Tuesday, November 22, 2011

Seth's Blog: The problem with amortization

The problem with amortization

It costs more than a hundred dollars a day to use the wifi at the convention center in Toronto.

A 2 ounce bag of chips at the airport costs $4, the same price a pound costs at the local market.

A three-minute visit to the doctor might cost $250, even though the doctor clearly isn't making $5000 an hour...

What's happening is obvious: you're paying extra to subsidize something else. In order to have a clean lobby or repaired runway or a life-saving but little-used machine on hand, institutions charge some people extra and spread it out over some of their larger costs.

When AT&T first suffered from competition, they accused MCI and others of skimming the cream. They said that a company that sold something like long distance at a reasonable price was taking away their ability to subsidize all the other universal services they offered. They built those services on subsidies.

In the digital age, we get annoyed at these subsidies. That's because competitors are peeling off the cash cows and selling them separately. A $20 cable for your phone costs a penny or a dollar online--because the person selling it to you doesn't have to subsidize all the other costs with an expensive add on, right?

It used to be that the only way to collect the money we needed for roads and facilities and other widely used services was to charge a lot for the few things that were seen as extras. Now, though, it's easier than ever to track actual use, to coordinate consumption with payment. The technology is no longer the problem, it's our habits that are holding us back.

Simple example: a combination of gas tax and digital toll collection could instantly move the vast percentage of transport cost from society to the individual. Drive more, pay more. There are social implications (it's a regressive shift) but more important, people would be outraged--the same ones that don't like paying for a $20 cable(!).

Those that have been subsidized hate having it end, and even those that will save money don't really like the truth of their consumption so clearly exposed.

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