Thursday, February 27, 2014

Clarifying The Demand For Public Goods

[update] Please join the discussion: Demand Clarity Would Eliminate Corporate Welfare [/update]

Question

"How are we going to bust up big ag that has caused so much disparity?" - rabbitcaebannog, The Free Market religion needs to fall on its sword

Answer

We create a market in the public sector.  If people can choose where their taxes go (logistics) then we will see exactly what the demand is for farm subsidies...




This chart shows us what the demand for farm subsidies might look like.  As you can see, there's very little demand breadth because the benefits are extremely concentrated...
Those who think that central planning will promote economic progress are naive.  When business enterprises get more funds from governments and less from consumers, they will spend more time trying to satisfy politicians and less time satisfying customers.  Predictably, this reallocation of resources will lead to economic regression rather than prosperity. - James Gwartney and Richard Stroup, What Everyone Should Know About Economics and Prosperity
Their resources can be used in two ways: investment in capital goods that can be used to produce a product for sale in competitive markets, or investment in lobbying and bribing politicians and in trying to develop legislation that will protect firms from competition or provide them with a share of the public budget.  Under a large government, "political investment" can become relatively more profitable than "market investment," and a shift in investment from the market to the political arena should be expected.  In private competitive markets, a firm must appeal to buyers to enter mutually beneficial trades: in political markets it can enlist the power of the state to force people to give up part of their income for the firm's benefit. - Richard B. McKenzie Bound to Be Free
Politicians exploit rational ignorance by conferring large benefits on certain constituents whose costs are widely dispersed and borne by the general population. Take the sugar industry. It pays the owners and workers to organize and tax themselves to raise money to lobby Congress for tariffs on foreign sugar. If they're successful, it means millions of dollars in higher profits and wages. Since they are relatively small in number the organization costs are small and the benefits are narrowly distributed. The Fanjul family, who owns large sugar farms in the Florida Everglades, capture an estimated $60 million annually in artificial profits. - Walter E. Williams, Rational Ignorance
My impression is that moves toward an economy with less open-market competition reflect a diversion of competition to the political process, as resort is made to greater governmental control over economic access to markets and terms of exchange.  Much of what passes for the new corporate economy should more accurately be called the new mercantilist, or the new “political” or politically regulated, economy, since it involves more political competition and the greater use of political rewards and penalties.  And this move to political influence has occurred in both small and large firm industries.  The “solution” (if such a “political” economy is a problem) usually is more political controls and political competition.  This is beneficial to those most adept at political competition, for they would benefit from increased demand for their services as political competition displaces market competition in controlling economic activity. - Armen A. Alchian, The Collected Works of Armen A. Alchian: Volume 2
Because the benefits of farm subsidies are so concentrated, if we implemented tax choice then it's highly likely that only a very small percentage of people will spend any of their tax dollars on them...
What a delicious prospect: a government office having to explain itself in order to persuade taxpayers to support its existence. The elements within the government that can make a persuasive case will do fine. Americans are not stingy or shortsighted. We will still have plenty of mine inspectors and curators. But who will voluntarily pay for the layers of bureaucratic barnacles that make up so much of the organization charts? Who will pay for the billions in subsidies that are doled out to agricultural, corporate and nonprofit special interests? Who will pay for the enormous pork-barrel projects? - Charles Murray, You Are What You Tax
If enough people don't pay for a public good (insufficient demand breadth)...then it won't be considered a public good.  As a result, people won't be able to spend their taxes on it.  

Another example is war...



There are multitudes with an interest in peace, but they have no lobby to match those of the 'special interests' that may on occasion have an interest in war. - Mancur Olson 
Going to war accelerated the move from indirect to direct rule. Almost any state that makes war finds that it cannot pay for the effort from its accumulated reserves and current revenues. Almost all war-making states borrow extensively, raise taxes, and seize the means of combat – including men – from reluctant citizens who have other uses for their resources. - Charles Tilly
In cases where a war has popular support (opinions, sentiment)...
As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market.  A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. - Geoffrey Brennan, Loren Lomasky, Democracy and Decision
...it's extremely unlikely that most people would spend any of their own money on it.  This is because talk is extremely cheap...which is exactly why we say that actions (spending) speak louder than words (voting).  The reality is that the multitude has a myriad of far more valuable/beneficial uses of their own money...
Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is, I repeat, the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron...Is there no other way the world may live? - Dwight D. Eisenhower
Another excellent perspective on the subject...
The essential act of war is destruction, not necessarily of human lives, but of the products of human labour. War is a way of shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence, in the long run, too intelligent. Even when weapons of war are not actually destroyed, their manufacture is still a convenient way of expending labour power without producing anything that can be consumed. A Floating Fortress, for example, has locked up in it the labour that would build several hundred cargo-ships. Ultimately it is scrapped as obsolete, never having brought any material benefit to anybody, and with further enormous labours another Floating Fortress is built. In principle the war effort is always so planned as to eat up any surplus that might exist after meeting the bare needs of the population. In practice the needs of the population are always underestimated, with the result that there is a chronic shortage of half the necessities of life; but this is looked on as an advantage. It is deliberate policy to keep even the favoured groups somewhere near the brink of hardship, because a general state of scarcity increases the importance of small privileges and thus magnifies the distinction between one group and another. By the standards of the early twentieth century, even a member of the Inner Party lives an austere, laborious kind of life. Nevertheless, the few luxuries that he does enjoy his large, well-appointed flat, the better texture of his clothes, the better quality of his food and drink and tobacco, his two or three servants, his private motor-car or helicopter -- set him in a different world from a member of the Outer Party, and the members of the Outer Party have a similar advantage in comparison with the submerged masses whom we call 'the proles'. The social atmosphere is that of a besieged city, where the possession of a lump of horseflesh makes the difference between wealth and poverty. And at the same time the consciousness of being at war, and therefore in danger, makes the handing-over of all power to a small caste seem the natural, unavoidable condition of survival. - George Orwell

I've shown you charts that represent special interests...now, for comparison, here's a chart that represents what a general interest might look like...




Unlike with farm subsidies and war...many people will readily grasp the material benefit of spending their money on public healthcare.  We can see that, unlike with special interests, the demand for a general interest will be very broad.  This is because it will truly contribute to the well being of most people.

Consider this last passage...
The expenses of government, having for their object the interests of all, should be borne by every one, and the more a man enjoys the advantages of society, the more he ought to hold himself honoured in contributing to these expenses. - Turgot
Given the disparity between actions (spending/values) and words (voting/opinions)...the only way we can accurately discern how specific or general an interest truly is would be to create a market in the public sector.  If we do not clarify the demand for public goods then the interests of the many will continue to be sacrificed for the benefit of the few.  

2 comments:

  1. Okay. But in the US, food stamps be on the Farm Bill, so The Poor also likes farm subsidies.

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    Replies
    1. Pragmatarianism would unbundle the public sector...and it stands to reason that there would be pressure for individual government organizations to be unbundled as well.

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