Biden’s broadband plan would waste $100 billion
President Joe Biden wants Americans to have broadband in the worst way. His $2.3 trillion American Jobs Plan — which isn’t a jobs plan, but that’s another topic — includes $100 billion for broadband using the worst plan imaginable: He wants broadband provided by the government institutions that bring us the U.S. Postal Service, Amtrak and our failing transportation, water and other infrastructures. What could go wrong?
The president wants us to think that his plan will “reimagine and rebuild a new economy” that will “reach 100 percent high-speed broadband coverage.” But we don’t have to reimagine anything to know that the plan will fail to deliver: America and other countries have tried everything that the president proposes, and the strategies don’t work. Get ready for another spending spree that buys nothing of value.
The plan’s first mistake is to prioritize local governments, nonprofits and co-ops building broadband networks to compete with private companies. The president wrongly believes that these entities will have lower costs for building networks than private internet service providers. But the opposite is true.
My research center surveyed the academic research on this issue a few years ago and found that government-owned infrastructure costs about 10 percent more than if privately owned. Why the difference? One reason is that profit incentives drive private companies to be efficient. This isn’t true for governmental entities: They answer to political pressure.
Another reason is that partisanship would corrupt how the money is spent. Economists Yaniv Reingewertz and Thushyanthan Baskaran studied how U.S. presidents distribute federal money to local governments and found that Democratic presidents — Clinton and Obama in the study — favored districts dominated by Democrats. Republican presidents did not demonstrate partisan favoritism.
This pattern of political favoritism appears to also hold true during crises. A political scientist at the University of Southern California studied how U.S. presidents distribute federal dollars during public health crises. He found no political favoritism under former President Trump. But former President Obama appeared to favor states that voted for him when distributing federal monies related to the H1N1 and Ebola viruses.
And Biden’s belief that profits are an unnecessary cost is based on an illusion: Taxpayers are not allowed to demand a return on their tax dollars given to cities, non-profits and co-ops. But when citizens are allowed to choose, such as when they invest in their retirement funds, they demand profits in return for giving up their money.
Also, Biden complains that broadband prices are unaffordable and hints at regulation. But this misses the point and could make things worse. Economists Gregory Rosston and Scott Wallsten, both of whom served in Democratic administrations, studied low-income households and found that broadband prices were not barriers to their subscribing to broadband. And a recent study by four European economists found that net neutrality regulations negatively impact investment in fiber optics.
The bottom line is that American taxpayers won’t get much for their $100 billion. Scholars found that Obama’s $4.7 billion spending on broadband had almost no impact on broadband development. And economist Sarah Oh found that city-provided broadband had no impact on the number of broadband subscriptions.
As painful as this might be, Biden would do well to follow the lead of his predecessor. President Trump’s Federal Communications Commission emphasized competition and freeing radio spectrum for broadband development, with positive results. And the American Society of Civil Engineers, whom Biden cites, found that in four years Trump raised America’s infrastructure grade just as much as Obama did in eight years.
Let’s hope that Biden and Congress learn from the past and run any broadband subsidies through the FCC’s market-oriented, pro-consumer policies that are expanding broadband. And let’s hope that they listen to Rosston and Wallsten and find out what really holds low-income Americans back from participating in broadband.
Mark Jamison is a visiting scholar at the American Enterprise Institute. He also directs the Digital Markets Initiative and the Public Utility Research Center at the University of Florida Warrington College of Business.