Sunday, February 07, 2010


A longtime reader commented on my I, Pencil post:
When we were driving in the mountains of Colorado I mentioned to your dad that if the government didn't force utilities to reach the people who live off the beaten path out there, they would just go to places where it is handier and cheaper to deliver power, and the people in the mountains would be out of luck. Wouldn't a private mail company do that?
She raises a good point: a utility or mail company probably wouldn't provide service in extreme locations without raising prices a lot. By requiring services to these areas (or, in the case of the Post Office, providing service itself), the government is effectively subsidizing living in whole swathes of the country.

If this subsidy were removed, then prices would rise and it would not be as affordable to live in the middle of nowhere. People unable or unwilling to pay these higher prices would move somewhere more easily reached, and therefore more affordable.

People should definitely be able to live out in the mountains if they want to, but they should recognize that there is a price to pay. The government's forced subsidy distorts the actual costs of living in a remote area, and therefore leads to inefficiency and wasted resources servicing these people. How much money and effort is spent running power lines throughout the Rockies that could be allocated more effectively in more populated areas? The answer: probably lots.


Mom said...

Your longtime reader says: Hmmm...that is an interesting way to interpret it! One could think and think about fairness in topics like this. I always consider the taxpayers in Dixon when I think of them pitching in taxes for, for example, Metrolink in St. Louis. I wonder if country people subsidize city people more, or vice versa.

Anonymous said...

RORO said---I used to vote for MetroLink because they were supposed to put a route into South County----now after 10 years we still don't have a route but Shrewsbury and Scott AFB do!

von Pepe said...

I agree with your analyses and I appreciate your Mom's point about who susidizes who?

But, on the single topic of power (the infinite cross-subsidies are impossible to calculate), you might add that we will never know if a new technology was not developed to provide power in a remote location that might have been developed to capture profits. The entrpreneuer saw he could not compete with the governemnt subsidized power to remote users. We may have had enormous technology gains for geothermal, solar, hydro, or something I don't even know exists, if the market did not have to compete with subsidized governemnt power.

The unseen is often as costly as the costly seen you describe. What was the opportunity cost of the governemnt power? We will never know.