What do you mean a multi-billion $ gov't program has problems?!?

How could this be? Back in the 80s a government program was hatched with the explicit goal of ensuring the poor had access to telephones and the implicit if originally unintended goal of making some firms profits while politicians felt good about themselves. Somehow it went awry. Well, the implicit purpose got out of hand enough that the program has crossed over into waste, fraud, and abuse land.

I asked how can this be? Exhibit 1 (the Baptists):

The Lifeline program—begun in 1984 to ensure that poor people aren't cut off from jobs, families and emergency services—is funded by charges that appear on the monthly bills of every landline and wireless-phone customer. 

Exhibit 2 (the Bootleggers):

The program, which is administered by the nonprofit Universal Service Administrative Co., has grown rapidly as wireless carriers persuaded regulators to let people use the program for cellphone service. It pays carriers $9.25 a customer per month toward free or discounted wireless service.

That's how.

I have personally seen this program in action from both sides: Poor consumers on a street corner under a tent signing up for a phone, and a newly rich entrepreneur rent seeker whose company signs up said consumers and then passes them on to a carrier or administers the telephone plan himself. And still somehow the program's illusory value carried it passed the media's suspicion for some time. I really don't know what it takes to sufficiently raise media suspicion--that would be valuable information.

This problem has more than just some good lessons in incentives including the classic B&B example. I think it also tells us something about how we think based on our reaction to the story (i.e., who we blame and who we pity).

If asked to list out the victims and culprits, who would go in which category? To me the victims are the people taxed to pay for this program and the poor consumers who the program intended to help--more on this second group shortly. The culprits are government officials who created the program especially those who helped craft its evolution to the current mess and the private firms who participated in the fraud--this extends to lobbying to expand/continue the program and encouraging or failing to properly discourage fraud.

Notice how I don't include the poor consumers in the culprit category. Not broadly at least. While certainly there were many who knowingly abused the system, I find it hard to put much blame on people in very difficult situations responding to incentives. In fact, programs like this can be a victimizing force in the lives of those it is designed to help. There are consequences to welfare programs, poorly designed or otherwise, and those consequences can include dependency. People in tough situations do not have the luxury of always taking the ethical high road. Just evaluating what is the ethical high road may be out of their reach.