Market Success Versus Government Success

Public choice is a theory of ‘government failure’ here in the precisely analogous sense that theoretical welfare economics has been a theory of ‘market failure' - James M. Buchanan

Before I use a title for a blog entry, sometimes I'll conduct a Google search to determine just how (un)original it is...

• "Market failure versus government failure" - 32,200 results
• "Government failure versus market failure" - 28,500 results
• "Government success versus market success" - 0 results
• "Market success versus government success" - 0 results

Right now when you search for "government success"...the second result is the Wikipedia entry for "government failure".  Not sure how personalized the results are though.  But let's have some fun by Google bombing the heck out of "government success" by linking it to the Wikipedia article for government failure.  Like so...government success.

We often hear of market failure...but what exactly does it mean for markets to fail?  The standard answer typically contains concepts such as irrationality, wealth inequality, information asymmetries, negative externalities, monopolies and public goods.  These concepts are frequently used to justify government intervention.  But in order to truly understand market failure...I think it's essential to first understand market success.

Right now you're surrounded by examples of market success.  Every product/service that you purchase is an example of market success.  The toothpaste that you purchase is an example of market success.  Yet, for most of recorded history, the private sector did not supply toothpaste as we know it.  The market failed, but now it succeeds.

But isn't it reasonable to believe that there's still room for improvement when it comes to toothpaste?  It's hard to imagine that 200 years from now people are still going to be using exactly the same toothpaste that we use.  I'm pretty sure that in the future you're simply going to put a tablet in your mouth that will quickly dissolve away anything that shouldn't be in there.  Not having to brush your teeth will free up your time for more valuable uses.  That's progress.

Because there's always room for improvement...there's no such thing as perfect success.  Every product/service we purchase is successful because consumers decided that it reduced the shortcomings of previously available products/services.  Therefore, consumers incentivize entrepreneurs to not just find where there's room for improvement, but to actually make the improvements.  It's relatively easy to find where there's room for improvement, but actually making the necessary improvement takes considerable amounts of effort, skill, ingenuity, perseverance...and a good dose of luck.  This is why incentives matter.

The key concept is that the only way we can measure the extent of an entrepreneur's success is by observing how consumers react to the new product.  If Erin, the entrepreneur, develops a tooth tablet, then the success of her product will be determined by how many consumers stop buying toothpaste/toothbrushes and buy tooth tablets instead.  If toothpaste and toothbrushes become as outmoded as buggy whips, then we can definitively say that Erin successfully corrected a market deficiency/inadequacy/shortcoming/failure.

We know that the market succeeds because people are willing to pay for products.  We also know that the market fails because there's always room for improvement.  But can we say that the government succeeds?  Nope nope nope nope.  Why not?  Simply because consumers don't have the freedom to demonstrate how effectively/efficiently the government is taking up the slack.

Here's how I've illustrated this...

The point of these graphs is to illustrate that the success of government depends on how accurately the supply of public goods reflects the true breadth/depth of market failure.  

Graph 1 - what government success would look like

Graph 2 - what government failure looks like

Graph 3 - government success depends on knowing the breadth/depth of market failure

If we don't know the breadth/depth of market failure, then we can't truly know how well the government is complementing the private sector.  For all we know it could be making mountains out of mole hills...and whatever the opposite analogy is.  

The theory of pragmatarianism is that allowing taxpayers to choose where their taxes go will show us the breadth/depth of market failure.

It is, of course, not desirable that anything should be done by funds derived from compulsory taxation, which is already sufficiently well done by individual liberality. - J.S. Mill, Principles of Political Economy with some of their Applications to Social Philosophy

If education is sufficiently well done by individual liberty, then taxpayers won't spend any of their taxes on public education.  The more money that taxpayers do spend on public education, the greater the depth of market failure and the greater the height of government success in terms of education.

The Government Succesfully Supplies Boogers

A close friend of mine picks her nose a lot.  One time, when I was giving her a hard time about it, she claimed that she suffered from an actual condition...the overproduction of boogers.  I was skeptical...to say the least.

