Public Goods vs Private Goods

[Xerographica]

The only difference between public goods and private goods is that people can free-ride off the contributions that others make to public goods.

To fix that problem we simply force people to pay taxes. Once we force people to pay taxes then public goods become in essence no different than private goods.

We've long since established that markets are more effective than planners at efficiently allocating private goods. For example, here are some of the countries that still have planned economies...Cuba, Libya, North Korea, Saudi Arabia, Belarus, and Myanmar.

So if planners fail at allocating private goods...and public goods are not essentially different than private goods...then why do we still have planners allocating public goods?

The solution is simply to allow taxpayers to directly allocate their taxes among the various government organizations at anytime throughout the year. This will force taxpayers to consider the opportunity costs of their allocation decisions. The result will be a far more optimal allocation of public goods.

For those not familiar with the economic term..."opportunity cost" refers to how much of one good somebody would be willing to forgo in order to afford another good. For example, how much public education would you be willing to sacrifice for a secure border? How much defense would you be willing to sacrifice for improved infrastructure?

In each of the following quotes I underlined the sections that are relevant to the concept of opportunity cost.

Nevertheless, the classic solution to the problem of underprovision of public goods has been government funding - through compulsory taxation - and government production of the good or service in question. Although this may substantially alleviate the problem of numerous free-riders that refuse to pay for the benefits they receive, it should be noted that the policy process does not provide any very plausible method for determining what the optimal or best level of provision of a public good actually is. When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money? There is a whole economic literature dealing with the willingness-to-pay methods and contingent valuation techniques to try and divine such preference in the absence of a market price doing so, but even the most optimistic proponets of such devices tend to concede that public goods will still most likley be underprovided or overprovided under government stewardship. - Patricia Kennett, Governance, globalization and public policy

The working out of financial arrangements between collective consumption units and production units is one of the most difficult problems faced by entrepreneurs in the public economy. Without market prices and market transactions, the act of paying for a good generally occurs at a time and place far from the act of consuming the good: individual costs are widely separated from individual benefits. Yet a principle of fiscal equivalence--that those receiving the benefits from a service pay the costs for that service--must apply in the public economy just as it applies in a market economy. Costs must be proportioned to benefits if people are to have any sense of economic reality. Otherwise beneficiaries may assume that public goods are free goods, that money in the public treasury is "the government's money," and that no opportunities are foregone in spending that money. When this happens the foundations of a democratic society are threatened. The alternative is to adhere as closely as possible to the principle of fiscal equivalence and to proportion taxes as closely as possible to benefits received. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices (PDF)

 

[reardenstone]

Depends on who the planners are. Libya was hardly a good example of a people electing their own organization. It was a proxy for neocolonialsm and as long as we paid Ghadaffy well he would keep things under wraps.