Home > Uncategorized > Re-thinking the Definition of “Public Goods”

Re-thinking the Definition of “Public Goods”

from June Sekera

Introduction

A year ago last May, the Real World Economics Review blog published my post, “Why Aren’t We Talking About Public Goods?” In that article I argued that we need to revive and reframe the concept of public goods. A concept of public goods is immensely important because: 

  • The absence of a widely-held, constructive idea of public goods in public discourse denies citizens the ability to have an informed conversation, or to make informed decisions, about things that matter mightily to the quality of their lives and their communities.
  • Its absence robs public policy makers, leaders and managers of the concept that is most central to the reason for their being. 
  • The current economics definition of public goods feeds and supports the marketization and privatization of government, and the consequent undermining of governments’ ability to operate.         

Since last May I have met with economists and other social scientists across the US and in the UK and have been in discussion with people responding to my post from several other countries. I have also been conducting further research.

In this post I summarize the results of my discussions and findings to date and offer for consideration some criteria for a possible “instrumental” definition of public goods.  Ultimately, an instrumental definition of public goods must be accompanied by a concordant theory of non-market production in the public economy. Both are needed to ground an improved theory and practice of governance. 

1. The Existing Definition and Its Inadequacies

Mainstream economic theory, using the sixty-year-old formulation of Paul Samuelson, holds that public goods arise out of, and represent, “market failure.”  In the market-centric world of mainstream economics, public goods are pronounced “a problem” because, being “non-rivalrous” and “non-excludable,” they are not amenable to market production.

Currently, the topic of public goods is little discussed by progressive and heterodox economists. Those attending to the topic are primarily those on the right who challenge the definition as too supportive of a role for government.

Libertarian essays and websites question whether public goods actually exist – or argue that if they do exist, they can and should be provided by the market, not government. This literature supports the increasing marketization and privatization of government.  A sampling:

  • “Simple observation of the real world suggests two problems with the application of public goods theory as a justification for government production.  First, many public goods are successfully produced in the private sector, so government production is not necessary.  Second, many of the goods government actually does produce do not correspond to the economist’s definition of public goods, so the theory does a poor job of explaining the government’s actual role in the economy. If public goods theory fails as a theory of public expenditure, why is it so firmly entrenched in the economic theory of  the public sector? …The persistence of the theory of public goods makes sense if the theory of public goods is considered as a tool of the government to justify the legitimacy of its activities…The theory is promulgated by the state-supported education system, giving educators, as employees of this state-supported industry, and incentive to promote the theory of public goods.”[1]
  • “public good theory has been misused by some to support public provision of such goods.” [2]
  • “There is a presumption in some circles that the identification of an externality or a public good presents a prima facie case for government intervention. Tyler Cowen has assembled a group of articles that challenge this view by arguing that the market, broadly construed, can handle many problems of public goods and externalities that are normally considered the province of the state.”[3]
  • “In everyday life, there are probably no goods that resemble the pure public goods of economic theory. Accordingly, the public goods problem in everyday life is mainly concerned with situations in which public goods characteristics seem to be important. Since our main concern lies with setting up the theoretical problem, we shall merely follow the standard theoretical practice of assuming that pure public goods exist.”[4]

In “Are Public Goods Myths?”, Cornes and Sandler summarize the situation thusly: “Samuelson’s classic formulation provoked a number of critics…whose chief concern was that Samuelson’s austere simplification produced a rarefied concept, a mythical beast, without any counterpart in, and therefore without any applicability to, the real world.”[5]

Because the Samuelson definition is so narrow and constricting, one can indeed demonstrate that the standard textbook examples of Samuelson public goods have been or may be produced by the private market: ships have paid for lighthouse services; monarchs have hired mercenary armies; Disneyworld produces fireworks. Even clean air is being purchased individually–by the wealthy in Beijing.[6]

Some mainstream economists, implicitly recognizing the fundamental deficiency of the existing definition, have devised ways to work around it[7].  They have come up with terms like “collective goods”, “club goods”, “social goods”, “public contract goods”, “common resources” and “impure public goods” to try to fill the conceptual void.

