Reference no: EM132158039

Case analysis assignment

The Myth of Public Goods by Mark Davis (2010); the Journal of Liberty

The myth of public goods is based on the belief that there are special things that everybody needs, but nobody will pay for. The priests perpetuating this myth include self-interested professors who spend a lifetime informing young, bright-eyed students about the magical qualities of these special goods that can only be provided by popular people with big guns. The media reports on the provision of these special goods and services as if this violently engineered operating system was mandated from the heavens. The democratic-corporate state is therefore a necessary evil that must impose itself on society, touching the lives of all, for our own good. That's a heavy price to pay for magic beans.

Free-markets, where individuals make their own decisions instead of coercive central authorities, are considered too dangerous. Because all those crazy, ignorant people out there making their own decisions would be the death of us all. There would be no government army or police to protect us, no fire departments, electricity, water, sewer, parks, or roads! Air travel would come to a halt and where would we watch our sporting events?! Our children could not be educated!! Civilization itself depends on public goods being provided by political means. Peaceful cooperation somehow lacks the efficiency of violent coercion when it comes to these special "public goods." Public goods are thus used to justify creating an organization that forces people to pay for something up front and then this organization (based on a monopoly on the use of force) provides the quality and quantity that the leaders of this organization decide is right for us all. And for it all to work, it is believed by these cultists that, the pixie dust of democracy somehow changes the fundamental human trait of favoring self-interest. Elected officials (flesh and blood people) are magically elevated above the quest for virtue and now have the power to work selflessly in the public interest. That's enough leaps of faith to build one hell of an obstacle course, coming and going.

In a world of scarcity, it is impossible for everyone to use anything. Such is life; so the question becomes how do we deal with scarcity? There are only two ways: trade and theft. That is, you can work for it (trade your labor) or steal it. Free markets (the economic means) allocate resources to where they are most needed by reading the signals sent by consumers through the price mechanism. Coercive collective authorities (the political means) allocate resources based on who demonstrates the most political power. In free markets the consumers vote with each dollar they spend on what goods and services they think are most needed at what price. The alternative is central planners deciding what goods and services are provided, at what quality and at what price, with consumers getting a tiny "voice" through elections of "representatives."

It doesn't take a PhD in economics to see which system has superior efficiency. It also doesn't take Mother Teresa to recognize which system is morally superior. Socialists believe that the granting of special privileges to politically powerful people is worth the loss in efficiency because politicians are such good people and bureaucrats are such great experts in making choices for the rest of us. Socialists also like to ignore the gun that is pointed at everyone to get us to go along with their statist schemes because they have such wonderful egalitarian ideals. In short, good intentions are suppose to justify crappy goods and worse service in a system that is based on legalized theft (i.e. politics).

The myth of public goods is used as a failsafe argument when cornered by logical and moral reasoning revealing the fallacies of socialism. Of course the free market provides "private goods" better than central planning authorities, but not so for those mythological "public goods." The same tired arguments have been trotted out since before the Caesars to justify the state. But try to get cult members to explain what a public good is and they get real fuzzy. Usually it's as simple as saying, "Well, just look at all the wonderful things the government does for us. If it weren't for government water pipes, you'd have to dig a well; and you couldn't get to work without government roads and bridges." The Romans built roads, bridges and water pipes using the state apparatus, so that's the way it shall be done forever. After all, everything we know about organizing society is based on the perceptions and decisions made by people living 2,000 years ago. Right? Or maybe we should reexamine some of those myths like public goods.

The fact that most roads in this country were built by developers and private companies dig wells and lay the pipes that provide water throughout the world does not deter socialists from believing that "only the state" can provide these services. They then back slide to the position that "only the rich" would have roads and water or some such nonsense. Think for a second about the infamous "bridge to nowhere" in Alaska. It is a classic example of scarce resources being allocated by a political process. Political power determined whether or not and where that bridge would be constructed. Fail! Does anybody with half a brain think that this "public good" would have ever even been considered in a free-market system where profit and loss allocated resources? If it did, then the idiots who built it would go bankrupt. The incentives in the upside down world of politics actually reward said idiots by re-electing them. Enough of that; so what is a public good?

Most economists define public goods as something that once produced by someone can then be consumed by other people at no additional cost. Some economists expand the definition to have two defining traits: non-excludability and jointness in consumption. Non-excludability means that once somebody produces something, they can't keep others from using it. Or at the very least, it's not worth the cost to exclude them. Jointness of consumption means that once somebody produces something that additional consumers can then also use the good without additional cost (like above). Even armed with these defining characteristics, it is difficult to spot those special goods that require violent organizations to provide them. No doubt there are goods that can meet this definition, but it does not necessarily follow that they must be provided bygovernments.

