health care in the U.S. costs more than it does in than any other country. We hear less about the fact that higher education also costs more here than in any other country, and for many of the same reasons....This has long been a source of anxiety for parents. It became a source of anxiety for students, too, as loans covered an increasing proportion of their tuition. Now it’s a source of anxiety for the government, because guess who’s being asked to chip in?" Megan McArdle in Bloomberg View.

FRUM: Why affirmative action no longer works. "Lyndon Johnson’s America was a country slashed by a color line of racial domination and subordination....Today’s America is a country whose class distinctions are growing as extreme as those in Edwardian England. Johnson’s assumption that non-black Americans all enjoyed more or less equivalent opportunities 'to learn and grow, to work and share in society, to develop their abilities' seems poignantly out of date. A white skin may still correlate less with poverty than does a darker skin. But that skin alone long ago ceased to convey much in the way of privilege to the less affluent half of white America." David Frum in The Atlantic.

COCLANIS: A nimbler approach to wages and workers. "The dreadful labor market plaguing the U.S. since the start of the "Great Recession" in late 2007 has yielded at least one positive result: an increased willingness among policy analysts to explore successful labor-market experiments in other parts of the world....One worth considering is the flexible-wage model, a labor technique that helps employers adapt to fluctuations of the business cycle. Singapore and other countries in Asia have experimented with techniques based on this model for decades, with considerable success." Peter A. Coclanis in The Wall Street Journal.

SALYER: No, Aereo wouldn't create the perfect TV. "So how would an Aereo legal victory make things more complicated? Let's imagine the Supreme Court signs off on Aereo's innovation in its decision this summer: What's to stop broadcasters from pulling their over-the-air content from cable companies and offering it independently?...What if Netflix or Amazon added live broadcast to its menu of options? It's inevitable that traditional TV will change. Let's just hope that as it does it offers more choices and fewer headaches for the user." Kirsten Salyer in Bloomberg View.

GORDON: Bring China into trade pact. "Bringing China into the TPP negotiations poses hurdles, among them the attitudes of some in Congress. The role of state-owned enterprises in China's economy under a free-trade agreement is one knotty issue....China and the U.S. are the world's two largest economies and both have a great deal at stake in the Pacific region. A Trans-Pacific Partnership that does not include both would represent a major lost opportunity." Bernard K. Gordon in The Wall Street Journal.

FELDMAN: Affirmative action will die another day. "For decades Justice Anthony Kennedy has been puzzling over how to kill affirmative action without delivering the death blow. Yesterday he got a step closer to an answer in the court’s decision....But what will be remembered from the case is probably the stirring dissent by Justice Sonia Sotomayor, the first beneficiary of affirmative action to defend the practice from the Supreme Court bench....Sotomayor’s dissent is one for the casebooks and the ages. It should be up to the voters, and not Anthony Kennedy, to decide whether it turns out be a requiem for affirmative action." Noah Feldman in Bloomberg View.

Animals interlude: Meerkat befriends a husky.

2. How bad is income inequality in the U.S.?

The U.S. middle class is no longer the world's richest. "Closing the books on a fiscal year in which the federal budget deficit fell more sharply than in any year since the end of World War II, the Treasury Department reported on Thursday that the deficit for 2013 dropped to $680 billion, from about $1.1 trillion the previous year. In nominal terms, that is the smallest deficit since 2008, and signals the end of a five-year stretch beginning with the onset of the recession when the country’s fiscal gap came in at more than $1 trillion each year. As a share of the nation’s economy, the budget deficit fell to about 4.1 percent, from a high of more than 10 percent during the depths of the Great Recession." David Leonhardt and Kevin Quealy in The New York Times.

Housing is one overlooked reason why Canada's middle class is overtaking America's. "One word that doesn't appear in the article, however, is housing. The U.S. is emerging from a catastrophic collapse of the housing market that obliterated household wealth for millions of middle-class families. Canada, however, is in the midst of a delirious housing boom and a personal debt craze that reminds some economists of the U.S. market exactly a decade ago (before you-know-what happened)." Derek Thompson in The Atlantic.

Maybe none of this is a total shocker? "Word that the U.S. middle class is no longer the wealthiest in the world -- and the fact that Canadians are No. 1 -- is sure to draw special attention from U.S. policymakers to our rising levels of income inequality. A desire to avoid falling behind Canada may even prompt them to do something about it....None of this will shock anyone who has been paying attention to economic trends over the past decade -- just reading a book review section in recent weeks, where Thomas Piketty’s Capital in the Twenty-First Century has received vast amounts of attention, is enough to sense the widespread interest in inequality. " Sheelah Kolhatkar in Bloomberg Businessweek.