In contrast to the profusion of commentary from the neoclassical right and Libertarian worlds, we hear almost nothing from the contemporary world of progressive, heterodox economics. It is virtually impossible to find anyone writing much about the topic today. In the past, a few progressive scholars have challenged the Samuelson definition and some have called for a new one.  In “Rethinking Public, Global and Good”, Meghnad Desai said that the Samuelson formulation is “useless for policy purposes”, and further that “The Samuelson fiction of pure nonexcludable goods is just that”.[8]  Kaul and Mendoza in “Advancing the Concept of Public Goods” noted that the existing definition does not offer clear categories of public and private, and point out that “goods often become private or public as a result of deliberate policy choices.” Deneulin and Townsend noted that “Some authors have questioned whether the definition of public goods given in neo-classical economics…is adequate. They have argued that the extent to which a good is perceived as ‘public’ does not depend as much on its inherent characteristics as on prevailing social values within a given society about what should be provided by non-market mechanisms.” [9]

Marc Wuyts “concluded that public goods are socially defined and constructed according to what is perceived as a ‘public need’, rather than containing certain inherent characteristics of non-excludability and non-rivalry.”[10]  In Development Policy and Public Action[11] Wuyts says “public goods are socially defined and constructed: the outcome of complex political processes which evolve around the definition of public need…Public goods…result from public action…Orthodox theory, by contrast, defines public goods as specific types of goods or services (such as law and order, defence, the use of a road or a bridge, etc.) which markets find it hard to deal with. The reasons for this market failure…are often stated in economic jargon…[I]n orthodox economic theory, public goods are defined solely with respect to the inherent characteristics of the goods and services concerned…[a definition that is] only technical in nature.”

Galbraith in 1958 told us that public goods are “…things [that] do not lend themselves to [market] production, purchase and sale. They must be provided for everyone if they are to be provided for anyone, and they must be paid for collectively or they cannot be had at all.”[12] Yet even Galbraith did not question the validity or usefulness of the narrow definition that had been introduced just a few years earlier.

The most extensive critique of the neoclassical theory of public goods may be that of Stretton and Orchard.  In Public Goods; Public Enterprise, Public Choice: Theoretical Foundations of the Contemporary Attack on Government,[13]  they show how the deficiencies in Samuelson’s definition have enabled critics of government to use it to attack government provision of goods and services.  Like Wuyts, they stress the socio/political origins of public goods: “The amount and kind of public goods have to be determined by political choice…Those choices are not likely to be improved by the use or the common misuses of [current] public goods theory…”

The definition of public goods is not a trivial matter. Government output is a major component of GDP (various sources estimate it at 20% to over 50% of the U.S. economy, and much more in other advanced democracies). But public provision is widely deemed inefficient, inferior to market provision. The  market-centric definition of public goods underpins the anti-public, “free market”, vocabulary that dominates public discourse, motivating and justifying the marketization of government and governance.

Orthodox economic theory, and Samuelson’s definition, ignore the reality that public goods derive from social as well as economic forces. In reality, public goods originate through collective choice (voting) and are funded by collective payment (taxes). Government produces them because the market does not or because a society decides that all citizens should have access to them regardless of ability to pay because their social or economic benefits are so important.

If progressive, heterodox economists are paying little attention to public goods theory, neither are the problems being addressed by academic theorists of public administration, political science, and political philosophy. Practitioners – government leaders, administrators, and managers – are unaware that what they are producing, simply put, are public goods.

It was not always thus.

2.  A Quick Look at the History of Public Goods

While the definition only appeared in 1954, societies have been providing public goods for millennia.

The concept of public goods, and government provision thereof, had a vastly more positive connotation before Samuelson’s view took center stage in the 1950s.

Maxime Desmarais-Tremblay has shown how the ideas of “non-excludability” and “non-rivalry” were earlier developed (beginning in the 1930s) by Richard Musgrave, a fellow student with Samuelson at Harvard.[14]  Musgrave, however, had a higher regard for government provision of goods and services.

Musgrave’s contributions built upon the ideas of 19th-century European social philosophers who emphasized the importance of the political process, which must “be substituted for the market mechanism” in determining the allocation of public goods. Putting the work of Musgrave and Samuelson in historical context, Sturn[15] has thrown a spotlight on the extent to which “public goods” and the “public economy” took a beating from mid-20th century economists. Himself aghast at the turn against the concept of a public economy, Musgrave said that he did not “wish to ‘leave the state as the defendant who must prove his innocence.’” He did not see the public sector “as a necessary evil whose optimal size is determined by the idea that it should be kept to a minimum.” Rather, according to Sturn, Musgrave insisted that public goods be “duly regarded as the conceptual basis for specific mechanisms of the public economy, entailing collective choices and the institution-based enforcement of their outcome.”

Samuelson, however, rejected any notion of a political process in his “pure” definition, which according to the dictates of mainstream economics, had to be made amenable to mathematical modeling. In 1983, Musgrave severely criticized Samuelson’s formulation as “somewhat of a scholastic exercise, of little help to improving the fiscal performance of the real world setting.” Unfortunately, by that time several generations of economics students had learned nothing about public goods beyond Samuelson’s narrow, mathematically-tractable definition, with its devaluing of all things non-market.

