Computer games: the crime of Internet subsidies

Reason, Nov, 1997 by James V. DeLong

These eventual enforcement efforts will not lack for targets, because everyone will have irresistible reasons to game the system. Students with access to cheap Internet service will respond like rational economic beings and use more of it. They will also take a broad definition of education, which will expand to include language arts (chat rooms), motor skills enhancement (computer games), and biology studies (on-line porn). The more enterprising will discover the glories of arbitrage. If you have free access to something that people in the real world pay for, you have something valuable to sell. This student gaming of the system will create tough enforcement problems for schools and libraries, and much debate about who is responsible for preventing it.

Schools and libraries will also have incentives to play games. They want to bring as many services as possible within the discount by interpreting the rules liberally. This impulse will be strengthened by the silliness of a basic premise of the program. The president's goal - "wire every one of 2 million classrooms" - has the same brainless quality as the targets of a Soviet five-year plan. Why should every classroom be wired? Might not some be used for reading, or writing, or even teaching? And is the issue not better decided at the local level? The temptation to rechannel resources into what the people at the working level really need will be constant.

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.