How the book has boosted the wealth-gap debate. "French economist Thomas Piketty and his research partners have transformed the wealth gap debate by popularizing the concept of a financially elite 1 percent. They framed the issue of income inequality in terms that ordinary people could grasp. Using tax records, they drilled into how much money it took to belong to the 1 percent and what share of personal income this group controlled. That idea became a rallying cry of the 2011 'Occupy Wall Street' movement. At the time, politics in the United States overshadowed the data that Piketty had unearthed. That is, until last month, with the publication of Piketty's new book." Associated Press.

How you know Piketty's book is really popular: "The new book by economist Thomas Piketty, 'Capital in the Twenty-First Century' is a runaway hit, perched at the top of's bestsellers chart and temporarily sold out on the Web site." Jia Lynn Yang in the The Washington Post.

High-tech interlude: This 3-D printed prosthetic costs only $50.

3. The Obama administration's clemency initiative, explained

U.S. weighs clemency for some inmates. "The Obama administration is encouraging many nonviolent federal prisoners to apply for early release -- and expecting thousands to take up the offer. It’s an effort to deal with high costs and overcrowding in prisons, and also a matter of fairness, the government says. On Wednesday, the Justice Department unveiled a revamped clemency process directed at low-level felons imprisoned for at least 10 years who have clean records while in custody. The effort is part of a broader administration push to scale back the use of harsh penalties in some drug prosecutions and to address sentencing disparities arising from the 1980s crack cocaine epidemic." Associated Press.

Explainer: What the president's plan to cut prison sentences would do. Dara Lind in Vox.

Here are the criteria that inmates must meet: "They are currently serving a federal prison sentence that is longer than current mandatory sentences for the same offense. They are nonviolent, low-level offenders without 'significant ties to large scale criminal organizations, gangs or cartels.' They have served at least 10 years of their sentence. They do not have a 'significant criminal history.' They have demonstrated good conduct in prison. They have no history of violence before or during their current imprisonment." Liz Halloran in NPR.

It didn't take long for one GOP lawmaker to speak out in opposition. "House Judiciary Chairman Robert W. Goodlatte ripped President Barack Obama’s new plans to grant clemency to potentially thousands of nonviolent drug offenders....The president has absolute authority under the Constitution to issue pardons — though Obama has to date used that authority sparingly. The administration has noted that thousands of prisoners could be affected by the drug clemency push, especially those sentenced under laws older and harsher than the guidelines set down in a 2010 sentencing rewrite signed by Obama. If those prisoners were sentenced today, many would already be free." Roll Call.

Other legal reads:

In child porn cases, single defendant may not be forced to pay the entirety of damages. David G. Savage in the Los Angeles Times.

How the Supreme Court's affirmative-action decision affects colleges. Nick Anderson in The Washington Post.

Boston Marathon interlude: The best signs from the race.

4. Why the FDA has to move slowly on e-cigarettes

FDA outlines plan to regulate e-cigarettes. "The Food and Drug Administration will for the first time regulate the booming market of electronic cigarettes, as well as cigars, pipe tobacco and hookahs, under a proposal to be released Thursday. The move would begin to place restrictions on e-cigarettes, a nearly $2 billion industry that for years has operated outside the reach of federal regulators. If adopted, the government’s plan would force manufacturers to curb sales to minors, stop handing out free samples, place health warning labels on their products and disclose the ingredients. Makers of e-cigarettes also would be banned from making health-related claims without scientific evidence." Brady Dennis in The Washington Post.

Explainer: 7 things you need to know about e-cigarettes. Lenny Bernstein in The Washington Post.

The FDA is also trying to extend its reach on tobacco more generally. "The federal government wants to extend its oversight of tobacco to include cigars, hookah, nicotine gels, pipe tobacco and dissolvable tobacco products. A 2009 law that gave the FDA authority to regulate tobacco but so far have only focused on cigarettes and smokeless tobacco products outlined in that law." Michael Felberbaum in the Associated Press.

Background reading: Are e-cigarettes safe? It's complicated. "But are e-cigs truly safe? No one knows for sure. Yet there is no question that the nicotine they contain is addictive—which is one reason many public health experts have grown alarmed by their rapidly increasing popularity. Among their concerns: e-cigs might lure former smokers back to conventional cigarettes, expose users and bystanders alike to unidentified dangers, or become a gateway for teens who might subsequently experiment with tobacco products and other drugs." Dina Fine Maron in Scientific American.

That could help explain why the FDA's current action is limited. "F.D.A. officials said the new regulations were the first major step toward asserting the agency’s authority and eventually being able to regulate flavors and marketing. But doing so will require further federal rulemaking, they said. For example, to restrict the use of flavors, the agency would have to establish a factual record that they pose a health risk for young people. The same goes for marketing, an area that has been vulnerable to litigation from industry." Sabrina Tavernise in The New York Times.