Virtually no economics textbooks or literature mention Musgrave (per Tremblay). Nor is it easy to find reference to the earlier corpus of economic literature that explicitly affirmed the concept of public goods[16]. In most of the literature on public goods, virtually no mention is made of Musgrave’s pioneering contributions to public goods theory nor his far more estimable view of the role of government in the provision of public goods.

As Musgrave admonished, “Semantics, as the history of economic thought so well shows, is not a trivial matter.”[17]

A new, meaningful and pragmatic definition of public goods is needed. By meaningful I mean a definition that 1) recognizes the social as well as economic derivation of public goods, and 2) guides logical thinking to a theory of non-market production in the public domain. The definition must be pragmatic: useful to practitioners and scholars of public governance.

Toward that end, via this paper I am circulating for discussion a proposal for key criteria and elements of an “Instrumental Definition of Public Goods”.

It is my hope to inspire progressive, heterodox economists to dissect this mythical beast, to take up the critical task of re-thinking the concept of public goods and to develop a meaningful and pragmatic definition. Definitions and classification systems are essential. In his biography of Keynes, R. F. Harrod said that “The history of economic science…has largely been the history of the formation of appropriate concepts…Classification in economics, as in biology, is crucial to the scientific structure”.  He credits Keynes with illuminating “aspects of economic analysis whose vital significance for practice had not been seen before” and for forging ahead with his endeavor despite the criticism of skeptics who demurred that “a new conceptual framework was uncalled for”; in the end, writes Harrod, “a new conceptual framework…has enabled us to transform all our thinking”. [18]

 

3. Elements of an Instrumental Definition of Public Goods

In the chart below I offer potential basic elements of an “instrumental” definition of public goods.  These elements draw together concepts of public goods from some of the economists and social scientists cited earlier, and also incorporate, but adapt, the extant definition.

 Public goods are goods and services[19] that are supplied through non-market, public production. I.e., they are:   a. created through collective choice,   b. paid for collectively, and   c. supplied without charge (or below cost) to recipients. 
 Public goods are created and paid for collectively because: Examples*
(1)  The market will not produce them because there is no effective market , or  clean air for all, streets, public sanitation, weather data collection, basic R&D, food and drug safety
(2)  There are such significant positive externalities that society determines they must be available to all regardless of ability to pay, or  potable water, education, libraries, parks, fire and police protection, 911 call service
(3) Provision through a single, public provider is more efficient and effective than provision through competition among multiple providers. currency system, legal system, bank regulation

                                                                                                                                                        *For many more examples see pg 9

 

4. The Three Types of Public Goods

Category #1: No effective market.  In this category are goods and services that market-based suppliers lack incentive to invest in producing either because:

a) their benefits are spread so broadly that their value cannot easily be captured in an exchange between an individual buyer and seller so it is impractical or impossible to charge users individually. For such goods and services, collective payment is more practical, or it is the only way they will be produced.

b) the return on investment is too uncertain.

In this subcategory are investments on which the return is too far in the future, and hence too uncertain to induce private expenditure. Writing about the ways in which “government nurtures innovation,” Nocera quotes Manzi saying that public investments can “solv[e] technical problems that offer enormous social benefit, but are too long-term, too speculative, or have benefits too diffuse to be funded by private companies.”[20] 

Category #2: Positive externalities. In this category are goods and services whose positive externalities (economic and/or social benefits) are so important that society determines – through the collective decision-making of the electoral process – that they must be accessible to the entire population regardless of individuals’ ability to pay.

Category #3: Natural monopoly.  In this category are those goods, services and industries that meet the definition of natural monopoly and for which collective, public provision is more efficient and effective than provision through competition among multiple providers.  (I.e., where efficiency and effectiveness stem from network efficiencies of scale and/or network value creation).

To reiterate, in each category the public product, service or benefit 1) comes into being via collective choice; 2) is financed through collective payment; and 3) is furnished through public, non-market production.

 

5. Hallmarks of Public Goods Production 

Non-market production: Public goods are furnished through non-market production in the public economy[21], an environment whose dynamics and driving forces are unlike, and far more complex than, market exchange. Factors of non-market, public production include:

  • Meeting a need, not responding to demand: Public goods are created to meet the unmet needs of a society[22]: to supply goods or services not supplied by the market, or to solve complex social or economic problems.  They are created by collective choice. They are not created in response to demand.[23]
  • Collective decision-making[24]: In a representative democracy, public goods originate through collective decision-making — i.e., voting – a process through which differing interests are resolved, and conflict and argument lead to decision and action[25]. Elected representatives then create public goods legislatively, by enacting laws.
  • Collective payment: Public goods are paid for collectively, through taxes.
  • Supplied free or with fees that are not economically significant.[26]  Public goods are created to meet a need, not to realize surplus revenue or profit. Fees, if any, do not, or should not, cover the full cost of production.

