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Thursday, December 13, 2007

Public Goods and Public Bads

"Twentieth-century government was all about public goods. This century will be all about public bads." Here's part of the longer article:

Badlands, by Thomas Schaller, Democracy Journal: I live in Northwest Washington, D.C., but one need not reside in the nation’s capital to sympathize with the experience I have endured several times at the intersection of Florida Avenue, 18th Street, and U Street. The six-way intersection is convoluted enough, but it is made even more hectic by several take-out restaurants, a mini-mart, and a check-cashing concern on its southeast corner. Invariably, some driver–a person who, based on my non-scientific sample, is almost always a man–adds to the mess by temporarily turning the intersection into his private parking lot.

He double-parks in front of one of the restaurants and puts on his flashers. Smoking a cigarette, he disappears inside while talking on his cell phone so loudly he disturbs the sit-down customers. Traffic outside is bottling up ... when another driver inadvertently brushes the double-parked car’s bumper, setting off its alarm and waking a midnight-shift worker in her nearby apartment. Eventually, the man exits with his Styrofoam takeout box, flicks his cigarette butt to the curb, and drives away.

Grabbing lunch is hardly a capital crime, and even double-parking is barely a traffic misdemeanor. The man’s behavior is inconsiderate at best, rude at worst. But clearly he is a public nuisance. Through actions both direct and indirect, he has created a series of small but not insignificant "public bads"–or "negative externalities," as economists call them... Specifically, our "public baddie" has created the following externalities: traffic congestion that ripples in all directions for several blocks; sidewalk litter from his cigarette butt; second-hand smoke inhaled by restaurant customers; noise pollution from his phone chatter inside the restaurant and car alarm outside it; ozone depletion from the CFC-laden Styrofoam box destined for the local landfill; and, yes, even space junk, in the form of the satellite carrying his cellular transmission which, when obsolete, will remain in orbit, colliding with other trash presently circling the planet.

What happens next? Most likely, nothing. Drivers may lean on their horns. Diners may cast scornful looks. The poor woman in bed will probably pull the pillow over her head in disgust. Inaction is perfectly rational because the costs of doing something–anything–exceed any potential benefits. ...

But that is changing. ...[V]oters are using the electoral process to express their demand for solutions to public bads. Some are rather obvious, minor, or widely agreed upon, such as anti-littering laws; other responses are more controversial, like highway surveillance cameras to catch speeders. Somewhere in between is the growing number of restrictions or punitive taxes (the so-called "sin taxes") on a variety of individual behaviors deemed harmful to the general public or some significant portion of it. ... Call it the coming era of the public-bads government, analogous to the public-goods government that dominated policymaking in the twentieth century. ...

Public-goods governance certainly had its moment. ... Today, however, a new frontier of public policy, characterized by the mitigation of public bads, has emerged. Governments have shifted their attention away from building highways ... to protecting us from harming one another... More than ever, governments supervise and referee a variety of interpersonal behaviors and public transactions that were once governed solely by the self-restraint of personal courtesy and social mores. ... In fact, the increased public demand for reducing negative externalities ... is altering the role of government and the public’s understanding of that role. ...

Arguments about regulating public bads stand to dominate our politics in the twenty-first century much as arguments over public goods did in the twentieth. It is therefore incumbent on policy thinkers to begin to consider what principles guide public-bads legislation. They should address (at least) four questions: How do we determine the point at which the government must step in to correct for a public bad? What is the proper level of government to address that bad? What types of government solutions are best suited for reducing public bads? And how do we weigh civil liberties against the benefits of reducing public bads? ...

Why Government Action Is Needed ...Coase’s Theorem essentially posits that, in the absence of transaction costs, there is no need for government assignment of property rights because individual parties can voluntarily negotiate or contract these rights. Though often cited by economic and political conservatives to validate calls for limited government, the rub in Coase’s Theorem are those pesky transaction costs, which are often unavoidable in public life–and particularly when a contracted relationship simply does not or cannot exist. A farmer can contract with the owner of the neighboring field for grazing rights, but the suburban homeowner cannot send a bill to the neighbor whose unmowed, unkempt lawn is driving local property values down. At the most rudimentary level, the public court system provides a latent governmental solution to the transaction costs which arise naturally from disputes over property rights...

That said, what Coase’s Theorem cannot account for are the informal contracts between and among persons going about their daily lives ... in densely crowded, modern societies. A person who talks during the key part of a film at a movie theater or cuts off other drivers with an aggressive maneuver on the highway has no contractual relationship with those he or she has harmed; indeed, it’s impossible to imagine a situation in which a preexisting, enforceable private contract between these parties could exist. And since the type of "rights" at issue in such situations are often not literal, physical properties but rather loosely defined commodities that are difficult to contract legally, even if there were no transactional costs, the government would still need to ... resolve ... disputes...

Asking the question in a different way, how much and what parts of the public sphere do we need to regulate? At its most abstract level, what individuals in modern societies need–if not crave–is something that our premodern ancestors often enjoyed in surplus: space and silence. ...

Of course, space and silence are commodities for which robust markets exist. The rich can buy larger and more remote homes, ... and travel in ways that reduce the inconvenient hurly-burly of interacting with their fellow citizens. The separate lines for boarding planes, the private skyboxes for watching sporting events and concerts, the remote vacation spots... One of the great luxuries of wealth today is ... the ability to eliminate or at least severely reduce the harm and nuisance caused by a world full of public baddies, which is often the same as saying a world full of fellow citizens less wealthy or connected than oneself.

But, at least in democracies, those who cannot purchase spatial or aural relief may seek solutions through the political process. Consequently, we can expect that responsive and responsible governments will continue to dedicate more time and greater resources toward regulating public bads. As Munger has argued, however, government involvement is not without its tradeoffs: "The chief problem faced by people who would design political institutions is ... to make government powerful enough to be able to control ‘private-coercive’ actions such as pollution, theft, or violence, without endowing it with so much power, or placing so many decisions under government control, that individual freedoms are lost to ‘collective-coercive’ rules and regulations." In other words, regulating public bads is not without trade-offs. In the same way that twentieth-century public-goods policymaking was predicated on new debates over the role of the states, so too today must we reconsider the nature of government before we can design effective and fair public-bads legislation. ...

    Posted by on Thursday, December 13, 2007 at 03:06 AM in Economics, Market Failure, Regulation | Permalink  TrackBack (1)  Comments (25)

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