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Post No.: 0876public goods


Furrywisepuppy says:


Is a good excludable (can I prevent someone else from consuming it)? And is it rivalrous (if I consume it, will someone else be affected by it)?


If the answer is no to both then it is a ‘public good’, like national defence, traffic lights, streetlights, or clean air or water if it can stay clean. The free market is terrible for providing these things, and some other mechanism – usually the government – is more efficient and fair for distributing them. They’d be under-supplied by the private sector.


If the answer is yes to both then it is a ‘private good’, like a shirt or mobile phone. And the free market is good for providing these things.


If no to the first and yes to the second then it is a ‘common good’, like public land, forests, fish stocks, or air or water if it eventually gets polluted. The free market is again terrible for providing or protecting these things, and some other mechanism is more efficient and fair for distributing them. Everyone owns the good and collecting taxes is necessary to maintain them.


If yes to the first and no to the second then it is a ‘club good’, like streaming services or software as a service. And the free market is again good for providing these things.


So a public good is both non-excludable (individuals cannot be excluded from its use or it could be enjoyed without paying for it) and non-rivalrous (use by one individual does not reduce the availability of it to others or it can be effectively simultaneously consumed by more than one individual). And a common good is non-excludable but rivalrous.


Free markets don’t do a good job of protecting or distributing public goods or common goods due to under-supply, inefficiency, externalities and/or the tragedy of the commons. The tragedy of the commons – which was the subject of Post No.: 0866 – would mean the depletion or deterioration of a shared common resource, like a common room in a building being neglected or a road when it comes to traffic congestion, until that resource disappears or becomes unusable.


Public goods are usually beneficial for every individual to have access to, but if left to the free market, no public goods would be provided and it’d be an example of a market failure because no individual consumer would pay for a product that could be consumed for free if other people decided to purchase it (the ‘free-rider problem’). In other words, why pay for it yourself if someone else can pay for it and you can benefit from their purchase? This is the reason why public goods are often financed through some form of enforcement.


There are many public goods or other situations where everyone would benefit from something but could benefit from it without personally paying for it, hence it’d be individualistically irrational to pay for it even though it’d be collectively beneficial to do so.


Trust is considered a social public good too but one that enhances rather than depletes with greater use. If everyone trusts and is trustworthy then life is fantastic for all. But it can be tempting to individually defect for an increased individual gain. But for every person who defects, it erodes the trust and payoffs for all, thus it’ll reach a point where people don’t trust and cannot be trusted anymore and everyone will receive less both individually and collectively (due to the bureaucracy of needing to verify everything that everyone claims, or everyone just simply avoiding working and trading with each other) compared to the ‘everyone trusts and is trustworthy’ state.


Health could be regarded as a public good too – having it doesn’t diminish its furry access to others, its consumption shouldn’t exclude its availability to others, and it should (ideally) be freely available to all. From this perspective, the market, due to a lack of sufficient incentive, cannot be relied upon to produce this good that is beneficial to us all. This is why governments and multilateral organisations are needed to help adopt strategies to ensure that people have better access to health. Woof.


Well we need both a public and private sector. Public health and other public goods are better off largely served by the public sector, and markets and freedoms are better off largely served by the private sector, for example. A nation cannot function without a government, but a government cannot solve every problem for its citizens. It’s about the right balance between freedoms and regulations, and the most advanced nations understand this, whereas those nations that lag behind or want to regress still believe in a Cold War era false dichotomy of ‘democracy and capitalism’ versus ‘communism and socialism’, when there are evidently functioning countries in the world today that are relatively ‘democratic and socialist’ and ‘communist and capitalist’.


Imagine trying to privatise air i.e. ‘this is my air and that is your air’ – the logistics and inefficiencies of enforcing such a system of ownership and trade would be impractical(!)


And if everybody dodged paying taxes then there’d be no public goods like defence, courts or the police, and civilisation would fail to be as advanced and civil. Governments, laws, regulations and taxes are evidently fit cultural memes when you look right across the civil world.


After a disaster, it’s altruism and collectivism that first helps to rebuild a community, whether it’s from charities or simply neighbours who didn’t normally speak to each other suddenly speaking to each other and helping each other out. Working together helps everybody. And what’s good for us during a crisis can be good for us at other times too, just like exercise and eating healthily isn’t just for when we’re sick.


