Wednesday, April 15, 2009

Cell Phones for the Poor

Following discussions about social insurance programs in my Public Finance course, a student emailed me a news item about a government program to provide cell phones for the poor. I had never heard of such a program but after a simple Google search, I found

During my search to find out more, I came across many negative comments about how this is just another wasteful government program. Many were concerned about how much it would cost taxpayers and some seemed to already know that the phones would be going to the same people who cheat and defraud other welfare and income security programs. I also read many statements saying that having a cell phone is a luxury and not a right. Some of my students shared these same sentiments.

Let's look at this public assistance program using positive economic analysis (objective and scientific).

What's the estimated cost? In Tennessee, one of the states offering the program, there are 800,000 estimated eligible people. The phone can be bought in most grocery stores for $20 and then there is the cost of the 42 minutes per month. Even if we assume the government is paying retail for the phone, I'm going to guess that 500 minutes per year would cost no more than $50. So for $70 per person per year or $56 million for all of the eligible people in Tennessee (assuming they all sign up), the people already qualifying for some level of government assistance would have a free cell phone.

So the questions are, what are the benefits and is there a potential net gain to society?

I beleive that if you really try to estimate the productivity and cost saving benefits that you have personally experienced using your own cell phone and then multiply that by hundreds of thousands, you might agree that there are significant potential benefits from a program like this. Take a look at this paper:

Will there be people getting a cell phone in this program who are not deserving? Sure, that's a predictable and quantifiable cost of any government assistance program but we cannot get caught up in the relatively small number of individuals who try to game the system - it's just another cost. We should always try to minimize fraud and abuse (again if benefits outweigh costs), but if the benefits still outweigh the costs, then the program generates a net gain and both the size of the economic pie and the distribution of the pie are arguably better than before.

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