As Hoppe said in Fallacies of the Public Goods Theory and the Production of Security, "Clearly my neighbors would profit from my well kept rose garden--they could enjoy the sight of it without ever helping me in my garden. The same is true for all kinds of improvements that I could make on my property that would enhance the neighboring property as well. Even those people who do not throw money in his hat can profit from a street musician's performance. Those fellow passengers on the bus who did not help me buy it profit from my deodorant. And everyone who ever meets me would profit from my efforts, undertaken without their financial support, to turn myself into a most lovable person. Now, do all these goods--rose gardens, property improvements, street music, deodorants, personal improvements--since they clearly seem to posses the characteristics of public goods, then have to be provided by the state or with stateassistance?"

"But, but." socialists stutter, "Those are not important goods and services; so they don't count!" Try to get them to define "important goods" and away we go again. So much for definitions, let's look at some things commonly believed to be public goods like airports, railroads, auto roads, electricity, stadiums, bridges, policing, fire fighters, national defense, telephone and postal services. I saved the best for last because it seems that many people are waking up to the fact that UPS and Fed Ex provide package delivery services much cheaper with a smile while striving for the convenience of the consumer. E-mail grew up in the free market, providing an alternative to the US Postal Service that nobody could see coming. Ending the government enforced monopoly for a telephone service provider (AKA deregulation) allowed competition that has resulted in providing a better, cheaper telephone service with a focus on consumer satisfaction. Ditto for package and mail delivery services. So we have obvious examples of private provision of goods that formerly had that mythological aura of "public goods."

What about radio and television broadcasts? They are non- excludable and additional customers can be added with no additional cost, but there are abundant examples of private broadcasting companies. State licensing is an impediment to efficiency imposed for reasons of control and cartelization, not to protect consumers or enhance the provision of these goods. Private providers came up with commercials and these industries have flourished for almost a hundred years. The Internet could be considered a public good and has become a shining example of free markets evolving and adapting to consumer preferences. Here are examples of how the free- market can and does provide public goods.

Do you really think that airports would not be constructed without political intervention and control? Sports stadiums for billionaire owners and players? There are already numerous private fire fighting, security and dispute resolution companies in spite of having to compete against virtual monopolies that try to regulate them out of existence. I've covered police and national defense in a previous article here.

Hoppe's work above for a classic, irrefutable treatise on the subject. Is redistributing income from younger people to older people by force a better way than individual planning to provide for retirement considering efficiency or moral principles?

Customer satisfaction determining profit and loss through competition and a price mechanism as an organizing principle in society must surely be better than politicians determining resource allocation through monopolies and the use of force. This is so when considering utilitarian and/or moral principles. So why does this myth that "public goods" require state production perpetuate itself so widely? Maybe it has something to do with the fact that everybody who works for the government has an incentive to promote the government provision of these goods and services? That's a lot of people and their numbers are growing.

Do government policemen promote more funding for their departments or competition from private investigators? Do government school teachers promote more funding for their employers or more competition from private schools? The influence from state controlled educational institutions and ignorant media lackeys are overwhelming. That anybody questions the sacred cow of public goods theory would be amazing if not for the glaring inconsistencies and fallacies associated with what is, in the end, obviously blatant propaganda reinforced by institutional bias. Professor Randall G. Holcombe has an excellent paper called A Theory of the Theory of Public Goods that explains this idea verywell.

Finally, how do so many believe that people become virtuous through the process of elections yet people who engage in voluntary trade are demonic? Kind of like the Cardinal in the Catholic Church that becomes God's infallible right-hand-man after his peers votes it to be so while everybody else falls short. Democratic rituals require a fantastical leap of faith to believe that mere mortals who lie, cheat and sell their souls to moneyed interests to get elected somehow become so virtuous after winning an election so that they can then promote the "public good" over their own self-interest. Yet a spontaneous system that harnesses the natural survival instinct of self-interest into its voluntary process, such that others also benefit, is considered unstable, even evil. Only years and years of subtle and not so subtle political programming could lead one to be so naïve. Or accept the status quo to be "as good as it gets" while spiraling down a black hole of cynicism.

Public goods theory was created out of whole cloth by court intellectuals in order to justify the status quo political power structures that support them. These public institutions are crumbling around us as evidence of their inefficiency and moral turpitude becomes perfectly clear. We can cling to familiar forms that comfort us allowing them to suck our society down the drain with them or we can grasp real change and resurrect what made this country and its people great. That is respect for private property and contracts, personal responsibility for decisions and actions, seeing political leaders for the scoundrels they are and throwing them out on their rears; and trusting our neighbors and ourselves. We don't need a Frodo to throw the Ring of Political Power into the fire, because we can all volunteer to do it together.

Required: Analyze this case in light of the following questions extracted from the

a) Summarize the basic tenets of the arguments in this case

b) Do you agree with main tenets of the arguments in the case? Why? Justify your answer with detailed explanations. support your answers with references

c) State and explain to Mark Davis that there are rational reasons why public goods and services cannot be priced in market mechanisms. support your answers with references