Computer games: the crime of Internet subsidies

Reason, Nov, 1997 by James V. DeLong

These are not abstract issues. Every one of them must be addressed, and this list is a bare start. The FCC has reached some initial conclusions. For example, a college can indeed spin off its library into an eligible entity, and carriers must grant a discount on the cost of wiring individual classrooms within a school, not just on the cost of connecting to the wall of the building. (After all, says the commission, the president said that we should wire 2 million classrooms, not just schools. This closes the inquiry into whether this policy makes sense.) The FCC has also established a schedule setting six different levels of discounts depending on the economic need of the locality, and decided that the applicable level should be self-certified by the school or library. Other questions are answered as well, but there is still a long way to go, and every answer will raise new questions.

The commission rules resolving these issues - or leaving them maddeningly uncertain - are criminal statutes. It says so fight there in Title V of the act. Anyone can be fined and jailed for one year for "willful and knowing" violations of the act or of FCC rules. Anyone who "willfully or repeatedly" violates rules is also subject to civil penalties, which can be imposed by the commission itself under procedures and standards of proof looser than those applicable in courtrooms. For schools and libraries, the penalties can go up to $10,000 per day for a continuing violation. Carriers and others who are in the business face considerably higher civil penalties.

This blend of command-and-control, subsidies, and enforcement through serious penalties guarantees future trouble for the schools and libraries. By now we have enough experience with this blend that the result has a certain inevitability. Judging by the history of other regulatory programs, details will soon proliferate to the point where no one can fully understand the rules. Even the most honest beneficiary will find it difficult to judge what he must do. For many, the transaction costs of figuring out the program's requirements will outpace its benefits. As a result, they will try to use common sense - a treacherous guide in any regulatory program. Even seeking official help is often little real help. If the English B.A. at the other end of the hot line tells you a bureau letter interpreting a commission rule defining a statutory term means X, are you bound? Is this The Law? Probably, but there is no clear legal answer.

Initially, the FCC is likely to spend little to enforce the provisions of this program, given all the other demands on its resources, and given that the commission does not really care about the details now that the public relations harvest has been reaped. That might seem good for schools and libraries. But if you cannot get an answer to a question, and it seems unlikely that you will be caught if you err, the obvious course is to make doubtful calls in your own favor.

Eventually, someone will go back and re-examine these decisions, especially if the total resources for the program get squeezed. Then you can be in deep trouble. Because of limited resources for enforcement, the government will likely move to a system of enforcement through terror. If problems become rife enough to cause political embarrassment, and if the agency can move against only a small percentage of violators, it will make a horrible example of those few. For example, the Environmental Protection Agency explicitly sets penalties at levels designed to represent the expected gain adjusted for the probability of getting caught. If you save $10,000 by ignoring a rule, and the chance of your getting caught is only 1 percent, then the fine becomes $1 million.