More and more I'm convinced that liberals truly and honestly believe that the government very successfully supplies boogers.  This allows them to claim that the government succeeds where the market fails...and also helps to explain their reluctance to allow taxpayers to choose which government organizations they give their taxes to.  Because they must understand that taxpayers would certainly boycott the government out of existence if boogers were the only thing that it supplied.  

Do you catch my drift?  You can't say that government supplies things that people actually value, want and need...and then turn around and argue that taxpayers would not choose to spend their taxes on things that they actually value, want and need.  Taxes wouldn't be voluntary...taxpayers would have to spend their taxes anyways...so why wouldn't they choose to spend their taxes on public goods that they value?  It just doesn't follow.

Neither the private sector nor the public sector has a monopoly on failure.  But who cares if the market fails at supplying things that nobody really wants more of?  Nobody cares that the market fails at supplying more boogers.  Is that what the public sector is truly there for?  To successfully supply things that nobody really wants more of?

That's why I love pragmatarianism.  Nothing more effectively forces liberals to supply non sequiturs.  Eh, well...I guess that's more like a positive externality.  I love pragmatarianism because I love the thought of the government actually supplying things that taxpayers would choose to sacrifice a portion of their lives for.  Because as Henry David Thoreau said, "The price of anything is the amount of life you exchange for it."

We don't have a scarcity of boogers...and people have absolutely no use for boogers...so why would people choose to exchange a portion of their lives for more boogers?  They obviously wouldn't.  So what would they choose to exchange a portion of their lives for?  Would they be willing to exchange a portion of their lives for more public education...more public healthcare...more national defense...more public transportation...more environmental protection?  Who knows...but what I do know for certain is that we all want more for less.

If you don't want more for less then please paypal me $100 and I'll paypal you $1 in return.  Hah...that would show me.  But the fact that we all want more for less helps us understand why producers are motivated to do more with less.  Doing more with less is known as "resourcefulness".  Being resourceful is how we overcome scarcity.  But overcoming scarcity only has any value...merit...meaning...when you're providing an abundance of something that other people would choose to exchange a portion of their lives for.

Do we want the government to use our lives to provide an abundance of things that we don't actually value?  Hell no.  Absofuckinglutely not.  Our lives are too short for that nonsense.  If you want an abundance of the things you actually value...then you'll allow taxpayers to choose more for less in the public sector.  This will strongly motivate government organizations to do more with less.  Therefore, we'll end up with more public goods for less taxes.

Reply to Paul Krugman

Here's a comment I posted in reply to Paul Krugman over at the New York Times...

The primary failure of the market is that, because of the free-rider problem, there is little financial incentive to produce public goods.  The primary failure of the government is that planners only have access to a microscopic percentage of the information available to society as a whole.

So you and your opponents can go round and round perusing the horizon like that fellow in the Stephen Crane poem...or you can both make some basic concessions.

Conservatives will concede that taxes are necessary and you'll concede that donations to government organizations should be 100% tax deductible.  This idea is known as pragmatarianism.  Kind of like how Deng Xiaoping said that he didn't care whether the cat was black or white...what mattered was whether it caught mice.

Forcing taxpayers to consider the opportunity costs of their individual taxes is the only way to ensure that limited public resources are allocated as efficiently as possible.  It's also the only way to ensure that government organizations will operate as efficiently as possible.  Plus, it's the only way that taxpayers will ever be happy about paying taxes.

What's so strange is that both liberals and conservatives believe that congress is somehow uniquely qualified to allocate public resources.  They seem to forget that congress only has this job because nearly 1000 years ago they fired the king and quickly filled the vacancy.

It was admittedly a very liberal move for them to have done so.  Likewise, it will be a very liberal move when control of taxes is passed from congress to taxpayers themselves. Not sure if any event in the past 100 years could be considered more "progressive".

Next time you talk to your buddy Obama...please offer pragmatarianism as an example of something that qualifies as legitimate and genuine "change". We're tired of all this hyperpartisan obstructionism and would like to have a real opportunity to directly support the government organizations that we value.