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Comments of Harold W. Furchtgott-Roth
before Citizens for a Sound Economy
Hotel Washington
Washington, DC

May 18, 1998

CSE has always been a friend of mine. It has always been true to its name.

Citizens -- not special interests

Sound -- Not for whacko ideas.

Economy -- One of the most important ways to be true to the citizens of America is a strong economy.

CSE has taken a back seat to no one in promoting sound policy in Washington.

It has championed competition.

It has championed less and regulation and more rational regulation.

It has championed lower taxes and more rational taxes.

It has championed the little guy. The average American. The mere citizen.

The mere citizen who benefits most from competition, but whose voice is often unheard in Washington.

The mere citizen who is harmed the most by regulation, but whose voice is often unheard in Washington.

The mere citizen who is harmed the most by taxes, but whose voice is often unheard in Washington.

CSE has had many successes over the years, but one of its greatest hours was in helping to defeat the BTU tax.

I salute you. Many people have saluted you. Perhaps, most important of all, the tens of millions of ordinary Americans who would have been harmed by this tax salute your efforts, even though they will never know who or what CSE is, and how much you have done for them.

Washington is a great city. It is a battleground of ideas. Some are good; some are not so good.

Most battlegrounds have visible scars where forests have burned, where earth has been laid barren, where buildings have collapsed, and where flesh and blood have mingled in an untimely manner with the earth.

Washington's modern battle scars are not visible. Battles are fought daily, but the city appears no worse for the wear, and it is always a city of great beauty.

The scars of this city are intellectual. They are political. Intellecutal and political discourse in this city and throughout America are unnaturally changed, and often for the worse, by the battles that rage in Washington.

The battle lines have many different factions, but there is often a clear line dividing two principal ideas. On the one hand are those who believe that a few bright people know better than the rest of the world what government should do, and that the best and brightest of minds are assembled here in Washington, and that as a consequence Washington, rather than any other location of government should make all major decisions. And at all times, these bright people can make better decisions than anyone else, either in government, in markets, in homes, in schools, or in any other institution. To these people, government is not only central and centralized, it is preeminent above all else. Government, by definition cannot be excessive.

On the other hand, there are those who are skeptical of excessive government, who believe that government serves the people, and not visa versa. Who believe that it does not matter how many bright people are assembled, that they cannot collectively do better than the market except in a few limited instances. That the greatest hope and the greatest champion of the little fellow, of the mere citizen, is a free market. A free market where government does not dictate who may compete as either a buyer or a seller. Rather, individuals make those decisions. A free market where government does not dictate the terms and conditions of trade. Rather, private parties do.

CSE, to its credit, has always stood in the latter camp.

If you look at the myths and legends and fairy tales of other countries, success is ultimately described by becoming a prince or princess and living happily ever after. Other countries have had inherent inequality. There was a pecking order in society, and you were born into a certain station in life. Only by miracles and fairy tales do people move up in the pecking order. No matter how hard you tried, your station in life was assigned, so why try very hard.

America is different. It is not just the land of opportunity but of equality. And the two are inextricably linked. One is necesary for the other. And both are inherent in our Constitution. Individual rights from an oppressive government. No aristocracy or titles.

American tales are not based on royalty or promotion by marriage. They are based on hard work and ingenuity. On personal charm and integrity. Rags to riches is a universal dream.

In America, it is a dream that happens.

In America, it is a dream that happens to common people. Not because they marry rich or or find a long lost aristocratic relative. But because in America, common people are rewarded for uncommon efforts, uncommon investments, and uncommon innovations.

And how do we do that better than common folks in other countries?

In large part, because we have freedoms guaranteed in our constitution, freedoms that cannot be abridged by government. Individual freedom of speech. Individual freedom of religion. Individual freedom of assemblies. Individual freedoms protected from government restrictions. Our constitution is based on the notion that governments serve individuals, and that where the two conflict, it is the individual that wins.

Ultimately, these freedoms are the great equalizers in a nation where ideas and not heredity matter. And that nation is America. It is here that common people succeed with uncommon efforts, with uncommon investments, with uncommon innovations. Individual freedoms are necessary tools for mere citizens. With them, they have the opportunity to be as powerful as the greatest of royalty. Without them, they are like, people around the world, cursed into a hereditary birth order.

