There are lots of things the government spends money on that we consider public goods, but what an economist considers a “public good” is usually a little different. To an economist, a public good is one that shares two distinct features: it is both non-excludable and non-rival. In a nutshell, this means that there is no way of excluding those that don’t pay for it from enjoying the good, and the use or enjoyment of the good by one person has no effect on the use or enjoyment of the good by another. Combine those two properties and the result is that even though many benefit from the good, nobody wants to pay for it simply because they don’t have to. We call that the “free-rider problem.” The common solution to this problem is taxation and then government provision: nobody wants to pay for the good and there is no practical way of making people pay for it when they’ll simply choose not to, so let the government use taxes to provide it for everyone.
When I teach this concept in my principles classes, I use education as an example of a good that is publicly provided but does not meet the economist’s definition of a public good. K-12 education is non-excludable — not only can you not be prevented from receiving it, even if you’re an illegal immigrant (I would write the more politically correct “undocumented worker” but we’re talking about kids, and they’re not supposed to be working, right?), but you are in fact required to attend. But K-12 education is not non-rival: time spent with one student is time away from another student; when school teachers say that class size is a factor in their performance as teacher, this is evidence of this fact.
Higher education is close to non-rival when you have a traditional lecture format. One extra student in the classroom doesn’t impact everyone else, unless they’re that annoying person who always asks off-topic questions just so they can hear themselves talk. (Don’t be that guy; and yes, it’s usually a guy.) But higher education in the form we have today is excludable — you have to pay for it or you’ll get kicked out of the room.
But even when something does meet the economist’s definition of a public good, does that mean the government should tax people to fund it? First, the total benefits have to outweigh the total costs, so there are public projects that simply shouldn’t be done, as the public benefit is too small. Second, discussion of public goods often assumes that the tax/spend approach is the only way to get things done. As it turns out, there are lots of goods that appear to be “public goods” but the private market finds a solution to the free-rider problem. Radio is a public good — it’s costless to turn it on and my reception doesn’t interfere with yours. But private radio exists because they sell advertising to all those businesses who view the free-rider issue not as a problem but as an asset — they want as many people as possible to turn on their radios.
One example I have often used in my classes is a fireworks show. You can see them from miles away, so there’s no effective way to charge admission; and your enjoyment doesn’t interfere with mine — unless you’re the parent who wants to narrate to their child the size, shape and color of every single explosion; we all have eyes, so we don’t need your commentary. Here in St. Cloud, we have a pretty good fireworks show along the Mississippi River every year. For the last two years, Sam and I have gone and got good seats in a wonderful spot right by the river (sorry, not divulging that to you — it’s ours!). And true to the notion that it’s a public good, we haven’t paid a dime for it.
Hello. My name is Dave, and I’m a free-rider. It’s been a year and a half since I last paid for something I didn’t have to. (I gave $10 to Wikipedia for the awesome public service they provide. I’m crazy like that sometimes.)
In a recent opinion piece in the St. Cloud Times, the editor of the Opinion Page, Randy Krebs, argues that the government should pay for fireworks. He actually gives himself a huge pat on the back for boldly stating that somebody else’s money should be spent in a way that he prefers. Brave, indeed.
I would link to his piece, but the St. Cloud Times now charges for subscription and, as you know by now, I’m a free-rider. The Times gives you a few free views a month and I’ve used all of mine up. If you haven’t used up yours, you can start here and then scroll down until you find his piece from yesterday. You see, the Times has found a way to take what seems like a public good (information on the internet), and make it a private good by selling ads and charging subscriptions. This is what XM and SIRIUS also managed to do with satellite radio. But don’t tell Randy that — he probably thinks that without government support, there’s no way for newspapers to continue to exist in this country.
But back to the fireworks. Currently, the fireworks show is funded by charitable contributions people make at grocery stores, matched up to $10,000 total by Coborn’s grocery stores, and a few other big-name donors kick in the rest of the money. Randy doesn’t think it’s fair that a small group of rich people should have to shoulder all of the burden — it should come from all of us. (I wonder what he thinks about the fact that half of US households pay no federal income tax, yet still are covered by our military and judicial system…)
Yet somehow the show still goes on. Must be magic. No, it’s not magic — it’s called charity. It’s companies giving back to the community. It’s ironic, actually. People on the political left like Randy rail on “evil corporations” as though they just suck the life out of every consumer and worker out there, and then when a company wants to foot the bill for fireworks as a way to give back to the city, Randy thinks the government should be doing it instead. The next time someone tells you that we can’t cut government spending because that means we’ll have fewer teachers, police or firefighters, remind them that not everything people like Randy want to spend money on is a vital service. The fireworks show costs $50,000-$60,000 per year, which is enough to pay for one teacher. Which one do you want to fire to pay for all the pretty explosions, Randy?
I propose a different solution, one that doesn’t use taxpayer money to pay for a non-vital service. One that doesn’t take sales tax money away from teachers or police, to spend it for fireworks shows that a majority of people in town are not going to watch anyway. I’m going to propose that people who are going to watch the fireworks show start making charitable donations at Coborn’s. It’s worth a few dollars per person. Take the money you would have spent on a movie and contribute that. Heck, I’ll even pitch in some money to make up for the last two years when I haven’t paid. If we all chip in a little bit, there won’t be any funding problem at all. Let it begin with me.
And Randy will have to suggest some other super-important way that we spend taxpayer money.