Expect health experts and advocates to be upset isn't going further yet. "While they’re hoping for sweeping limits on a quickly growing industry, they’re also realistic about what to expect. And it’s all mired in uncertainty about whether e-cigarettes might help people kick the habit -- or keep smokers hooked and attract a new generation of nicotine addicts....Few expect the agency to assert a firm hand just yet, despite concerns about the chemicals the devices contain and the way they seem to target teens." Maggie Fox in NBC News.

Long read: E-cigarettes: No smoke without fear. Emma Jacobs and Duncan Robinson in FT Magazine.

Other health care reads:

CBO reduces forecast of states' Medicaid spending under Obamacare by one-third. Robert Pear in The New York Times.

Southerners don't like Obamacare, but don't want to repeal it either. Sabrina Tavernise and Allison Kopicki in The New York Times.

Administration tightens coal dust rules. Jim Efstathiou Jr. in Bloomberg.

Video game interlude: This game will let you be like a cat.

5. Housing market is slowing, and it's not just the winter weather

U.S. new home sales hint at prolonged housing weakness. "Sales of new U.S. single-family homes tumbled to their lowest level in eight months in March, dashing hopes for a quick turnaround for a sector that fell into a soft patch last summer....Sales dropped 14.5 percent to a seasonally adjusted annual rate of 384,000 units. It was the second consecutive monthly decline and the biggest since July, which was also the last time sales were so slow....marking the largest year-on-year decline since April 2011. Economists...said the drop suggested some fundamental weakness in the market, although unusually cold weather had also dampened activity." Lucia Mutikani in Reuters.

Here's why the housing market has slowed. "So why have home sales slowed? Prices are rising in part because there aren’t very many homes for sale. But those gains have begun to make homes less affordable, particularly after mortgage rates jumped last summer. So even though mortgage rates are still low, home buyers may still be adjusting to the reduced affordability from the combination of higher prices and rates." Nick Timiraos in The Wall Street Journal.

@NickTimiraos: Today's housing report in context. Q1 new home sales:
2009: 84K
2010: 87K
2011: 71K
2012: 87K
2013: 109K
2014: 107K

Chart: What about the effect of winter weather? "The weather in March probably had only a minor effect on new home sales, making the recent slump even more significant." Barry Ritholtz in Bloomberg View.

Credit will be key to the housing recovery. "The Goldman economists say they expect new home sales to reach 800,000 units by 2017, up from 430,000 last year, based on traditional drivers such as job growth and household formation. But sales will only rise to around 600,000 units in 2017 if lending standards remain at their current levels." Nick Timiraos in The Wall Street Journal.

Is a new housing bubble on the way? "Even though the recent financial crisis is barely in the rearview mirror, risk is starting to build once again in both the U.S. mortgage and housing markets. Contrary to the prevailing view that only borrowers with pristine credit records can get a mortgage these days, many risky loans are still being made. A new index published by the International Center on Housing Risk at the American Enterprise Institute measures this risk month by month, based on about three-quarters of all home-purchase loans extended across the country. And the index clearly shows that many of today's mortgages would not perform well under stressful conditions." Edward J. Pinto and Stephen D. Oliner in the Los Angeles Times.

Other economic/financial reads:

Fed on course for another $10 billion taper. Robin Harding in The Financial Times.

An unemployed aid program could help millions. Why aren't more states using it? Ylan Q. Mui in The Washington Post.

U.S. factory activity expands in April, pace stalls. Reuters.

Food interlude: High-schoolers say they've solved a problem with ketchup caps.

Wonkblog roundup

White, older and self-employed people want to keep their health plans. Jason Millman.

A year after Arizona approved Medicaid expansion, Brewer still fighting for it. Jason Millman.

Why we can’t figure out how to regulate Airbnb. Emily Badger.

They signed up for Obamacare. Now, how to keep them enrolled? Jason Millman.

1.6 million Americans don’t have indoor plumbing. Here’s where they live. Christopher Ingraham.

An unemployed aid program could help millions. Why aren’t more states using it? Ylan Q. Mui.

Et Cetera

Vt. will require labeling of genetically modified foods. Stephanie Strom in The New York Times.

Obama administration opens deportation policy review. Brian Naylor in NPR.

The tea party wants to help you go solar. Josh Voorhees in Slate.

Shale boom sends U.S. oil supply to highest level since '30s. Mark Shenk in Bloomberg.

Why almost everyone hates the trade deal Obama is proposing. Jaime Fuller in The Washington Post.

Got tips, additions, or comments? E-mail us.

Wonkbook is produced with help from Michelle Williams.