In a nation in which ideas matter, the battles that rage in Washington matter. And they occur in ever nook and cranny of the federal government, even at the FCC.

So how do we help mere citizens at the FCC? Through what I refer to as rational regulation. I am not categorically against all regulation. I just believe that common sense and the law require us to have rational regulation, regulation where benefits clearly exceed costs.

As I noted earlier, the market does better than a few smart people except when there are identifiable externalities. In those instances, the benefits of regulation may potentially exceed costs.

Surely, you say, the FCC has estimated the costs and benefits of all of its regulations.

No. As it turns out, the FCC has never calculated the costs or benefits of any of its regulations. Ever. Nor have many agencies in town.

So how do we know if the past regulations, or regulations under current consideration are worthwhile?

We don't. Under Section 11, the FCC is supposed to begin reviewing all telecomm regulations in 1998 on a biennial basis. I wish that I could say that we have made more progress than we have.

And some of our new regulations are truly frightening. Perhaps some of them could even be called taxes.

CSE has a long history of supporting rational taxes. Surely, you would like consumers to know what taxes they are paying, how much they are, and how much they have changed over time. CSE might not be too happy with some new fees on phone services, some new fees that look rather like taxes.

You see, these fees have been hidden from consumers. It is hard to complain about something that you do not see on your bill. Americans have been paying $100 million per month for these new fees since January, but most Americans don't even know the fees exists.

That is because it is a new unversal service fee. A hidden fee. And it simply displaces a reduction in another hidden fee, long-distance access charges.

It is a neat idea thought up by some clever people in Washington behind closed doors in the dark of the night without public notice or comment. Reduce one hidden fee and raise another and the public of mere citizens will be none the wiser. And make sure they never know.

It is called a new universal service fee. Universal service, isn't that for high-cost rural America?

That is what Congress intended, but that is not what is happening at the FCC. Universal service at the FCC all too often means just schools and libraries. Period. Don't worry about Congressional intent. Don't worry about following all parts of the law.

Surely, you say, everybody is in favor of schools and libraries. The internet, isn't that the wave of the future. And they must desperately need the money.

The Department of Education recently released a report showing that 80 percent of American schools already are connected to the Internet. And who knows how soon that will approach 100 percent without further federal government assistance.

Federal assistance? It turns out that, last Friday, GAO released a report describing how the Federal government already spends $10 billion on infrastructure for schools and libraries. Why add another billion or two of federal money. Of course, state and local governments already chip in billions and billions more. As does private industry which already provides internet access to most schools.

Well, you might say the FCC is just following the law as it is written. I wish that were so. It is not. The statute does calls for discounts on contributions to a federal universal service fund, not direct federal grants. But all federal universal service is turning into is a federal grant program for schools and libraries.

Well surely we are not going to expand this program. Wrong again. The FCC is set to increase this schools and libraries program again July 1, and the American public will be the poorer for it.

Moreover, to the extent any services can receive discounts under the universal service program, they must be services, not plant and equipment. But the vast majority of the funding requests, $1.3 billion out of $2 billion for 1998, are for plant and equipment.

It turns out that the FCC could fund all requests for service funding out of the funds that will be been collected by the end of the second quarter. The fee rate could then be set to zero for the remainder of the year.

Surely the money is being well spent. Guess again. Auditing and control over expenditures is weak at best.

Surely consumers are not being harmed too much. Guess again. Jerry Hausman of MIT estimates consumers lose more than $2 for each dollar raised through the current universal service tax mechanisms. That equates to more than $4 billion loss to consumers to support $2 billion in poorly managed spending on schools and libraries.

Surely, this won't happen. Someone will stop it. No, this is Washington. In the intellectual and political battles that define this town, being on the side of the mere citizen is a lonely side. Special interests, educational lobbies, big corporations, don't want to rock the boat. It does not really matter that a little money is wasted here and there, or that the law is not being followed. No one wants to appear to be against education, even when money is not being well spent.

It is a lonely fight, but I am confident that CSE will join on the right side of this issue.

And I have not even told you about some of my favorite issues around the FCC. Free air time for politicians. I could go on and on. But I will let you ask those questions yourself.