Abstract
Much of this book to this point has been a caution against—some might say a tirade against—excessive reliance on government to make sound decisions when resources are scarce, people pursue their self-interest, and information is costly. But as noted previously, government is among the oldest human institutions, and human institutions do not persevere so long—since the dawn of settled agriculture, perhaps 7,000 years ago—unless they bring some benefits. And although much of what government can do, as we have seen, is inimical to human achievement precisely because prices ordinarily provide incentives for people to use scarce resources to greatest social benefit, it turns out that sometimes market prices provide poor incentives. Government, by using its power to take command of resources or limit how they are used, can in fact use them more efficiently under these circumstances. The conditions required for this to be true, which also have relevance even outside the question of government versus private responses to resource-use decisions, must be carefully delineated, and this chapter does that.
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Notes
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1The owner runs the risk of too much government as well as too little. If there are 1,000 regulations that his store might violate, he runs the risk nearly every day of police officers coming in demanding bribes to look the other way rather than cite him for the 40 or 50 obscure rules he is currently breaking. He might also have to worry, if the government itself can violate his property rights with impunity, that some official could take his store and give it to a crony just at the moment as it is starting to succeed. These things routinely happen every day in countries around the world.
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2Note that even if steel producers are initially made to bear these costs—for example, by installing pollution-control equipment or paying a pollution tax on every ton of steel they produce—these costs will be passed on to consumers, as they should be.
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3Note that these are not the same thing as zoning rules, because there is no criminal penalty for failing to observe them and because it is much easier to choose whether or not to live in a particular housing development on the basis of its rules rather than, for example, to choose whether or not to live in California, which has extensive land-use controls imposed on the entire state.
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4Paul Heyne, The Economic Way of Thinking, Ninth Edition (Prentice Hall, 2009): 322.
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5Some of these barriers are implemented as much to enable what is known as price discrimination—charging different prices to different people for the same products—as to prevent copying. When one buys a videogame or DVD in East Asia, regional coding will sometimes mean that one cannot use it on a machine purchased in North America. This means that consumers cannot buy the content where it is cheaper than in their local market and then have it shipped, nor can they buy it where it is cheaper and resell it where it is more expensive. The fact that price is set differently in different markets is an act of price discrimination by the sellers of the content—trying to match prices to willingness to pay. If people in Asia aren’t willing to pay as much for video games as people in North America, then it is profitable to charge people in North America more, and regional coding helps achieve this. Other examples of price discrimination include giving veterans and some students discounts for movie tickets (their average willingness to pay is lower), charging higher prices to airline customers to buy their tickets a few days before the flight leaves (done mostly by business travelers or others with higher willingness to pay), and college financial aid, which operates by extracting from every applicant detailed financial information, which also suggests his personal willingness to pay. What do you suppose would happen if a seller were required by law to charge the same price to all customers? (Go to http://www.insidehighered.com/news/2012/04/17/supreme-court-will-hear-case-major-implications-textbook-prices to read a legal case that involves price discrimination in the college-textbook market, although it is not the central issue in the case.)
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7“Fleet of Foot and Blissfully Bold, Freeloaders at the Marathon Wear Fake Bibs—but Win No Prizes,” The Wall Street Journal (November 5, 2011), available online at http://online.wsj.com/article/SB10001424052970203716204577015830896749236.html.
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10A similar event happened in Tennessee, as recounted here: http://www.dailymail.co.uk/news/article-2070834/Firefighters-watch-couples-home-burn-ground-hadnt-paid-75-subscription-fee.htmls.
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11Technically, the marginal social value of one individual’s purchase of a nonrivalrous good is actually equal to the sum of the marginal values of all the individuals who can consume it. This is a mathematical detail that is not particularly important for the discussion that follows.
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12Note, though, that access to broadband cable is excludable, requiring a device that can access the information of the company that offers the service. The ease of laying these cables down has made broadband excludable from the beginning.
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13One of the most frequent obstacles encountered is not any public-goods problem but special-interest opposition by those who find the towers aesthetically displeasing or, despite much evidence to the contrary, to be emitters of dangerous radiation. This opposition is willing to get the government to forcibly deprive others of the opportunity to communicate so that their tastes may be indulged (http://ridgewood.patch.com/articles/poll-is-cell-tower-opposition-nimby). This is an illustration of the ability of small, motivated groups to disproportionately affect the political process, as noted in Chapter 5.
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14For an interesting account of how one private entrepreneur, James J. Hill, was able to build a private railroad and make money from it, while other railroads looted the taxpayers and purposely built the railroads inefficiently to extract more government subsidies, see the account of Mr. Hill’s life given in Chapter 3 of Burton Fulsom’s The Myth of the Robber Barons (Hemdon, VA: Young America’s Foundation, 1987).
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© 2013 Evan Osborne
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Osborne, E. (2013). The Things Only Government Can Do. In: Reasonably Simple Economics. Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4302-5942-8_10
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