Monthly Archives: July 2011

A small theory of public goods

A public good isn’t one that’s made by the state’s enterprises. There are excellent, and not so good, reasons for the state to hold a large fraction of the productive capital in the economy. The state may also turn out to be the best provider for some public goods, but that’s a consequence, not the source, of their definition.

A public good is also not the same as a good whose provision is a moral necessity. Sometimes the two are aligned, but they’re not the same. Providing food is a moral necessity, but usually it’s handled as a private good. Public transport isn’t a pressing moral necessity, but I argue it is best handled as a public good.

At a certain point on its demand curve, a good is marginally public if the net benefit to society increases when the price, or other barrier to consumption, decreases. It is marginally private if the converse happens. Colloquially we can say a good is public if it’s marginally public for all realistic price points, and we can call a good private in the converse case.

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A small theory of trade imbalances

In any closed economy, be it people in a village or countries on the planet, there will always be trade imbalances. For any number of reasons, some people will be more productive than others. Let’s say in one place it rains a lot and that makes people boring and hard-working. In another place it’s sunny and the inhabitants are lazy. The boring people manage to make twice as much stuff each month than the lazy ones. What happens when they try to trade? There are two main options:

  1. They trade at fair prices and even balance (no borrowing). That’s stable and arguably fair, but overall trade is limited by how much the lazy people can produce. Even though the boring people could produce more to sell, the lazy ones can’t produce enough to afford it.
  2. They trade at skewed prices. Everyone produces as much as they can. The boring people essentially barter their suff with the lazy people, so there’s a net transfer of value from boring-land to lazy-land while the money balance stays even.

These are the two overall options. For the first option, which we’ll call “fiscally responsible” there are two variants:

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