Visualizing And Evaluating The Public Goodness Threshold

Nobody made a greater mistake than he who did nothing because he could do only a little. - Edmund Burke*

In a recent blog entry...What About Voluntary Taxation? Also, Knockers vs Builders...Which One Are You?...Razo challenged me to a duel (public debate)!  Who's Razo you ask?  He's with the International Voluntary Tax Fund.   That link takes you to his video...which is very interesting...and definitely worth liking.  Here's some of what Razo wrote on the Tax Choice Party facebook page...

Let's follow and expand your analogy. Divide the U.S. into two halves - those who are very intelligent and those who are very dull. History tells us that the most intelligent, especially at the upper extreme, will manipulate the system to their own individual advantage. This takes place no matter what political framework is chosen. In the past even forced collectivism hasn't been able to stop this, and liberal democracy is accelerating the division.

What will tax choice do to stop this?

Hmmm.  I spent over an hour on facebook composing and deleting around a dozen different responses (couldn't do that in a "real" public debate!).  A few were really long but the shortest was...

Concentrated benefits and dispersed costs are the logical consequence of rational ignorance and rational ignorance is the logical consequence of preventing people from shopping for themselves in the public sector. 

This is true...but I felt that it didn't adequately address some part of his concern.  I think it probably happens way too often where I make a point and expect the other side to think it through.  Or I assume they'll see the "obvious" stepping stones that they need to reach pragmatarianism.  Or something like that.  That's why it helps to draw diagrams, graphs and charts!

Ok, so in a pragmatarian system people will be able to choose where their taxes go.  You can read about the logistics here...pragmatarianism FAQ.

One concern from the liberal side is that rich will have too much influence because they pay most of the taxes.  Liberals are certain enough that the rich will spend their tax dollars in a way that will screw the middle class and the poor.

But there are two very important things to consider...

1. Nobody would stop the poor or middle class from shopping in the public sector.  The public sector wouldn't be some snobby country club or a stuck up Beverly Hills boutique.  You wouldn't have to be "this rich" in order to shop there.  This means that the EPA wouldn't laugh at anybody's $2 contribution.  Would they?  Maybe they didn't read the Bible story about the widow's mite?

2. We would be able to "see" exactly how many people contributed exactly how much to each and every government organization (GO).  This doesn't mean that we have to see exactly who these people are though.  We would just see how many different people donated to a GO and the amount that they each donated.  In other words, we would see the depth and breadth of the demand for each and every public good.

How many of you have already visualized where I'm going with this?

In order to help point out exactly where the stepping stones are...I've created a public goodness survey.  The survey consists of 10 different hypothetical public goods.  Each public good has its own chart which shows a different demand shape.

To participate in the survey simply rate each public good from 0 to 10...

0 = no depth/breadth = no public goodness
10 = maximum depth/breadth = maximum public goodness

...and indicate whether or not it should be a public good.

The objective is to determine exactly where the public goodness threshold is.  How deep/wide must the demand for a public good be in order for it to be considered a truly PUBLIC good?

1. PGA - In this case there's not much depth (people didn't contribute much) but perfect breadth (everybody contributed).  Every single citizen contributed the same exact amount of money to this public good.  Let's say the amount is $5 dollars.  Of course, $5 to the poorest person doesn't mean the same thing as $5 to the richest person.  This is the logic behind the progressive tax...

Economics can establish that a man’s marginal utility of money diminishes as his money-income increases. Therefore, they concluded, the marginal utility of a dollar is less to a rich man than to a poor man. Other things being equal, social utility is maximized by a progressive income tax which takes from the rich and gives to the poor. This was the favorite demonstration of the “old welfare economics,” grounded on Benthamite utilitarian ethics, and brought to fruition by Edgeworth and Pigou. - Murray Rothbard, Toward a Reconstruction of Utility and Welfare Economics

So what does PGA's chart tell us?  It tells us that everybody demands this good.  But income and demand for this good are inversely correlated.  The more money you make, the less accurately this good matches your preferences.

2. PGB - Another straight line.  But, it's twice as high on the y-axis.  So rather than everybody contributing $5...everybody contributes $10.

3. PGC - Uneven depth but great breadth.  Everybody demands this public good...but income and demand for this good are inversely correlated.

