You made the effort to explain that prices help guide society’s limited resources to their most valuable uses. But then you didn’t even mention the fact that prices are absent from the public sector.
If we truly do need prices to efficiently allocate resources… then wouldn’t it be a problem that the public sector doesn’t have them? If, on the other hand, prices truly prevent resources from being efficiently allocated…. then wouldn’t it be a problem that the private sector has them?
In the private sector… consumers shop/spend to communicate what the greater good truly is. In the public sector…consumers do not shop/spend to communicate what the greater good truly is. So which method more accurately communicates what the greater good truly is… shopping/spending… or not shopping/spending?
Here I am right now allocating my limited time to replying to your story. Even though this is the private sector… there aren’t any prices involved. Does this mean that it’s impossible for me to efficiently allocate my resources to your story? Nope… because what makes efficient (valuable) allocation possible is 1. my valuation of the alternative uses of my limited resource and 2. my sacrifice of the less valuable uses. This is how society’s limited resources are put to their most valuable uses. This is how society’s limited resources are efficiently allocated. This is how we ensure that the distribution of society’s limited resources creates the most benefit for society.
Prices aren’t truly needed… and to focus on them distracts from what is truly needed: personal valuation/sacrifice. Society, if it’s to maximize the value it derives from its limited resources, needs you to have the freedom to accurately communicate what’s most important to you. Market communication is far more accurate than not-market communication because in a market you’re sacrificing the less valuable uses of your own limited resources. Your communication becomes incredibly less accurate when you sacrifice resources that you haven’t earned the right to sacrifice.
The fact of the matter is that no two people are equally effective at earning the right to decide how society’s limited resources should be used. We’re all different so it should be a given that some people are better than other people at using resources. No two people are equally resourceful just like no two people are equally wasteful. Society maximizes its benefit by putting its limited resources into the best hands. Because hands aren’t all equally effective… the logical result is that some people will have a lot more influence than other people.
The public sector doesn’t have personal valuation/sacrifice (communication) so it’s a given that far too many of society’s limited resources will end up in less effective hands.
This doesn’t mean, however, that we need to eliminate the government. When it comes to public goods… personal communication isn’t as accurate as it is for private goods. Because… why by the cow when you can get the milk for free? It’s pretty reasonable for people not to spend their money if they don’t have to. Except for the part where spending money is the only way that people can accurately communicate what’s truly important to them.
Producers can’t put society’s limited resources to their most valuable uses if they don’t know which uses are the most valuable. Producers aren’t omniscient. They can’t magically pull our true valuations out of a hat. Producers can only know our valuations when we communicate our valuations by spending our own money. In a world where everybody truly was omniscient… communication would be a waste of everybody’s time and energy.
So, because of the free-rider problem, coercing people to contribute to public goods (taxation) is beneficial… but, because producers aren’t omniscient, preventing people from choosing for themselves which public goods they spend their taxes on is detrimental.
Imagine if we prevented women from shopping for themselves in the private sector. Would the supply of private goods increase or decrease in value? Consider these two possible approaches…
Approach A: Women could give their money to any man who was willing to be their personal shopper. For example… if a woman wanted an iPhone…. she could simply give her money to her brother and he would buy the iPhone for her. Assuming of course that he had nothing better to do with his time than be her personal shopper.
Approach B: Women would put all their money into a pool and elect 500 or even 1000 representatives (impersonal shoppers) to decide how to spend all the money. Representatives would decide, as a group, which phones are the best… they’d spend a portion of the money accordingly… and the purchased phones would be delivered directly to each and every woman who needed a new one. If women weren’t happy with their phones… then they could simply vote for different impersonal shoppers.
The “drawback” of Approach A is that the women would still have to decide for themselves between an iPhone and all the other types of phones. And it’s really hard to figure out which phone is best! The “benefit” of Approach B is that elected representatives would do all the homework for all the women.
Approach A would save women some time, effort and energy… but Approach B would save them a lot more time, effort and energy. Women would be able to spend all this freed-up up time, effort and energy on enjoying life! Guys would be super envious.
In terms of creating value… how would you rank the different approaches? Maybe like this?
- Approach B
- Approach A
- Approach C (Current approach)
Yet, for some reason, I’ve never once a heard any woman advocate replacing Approach C with either Approach B or Approach A.
The reality is that Approach B would destroy immensely more value than Approach A would. Approach A is a moronic idea… Approach B is an incredibly moronic idea. It should be painfully obvious that the consequences of Approach B would be extremely detrimental. Eliminating women’s direct and personal choices as consumers would result in a gigantic decrease in the variety, quality, quantity and affordability of private goods that are important to women. How absurd would it be to blame these detrimental consequences on the invisible hand?
Right now women can’t shop for themselves in the public sector. And neither can men. We all have to rely on Approach B when it comes to public goods.
Yet, here you are largely blaming society’s biggest problems on the presence of the invisible hand. But in fact, all these problems are the direct consequence of the invisible hand being absent from the public sector. Blocking the invisible hand from the public sector guarantees that public funds are going to be inefficiently allocated. And of course there are going to be problems when public funds are inefficiently allocated! We could easily eliminate these problems simply by giving people the freedom to shop for themselves in the public sector (pragmatarianism).
If Adam Smith had been able to stand on his own shoulders then he would have realized this. But it really wasn’t his job to stand on his shoulders… it’s our job. Standing on his shoulders allows us to clearly see that, whether we’re talking about private goods or public goods, what’s truly important to individuals truly matters.
Unfortunately… you’re not standing on Smith’s shoulders. You’re sitting on his shoulders. Sitting on his shoulders is certainly better than clinging to his back though. So I’m going to recommend your story. But I sincerely hope that you make the effort to try and appreciate how the invisible hand is just as necessary for public goods as it is for private goods.
It’s entirely possible that I’m wrong! Am I? Well…I’ve searched long and hard for a reasonable explanation of how public funds can be efficiently allocated without the invisible hand. And I have yet to find one.
The key concept here is understanding that a good explanation for why not-markets can put tax dollars to their most valuable uses will also be a good explanation for why not-markets can put all dollars to their most valuable uses.