By paying for public goods like education and health care, governments can improve efficiency as well as welfare.
That is from John Micklethwait and Adrian Wooldridge, writing in The Fourth Revolution. I have just started to read it, based on Tyler Cowen’s recommendation.
If one of my high school students wrote the quoted sentence, it would receive a bad grade. The standard economic definition of public goods is that they are neither excludable nor rivalrous. That means that once the good is produced, it is hard to stop anyone from enjoying it, and one person’s enjoyment does not interfere with someone else’s enjoyment. National defense and pubic public safety are classic examples. Sanitary conditions in a city would qualify.
However, education and health care do not qualify as public goods under the standard definition. If it chooses to, a school or hospital can exclude non-paying customers from obtaining its services. And your use of a teacher’s or a doctor’s time can reduce my ability to use that person’s time.
Another characteristic of public goods is that the social benefits exceed the private benefits. One can make a case that vaccinations have that property. In theory, driver education would have that property also. However, for the most part, the benefit I receive from your education and health care is extremely low, particularly relative to the benefit that you receive from those goods.
In my opinion, casually making the case that government should pay for health care and education by asserting that these are public goods sounds to me like what Tyler would call “mood affiliation,” not sound reasoning. I hope that his endorsement of the book does not turn out to be mood affiliation.
“If one of my high school students wrote the quoted sentence, it would receive a bad grade.”
I’ve seen Nobel prize winners make this mistake. So, maybe a warning first 😉
Btw, I jest not. Remember when almost everyone got “information asymmetry” backwards during the healthcare debate as advantaging the insurance companies? There may be some examples, but they were mis-applying it to the perverse signup and pre-existing condition issue. I think peoples’ enthusiasm can outpace their rationality regardless of educational attainment.
About the best economics can do is say if you do X, then Y will happen. So, terminology is not just semantics.
The point of identifying public goods and its effects is to understand what happens. Is anyone going to argue that we’ve had underinvestment in education or healthcare?
YES! I would argue that we’ve had underinvestment in the ACTUAL public good aspects of them.
In popular usage, which isn’t necessarily determined by formal economic definitions, “public good” often seems to mean “something whose positive externalities justify subsidy”.
It’s a frustrating ambiguity, and I’m not at all sure how to address it.
At a basic level they are public goods, reading and writing for democracy and contagious disease, not so much beyond this, but there are some market failings that lead to government intervention resulting in their becoming public goods even if not in themselves.
But they are called public goods, in my opinion, for the express political motivation to expand them into the non-public good parts.
Thus, appealing to the supposed inherent validity of a public good to initiate a scope creep into the associated parts that are not public goods is…at least a problem.
Good catch, Arnold.
“By paying for public goods like education and health care, governments . . .”
Let us begin at the beginning: “By governments paying . . .”
Governments do not “pay;” payments are extracted from the private sector by the coercive mechanisms of governments to be applied to politically determined purposes.
If the politically determined purposes were in fact the provision of true “public goods” that would not change the source of actual payment.
But then, this quotation derives from the ideology that has been ascribed by the more recent editors of the “Economist.”
Dr. Kling is correct, but maybe the problem is that economists have chosen a rather curious definition for “public good”. I understand that “nonrival, nonexcludable good” is a clunky expression, but surely economists should have seen this confusion coming.
The other point is particularly important, I agree: people often use the vaguely defined popular term “public good” as an automatic justification for funding X. But this is a non sequitur. It is not an argument. So thank you Dr. Kling for calling them on it.
Here are two good posts about semantic confusion regarding “public goods”:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/05/defence-may-be-a-public-good-military-spending-isnt.html#more
http://offsettingbehaviour.blogspot.ca/2012/05/on-definition-of-public-goods.html
Point taken, but shouldn’t the real focus be on whether the second half of the sentence is true?