 

6. Key characteristics of public goods

Following are key characteristics of public goods:

  • Public goods are created by human effort, as contrasted with “natural goods”.  Air, water and land are natural goods.  Air is a natural good; clean air is a public good.  Land is a natural good; national parks are public goods.  (Public goods are created to protect and preserve natural goods.)
  • Public goods are not the same conceptually as “the commons”. The legal structure that protects the commons is a public good.
  • Public goods, which are products and services, are different from the concept of “the public good,” which is an ethical concept, a moral view of what is in a society’s interest. An instrumental definition of public goods, as proposed, does not itself embody a moral perspective, but delegates to the society – those who vote – the determination of what is in society’s interest.
  • Public goods are tangible and measurable. They are goods, services and benefits that can be identified and that produce results that can be measured. They are not merely ideas, “interests” or “values”.[27]
  • Public goods are created by law.
  • Public goods vary over time and by place. They typically evolve from market to non-market production, so they vary over time.  For example, residential fire service was once a business run for profit; schools or tutoring were available only to those who could pay and street lighting was purchased by wealthy pedestrians from lamp carriers. And public goods vary by place: things that are public goods in one country may not be so in another. Health care for all has long been a public good in many European countries, Canada and elsewhere, but not in the U.S.
  • Public goods are produced by government, not by civil society, NGO’s, households or individuals. While goods produced by such entities may be enjoyed by the public, they are “social goods”.  The distinguishing characteristics of public goods are that they are created through collective choice (voting) and are paid for collectively (taxes).
  • The definition above does not address the issue of contracting out. That is a second-order question. The first question is to determine whether a particular good or service is a public good according to the criteria of an “instrumental definition”.  Once something is established as a public good, one can consider whether its delivery should be contracted out. There is evidence that contracting out to private corporations often costs more than direct government provision, causes principal-agent problems[28], and can erode public services.  But there is no need to deal with these issues in defining “public goods”. In fact, doing so confuses matters. Clarifying the nature of public goods will enable a much more edifying conversation about whether contracting in any particular instance is sensible.

 

7. Public goods and democracy 

Central to the instrumental definition offered in this paper is that public goods are created through the democratic process. Fundamentally, public goods are created by citizens voting for representatives who, in turn, make decisions about how government monies, raised collectively through taxes, will be used. These “elected funders” make day-to-day decisions about what and whether to fund. But in the end, the citizenry has the power, through democratic processes, to appoint and dismiss those elected funders.

Notably, some public goods may be considered “bad”.  For a U.S. example, tax expenditures and other subsidies to corporations may be considered bad by progressives, and food stamps are considered bad by many conservatives. These conflicting views are resolved through the democratic process; through voting, citizens effect their choices. Hence citizens must participate in the electoral process and vote for representatives who reflect their own view of what is in their and society’s interest.

Deneulin and Townsend[29] offer a useful summary of the connection between public goods and collective decision-making, worth quoting at length:

“there are goods, including many that are non-trivial for human well-being, the benefits of which may be received by people only in a common enterprise…only in relationships, structured as necessary to enable the common action that ‘produces’ common goods, that lives which benefit from such goods can be lived.

Recognising the life in common of a city or nation as a species of good unavailable to anyone except by the irreducibly common action which makes it what it is raises further questions.  Among them are: how is the common good generated or nurtured and how can we ensure that the common life of a community is good and not bad?..We emphasise here that there is no guarantee that participation in common action will generate something genuinely good.  It might lead to bringing into power a government which might use nuclear weapons or which introduces unjust structures such as those of Apartheid.  Human actions are always fallible because they are human. However the ‘possibility of moral evil is inherent in man’s constitution’ does not nullify the claim that the good for each of us is found and sustained in relationships, whether at the level of the community of the family, village, country or world, and the public policy ought to recognize and nurture them if it is not to undermine the human well-being.

An instrumental definition of public goods that is grounded in the foundational premise of collective choice (voting) can help strengthen democracy so long as the term and concept are widely accepted in public and political discourse.

 

8. A Research Agenda

  • Further research the pre-Samuelson and social sciences concepts of public goods.

