Computer Games

The crime of Internet subsidies

James V. DeLong from the November 1997 issue

(Page 2 of 2)

Carriers will develop games of their own. Deep down, they may not really care what the schools and libraries do. But they don't want to be charged with granting illegal discounts, and they don't want the government to deny them their credits, so they have to cover themselves somehow. This will put them into conflict with the schools and libraries over basic issues.

All this complexity and gamesmanship will provide endless opportunities for mistakes and overreaching. And remember, mistakes and overreaching are now crimes. We've already seen this happen with the mother of all subsidy programs, Medicare. The government is involved in endless disputes with care providers over the nature of "fraud." Many of these cases involve real fraud, of course, but many are ambiguous. For example, one dispute is with teaching hospitals over staff doctors who supervise a resident who performs the actual hands-on patient care. Hospitals have been billing the doctor as a care provider; the government calls this criminal fraud. Other disputes concern the allocation of indirect overhead to health care services. Arcane and fundamentally insoluble issues of cost accounting now have criminal implications.

These types of conflicts will always arise in any program of subsidies for services. And talk about legal uncertainty and complexity: The government in 1997 says the hospitals should have known they were wrong because they got a letter about it in 1970. Some of the current Medicare disputes go back to interpretations made in the late 1960s, which modern practitioners are unlikely to be aware of.

In some ways, schools and libraries are fortunate: The word willful got inserted into the statute, so the government may well have to prove criminal intent before nailing someone. This is not true in many other regulatory areas, where knowledge and intent have been rendered irrelevant.

Lobbyists for the schools and libraries also got a provision shielding their clients from civil penalties for violating a rule unless the FCC tells them they are sinning and they continue to commit similar violations. This puts them miles ahead of the battered veterans of many other regulatory programs, where you might get a letter saying you've been trespassing on some obscure regulation for years and should please remit a check for $10,000 per day for the entire period. Many ways remain to nail the schools and libraries nonetheless, if the government puts its mind to it.

The path ahead for schools and libraries is grimly predictable. In the flush of euphoria, they will interpret things in their own favor. As good, law-abiding members of the middle class, it will barely occur to them that these interpretations are treading near the edge of criminality. Some will be cautious, but they will look foolish as others reap benefits and nothing happens to them, so they will join the parade.

After a time, scandals will hit, followed by exposés and recriminations. The FCC will move against a few institutions with the heavy guns of criminal and civil sanctions. Others will panic and decide they must have a zero-error policy. They will bring things under tighter control, asking "Mother, may I?" of the FCC for every
tiny change. But the whole program will have become too complicated and contentious for its requirements to be predictable, and things will settle into the standard regulatory equilibrium of high transaction costs, quarrels over subsidies, sharp dealing, scandal, and occasional human sacrifice.

James V. DeLong is the author of Property Matters: How Property Rights Are Under Assault and Why You Should Care (The Free Press) and The New "Criminal" Classes: Legal Sanctions and Business Managers, a 1997 monograph published by the National Legal Center for the Public Interest in Washington, D.C. His Web site is www.regpolicy.com.

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