Chocolate and Gold Coins

Monday, November 21, 2005

A Free Market in Public Goods

I have been going over my archives trying to find old posts that contained ideas that I could submit to this contest. I figure that it costs very little for me to submit an idea and, who knows, maybe I’ll win. It would kill me to read the winning post and say, “I had an idea better than that. I should have submitted it.”

Of all of the ideas that I have written about on my blog, the single biggest idea that I had was my Leveraging Charity post. I really thought that this idea would be the one that “catch fire” in the blogosphere but it didn’t. In fact, I will say that if you want to write a post that everyone reads and changes people’s lives in a small way, you would be better off coming up with a new recipe for chutney than to figure out a way to fundamentally change the way government operates. Nevertheless, I will attempt to rephrase this idea in a way that maybe some people might appreciate.

I think that most reasonable people understand that there is a need for public goods. Everyone understands the need for national defense. Almost everyone sees the benefit of having more roads. Most see the need to make sure that poor people have access to quality education, (education is not a public good but a well-educated society is a public good in a democracy). Of course we can have more of these things if we want: just let the government tax and spend. But government provision of public goods has many of the same problems of government provision of private goods: the government is an inefficient producer and it offers no choices. Another problem is tyranny of the majority: we only get the public goods that the majority approves of.

An alternative to government provision of public goods is charitable provision of public goods. In theory, competing charities should be just like competing corporations: they will be efficient producers and provide us will lots of choices. In practice, charity is a small player in the public goods market because governments have a supreme advantage in producing public goods: they can compel people to pay. Without compulsory payment, people will free-ride: they will enjoy the public good but let others pay for it. I will take it as given that people need to be compelled to pay for public goods and that these people are really better off being compelled to pay for these goods on average than they would be if they were free to free-ride.

Just because only government has the right and the duty to compel us to pay for public goods, does it follow that only government has the right to decide on what goods will be produced? Couldn’t we imagine a system in which the government compelled us to fund public goods but allowed us a lot of freedom to decide which public goods we wanted to fund?

Here is my idea: some portion of your tax bill is to fund compulsory public goods that are not necessary but are nice to have. We allow people who put up some of their own charitable money the right to spend a portion of their compulsory public goods money in any way that they think is reasonable. For example: suppose your taxes include $3000 in money for goods that are nice but not necessary. We will allow people a choice: either give $3000 to the government or pay $4000 to private charity (or any convex combination). The extra $1000 is to pay for the right to spend this “public money” and to make sure you don’t waste the public money. But I would consider it your money. I would say that you have more moral right to decide how that money is spent than any elected official by virtue of the fact that you earned it. We are simply compelling you to spend on public goods but giving you full freedom to decide what public goods to buy.

There are two obvious objections to this plan: one is practical and one is moral.

The practical objection is that it wouldn’t work: people will give to “bad charities” and the money will be wasted. Or people will figure some way to scam the system and we will lose out on public goods. The scam objection would be reasonable unless we put a few restrictions that ensure the money doesn’t go back to the donor. First the money must be donated anonymously. Second the donation must be a small piece of the total pie for that charity: maybe one-tenth of one percent of the total revenues. These restrictions will make sure you cannot scam the system. The rule that you must match some of you own money to buy the right to spend the “public money” is there to make sure that people are motivated to shop around and not waste precious money on scams.

However, I can guarantee that people will donate to charities that others do not approve of. Many people will donate to religious charities including some unpopular religions (druids, witches, and some bigger ones). Many others will find that very objectionable. But I firmly believe that freedom means allowing people to make their own choices and that includes choosing which public goods to fund. Just because we must compel people to fund public goods it does not follow that we must compel them to fund the public goods that the majority approves.

The second objection is closely related to the idea in the paragraph above: that only the public collectively has the moral right to spend public money. I understand this argument but reject it. It seems to me that this is like saying that since only the government can create a property right then only the government can decide what people can do with property. It is a simple non sequitur. I believe that government has the moral duty to compel us to fund a portion of our income for public goods but it does not have the authority to decide which public goods. If you want to fund stem-cell research, as long as it isn’t illegal, it should be your right to choose.

Anyway, I hope this idea provokes at least a little thought and maybe you could share them with me. Maybe we could make this a workable plan.

By the way, I know of another major objection to this plan, but I do not have the easy solution to it. What is that objection?

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