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How exactly would the government do it without "forcing the places that do have it to subsidize the places that don't have it?"

Taxes are how the government funds those sorts of things, and taxes are collected from everybody. So the subsidization still happens.






All taxing and subsidization is distortionary; but some methods are less distortionary than others. Imposing a tax on "everybody" and using it to pay for a public service dampens economic activity, but at least doesn't distort one industry relative to another. Imposing special, industry-specific taxes, however, dampens demand and investment in that industry relative to the rest of the economy.

Take tobacco taxes, for example. We put special taxes on tobacco because we don't want people to smoke, and we want to discourage people from smoking. Taxing tobacco effectively raises prices, which reduces demand. Various governments employ similar taxes to discourage things like soda, sugary foods, etc. This is a well-understood concept: you put extra taxes on things you want to discourage (relative to the rest of the economy).

Paying for rural telecom by putting a special tax on telecom service achieves exactly the same effect. It increases the price of service, reducing demand and reducing investment (relative to the rest of the economy, which does not bear that tax). But in theory, telecom infrastructure is something we want to encourage, not discourage.

It's even worse when you impose a general public obligation on individual service providers. For example, instead of paying for universal healthcare with general tax dollars, you could simply direct hospitals to treat poor people for free. Nobody does that--they pay for the broad public benefit with equally broad public taxes. But we do it for telecom--we tell companies that in order to be allowed to offer any service in a city, they must shoulder the burden of building out infrastructure even to neighborhoods where few people could afford to subscribe (i.e., neighborhoods that can only be served at a loss). That essentially makes it impossible to have a "minimally viable ISP." You can't compete with an incumbent by stealing away customers neighborhood-by-neighborhood. If the government simply let companies build infrastructure where it was profitable, and built subsidized infrastructure itself using general tax dollars where it was not, you could have that sort of competition.


> you could simply direct hospitals to treat poor people for free. Nobody does that

Actually, I believe that's exactly what happens in the US with emergency departments. Although it supports your point about such a practice being distortionary, it also draws attention to the fact of the sheer complexity of all this.

That's mostly what bothers me about seemingly-simple statement or analogies about economics (or, really, economic theorizing in general), that the reality is far more complex and interconnected.


It's not just emergency departments. I worked for a hospital system in Maine. We provided a significant amount of free care (emergency and otherwise) to those with a qualifying income level as part of a state program.

That sounds very much like Medicaid, or are you saying that the state mandates that the cost of the care come out of the "pocket" of the hospital?

>Imposing a tax on "everybody" and using it to pay for a public service dampens economic activity

Yes. That's why we have no interstate highways to move goods around, spurring commerce.

Oh, wait...


And what is your point?

Yes, taxes to pay for roads do indeed discourage economic activity.

This is a cost.

And the benefit that we get is the roads.

And in this case the benefits outweigh the costs.

But just because the benefits outweigh the cost doesn't mean that the cost doesn't exist.


And even people who don't drive consume goods that are distributed by trucks.

Correct. And?

Yes roads have benefits. They also have costs.

The benefits are greater than the costs, but we should be aware that the costs still exist.


If the benefits exceed the costs, it’s hardly fair to argue that the program slows economic activity.

Slowing economic activity IS the cost.

And the benefits outweigh the cost.


Yes. And when a program's benefits outweigh its costs, it seems weird to say that the program is a damper on economic activity.

In other words, if Option A is "get zero dollars", and Option B is "spend $1 to get $2", it is unfair to complain about B's "cost" (spending $1) in isolation.


The way electricity works is by allowing the electrical company to charge everyone (across their whole network) such that they make a max of 10% (depends on state) above their current amortized expenditure. The idea being, if an electric company wants to make more money, it has to spend more money. And it's fixed how much money they can charge (it's based on total network cost). Think of it as a semi-non-profit, which can only make 10% profit.

So, what it does is constantly relay wires, build out to rural areas, etc. and thereby extend their network and keep it up-to-date (wires only last 30 years anyway). This I think is what we need to companies such as Comcast.


There's decades of precedent on how to do utility regulation, and that is one of the models. (It's called the rate-of-return model.) It was used for telecom for a long time, but has lots of problems. On one hand, it can encourage gold plating (spending money on infrastructure that isn't helpful because there is a guaranteed return on capital investment). On the other hand, political pressure can drive the return rate below the optimal level.

Your post actually highlights the problem. What makes 10% the proper profit margin? BT OpenReach, the U.K.'s regulated infrastructure monopoly, has a profit margin of double that. That number becomes a political football, and the political result probably isn't what most people on HN would want. People are happy with 25 mbps DSL; they're not going to vote to raise Internet rates to drive returns high enough to incentivize investment in replacing everything with fiber. That's exactly what you see in other rate-regulated utilities. People don't vote to replace lead pipes that poison kids, because they would rather have cheaper water rates; they don't vote to replace sewers that leak raw sewage into rivers when it rains, because they'd rather have cheaper sewage fees.


Your pipe examples are a failure of the market to correctly capture externalities.

I'm not sure how not having cheap fibre to ge doorstep is an externality.


There is no market for sewer service—most everywhere, the government runs the service and sets rates in response to voter pressure. My point is that the same voters who vote to keep lead water pipes and overflowing sewers, because they want to minimize their water and sewer bills, will not vote to deploy cheap fiber everywhere (or not set rates high enough to continue to maintain and upgrade it). For most people, especially the older people who disproportionately vote, a 25 mbps connection is fast enough, and they’d rather have cheaper service than better service.

that's why you can't leave some things up to people. people will not act in their best interest if distracted by short term thinking.



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