A common
objection levied against libertarians is that they supposedly fail to realize
that there are ‘private’ issues and there are ‘public’ issues, instead thinking
everything is a ‘private’ issue, and thus not realizing that when ‘public’
issues are involved, a governmental response is needed. This objection is
exemplified in a piece on the Washington Post’s ‘Wonk Blog’ by Mike Konczal
where he criticizes the libertarian elements of American Right-Wing
conservatism. Konczal follows John Dewey in arguing that whenever an action
between two people has consequences “that extend beyond the two directly
concerned”, the ‘public’ is involved. Given, according to Dewey: “that they
affect the welfare of many others, the act acquires a public capacity”. Konczal
finishes the thought by adding that acts which acquire a public capacity need a
public (invariably governmental) response. Failure to realize this, he argues,
is what makes conservatism and libertarianism flawed ideologies.
Is it really
true that libertarians don’t realize that many transactional acts affect the
welfare of people outside the transaction? To put it briefly: No, it is
absolutely not true. Consider the libertarian argument against heavily taxing
rich people. The issue of whether to heavily tax rich people or not, like most
issues, has both ‘private’ and ‘public’ features, and the libertarian argument
against it deals with both. Thus, when the government taxes rich people
heavily, libertarians argue that the rich people are hurt by the coercive
taking of their privately-owned resources that they had earned through previous
acts of production and exchange. This can be considered the ‘private’ argument
against heavily taxing the rich. But the libertarian argument does not end
here. For the rest of society, the ‘public’ if you will, are harmed by their
government heavily taxing rich people. Heavy taxation of the rich results in
less incentives for them to produce well for the consumers, less accumulation
of private investment capital which would have raised the standard of living of
almost everyone, and results in supporting and re-affirming a general political
principle, that of coercive redistributionism, that is not conducive to a free
and prosperous society. With these arguments, the libertarian clearly recognizes
that the consequences of heavily taxing the rich affect more parties than just
the government doing the taxing and the rich people being taxed, they also
affect the rest of that society.
Let us take
another example. Imagine all the share holders of WalMart decide to turn all of
their superstores into private driving ranges for themselves. Now, a
libertarian would argue that they technically have the right to do so, provided
that there are no contractual restrictions on such actions, and provided that
they are willing to pay the exorbitant price of such an action out of their own
pockets and are prepared to lose all of their wealth that they had invested in
WalMart. But would a libertarian argue that this action would not affect anyone
else in society besides the WalMart shareholders and employees, and thus that
this would not be a ‘public’ act (in Dewey’s sense of the term)? Certainly not, it would quite obviously
affect every customer who wished to shop at Wal Mart and all of Wal Mart’s
suppliers. Rather, the libertarian would argue that a ‘public’ response in the
form of government prohibitions would not be necessary to prevent such a thing
from occurring, the ordinary financial self-interest of Wal Mart shareholders would
be enough to preclude such an action. For the libertarian, it’s not that no
actions have a ‘public’ dimension, in Dewey’s sense of the word. It’s just that
it should not be automatically assumed that such actions should be put under government
control or regulation. Free-market forces exert their own control through the
mechanism of individual, financial self-interest.
Now, more
sophisticated ‘public goods’ theorists are bound to object that while
free-market forces and the pursuit of financial self-interest work as
regulators for the provision of a class of goods known as ‘private goods’,
where benefits to others from the good can be translated fairly directly into
monetary gain for the producer, it is inadequate for ‘public goods’, goods
where a significant portion of the benefits to others cannot be translated into
monetary gain for the producer, and hence take the form of ‘positive
externalities’. These ‘externalities’ are showered on beneficiaries without
them paying for the good, and hence may result in a ‘sub-optimal’ provisioning
of the ‘public goods’ in question because their benefits to society are not
substantially captured as monetary gains for the producer, and hence they are
ignored in his profit and loss calculations. Having the government compel people
to contribute to the cost of producing the goods, according to such theorists,
could be a way of correcting this problem.
Even this,
more sophisticated version of the theory that government should involve itself
in the provision of ‘public goods’, has several grave problems with it though.
First is the fact that no good is a pure ‘private good’ or a pure ‘public
good’. No matter what the action or the good, it is always possible that people
outside of the transaction will be affected either positively (positive
externalities) or negatively (negative externalities). If Fred decides to buy
and wear pink overalls, clothing generally being considered a ‘private good’,
others are forced to look at him wear this clothing while walking down the
street. If they like the look, they experience positive externalities from
Fred’s purchase of the good, if they dislike the look, they experience negative
externalities from Fred’s purchase of the good. Now take military protection,
generally considered to be a ‘public good’. Is it not possible that a large
landowner could buy, with his own funds, tanks and tank operators to defend his
land and no one else’s against foreign invaders, thus turning what is usually
considered a ‘public good’ into a ‘private good’? Thus, the line between ‘private good’ and
‘public good’ is not clear at all, thus reducing the categorization’s
usefulness of delineating the activities that the free market should direct
from the activities that the government should direct.
