Tyler Cowen has a piece in the New York Times arguing that, in part, it might be a sensible idea for government to be spending more on public goods.
OVER all, the American government seems to be turning its back on its traditional role of producing and investing in national public goods. If there is any consistent tendency in recent government spending, it is that spending on entitlements like Social Security and Medicare — which provide mostly private benefits — is rising and that investment and spending on national public goods is falling.
As a budget category, “government consumption and gross investment” is a proxy for many kinds of public goods spending. As a share of gross domestic product, it has fallen to less than 19 percent, from a peak of 24 percent in the 1980s, with no expected reversal in sight. Yet total government spending is expected to increase because of income transfers and entitlements. Neither political party seems able to halt that logic or even cares to make an issue of it.
Focusing government on the production of public goods may sound like a trivial issue, too obvious to be worth a mention. But, in fact, we have been failing at it, and the consequences could be serious indeed.
I want just to tease out the background, the implications, of what he’s saying here. For if you don’t understand what a public good is then you’ll not grasp the nuance of the argument.
Public goods are not, as some seem to think, goods supplied to the public. Nor are they goods that the public would like to have supplied to them nor even goods that it would do the public good to have. The phrase has a very specific meaning in economics: goods that are non-rivalrous and non-excludable.
Non-rivalrous means that if one person uses the good this does not stop anyone else from using that same good. We can all simultaneously use Newtons equations to calculate the rocket’s path to the moon: we cannot all simultaneously use just the one physical calculator to do so. The equations, the knowledge, are non-rivalrous. The machine upon which we do them is rivalrous.
Non-excludable means that we cannot stop someone from using the good (in a weaker formulation, it’s difficult to do so). Once Newton’s calculations have been published we cannot stop people from using them. We can stop people from broadcasting a Disney cartoon though. Or, in that weaker formulation, we find it difficult to stop the Disney stuff being distributed over BitTorrent but we probably can stop a TV station broadcasting without paying for it. It’s possible to exclude people from the use of that good.
Goods which are both non-rivalrous and non-excludable are public goods: those that are not both (or either of course) are not public goods.
The economic problem with public goods is that in a free market and or capitalist system the private actors will not invest enough in producing them. For they can’t make a profit out of having done so: if anyone can use it, and anyone using it doesn’t deprive anyone else from doing so, how can you then charge for it? How can you make a profit to cover your original costs?