Investigate more fully the historical development of public goods theory, particularly in Europe during the late 19th century, and in succeeding work by Richard Musgrave.  Examine more fully the perceptions and suggestions of more recent critics of public goods theory, including Marc Wuyts, Inge Kaul, Ronald Mendoza, Henry Bernstein, Richard Sturn, Maxime Desmarais-Tremblay, Meghnad Desai and Elisabetta Marmolo.  Encourage dialog among pluralist economists who are challenging neoclassical economics and representatives from other disciplines such as sociology, political science and public affairs.  Contact public policy thought leaders. These conversations can suggest avenues for a 21st-century definition of public goods that is at once clear, meaningful and pragmatic.

  • Develop a theory of non-market production.

Public goods are produced in a non-market environment whose dynamics, drivers and flow relationships are fundamentally different from, and far more complex than, a market environment. But conventional economics fails to recognize the factors that go into, and the fundamental forces and dynamics that govern, non-market production. Producing goods and services in a public non-market environment is fraught with complexity and difficulties that do not exist in the market. The current conceptual vacuum leaves us without tools essential for practice.  For example, we lack a framework for evaluating outcomes in the non-market, public economy. For elaboration of the distinctions, problems and need for further research, see my paper “Market vs. Non-Market Production”.

 

June Sekera is leading the Public Goods Initiative, a project to develop and advance a concept of public goods that validates the value of the  public economy, and a non-market-based theory of production to support improved governance. This project derives from her experience in management and leadership positions in federal, state, and local government in the United States, as well as her economics training at Harvard and MIT. Inquiries welcome at  junesekera@gmail.com

EXAMPLES OF PUBLIC GOODS[30] 

safety and security

personal safety and security

911 call service; street lighting; fire and police protection; weather forecasting, including natural disaster prediction; sidewalks; charting oceans, bays, navigable rivers and lakes; snow plowing; street cleaning; workplace safety; prisons; disaster response/relief; public information during disasters and emergencies; air traffic control; nautical navigation markers; national defense; workplace and worker safety

food safety

food safety regulations; food inspection 

drug and device safety

drug regulation; product safety regulations (toasters, tools); baby products safety (car seats, strollers, cribs, pacifiers); vehicle safety standards; vehicle safety inspections; defective product recalls 

financial security

unemployment insurance; old age, survivors and disability insurance; vocational training; job training programs; pensions insurance 

basic needs

water; food; housing 

standards

water quality standards; clean air standards; weights and measures (gas pumps, scales); time zones

protection and preservation

consumer protection

utilities regulation; “lemon laws” to protect consumers

financial protection

bank deposits insurance; banking regulations; regulation of investment banking and derivatives trading

environmental protection

pollution abatement; R&D for environmental protection; protection of natural goods – clean air, clean water, clean beaches, trees; nuclear waste site cleanup; nature preserves; wildlife preservation

preserving the commons

fisheries, oceans, rivers, land, forests

historical and cultural preservation

museums; historical documents, records and artifacts

health

nutritional labels on foods; waste disposal regulation; public sanitation; mass epidemic

prevention or control; public health; disease prevention; health insurance; labeling of toxins/poisons;

labeling of dangerous drugs

personal enjoyment and physical fitness

parks; playgrounds; sports fields; jogging trails; bike trails; public beaches; nature preserves

enabling of markets; business and commerce supports

Public goods enable and support the functioning of markets,

allowing business and commerce to function. E.g.:

the legal system; enforcement of contract and property rights; patent system; currency system,

small business loans/financing; export promotion and support;

Manufacturing Extension Program; Agricultural Extension Service

nurturing of innovation

medical and technological research; scientific research; other basic R&D investments; space program

learning and knowledge

mass literacy thru education;  K-12 education and higher education; preschool (in a few places in the US); libraries; student financial aid; Adult Basic Education; museums (art, history, science, etc.)

infrastructure

transportation, commerce and utilities

streets; county and state highways; Interstate system; bridges; dams; dikes, canals; locks; airports; shipping ports; electricity generation (e.g., hydro power); electric grid improvement

financial

currency system; money

personal transport

affordable train service; affordable package delivery; public transit

public health and safety

waste management to ensure mass sanitation – sewer systems; waste water management; weather satellites

communication

mail; air waves management; creation of Internet

legal system

contract enforcement; enforcement of property rights; courts; civil laws; criminal laws

vital statistics

census; employment & unemployment data; statistics on businesses and commerce; economic statistics; registration of births and deaths; land ownership registration

 

[1]Randall Holcombe, “A Theory of the Theory of Public Goods”, Review of Austrian Economics 10, No. 1, 1997.

[2]Richard Cornes & Todd Sandler, “Are Public Goods Myths?”, Journal of Theoretical Politics” 6(3) 1994, p 369.

