Thursday, October 7, 2010

Public Goods and the Role of the State

Frances Woolley has a good post in reaction to this Olbion fire department situation reminding us that (1.) fire fighting is not a public good and (2.) actual public goods are very, very rare. I think this is important to highlight and think about because so many people have this automatic reaction that public goods in some sense provide the economic justification for what the state does, and anything that's not a public good is (according to economics) not an appropriate area for state action.

I've never really thought of it that way (although perhaps that's because I've never taken an official "public economics" class). I've always thought about the rivalry/excludability cross-tab more as a pricing strategy typology than a blueprint for a political philosophy. "Club goods" gravitate towards a different pricing strategy than private goods - they introduce innovations on how to price goods. "Common pool goods" usually gravitate towards different rationing or supply strategies than private goods. A good resource for this is of course Elinor Ostrom (her Nobel Prize lecture is a good start).

But you'll notice I don't usually talk about "public goods" when I talk about the government - usually what I'm talking about is an externality. That's not to say I don't think public goods are important when thinking about the government, they simply aren't exhaustive. Externalities introduce a situation where the market has no ability to right itself (contra Jonathan Catalan) because the problem is in the nature of the property rights regime. You could always pay BP not to pollute the ocean, but then you would be paying them not to impose a cost on you when they should be paying you if they want to impose a cost. You could argue that tort law forces BP to take these externalized costs into account, but then BP would still get to decide whether to act or not - it would not be a mutual choice between you and BP - that's coercion. So externalities provide some basis for state action even when we're talking about externalities in non-public goods. But obviously an externality on its own doesn't give the state license to act (see Coase on this point) - it's not sufficient. But large, extremely generalized externalities that can be addressed adequately by the government and inadequately by some other institution provide a strong case.

The other thing that affects the role of the state is humanitarianism and the ability to pay. I'm no welfare economist, and I haven't looked at this in detail (I know others have), but on the face of it the problem with a Walrasian approach to welfare economics is that because a person's income is commensurate with their marginal productivity, their ability to satisfy their utility is going to be constrained by their productivity. Human welfare, in other words, is proportional to human productivity. There's a point where this is unavoidable, of course. We don't see it as a crime that less productive humans a thousand years ago lived in a poorer state than we do. That's just how it goes. But for our contemporaries, does this raise any ethical issues for us? It probably should. A child is born to a poor family, and doesn't get adequate nutrition or education, to say nothing of an inheritance. That child will be less productive and will earn less money. Market capitalism, for all it's allocative efficiency, will by virtue of its dependence on the property rights regime constrain that child's ability to live as well as another child born under better circumstances.

So how do we react to this? First - we don't react in a radical way. The allocative efficiency of market capitalism still provides this child with the opportunity to use whatever productivity it does have to better effect than any other system we have come up with. It also provides the child with the best opportunity to enjoy the fruits of the productivity of others in an efficient way. The only real problem is that it imposes limits or obstacles to the child's fulfillment as a human being because of the same property rights regime that drives all the good things we like so much about markets.

If we have an ethical framework where we think that human beings are essentially equally worthy of living a reasonably comfortable life, this may suggest that we have a social imperative to augment market outcomes. I have a fridge full of healthy food and a roof over my head. I believe people should receive only what they earn, but I also believe that any human being without healthy food and a roof over their head is living an unjustifiably unfulfilled life. Providing them with a basic amount of food and shelter does not change the fact that they should earn their marginal productivity and set those earnings equal to the marginal benefit they get from consumption. So far this is only a justification for charity, but if these ethical standards are sufficiently generalized and agreed upon, private charitable intuitions can naturally evolve into public agreement on basic standards and public provision. This is natural - after all, the state is the ideal way to equally spread the pain of poverty which we think of as being somewhat random and not determined by a person's own life choices. The state is not some alien institution. It's an emergent institution just like any other human institution. Presumably what the state might provide in this case - food, medical care, shelter, etc. - is not a public good at all! Which brings me full circle back to the point that we need to be careful when we talk about "public goods". The concept of a public goods tells us something about viable and unviable pricing strategies, but it doesn't furnish us with a political philosophy.

My view is that political philosophy should be done with the property rights regime in mind. The property rights regime is largely artificial - natural rights are "nonsense on stilts" after all. They are useful and even justifiable and legitimate, though. The fact that they're artificial doesn't mean they're contestable. But we have to have a political philosophy that recognizes the limits of the framework of rights that a given society has evolved: hence my emphasis on externalities and ability to pay, rather than public goods.

9 comments:

  1. Is there supposed to be something to this blog post besides repeating what we have heard from you time and time again?

    "...private charitable intuitions can naturally evolve into public agreement on basic standards and public provision."

    (A) There is no such thing as "public agreement" on anything. Of course this myth must exist for a polity to work.

    (B) Charity is the justification for a lot of what the state does; but for most people who get goods from the government they could of course afford them on their own. Throughout the Western welfare states over 90% of government spending goes to the well off. No one ever admits this of course - well, except libertarians that is.

    "This is natural - after all, the state is the ideal way to equally spread the pain of poverty which we think of as being somewhat random and not determined by a person's own life choices."

    There is nothing ideal about the state.

    "It's an emergent institution just like any other human institution."

    Yet what emerges from the state is violence, nepotism, rent seeking, corruption, etc.

