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Richard Thaler in the NYT:
Here’s a list of national domestic priorities, in no particular order: Stimulate the economy, improve health care, offer fast Internet connections to all of our schools, foster development of advanced technology. Oh, and let’s not forget, we’d better do something about the budget deficit. … There [is] a way to deal effectively with all of those things at once, without hurting anyone. …
The usable radio spectrum is limited and used inefficiently. … The target that looks most promising in this regard is the spectrum used for over-the-air television broadcasts. … People in the industry refer to them as “beachfront property” … Over-the-air broadcasts are becoming a nearly obsolete technology. Already, 91 percent of American households get their television via cable or satellite. So we are using all of this beachfront property to serve a small and shrinking segment of the population. … Professor Hazlett estimates that selling off this spectrum could raise at least $100 billion for the government and, more important, create roughly $1 trillion worth of value to users of the resulting services. …
Who would oppose this plan? Local broadcasters are likely to contend that they are providing a vital community service in return for free use of the spectrum. … [But] about 99 percent of these households have cable running near their homes, and virtually all the others, in rural areas, could be reached by satellite services. The F.C.C. could require cable and satellite providers to offer a low-cost service that carries only local channels, and to give vouchers for connecting to that service to any households that haven’t subscribed to cable or satellite for, say, two years. Professor Hazlett estimates that $300 per household should do it: that amounts to $3 billion at most.
Yes, Hazlett’s solution would require poor rural couch potatoes to suffer the indignity of accepting more obvious handouts – today’s “free” tv better hides those handouts. And yes we often pay substantial costs to show our allegiance to certain precious symbols. But we pass up a trillion dollars of gains to avoid even the hint of dissing poor rural couch potatoes?
We forgo similar benefits when we let poor folk drive old very polluting cars, and then require expensive emissions reductions elsewhere, such as in power plants. It would be far cheaper to ban old cars, and pay the poor more to compensate, but this also makes our handouts more obvious.
Couch potatoes and polluters are not exactly highly respected in our society. So why is it that when such folks are also poor, we will throw away trillions in gains to avoid dissing them via direct handouts?
HT Alex.
Hiding Handouts
I think there is severe underestimation of the massive difficulties of gaming the system with direct handouts. Moreover, I suspect it's more often our outraged sense of unfairness (why should they get a handout) than the desire not to diss that causes a problem.
In particular the problem is that either handouts are insufficent to offset the imposed costs for many people and as a result there a pile of horrific stories in the media about people who were screwed over by this government program or the handouts must delibrately over estimate the cost they impose to avoid failing to cover the costs and causing significant harm.
However, when we give handouts that are highly utility positive to groups who we don't feel need them it tends to invoke our sense of outrage.
"we will throw away trillions in gains to avoid dissing them via direct handouts?"
Are you sure it's the recipients of the handouts whose feelings we're favouring? In my experience the people who complain most about handouts are the ones who aren't receiving them.