We shouldn’t.

I came across this post by Stephanie Mehta on a blog associated with Fortune magazine about how copper may soon almost disappear from telecommunications infrastructure. From what I understand, the backbone of telecommunications uses fiber optics currently, with copper covering the “last mile” to the customer. But soon, fiber or other technologies may claim that last stretch as well. The post draws inspiration from Tom Evslin, a former VoIP entrepreneur.

What bugged me was the anxiety about whether rural residents will get left behind. Nothing wrong with that per se, but predictably Mehta and Evslin move on to support the use of taxpayer money to solve the problem, in particular a Vermont program that subsidizes rural infrastructure investment through government bonds.

Why on earth should taxpayers in the state of Vermont be subsidizing telephone and internet service for rural residents in the state? Certainly, there is no public goods problem — these goods are excludable. I don’t see any problems arising from information asymmetry or externalities, either, so I don’t think market failure is an issue. The market should be working efficiently, even if that means rural areas have few services. Conversely, subsidies probably create inefficiency.

All that is left is fairness. Is it fair that rural residents must go without some of the services that are available in more populated areas? In reply, I would rearrange the question: is it fair for those living in more populated areas to be forced to pay so that rural residents can have all the same amenities of urban/suburban life?

As in many discussions of fairness in public policy, an important question is whether the particular group/class of people are stuck in their circumstances or have a choice. In this case, it is pretty obvious that rural residents are not bound to the land — they could move to the city. Indeed, over the last few decades we have seen massive urbanization all across the developing world, demonstrating that even terribly poor people manage to physically move from the countryside into the city. So, fairness is not an issue. I can think of no reason to support a policy like Vermont’s.

Update 5/31: Tom Evslin pointed out that the Vermont program is not a good example of subsidization, namely because there is no direct subsidization going on. When I asked “Why on earth should taxpayers in the state of Vermont be subsidizing,” I mischaracterized the program. However, the use of state-backed bonds nevertheless is a form of indirect subsidization, redirecting scarce investment away from everything else toward rural telecom infrastructure.

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