Government Spending

The High Price of a Stimulus Success

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He just won a bull auction.

Whenever anyone agues that some stimulus project was a success, the most important question to ask is: How do you define success? A report in Wired makes the case that the rural broadband expansion funded by the American Recovery and Reinvestment Act was, according to the headline, "a stimulus success story." But Wired's implicit definition of success stacks the deck in favor of government spending. The story seems to work from the premise that if the federal government spent money and got some sort of service or benefit in return, then the program was a success. Here's Wired:

The stimulus package earmarked $7.2 billion in grants and loans for projects to bring broadband to rural and urban areas. The FCC says the projects funded so far will bring broadband to 2.2 million Americans. That's a good start, the FCC says, but more than 28 percent of rural Americans — some 18 million people — still can't order fixed-line internet connections faster than 3 Mbps down, according to the FCC's June 2011 report.

The piece goes on to cover the benefits of the new broadband connections at length: A high-speed connection to a health center on a reservation in North Dakota will allow for greater utilization of high-tech health care, including distance examinations. Reservation Telephone Cooperative, the company being paid to install the lines, sure seems to like the program. One of its operations managers explains the benefits: "You have people running a trucking company or a veterinarian or doing remote medical transcription — so without fiber they can't work from home…People have bull sales live on the internet, but without that fiber connection you can't do that." No, I suppose you can't.  

Here's a question Wired doesn't ask: Was the stimulus-funded broadband investment worth it? Sure, the money was spent. But was it spent wisely? The piece lists a number of specific potential benefits that a few of the new connections are expected to enable, but doesn't attempt a broader cost-benefit analysis or a judgment about whether the program met its stated goals. That, however, is exactly what Jeffrey Eisenach and Kevin Caves of the consulting firm Navigant Economics did, and the results don't exactly scream success. Here's a summary of their findings from Nick Shulz at Forbes

The ARRA stimulus funds for broadband constitute "the largest Federal subsidies ever provided for broadband construction in the U.S." An explicit goal of the program was to extend broadband access to homes currently without it.

Eisenach and Caves looked at three areas that received stimulus funds, in the form of loans and direct grants, to expand broadband access in Southwestern Montana, Northwestern Kansas, and Northeastern Minnesota. The median household income in these areas is between $40,100 and $50,900.  The median home prices are between $94,400 and $189,000.

So how much did it cost per unserved household to get them broadband access?  A whopping $349,234, or many multiples of household income, and significantly more than the cost of a home itself.

Sadly, it's actually worse than that. Take the Montana project. The area is not in any meaningful sense unserved or even underserved. As many as seven broadband providers, including wireless, operate in the area. Only 1.5% of all households in the region had no wireline access. And if you include 3G wireless, there were only seven households in the Montana region that could be considered without access. So the cost of extending access in the Montana case comes to about $7 million for each additional household served.

Call me a cynic, but I don't find it terribly surprising to find that, given a few billion dollars to blow on new broadband, the government managed to pay for the installation of some high-tech new services that people might like, and that the contractors who got gigs installing those services are now touting the program's virtues. But this hardly constitutes a runaway success. Give me a few billion dollars and I could probably find a way to expand broadband's reach too, and probably make some telecommunications contractors happy in the process. The question when looking at taxpayer-funded government programs like this isn't whether there were benefits at all, but whether, overall, they were worth the cost.

NEXT: When Costs Considered, Support for Government Caps on 'Swipe Fees' Wane

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  1. Government is proud of itself, just like a toddler who left a big solid BM in the potty.

  2. Since they deem their actions as successes regardless of the facts and often before they could even know, why not just skip the whole spending business and simply claim that they’ve spent money? They’ll get political capital for their claimed spending, and, simultaneously, they’ll help reduce actual spending.

    1. “they” also claim to release oil fm the SPR. sure forced the speculators outta their long positions before any oil is actually released.

      1. Future market traders are speculators now?

        I mean, I guess technically, but the way your using it…

        FAIL.

        1. It’s like beating your dog because he can’t do long division, Goldie. What you want is impossible, and all he does is howl incomprehensibly.

          1. The government could do the same thing with wars–do nothing, then claim victory.

            I’m saving hundreds of billions with this simple plan!

            1. Prez to Afghanistan: You are just afraid to debate me, so I WIN! PWN!

              1. Done. Now declare the turmoil in the Middle East settled.

                1. Prez to Jews: Glibjewtarians! FACTPWN’D!

        2. LONDON, June 23 (Reuters) – The International Energy Agency’s (IEA) decision to release 60 million barrels of crude oil from strategic reserves is intended to drive speculators out of the market and resist the formation of a bubble by breaking expectations about near-term supply shortages, rather than target OPEC.