[3]Hal R. Varian, “Markets for public goods?”, Critical Review: A Journal of Politics and Society; Vol. 7, Issue 4, 1993.

[4] —, “Public Choice, Public Goods, and Constitutions”; constitution.org,  May 3, 1997.

[5]Richard Cornes & Todd Sandler, “Are Public Goods Myths?”, Journal of Theoretical Politics, 6(3), 1994, p 369.

[6]In China in response to extreme air pollution, some schools have built domes over sports fields and wealthy parents choose schools based on air-filtration systems. “In China, Breathing Becomes a Childhood Risk”; New York Times; April 22, 2013.

[7]Including progressive thinkers who have written books on public goods. E.g.: Jean-Phillippe Touffut, ed., Advancing Public Goods (2006); Angela Kallhoff, Why Democracy Needs Public Goods, 2011.

[8]Meghnad Desai, “Public Goods: A Historical Perspective”, in Concepts: Rethinking Public, Global and Good, 2003.

[9]Severine Deneulin and Nicholas Townsend, :  “Public Goods, Global Public Goods and the Common Good”, WeD Working Paper 18; Sept. 2006.

[10]Deneulin and Townsend:  op cit.

[11]Marc Wuyts, “Deprivation and Public Need”, in Macintosh, M., Wuyts, M. and Hewitt, T.; Development Policy and Public Action, 1992

[12]John K. Galbraith, Affluent Society, 1958, p 111.

[13]Hugh Stretton and Lionel Orchard, Public Goods; Public Enterprise, Public Choice: Theoretical Foundations of the Contemporary Attack on Government; 1994.         

[14]Maxime Desmarais-Tremblay; “On the Definition of Public Goods; Assessing Richard A. Musgrave’s contribution”; 2013.

[15]Richard Sturn “Public goods before Samuelson: interwar Finanzwissenschaft and Musgrave’s synthesis”; p 304.

[16]This literature generally uses a term other than “public goods”.  Musgrave talked about “social goods” and “merit wants”, for example.

[17]Richard Musgrave quoted in Maxime Desmarais-Tremblay, op. cit. p 5.

[18]R. F. Harrod, The Life of John Maynard Keynes, 1969, p 464.

[19]“Services” also includes services that provide “benefits”, such as clean air, income security, or disaster relief.

[20]Joe Nocera, “Government Nurtures Innovation”, New York Times, May 2, 2014, quoting Jim Manzi of the Manhattan Institute.

[21]Although public goods are produced in a non-market environment, mainstream economics lacks a theory of non-market production in the public economy.  See my paper on “A Theory of Non-market Production”.

[22] Marc Wuyts, in Development Policy and Public Action; pp 30-311; Desai, op.cit.; Stewart Ranson and John Stewart, “Citizenship and Government: The Challenge for Management in the Public Domain”, Political Studies, 1989, pp. 10, 12, 24.; JK Galbraith, Affluent Society, 1958, p242.

[23]Stewart Ranson and John Stewart; op. cit.

[24]In a democratically-organized nation-state.

[25]Stewart Ranson and John Stewart, op.cit.; Marc Wuyts, in Development Policy and Public Action; p 31; Meghnad Desai, “Public Goods: A Historical Perspective”; Rethinking Public, Global and Good; 2003; Elisabetta Marmolo, A Constitutional Theory of Public Goods”, Journal of Economic Behavior & Organization; Vol. 38; 1999.

[26]See definition of “prices that are not economically significant” in NIPA Handbook – Bureau of Economic Analysis, Nov. 2011.

[27] This characteristic of measurability is essential to developing an effective practice of governance.

[28]For example, see: Elliott D. Sclar, You Don’t Always Get What You Pay For – The Economics of Privatization (2000).

[29]Severine Deneulin and Nicholas Townsend; op. cit.

[30]There are a variety of classification schemes used by governments and other organizations to categorize what are in essence public goods, including the “Classification of the Functions of Government” (COFOG) groups of the OECD. However, the categories I have used here do not utilize those systems; rather the category names are chosen for the purpose, ultimately, of public messaging.

  1. July 9, 2014 at 8:13 pm

    Capitalism must evolve very quickly. If it doesn’t its present lack of functionality will only get worse. Aggregate individual incomes have never been equal to aggregate total costs and so total prices. Now with technological innovation acceleratingly reducing aggregate demand for 94-96% of the population it will become glaringly non-functional for everyone to see but the most ideologically blinded. This is not just a wedge political, economic or money system issue, it is a freedom versus slavery issue. Economic theory, money systems and politics must transcend themselves and the woefully inadequate mindset of power that they are all obsessively addicted to.