4. PGD - Lousy depth but great breadth.

5. PGE - Good depth and great breadth.

6. PGF - Great depth and breadth.

7. PGG - Great depth but lousy breadth.

8. PGH - Again, great depth but lousy breadth.

9. PGI - And again, great depth but lousy breadth.

10. PGJ - Great depth and decent breadth.

Can you think of other likely demand shapes?  Would any public goods match any of these shapes?

If we created a market in the public sector...then it's a given that each government organization (GO) would have a demand chart on their website.  As soon as somebody makes a payment directly to a GO...their demand chart would be automatically updated.  Like I said in the pragmatarianism FAQ...people would be able to shop in the public sector whenever they wanted.

The less demand depth/breadth a public good has...the stronger the case that it doesn't have enough public goodness to remain in the public sector.  If a public good is kicked from the public sector then taxpayers will no longer be able to spend their taxes on it.  As a result, people will understand that even a small contribution is better than no contribution.

Hopefully it should be clear that giving any group of people...poor, rich, white, black, male, female, gay, straight, atheist, theist, tall, short...the freedom to shop in the public sector will increase the accuracy of the demand charts.  By this same logic...wouldn't the accuracy of the demand charts greatly increase if taxpayers were given the freedom to shop in the public sectors of other countries?  Here's where I first considered this...A Global Free-trade Agreement for Public Goods.

If value was created by preventing people from spending their money on foreign private goods...then the same thing has to be true of foreign public goods.  But the reality is that no city, state or country can have a monopoly on the production of value.  This is because the production of value is the result of ideas...and there will always be new ideas wherever people are free to think and act.  But the value of a new idea/product/service can't be accurately determined if consumers are needlessly restricted.  If we want the pinata to release its treasure...we shouldn't spin, blindfold and tether consumers.  Same thing if we want the tail to be perfectly pinned on the donkey.  In order for humanity to derive the maximum value from the world's resources...we should make it make it as easy as possible for consumers to use their dollars to signal exactly where in the world resources should flow to.

For example, let's consider the Brazilian EPA's effort to conserve the Amazon rainforest.  Here's what the demand chart might look like if only Brazilians were free to give their taxes to their EPA...

What would happen to the demand chart if American citizens were also given the freedom to give their taxes to the Brazilian EPA?  It stands to reason that the demand would increase...

As each additional country gives its citizens the freedom to give their taxes to the Brazilian EPA, the accuracy of the demand chart increases...

If we look at the disparity in demand...then it's clear that massive amounts of value would be destroyed if we prevented taxpayers from shopping in the public sectors of other countries.  The Brazilian EPA would receive the wrong amount of funding...and as a result, rainforest that should have been conserved would be destroyed instead.

The amount of resources directed to the conservation of the Amazon rainforest should be determined by the amount of value the world derives from the Amazon rainforest.  And the only way we can know how much value the world truly derives from the Amazon rainforest would be to allow taxpayers to spend their taxes on any country's public goods.

What do you think?  Have I done a better job of pointing out where the stepping stones are?  Hopefully!  With these stepping stones illuminated...I can now provide the most succinct answer to Razo's question...

Let's follow and expand your analogy. Divide the U.S. into two halves - those who are very intelligent and those who are very dull. History tells us that the most intelligent, especially at the upper extreme, will manipulate the system to their own individual advantage. This takes place no matter what political framework is chosen. In the past even forced collectivism hasn't been able to stop this, and liberal democracy is accelerating the division. 

What will tax choice do to stop this?

It will open our eyes.

Right now we keep stubbing our toes because we're stumbling around in darkness.  Tax choice will enlighten us by removing the blindfold.  We will clearly see the depth/breadth of the demand for public goods.  If we see that the wealthy are the only ones spending their taxes on a public good...then this will call into question whether that good has enough public goodness to remain in the public sector.

As long as we have no idea what the actual demand for public goods truly is...then we will continue to blindly stumble around.  This demand opacity will destroy rainforests that should have been conserved...and we will continue to suffer the devastation of wars that neither side sufficiently demanded.  Pragmatarianism will eliminate demand opacity by illuminating the stepping stones that we need to walk out of these dark ages.  The steps we need to take are extremely simple...all that's required is to give people the freedom to shop for themselves in any public sector.

If any teachers/professors are interested in sharing this survey with your class...I'd be happy to e-mail you the PowerPoint document.  Just include your e-mail in a comment...or Google "public goodness survey" to find a website where you can register to send me a private message.

*HT Ryan Rickard