The second
problem with the theory that government must be heavily involved in providing a
class of goods known as ‘public goods’ is that if considered carefully, the
logic of the theory actually boomerangs back on itself and destroys the theory.
In the theory, the government is implicitly assumed to be a ‘good government’,
that is, a government that earnestly tries with its activities to advance the
lives of its citizens, as opposed to a government that just uses its coercive
powers to favour itself and its clique of supporters at the expense of the rest
of the population. The former type of government would be interested in solving
genuine ‘externalities and public goods problems’, while the latter type of
government wouldn’t particularly care about that. But, isn’t the selection and
maintenance of a ‘good government’ a prime example of a public good? In a
democracy, governments are selected and then scrutinized by the general voting
public. But taking the time to really scrutinize and evaluate the activities of
governments, and then voting in elections and being vocal about issues in
between elections accordingly, takes a lot of effort. This effort, while
redounding in some respects to the actor’s direct benefit, mainly takes on the
form of positive externalities, because the benefits of having an honest, ‘good
government’, spread out all across that society. Given this, according to the
public goods and externalities theory, the activity of ‘ensuring that
government is good’ will be ‘sub-optimally provisioned’, thus resulting in a
‘sub-optimal production’ of ‘good government’.
What can be
done to solve this ‘public goods’ problem? The government can’t be called in to
solve it, because the public good is the quality of the government itself! If
there is a more powerful level of government above the government in question,
the same ‘public goods problem’ applies to the quality of that government!
Thus, to call for the government to solve a private-sector ‘public goods
problem’ is akin to calling for a voluntary charity to solve the ‘public goods
problem’ of not enough people donating to voluntary charities, ie. it doesn’t
make much sense.
Let us,
however, for the sake of argument, disregard my first two objections and assume
that public goods can be clearly delineated from private goods and that the
government of the society is somehow always a ‘good government’, genuinely
intent on making the lives of its citizens better and having no ulterior
motives. There remains a third objection against the theory that governments
should solve public goods problems. This is that in trying to solve ‘positive
externalities’/’public goods’ problems, the government has no idea what the
actual magnitude of these positive externalities are, and if it guesses
wrongly, it is highly possible that the government will create negative
externalities greater in magnitude than the positive externalities it is trying
to solve. Government actions always involve taking resources from one person or
use and redirecting them to another person or use. On the taking side, there
will always be direct losers, and the larger societal effects of the government
taking the resources will be negative, regardless of how beneficial a use the
resources are eventually put to by the government. Given that the government
cannot measure the magnitude of the positive externalities of the potential
actions that it is trying to use force to make happen, they may well end up
causing more pain in the form of negative externalities than they create
benefit in the form of ensuring that positive externality-generating actions
are undertaken.
Let us take
an example. Imagine that a government decides that the inhabitants of a certain
small town would really benefit from having a highway built from their small
town to the nearest major city. Let us assume that the government has no
redistributionist aims, and thus decides to tax only the citizens of the small
town alone to build the road, taxing citizens they expect will gain more from
the highway being built more than the citizens they expect will gain less from
the highway being built. Now, how does the government, or anyone else, know
that they have, on net, benefitted the populace of the town? Maybe the citizens
had more beneficial things to spend their money on had it been left to them to
spend freely? Maybe the negative societal effects of taxation on incentives and
capital accumulation outweighed the positive effect of having a highway?
Because the citizens of the town never clearly demonstrated, in the form of
market actions, that they valued having a highway more than other things they
could have spent that money on, no one can ever know for sure.
Thus, when
confronted with ‘public goods’ or ‘positive externalities’ issues, there are
two choices. The first is to essentially play a game of Russian roulette by
choosing the governmental option. We must not only hope for the unlikely event
that the government will be completely well-intentioned and absent ulterior
motives, without proper voter scrutiny, but we must also hope that it will be
very good at guessing when it comes to assessing the relative magnitudes of
positive externalities issues versus the negative externalities it will create
with its interventions.
The second
option is to try to find free-market ways of ‘internalizing the externalities’
so that free-market forces and the power of pursuing self-interest can spur the
production of ‘public goods’ as effectively as it spurs the production of ‘private
goods’. Some previously successful ways that this has been done in the past include:
1. Voluntary collective action (private charities, Turnpike Road Construction
in Early America), 2. Packaging and selling the public good by attaching it to
a marketable private good (common elements, maintenance, and security in
condominium buildings, urban infrastructure of historical St. Louis Private
Places and Chicago’s Central Manufacturing District).
Personally, I would prefer in most
cases to go with the second option, and not play the extremely dangerous game
of letting government coercion dictate production choices, and most
libertarians would agree with me. Does this fact mean that other libertarians
and I are oblivious to the notion of public goods and externalities? Not in the
slightest.
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