House Proposes $600 Billion In Infrastructure Spending For Networks That Private Providers Would Otherwise Deliver

Giveaways to industry in the name of the common good are common in election years, but it’s worth looking at the proposed $100 billion for wireline networks and $500 billion for highways. These House bills have a clear set of political stakeholders which stand to gain at the public’s expense. At the same time, there are many companies driving better, greener technologies and don’t need subsidies to build networks.

$100B for Telecom Networks: AAIA Act

Proponents of this bill claim that the problem of Americans not being online today can only be resolved with a major outlay of government money in wireline networks. However, this is a misdiagnosis of the problem. Supply-side broadband subsidies to networks do little to address what are demand-side problems. If people don’t believe that the internet is valuable, then no amount of new networks will make them adopt. Moreover, if they believe an internet subscription is too expensive, then it is better to give the consumer the subsidy, not the network provider. Finally, wireline networks are more expensive and less usable than wireless, making subsidies to the former, a sub-optimal policy choice.

The Federal Communications Commission (FCC) already has programs to deliver tens of billions of dollars to underserved regions and has adopted reforms to improve network deployment. FCC Commissioner Mike O’Reilly has led initiatives to improve efficiency in the Universal Service Fund (USF), including the reverse auction model for distributing USF support, the creation and adoption of a cost model for providers as alternative to inefficient rate-of-return regulation, and other reforms to improve accountability and remove unnecessary burdens and make the USF more technology neutral and market-driven. He has shed light on abuse of the Lifeline program and challenged the Universal Service Administrative Co. for its overbuilding existing networks.

We should think more creatively about supporting those not online, for example by studying demand side challenges as well as engaging the content providers themselves who benefit directly from the addition of new users.  For example, the Facebook’s Discovery mobile app which allows users to browse the content of their choice anywhere on the web. Such programs have enabled millions of people in 55 countries to get online for the first time but have not been tried in the US.

It is interesting that Silicon Valley companies which are the prime beneficiaries of any internet traffic play little to no role in the House bill. Indeed, they should be lining up with financial support for such networks. However much of their policy activity has been the opposite; they campaign for so-called net neutrality rules, price controls which protect them from participating in the cost of infrastructure.

Another set of beneficiaries are some 850 small, rural telecom providers. There are challenges to realize economies of scale in rural areas with limited subscribers. Moreover, their aging infrastructures face existential competition from better, faster alternatives like 5G which can be deployed more cost-effectively. It’s not clear that small providers have exhausted the possibilities for consolidation. There are likely synergies for technological and administrative advancement among so many companies.

$500 billion for Highway Networks: INVEST In America Act

Highways are one of Congress’s favorite pork barrel projects, a way to curry favor with local constituents and keep the administrative state going. The table of contents of the bill itself is 10 pages, giving fodder to the Department of Transportation and more than a dozen transportation regulatory agencies. In addition to the hundreds of billions of dollars in giveaways, the bill is full of dictats for the design of context sensitive streets, railroad crossings, ferry terminals, electric vehicle charging stations, and so on.

The federal highway program was originally envisioned as a project funded by gas taxes, but in practice this fails to capture road use. Indeed, many gas taxes go to discretionary projects like California’s ill-fated high-speed train. Whereas gas taxes were originally promised to cover the costs of highways, this latest bill shows the creeping administrative state, yoking Americans and their grandchildren with massive deficit spending, regardless of whether they use the roads.

There is a funding model which is preferable to gas taxes which has been around for hundreds of years: user fees. Adam Smith described this in Wealth of Nations:

The greater part of such public works may easily be so managed as to afford a particular revenue sufficient for defraying their own expence, without bringing any burden upon the general revenue of the society…A highway, a bridge, a navigable canal, for example, may in most cases be both made and maintained by a small toll upon the carriages which make use of them: a harbour, by a moderate port-duty upon the tonnage of the shipping which load or unload in it. The coinage, another institution for facilitating commerce, in many countries, not only defrays its own expence, but affords a small revenue or seignorage to the sovereign.

In Rethinking America’s Highways, Robert W. Poole diagnoses the problem with highways and describes how a user fee regime could work. He notes that with most highways, there is no pricing; investments are not financed via long-term revenue bonds; what gets built is determined by politicians; maintenance is delayed or canceled to satisfy political priorities; and users are not “customers”.

While trucks cause most of the wear and tear on the roads, their gas taxes don’t cover the maintenance and upgrade costs. Interestingly, delivery trucks compete with freight rail, primarily a privately provided infrastructure, which relies on shareholders’, not taxpayers’, money. Plus, freight rail is greener. Under current network conditions, moving the same amount of freight by rail is three times more energy efficient than by truck. It’s interesting that the bill proffered from the self-proclaimed climate advocates promotes the leading source of greenhouse emissions, cars and trucks. 

Social goals can be achieved without going into fiscal deficit. Networks with better and greener technologies are more cost effective and don’t rely on subsidies.