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Public Goods Do Not Justify Taxes

November 30th, 2008

A lot of people want to make an argument in favor of government or in particular, in favor of taxation, on the basis of public goods. Public goods, you might recall, are non-rival, non-exclusive goods, the production of which benefits everyone, but since the benefits cannot be excluded, many people presume that such goods will be underprovided in a free market. Typically, what they mean is that these goods may be provided in a smaller quantity than they’d prefer.

For the casual reader, an example of public goods are parks and roads. Without resorting to a childish absurdum (i.e., but my garden is a public good for my neighbors…), we can see some problems with the public goods foundation, from the get-go. Private roads exist in probably every county in the Union. Private parks do exist: Ski resorts, private beaches, dog parks, etc. The largest trade artery between the U.S. and Canada is privately owned, maintained, secured, and operated, and has been for 80 years. All of these maintain some degree of exclusivity, and they are able to do so based on well-defined property rights. (I like to think in terms of Coase’s discussion of the Lighthouse Problem.)

Slightly more sophisticated cases are often made for insurability problems, like protection from forest fires, or neighborhood fire departments which have been privately provided in the past, by people even dumber and less technologically-equipped than we are, today. The plain fact of the matter is that survivor and life insurance programs under the guise of Social Insurance Programs, the forced subsidization of risk via taxation, actually encourages more risky behavior. It’s called moral hazard.

But the point of this post was not to belittle the public goods argument on economic grounds, although for what it’s worth, I’m not convinced that the argument holds much water. Even if we grant that certain goods are non-rival and impossible to exclude, even if we accept the premise that these goods will be provided in suboptimal quantities if the market is left to fend for itself, we’ve still got one hell of an is-ought gap to bridge.

Assuming: Schools are public goods. Roads are public goods. Security is a public good. So what?

That a good happens to be “public” in nature says nothing about whether that good ought to be produced, or in what quantities it should be produced (if at all). The “public” nature of certain goods is not enough, in its own right to justify as a moral imperative, the taxes used to provide for their production, since, by virtue of the good’s “public”-ness, we can’t deduce that it must be provided, we cannot justify taxing people in order to provide these goods on account of their “public”-ness.

The proper response to the public goods argument is: So what?

Comments

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  • Francois Tremblay says on: November 30, 2008 at 2:48 pm

     

    I do refute the public goods argument front and back at the beginning of my book Market Anarchy Explained.

  • KipEsquire says on: November 30, 2008 at 3:04 pm

     

    You set out to demonstrate that “Public Goods Do Not Justify Taxes” but your post only demonstrates that “not all goods provided by governments these days are really public goods.” I wholeheartedly agree with that second assertion, but can’t let you bootstrap it into the first, which you never even try to prove.

    Parks and roads? You win on those — but the victory is hollow. If you want to impress me, jump straight to Rand’s “public goods” — a (defensive) military, a (rights-protecting) police force, and a civil court system to enforce contracts — and explain to me why THOSE don’t justify taxes.

  • anarcho-mercantilist says on: November 30, 2008 at 4:18 pm

     

    David, some of examples of public goods you listed here are not public goods, by the economic definition. A public good means that a good that is both non-rival and non-excludable. Roads, parks, water supply, electricity, phone lines are, however, not public goods, by definition. All of these goods are excludable, that is, the providers of these goods can exclude others from using it by private property. They are called “club goods,” or goods that are non-rival but excludable.

    All types of club goods can be efficiently provided by the market, even if they are “natural monopolies.” These “natural monopolies” occur due to economies of scale. However, the apparent under-competition from the “natural monopoly” does not imply that consumers will charge high prices.

    All types of club goods can be efficiently provided by non-profit organizations, such as consumers’ cooperatives or joint ownership by the consumers. Since the consumers control them, they can set the prices as low as they wish. The owners can just exclude others who won’t pay.

    Examples of “natural monopolies” provided by consumers’ cooperatives include the private road associations in Sweden:

    In Sweden, private road associations manage two-thirds of the road network at less than half the cost and with better results than do the government road agencies. This model is based on a well-structured institutional framework for private ownership of low-volume roads that includes a law on private roads and financial and technical incentives.

    Public goods differ from club goods, as they are non-excludable. Because the owners of cannot exclude others from enjoying their goods, non-excludable goods result in the free rider problem. So public goods can potentially suffer from under-funding.

    Even that the free rider problem may potentially arise in public goods, the state can never efficiently provide any public goods, since it lacks competition. Public goods funded or provided by the state are inefficient due to assymetrical information and corruption. Due to state bureaucracy, the plutocrats can easily exploit the principle-agent problem by bribing the bureaucrats. If the state misuses their funds or redistributes these to the rent-seekers, the criminal organization can just increase their taxes to cover their costs. Often, the state provides these “services” hundreds of times inefficiently than the market would. (So the taxpayer burden from “illegal” immigration is negligible compared to the inherent inefficiency of the state’s public “services.”)

    Another problem of “public goods” arises due to subjectivity. As in the subjective theory of value, different people value public goods more than others, and some even value these “public goods” having no value or negative value. For example, suppose “schooling” is a public good. While some may suggest that public school enslaves children, others may think that schooling provides value. The individuals who oppose schooling will deny it as a public good. It is also impossible due to assymetrical information or imperfect knowledge. For example, it is controversial whether if forcibly-imposed global warming regulations have a net positive or negative outcome.

    However, most of the public goods can be voluntarily funded by more creative techniques, such as boycotts, insurance, technology, treaties, voluntary societies, etc.

  • Francois Tremblay says on: December 1, 2008 at 7:32 pm

     

    “jump straight to Rand’s “public goods” — a (defensive) military, a (rights-protecting) police force, and a civil court system to enforce contracts”

    The military, the police and the court system are public goods BECAUSE THE STATE MADE THEM SO THROUGH ITS TERRITORIAL MONOPOLY. Before they were taken over and their original intent (free people protecting each other) was utterly destroyed, they were not public goods. From the mutualist perspective, the answer is mutual aid: people helping each other on an egalitarian footing, following the principle of reciprocity.

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