    Economic freedom for the individual must be allowed to balance power. It’s either the death of power as the primary consideration in these systems and the implementation of policies that actually reflect a primary consideration of freedom for the individual…or tragedy awaits.

  2. originalsandwichman
    July 9, 2014 at 11:51 pm

    What? No mention of Elinor Ostrom and common pool resources?

  3. davetaylor1
    July 10, 2014 at 10:12 am

    Chdwr says “Economic freedom for the individual must be allowed to balance power. It’s either the death of power as the primary consideration in these systems and the implementation of policies that actually reflect a primary consideration of freedom for the individual…or tragedy awaits”.

    That’s the conclusion I’ve reached too. But having taken my analysis back to what has been true of the universe since the time of the Big Bang, I’ve discovered there a pattern I already knew from my work with control systems, in which power is prevented from going everywhere by being directed to specific ends. When there is nothing but energy free to move powerfully in every direction, the concept of time reveals a past, a present and a future (in that order), and a boundary at the limit of its expansion: if you will an Einsteinian beach where energy materialises as subatomic spray. These particles come together as atoms free to join together in linear, planar and crystaline molecular structures, which in turn come together as rings, tubes and closed surfaces, hence cells and tubular plants, animals with circulating blood and humans with circulating ideas, who in turn circulate ideas in linear language, planar images and three-dimensional physical products. The pattern is that of the PID control system I keep talking about. Economists (despite Smith’s “invisible hand”) still talk as if we are free to do anything, but in fact we are constrained internally by habits (physically embodied as neural paths), externally by legal information/law enforcement and in practice by financial institutions from which discretionary freedom has been withdrawn by legally underpinned financial institutions forming yet another level of PID control: this generating a plutocracy detached from consideration of what the finance is for, so free once again to misdirect it, e.g. to themselves. What is suggested by experience of PID control (as in navigating a ship in dangerous waters, or steering a car amid traffic obstacles) is that the three types of control operate on different timescales: continuous steering, regular reharmonisation of position in traffic and occasional rerouting to avoid problems. Keynes, I seem to have failed to convince Lyonwiss, suggested a mechanism for the second problem; we have now reached an impasse and need to change course.

    As a scientist I would like to point out that “what is always the same” is not where people are going but the way they are directing their journey. People can be free to go where they like (even of they aren’t)until they start bumping into others or hit an iceberg. That is the freedom we are losing, so the crucial question is, What is the iceberg?

    In the “Examples of Public Goods” at the end of June Sekera’s absolutely splendid paper, the “public good” that is conspicuously absent is “True Information”. The problem area in economics is the distribution of finance, and the root of the problem is the post-1694 Bank of England legalisation institutionalising the ancient goldsmith’s fraud, whereby what is lent out (at interest) is not even other people’s gold but an IOU for it, with the banks demanding gold or other valuable property in the event of the borrower becoming unable to return the IOU.

    In my considered opinion the problem is not in the use of IOU’s, it is in the bank’s using their own and other people’s IOUs as if the property they supposedly represent was their own. In short the honest solution is a credit card economy in which credit is personal to the borrower, limited to a generous sufficiency and repaid by such earnings as the borrower (given their state of life) is capable of. (In a bit longer, one needs to separate the variables of personal and working credit from motivation provided by a prize fund for actual achievements in whatever field rather than a lottery most profitable for the lottery operators. I won’t claim these conclusions as entrely my own: they owe a lot to John Ruskin’s 1860’s “Unto This Last” and “The Crown of Wild Olive” – which of course the Ricardian plutocrats of that age rapidly suppressed by threatening to pull the plug on his publisher. Thank God for the present freedom of the internet.

  4. Susan Pizzo
    July 11, 2014 at 1:05 am

    Congratulations on the fruits of your labor! I read your original piece with immense interest and found this follow-up an extremely informative read. Before we can re-balance our economy away from its misplaced emphasis on the private sector, we have to do exactly what you are doing – define the purpose of, need for, and functions appropriate to the public sector. Though little appreciated, public goods (like the taxes on which they often depend) are prerequisite for a civilized life. As we are discovering to our sorrow in this over-privatized world…

  5. Peter Shaw
    July 11, 2014 at 9:41 pm

    You present public goods as an active topic, so I hope you can make space for some unfamiliar views from another expertise.

    I think the logical conclusion of your presentation is that assignment of public goods has nothing to do with economics, and everything to do with government. You provide ample quotation, to which I add two points:

    >Economics concerns itself with allocation of finite resources. Assigning a public good is Government “affording what it needs” – an activity in which resource availability is implicitly a non-issue.

