Tags: public | goods | tax | parks

The Role of Government in Providing Public Goods

By    |   Wednesday, 10 July 2013 07:58 AM

Last week, I mentioned there were some legitimate reasons for government purchases and even, under certain rarified circumstances, fiscal stimulus.

This week, I want to highlight the role of government in providing public goods.

Most economics textbooks define public goods as goods provided by (drum roll, please) the public! Wonder why economists can seem such simpletons? The textbook I used in my classes was written by James Gwartney and Richard Stroup, two western economists who are decidedly immune to the infatuation with Washington that infests most authors of college texts.

They describe public goods in the following way: with public goods, there is a very weak link between consumption of the good and payment for it.

Think about it. Walk into a used car dealership and lay down $10,000 for a used car. You unquestionably get the car, don't you? If you don't, you have recourse to the legal system to make sure it becomes yours. The opposite is also true: if you don't pay, you don't get the car. And the dealership will surely call out those TV Miami repo guys if you try and abscond without paying. Thus a car is private good: there is a strong link between ownership (use) and payment.

This is not the case with public goods. Consider our National Parks or our National Forests. Sorry to tell you taxpayers, but I have been cycling, camping and living in the forests and Crater Lake National Park in Oregon for most of the past week, and I haven't paid a penny. Why? I entered the park on foot (actually on my bike) and wild camped in the woods. My only guests were a few bears, which I scared off with my 12-inch crescent wrench. So, I used these parks and forests, even though I did not pay directly for them.

If you are reading this back east, maybe you'll never get to Crater Lake or national forests out here at all. What a pity, because you are most certainly paying for them, through your taxes and some other user fees on outdoor equipment and fishing licenses, etc.

Notice the weak link between whether you use the parks and forests and whether you pay for them? Because of the public nature of these goods, we decide as a society to have them provided by the government. Payment (at least in part) is through the compulsory tax system. Otherwise very few, if any, would willingly set aside funds for the parks, especially if they did not use them. Even if folks did use them, they might weasel in for nothing, as I did last week.

Goods such national defense, national forests and parks, interstate highways, waterways and so on have to be financed through the public sector and compulsory taxation. It is the only way we can avoid "freeriders" — people who would use the system without paying for it at all. It is difficult, though not impossible, for private enterprise to provide goods and services of this type, because the numerous freeriders would starve them of revenue while imposing substantial usage costs.

Thus, in difficult economic times as we have had over the last decade, it can be a very useful stimulus effort to spend funds improving the quality and quantity of public goods and services, because these will generate economic benefits (jobs, revenues, consumer satisfaction, etc.) that would otherwise not take place. Roads, bridges, flood control dams, reforestation and soil conservation were some of the most effective fiscal stimuli back in the 1930s.

By the way, to be honest, I did pay a very small user fee ($5) upon reaching Crater Lake's southern entrance last week. I could have easily avoided it, however. In most cases with public goods, we pay some portion through taxes as a fixed cost, and an additional modest usage fee when we actually use the park or other public good such as a highway. So even with public goods, there is a strong incentive to try and push them as far toward free-market, private goods as we can. Given improved technology, such as highway sensors and cameras, we can come closer to making a stronger link between usage and payment.

Goodness, perhaps the U.S. Forest Service will start using aerial drones to keep an eye on wilderness cyclists like myself. I'll get zapped with a laser if I don't pay a daily forest usage fee. Ahhh ... progress!

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Most economics textbooks define public goods as goods provided by (drum roll, please) the public! Wonder why economists can seem such simpletons?
Wednesday, 10 July 2013 07:58 AM
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