The second half of the sentence turns on the word “can.” Government CAN theoretically do lots of things. The question is, in practice, will it? When you look at the growth of healthcare and education costs in this country as they have increasingly come under federal control since 1968, can anyone make a realistic, semi-plausible case that, whatever else they might be, these two industries are more efficient now than they were back then?
I doubt it.
“Point taken, but shouldn’t the real focus be on whether the second half of the sentence is true?”
Here is the problem. I think the implication is that efficiency would be improved BECAUSE spending on public goods is something that economists think can improve efficiency because public goods are examples of potential market inefficiencies.
So, the second half is true if the first half is accurate. Otherwise, it’s just marketing.
We should not confuse “public good” as used in scholarship (as above) with “public good” as a code phrase for “we’ll use the powers of government to compel everybody to pay for this whether most of them want it or benefit from it or not”
Indeed, one can conjecture that a democracy “public good” means the union of all things that 51% of the population (perhaps a different 51% for each thing) will vote to have provided by government….
From a comment I made some time ago:
…the two meanings get conflated in common parlance to the detriment of the welfare of humanity as a whole.
The economist says, “Public goods represent a market failure and are an arena where government can produce a better outcome than private markets.”
The policy maker says, “Public goods are things paid for by the government and economists tell us they are an arena where government can produce a better outcome than private markets.”
And so I take every opportunity to fight the second meaning of the word. It is truly the root of much evil.
Usually not a spelling fascist, but this one needs to be fixed: it should be “pub[l]ic safety”…
are monopoly police vetting services a public good? for example, if a Government Dept deems it necessary for your staff (say a NGO helping vulnerable child) to get a police check pre-employment?
Not a public good. If the NGO is held accountable for enabling its staff to harm a vulnerable child, then its in the NGO’s private interest to do the background check itself.
Btw, why is there a monopoly on police vetting services?
There isn’t. People do credit checks, facebook investigations, etc. Arrest records are open to the public. There may be some public good in there like tabulation of criminal records across jurisdictions.
Not to dump on your hypothetical, but some hypotheticals are so far removed it is difficult to discuss on their own terms.
Alright, let me try harder.
So, we have these organizations like the Catholic church that have dealt with accusations of child abuse in their midst in…less than satisfying ways. On the other hand, as a person involved in scouting, I have observed that in order for you to have 1-on-1 access to a child requires the other adults in that kid’s life to delegate, if not shirk some duty.
There is this girl in our neighborhood who roams the streets. She drives me and my neighbor kind of nuts because she wants to play with our kids all the time. Then around bed-time her mom comes hunting her. ANYTHING could happen to this kid and the mom wouldn’t know for hours. So, I let her play in the yard as often as I can.
So what is the public good in these cases?
“the benefit I receive from your education … is extremely low” — You might be underestimating the positive externalities of education. There’s a lot of benefits to being surrounded by educated people.
That may or may not be true.
For example, we have a stop-out education system which is largely signaling. So, those “educatated” people we get to hang around if we went far in education are a survivor biased bunch to begin with.
And as I said, we only really get to hang out with educateds if we achieve education.
There is benefit, but Arnold asks us to compare that benefit to the benefits to the person receiving the education.
Let us consider literacy in particular, the most obviously valuable skill that is taught in public schools. Do you think, Morgan, that when a person learns to read, then it helps other people more than it helps themselves?
Being able to read means you can use Wikipedia. You can read the labels at the store. You can read the training manuals at your job. The benefits of reading have simply massive benefits to the individual who learns it.
Being able to read also helps other people, but I would think to a much smaller degree. It means they can email with you instead of speaking with you. It means you can write a blog, and benefit other people through it.
To drag a dead horse across the finish line because it simply won’t respond to further beatings, the quote is simply begging the question.
Efficiency is improved (from an economics perspective) if and only if those actually are public goods.
Apparently I love this “discussion.”
Dr. Kling,
Perhaps a good exam essay question or class discussion would be
“Discuss this sentence from an economics versus conventional or other perspective. Under what standards or conventions is it true or untrue. Discuss the sentence in reference to the 3 standard political languages.”