    >An item you define narrowly deserves to be promoted and generalised. Government always sets the standard for a public good, and ensures compliance. These activities are outside economics.

    If we’re considering a modern currency-issuing national economy, I respectfully disagree with “paid for collectively (taxes)”. I suggest the “taxpayer dollar” meme be consigned to the history of the gold standard, where it belongs.
    Even orthodox economics might adopt a MMT-esque view in this case. Public goods are funded by government spending as seems good to it. Where the good frees up some private-sector spending power it may be a reason for increased general taxation, but this is far from automatic. A good might stimulate an economy such that it absorbs the additional spending power without inflation. The overall effect would then be of new base money spent responsibly into a thriving economy.

    “Fees…do not…cover the full cost of production” implies that such goods are effectively a subsidy to the poor. If so, starving them of funds, or permitting exceptions (air-pollution, birdkill, etc) appear a tax on the poor, so such “economy measures” are directly questionable.

    I agree that “contracting out…is a second-order question” for your post, but I think it of first order for economics. Outsourcing has the properties of a single-customer business. Functional instances abound, but do we fully understand their dynamics?
    Also this is a particular instance of the “make-or-buy” decision, which we don’t yet have down to a fine art.

    • davetaylor1
      July 12, 2014 at 8:10 am

      Peter, thank goodness someone else is joining in this important discussion.

      So what is your “other” expertise? I worked with programming logic, so think very much to the point your “logical conclusion” [that Mrs Sekera is assuming] “assignment of public goods has nothing to do with economics” .

      I think you are wrong on this. That assumption is a large part of what’s wrong with logical thinking about economics, I agree, but as I read Mrs Sekera, she is seeing politics and economics as a two-dimensional field of provision which has been partitioned by profit-seeking companies not supplying what cannot be afforded [too big to attempt or too small to be profitable], leaving the government’s contribution defined by what is being excluded (and she is trying to list). Hers is real(the Baconian form of inductive) rather than word (Hume’s Aristotelian deductive) logic. In the latter, certain orders of the terms and propositions make true conclusions possible, but “garbage in, garbage out”.

      The assumption here which is garbage is the unconsciously Humean economist’s solipsistic one of a one-commodity, non-consumable good (money): not even a one-dimensional flow whereof one can ask in which direction it is it circulating, but an undefined point in non-existent space.

      I largely agree with what you seem to making of that, especially on Government issued money making taxation unnecessary. But that, as Merijn Knibbe’s response implied, makes control of Government essential. I don’t see this as possible without adequate credit being a Constitutional right rather than a Government responsibility, and Central Government a talking shop for coordination of powers delegated to those who actually need them. (C.f. the principle of Subsidiarity).

  6. Paul Schächterle
    July 12, 2014 at 8:55 am

    IHMO to view the legal system as a “public good” and thereby viewing a market economy as some sort of natural state or default state of human relations is a distorted view already, that has the world upside down.
    A market is based on exchange and establishing contractual relationships. Those relationships are always part of a legal system. So the legal system (whatever shape and institutions it has) is the base system or root system, not the market.

  7. July 12, 2014 at 2:06 pm

    Who decides what is a “public good”? If the government provides a public good, it is usually at the expense of something else by taking resources from somewhere else. For example, governments have decided that the current banking and financial system is a public good, which deserves support by wealth transfer to the bankers from taxpayers.

    • July 12, 2014 at 4:40 pm

      Lyonwiss is correct that Banks are treated as a public good. This arises more out of ideology, conditioning, ignorance on the part of economists and cowardice in the face of power by politicians than it does out of any actual philosophical contemplation. The public well being is what must be understood and deciphered regarding credit. First of all it must be understood that creditability actually arises out of the individual’s efforts and the technological progress that has built up over the centuries…not the ability of Banks to create (and claim ownership of) the money they extend. When you understand that there is an empirical scarcity of individual incomes in ratio to total costs and hence even minimal prices, continually and at all times enforced by the current conventions of cost accounting for every dollar lent and circulating in the economy, and wed that realization to the fact that progress belongs to and is the inheritance of everyone you can finally break free of the above ideology, conditioning, ignorance and cowardice and understand that giving the individual a supplementary income in addition to whatever they may make from work for pay is actually both the economically pragmatic and the philosophically correct way of insuring the individual’s well being and the system’s actual functionality.

  8. December 9, 2014 at 8:12 pm

    Reblogged this on Forgot About Keynes.

  9. October 4, 2015 at 12:17 pm

    ENI VS Gazprom : A New War in the East Mediterranean Sea?

    http://oilpro.com/post/19037/eni-vs-gazprom-new-war-east-mediterranean-sea

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