          While the intervention will be intensely controversial, especially in the industry and among hedge funds and others running long positions in crude futures and options, it can be presented as a relatively limited move in response to fears about a shortage of specific grades of crude over a short time window, smoothing the process of adjustment.

          The president has already made clear he believes speculators are to blame for exacerbating the recent price rise. Policymakers have noted the record long positions in crude futures and options built up by hedge funds and other speculators, according to data published by the U.S. Commodity Futures Trading Commission.

          Gyrations in oil prices (such as the sudden drop on May 5 and equally rapid recovery) have not helped the cause of those who insist prices are driven by fundamentals.

          http://www.reuters.com/article…..H020110623

          1. That’s a foolish statement, regardless of who made it. Speculators aren’t the problem. Actual demand is, along with a finite supply that has some uncertainty attached to some sources of it.

            1. the price immediately started dropping when the speculators were forced outta their long positions.

              1. oh & global supply n demand remained in balance thru the whole period of the price runup.

              2. That’s simply not true. I remarked at the time–the day of the announcement–that the price was already declining as the fears about Libya and the other tremblings in the Middle East diminished. I’m either a brilliant oil speculator myself, or the administration was riding a wave that already existed.

                The amount of oil to be released is trivial, of course.

                1. trival agreed. but since the price was speculation, the effect was dramatic

                  1. plus the CFTC noted RECORD long positions at the time of the announcement. that would NOT be true if the price were in decline. broaden ur info sources beyond radio entertainers.

                    1. The entire idea that prices should follow “fundamentals” is nonsensical in and of itself. Prices should reflect people’s desires moving forward, even if they are “irrational” desires from YOUR point of view. Releasing the strategic reserves from time to time to juke the price of oil is not really a method of making the market more “efficient.” Oil speculation has a positive effect of driving up the price to a point where people start to moderate their own behavior, instead of the federal government doing it for them.

      2. That’s kind of the point about futures trading, isn’t it?

        They try to guess what will happen in the future, based on all the knowledge at their disposal, and risk some of their money.

        As an unintended result, shortages of oil and food do not occur as easily and many lives are saved or made better as a consequence. Tell me again why this is bad?

        Also, if you think we should use less oil to prevent global warming or some other bad thing you attribute to oil, then why do you care if the price is high? Dumb-ass.

      3. Since the price of gas has been dropping since May, I doubt the release of oil from the SPR in late June had much to do any price movement.

        Doesn’t stop the Administration from claiming credit though. Or from the stupid voters from giving it to them.

        1. the CFTC disagrees due to record volumnes of long positions & global supply/demand balance thru the price runup.

      4. “sure forced the speculators outta their long positions before any oil is actually released.”

        How many boxtops do I have to send to get your brain-dead decoder ring?

  3. Hey, how do I submit a tip to Reason? Because I’ve seen some good articles about this Rupert Murdoch phone hacking thing that’s going on in the UK.

    Honestly, I also feel that very few get Murdoch: He’s not a conservative propagandist as much as he is the second coming of Hearst- a yellow journalist who has strong opinions but is all too happy to use sensationalism to push news. I think a guy like Murdoch would have fit right in in the early 1900s.

  4. So the cost of extending access in the Montana case comes to about $7 million for each additional household served.

    How about just giving me $7 million and let me survive on that without broadband? (It will be tough, I know, but I think I can manage.)

    1. I agree with $7M I could afford some cutting edge 3D porn right in the privacy of my own home.

      1. I would make porn with $7 million. Stimulate jobs among other things. Plus I would pay it back. Win win. The government should invest in the porn industry. It makes sense, given how much they like to f*ck everybody.

        1. This is my favorite comment ever.

  5. Until recently, I was working for a rural Indian tribe who received solicitations about this “rural broad-band” project as part of ARRA.

    One of the executive talking-heads wanted to make it his pet project, until I pointed out in an open meeting that the folks on the rez were more worried about domestic violence and substance abuse than how fast their internet connection was.

    1. I guess so but … if you’re worried about domestic violence and substance abuse, STOP ABUSING YOUR WIFE AND DRUGS! The government cannot do anything about your moral failings; it can (at least theoretically) bring in broadband.

  6. Where’s my money? Why should I have to share a measely 400 kbps with my neighbors? I pay taxes, I want More! More! More! Whah! Whah! Whah!

  7. This is why I could never get a job at a Cond? Nast publication. I’m not a good enough a multitasker to write and suck the government’s dick at the same time.

    1. They do that over at Traveler?

      1. What are the odds that they’ve ever done a piece on the romance of traveling by rail?

    2. We were just looking for a break from jerking off Apple.

  8. If that government broadband internet access isn’t free, the program is a failure.

  9. “doesn’t attempt a broader cost-benefit analysis or a judgment about whether the program met its stated goals”

    Are you high? These are government programs we’re talking about. That sort of reasoning isn’t allowed.