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  2. Xenophon - if you don't like the content of my blog, start your own.

    There are and will be recurrent themes. This is actually fairly new content I rarely if ever talk about public goods. That's the whole point of this post - contrasting public goods with externalities as a justification for state action.

    "Public agreement" depends on how you define it. As you know, I'm not a huge fan of "social contract" thinking. This is another "recurring theme" on here - social contract theory is inadequate but that doesn't invalidate social action.

    Throughout the Western welfare states over 90% of government spending goes to the well off. No one ever admits this of course - well, except libertarians that is.

    Get off your soap box. First, government spending and welfare spending are not the same thing. Second, even if we think about what could legitimately be called "welfare spending" for higher income families, I talk about things like the tax subsidy for employer benefits or the mortgage interest deduction far more than I ever hear you talking about it. Farm subsidies? Corporate welfare? You think libertarians are the only ones talking about this. It's like that other comment of yours about the anti-war movement "evaporating" - if you honestly think this stuff you need to read a little more broadly and critically.

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  3. "There are and will be recurrent themes."

    That's nice.

    "That's the whole point of this post - contrasting public goods with externalities as a justification for state action."

    Actually, I thought the point of it was talk about your notion of an ideal society - again.

    "Get off your soap box."

    All, that's what blogging is about.

    "You think libertarians are the only ones talking about this."

    Actually we are. Liberals and conservatives always talk about the issue as if they can do anything about while demanding a gigantic state at the same time. Libertarians say what is obvious - that the two are joined hand in hand. Want a big, hand-holding state? Well, expect lots of wealthfare, corruption, violence, etc.

    "It's like that other comment of yours about the anti-war movement "evaporating" - if you honestly think this stuff you need to read a little more broadly and critically."

    I read very broadly, so thanks, but no thanks. Now, what you need do to is get out of your echo chamber.

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  4. "Actually, I thought the point of it was talk about your notion of an ideal society - again."

    But where did I talk about that? I never said what my ideal society would be! So how could you possibly think that was what I was talking about?

    All, that's what blogging is about

    Ya, but you don't blog - you comment.

    Actually we are. Liberals and conservatives always talk about the issue as if they can do anything about while demanding a gigantic state at the same time. Libertarians say what is obvious - that the two are joined hand in hand. Want a big, hand-holding state? Well, expect lots of wealthfare, corruption, violence, etc.

    You're just describing basic social choice insights. That's not libertarianism. And who is advocating a "gigantic state"? This is like your abuse of the word "statist" the other day - I get the sense all you really mean by "gigantic" is "not libertarian".

    Now, what you need do to is get out of your echo chamber.

    Wanna clarify that, buddy? I comment on all sorts of blogs - I advocate and dispute both libertarian and Austrian positions and I advocate and dispute points made from standard left-leaning blogs. What echo chamber are you talking about? When has this blog ever been an echo chamber? You seem to think it qualifies as an echo chamber simply because I say what I think on my own blog!

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  5. Daniel,

    Blogging includes commenting on blogs obviously.

    "You're just describing basic social choice insights."

    Which liberals and conservatives ignore.

    "And who is advocating a "gigantic state"?"

    Most people actually.

    "This is like your abuse of the word "statist" the other day - I get the sense all you really mean by "gigantic" is "not libertarian"."

    I didn't abuse the term in any way. I used the term as it is used within political science circles.

    As for the term gigantic, of course I am using it that way. I'm a libertarian. I mean, duh. What is exactly wrong with that again?

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  6. "I comment on all sorts of blogs..."

    So? Almost all bloggers do (or so says the research). As a general rule commenting on blogs that do not share your ideology says nothing about how open to change an individual is.

    "What echo chamber are you talking about?"

    Are you really open to libertarian ideas, or do you just like the disputation? Of course, this only started because you made a remark about about I am not broadly read or something. Which is a fairly silly remark to make.

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  7. Are you really open to libertarian ideas, or do you just like the disputation?

    Are you kidding me? I write about this all the time. I have considerable common ground with both libertarians and Austrians. That's largely why I write about them (you don't see me writing about Marxists - I disagree with them even more than I disagree with libertarians, and I have even less common ground with them). When I do disagree with libertarians, it's not left vague and non-descript and it's clear that it's not some ideological/partisan discrepancy.

    "Of course, this only started because you made a remark about about I am not broadly read or something. Which is a fairly silly remark to make."

    You often come across as well read. None of my other readers would have been able to bring me back half a decade to Maines. But then you say things like "No one ever admits this of course - well, except libertarians that is", it gives the impression you don't read many non-libertarians.

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  8. "I have considerable common ground with both libertarians and Austrians."

    I don't think you have any common ground libertarians; as for Austrians, I am not qualified to say. When you agree with libertarians it appears to be by happenstance. We have in IMO fundamentally different views of the state, the individual, etc.

    "But then you say things like "No one ever admits this of course - well, except libertarians that is", it gives the impression you don't read many non-libertarians."

    Well, that is correct. Non-libertarians are very "cake and eat it too" on this matter whereas libertarians are "you can't have one without the other." It reminds me of early Iraq war boosters who were "Shocked! Shocked!" that there would be all manner of unintended consequences to the war.

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  9. Anyway, as always, have a lovely day.

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