But when things start to get more comfortable, like conditions in a more affluent place, and people start to become more independent and complacent about the benefits of ‘one for all, all for one’, people tend to become more individualistic. So individualistic attitudes can grow out of an initially successful collectivist structure – some individuals start to become free-riders to the majority’s collectivist attitude. But if there are too many free-riders, the free-riders themselves will eventually receive lower payoffs than they could have due to the sub-optimal society they had a part in making. Yet free-riding is the Nash equilibrium strategy for the short-term player in a ‘public goods’-type game. In other words, for an optimal society in the long-term, we need to pay our taxes to fund public goods and we cannot all be free-riders.


The ‘public goods game’ is a classic example of how the rational self-interested strategy of being a free-rider can decimate the total payoffs for everybody. Here, if everyone cooperated (contributed their full share to the common pot) then they’d all individually receive a greater payoff than if everyone individually defected (withheld their full share from the common pot). The temptation is to free-ride i.e. hope that everyone else chips in while you keep your own chips, in order to receive a bit more than what you individually put in. But if more people do that (which will tend to happen because if others were free-riders during the last round and benefited from it then you’d want to try it too in the next round) then this strategy won’t pay off well for anyone or everyone at all. If most people in society defected and looked only after themselves individualistically then society will collapse or overall be much worse off than if they all cooperated. It’s like the ‘everybody defects’ outcome in a classic prisoner’s dilemma.


During the group discussions when everybody is trying to gauge each other’s intentions to play for each other as a team or for themselves as individuals, and when trying to gauge whether each other is going to lie or do as they say – cooperation in a public goods game can be increased if everybody expressly promises to commit to their pledge to contribute to the public pot without hedging, equivocation or stating conditions like, “I’ll give if everyone else does” or being vague like saying, “I’ll give more next time.” So be explicit and specific about cooperating, and pose direct questions to the rest of the group that’ll uncover whether they’ll be explicit and specific about their contributions to the pot. If someone evades the question then their commitment is less likely to be forthcoming. Communicate in a style that signals group solidarity, make people feel a part of the group, show strong leadership and use motivational phrases that highlight the values and greatness of teamwork. Meanwhile, speaking like a classic politician or businessperson with a formal communication style and giving self-interested or evasive answers will generate distrust.


There is a tendency for people or firms to consume a public good without paying for it if possible because it follows their rational self-interests. But if everyone acted in that way, the public good would logically not be funded or maintained and it’d therefore become under-supplied, like a river that multiple factories are dumping their raw waste into but no one wants to pay to clean it up.


This is also a problem for a public good like national defence (or the fire services or police) – you cannot prevent a particular citizen from enjoying the benefits of a national defence (it’s non-excludable) even if they don’t personally contribute to paying for it (if they have the opportunity to just free-ride). So to make people contribute for the greater beneficial good of everyone individually and collectively – they’ll need to be forced to, via being taxed in this case, as well as reputationally shamed if they attempt to dodge paying their fair share of taxes.


It’s indeed however difficult for a government to work out the right quantity of a public good to provide – an ad hoc cost-benefit analysis is going to be more inefficient than trading a private good with market forces driving supply and demand. But then I would hate to see the private sector trying to increase demand for something like national defence i.e. it’d be in that industry’s best self-interests to increase the number of wars or security threats in order to drive up demand for their products! They profit from fear and conflict after all. Private arms manufacturers who lobby for their own self-interests are often said to do just that!


Some argue that the government should butt out and not tax us, even when we’re benefiting from the proceeds of what our personal ancestors appropriated and we eventually inherited, because tax is theft – yet the government should intervene to protect our property rights when others are trying to steal from us(!) It’s laissez-faire, ‘dog-eat-dog’ competition as supposedly inspired by wild nature – but then it’s enforcing artificial laws that aren’t found in wild nature to protect our rights when it suits our interests(!) These are some hypocrisies of libertarianism. Us robbing from the commons/others is fine – but once something is in our possession, it’s immoral for anyone to now tax or rob from us(!)


For directly or indirectly benefiting from all these public goods and services – as a child, right now and/or in the future (e.g. education, health, keeping you safe) – if you don’t pay your fair share of taxes then you’re the one free-riding from everyone else. The government isn’t stealing from you – you’re stealing from everybody. And if you are or become rich, you’ll have proportionately benefited from the resources that have been exploited too, hence you should be taxed proportionately too. If you earn nothing or little then you should therefore pay less in taxes (note that everybody pays at least VAT even if they’re under the threshold for income tax or other taxes).




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