  10. Silly libertarians, objective results are not important, its how pure your intentions are.

  11. Do people still read Wired?

  12. And if you include 3G wireless, there were only seven households in the Montana region that could be considered without access. So the cost of extending access in the Montana case comes to about $7 million for each additional household served.

    Unfortunately, according to the supporters of this rural broadband scheme, they’ll argue that this is precisely why it was needed.

    As you can see, the cost per mile is prohibitive for the market to provide proper broadband access. The return on investment just isn’t there. So the government’s job is to step in and address the “market failure” and get Nanna the life-giving nectar of internet access. Otherwise, the poor woman would die a lonely shut-in.

  13. Still the funds have been a boon to at least one company.

    Calix has won contracts for work on 55 stimulus-funded projects, which have collectively gotten more than $1 billion in federal funding…

    Calix, a Petaluma, California-based company, issued an IPO last year…

    An infrastructure bubble. I’m sure nobody saw that coming from miles and years away.

  14. If people in Montana don’t have high speed internet they won’t be able to download Lady Gurgle’s latest pop extravaganza, and they will be forced to form jug-and-washboard bands.

    1. After the jug-and-washboard band subsidy glut that occurred during the Jane Alexander years at the NEA, I doubt if there will be many willing to step in with their toes first into those muddied waters.

  15. The government confiscated and spent 7.2 billion dollars. No one was killed, no one was imprisoned, no new freedoms were eliminated. As far as I can tell, this was a success by government standards.

    1. If you think no one being imprisoned, killed, or having their freedoms reduced is a success by government standards, I think you are deeply confused.

      1. I think he was being funny.

  16. The International Energy Agency’s (IEA) decision to release 60 million barrels of crude oil from strategic reserves is intended to drive speculators out of the market and resist the formation of a bubble by breaking expectations about near-term supply shortages, rather than target OPEC.

    Nothing succeeds like an undercapitalized attempt to manipulate the market, coupled with an announcement that you are trying to manipulate the market. Because if there are two things people who play the futures markets are bad at, its (1) math and (2) reading.

    Predictably, this strategy has failed; oil prices are back up.

  17. The president has already made clear he believes speculators are to blame for exacerbating the recent price rise. Policymakers have noted the record long positions in crude futures and options built up by hedge funds and other speculators, according to data published by the U.S. Commodity Futures Trading Commission.

    This has nothing (NOTHING!) to do with the Secretary of the Interior’s de facto moratorium on permits.

    1. Price signals, how do they work Mr. Obama?

    2. u mean the “moratorium” where the drilling permits continue to be issued? again, global supply n demand remained in balance thru the whole price runup.

      1. faux noise confused its listeners (again) by failing to note the deep-water suspension effected only 33 well projects…that hadnt been started.

        1. Drilling permits isn’t the same as wells drilled.

  18. Am I the only one who’s fed up with that “series of tubes” quotelet? Biden, wasn’t it? Whoever said it was right. Fuck ’em if they don’t like his metaphor. What he was saying was that the Internet is a conduit rather than a source. And he was correct.

    1. Wasn’t it Ted Stevens?

      1. It was Ted Stevens. And the use plumbing parlance is ubiquitous in Telecom and IT. I always found it to be one of the dumber LOL HES AN IDIOT memes to spring up.

        1. Come to think of it, what do they call “|” in MS-DOS? Unix uses a different “pipes” symbol, I forgot what.

        2. Ironically, the bit used to mock him was the only thing about the internet he got right.

    2. Isn’t a truck also a conduit?

  19. That’s a good start, the FCC says, but more than 28 percent of rural Americans ? some 18 million people ? still can’t order fixed-line internet connections faster than 3 Mbps down, according to the FCC’s June 2011 report.

    Why, back in my day, the internet was text only, we had to settle for ASCII art, we were grateful for it!

    1. ..and we wore on onion on our belt.

      1. … which was the style at the time…

  20. Photo caption?

    “Ahh yeah!! Finally, an All-Fisting Site!… ooohhha”

  21. “but more than 28 percent of rural Americans ? some 18 million people ? still can’t order fixed-line internet connections faster than 3 Mbps down, according to the FCC’s June 2011 report.”

    Probably true, and they can’t stroll down the corner for a latte, either.
    So? Do we fund a Starbucks in every one-by-nothing berg now?

  22. Was the stimulus-funded broadband investment worth it? Sure, the money was spent. But was it spent wisely? The piece lists a number of specific potential benefits that a few of the new connections are expected to enable, but doesn’t attempt a broader cost-benefit analysis or a judgment about whether the program met its stated goals.

    If you don’t understand how unemployment benefits cause a multiplier effect, then you can’t understand how all stimulus spending is effective spending wisely spent.

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