The fallacy of the public good

By Rane McDonough

It has become trendy for economists to admit that there are some things that the free market can produce better, but that this does not extend to the realm of “public goods.” This is something that will more than likely come up if one is taking economics classes at most universities, including the University of Massachusetts. What are public goods, and why are they different?
Each economist who talks about “public goods” seems to be talking about something slightly different, but there are some common threads. Non-rivalrous consumption seems to be an important part of the public goods theory. For example, if I listen to the same radio station as you, it does not decrease your enjoyment of it. We both consume the same good without affecting each other. Another component of many economists’ public goods theory is that it has to affect more people than just the producer of the good. For example, a rose garden in my front yard, where others can see it, is a public good. A rose garden in my backyard, where only I can see it, is not.
The next step of most public goods theorists is to then say the state must provide public goods. Some examples: if I am the only one putting work into my rose garden, but the benefits are to be shared among many, then I probably won’t make the rose garden as nice as it could be to maximize public utility. Also, if everyone benefits from an educated populace, but the burden of paying for an education is left to the individual, there will be fewer educated individuals than everyone would like.
According to the public goods theorists, it is the job of the state to provide the extra roses or education to maximize public utility.

Anyone familiar with my other positions will not be surprised by my attempt to refute the need for the state to supply public goods. However, as someone who advocates for economics based in logic, I am also going to attempt to refute the very existence of a special class of goods known as “public goods.”
First, there is the matter of opportunity costs. If some concerned citizens really wanted others to be more educated than they currently are, those concerned citizens would pay for the education of those others themselves. That they do not already do so means that taking their money from them via taxes and then spending it on educating others is not creating a public good, but a public inconvenience.
Someone is allowed the opinion that it is more important for Timmy to get educated than for Bob to have a big-screen TV. However, that is an ethical assessment and not an economic assessment. It is beyond the realm of economics to tell people what is right.
Economics tells you what the outcome of your actions will be. Any edict that says what outcome you should direct your actions toward is beyond the realm of economic science. Now, to explain why the separate category of public goods is a fallacy: A “good,” in economic terms, is something that someone has recognized a use for. That is it. So, when we say coal is an economic good, it’s true … now. Before the discovery of steam power and the subsequent industrial revolution, no one had recognized the uses and values of coal, so it was not an economic good.
In the previous examples of public goods, I was talking about things that are assumed to be liked, such as rose gardens and knowledge. But, what if your neighbor is allergic to roses? What is a good and what isn’t a good is subjective. The color of my underwear becomes a “public good” only when other people start caring about it.
As for non-rivalrous consumption, costs are as subjective as goods. Maybe I’m a hipster who only likes bands no one else has heard of. If you listen to the same radio as me and the next time I mention a band and you know who they are, I am going to be furious.

Public goods theories are wrong about the very existence of the things they presume to describe. Their widespread acceptance indicates regression back to an earlier period of pre-subjectivist economics, which lasted until roughly 1900. During this era, economists were confused by things as simple as the fact that gold is worth more than iron. It took a lot of hard work by famous economist Carl Menger and others to firmly establish the idea that value is subjective. The phrase “supply and demand” is a result of the work of these men. Because of them we were finally able to say that gold is worth more than iron because people want it more. What goes for gold and iron also goes for everything else, without exception.

Rane McDonough is a Collegian columnist and can be reached at [email protected].