Thu, 22 Jul 2004

Universal Disservice

Andy Oram, who ought to know better, since he isn't a fool or loon, posits that Universal Service is a good thing. After all, he says, many other things are subsidized to good effect -- why shouldn't telecommunications be subsidized? As a perfect example of why subsidies are wrong from the start, look at the subsidized bus service between Plattsburg and Watertown (NY). Riders pay $10.30 to ride from Canton to Watertown, and $15.90 from Canton to Plattsburg, but the ride costs $115.

I think that, as penance, Andy should have to ride the bus himself, and whenever somebody tries to get on it, offers them a check for $115 if they'll find another way to get there. Anybody think he won't get any takers? Think anybody will refuse?

That's not his only mistake. He praises the E-Rate program (in spite of its flaws) saying "Tens of thousands of institutions have received Internet access thanks to the fund." He is making the classic non-economist mistake of only seeing what exists, what has happened, what has occurred. Give yourself ten points if you immediately saw the flaw in his reasoning. Economists realize that everything is a trade-off. If you do one thing, you don't get to do another thing. So, no action can be evaluated by itself. It must be evaluated in the light of what else could have happened. "What would have happened with those E-Rate dollars?" is the question Andy failed to ask.

Posted [10:11] [Filed in: economics] [permalink] [Google for the title] [digg this]