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I don't see how it follows that "public ownership of a resource doesn't work very well". From what I understanding, you're talking about inefficient over-consum

by spangry 10y ago

I don't see how it follows that "public ownership of a resource doesn't work very well". From what I understanding, you're talking about inefficient over-consumption of some resource, and suggesting price-rationing as the solution. In most cases I think you'd be correct. In the case of public ownership then, the problem isn't public ownership per se, but rather when the public (i.e. government) does not set an appropriate price for using that resource. Although economic efficiency is all well and good, it's worth remembering that there are cases where another thing should be considered: equity. While it might be 'allocatively efficient' to charge high prices for water when water is scarce, the result could very well be that rich people can still fill their swimming pools while poor people die of thirst.

stretchwithme 10y ago
In a market economy, people are a lot less likely to be THAT poor or to be surrounded by similarly desperately poor people unable to help them quench their thirst. In the desert of San Jose, California where I live, water costs a half cent per gallon. Even if the market price is 10 times that, a gallon of drinking water would only cost a nickel. In the US there is $300 billion a year in charitable giving. I'm not worried that no one will give free drinking water people who can't afford a nickel a day for water. In fact, there are free water fountains already. So I don't think that is a serious consideration. The problem we would help solve by adopting more market oriented prices is vastly more important than edge cases that are already handled by other efforts. As to your first point, public ownership generally does not set market prices for resources. Governments often don't even have the means to determine what the market price is. And then they don't change them in response to conditions. Or they just give them away for free, making it impossible for the private sector to compete. Free things result in greater demand and shortages. And pressure to create more of the resource to give away, more than the population would use if there were a market price. Our roads are a good example. At rush hour they are clogged with traffic. Drivers pay nothing more for traveling at 5 pm than they do at 5 am. More roads are built so more can be given away. And the additional capacity is only needed part of the time, making it even more expensive. By contrast, a road with demand-based prices would be most profitable if the price was high enough to keep too many drivers from getting on the road. Too many drivers and traffic slows to a crawl. And that happens every day. And that only happens because of the public ownership. But you are right. One can say that if the decision makers understood this issue, public ownership would not be a problem. Roads would have market prices. And they do in Singapore. It's not a democracy. The decision makers do understand the issue and you pay more to drive at rush hour there.
- spangry 10y ago
  It sounds like we more or less agree then, in principle, on the government ownership side of things. However I do have a few minor quibbles (see below). It's also worth noting there are instances where the government pricing is inefficient because they are not giving certain things away for free. A concrete example (from Australia), although you might again accuse me of 'picking edge-cases': the Australian government charges between $20 to $40 for downloading information from the national corporate registry (e.g. per-corporation information about shareholders, directors, company address etc.). This 'product' is very obviously provided by an automated script pulling information from the corporate registry database and shoving it in to a PDF template. In other words, the marginal cost of production is some number approaching zero and there's no argument for price-rationing given consumption is almost perfectly non-rivalrous. In effect, the government is levying a very narrowly based sales tax at a rate approaching infinity per cent. Not particularly efficient. That aside, and more on your example (roads): I agree that road-usage is mis-priced by the government and it would be economically efficient to levy a 'variable congestion charge' (like Singapore, as you note). This would also naturally put a brake (heh) on government over-provision of road infrastructure. However, and this is what led the government into trouble in the previous example, when setting the price for using the road, the government's objective should not be profit maximisation. Rather, the government's objective should be maximisation of total social welfare (total social benefit - total social cost). In your specific example (roads) it's a near-certainty that the profit maximising price (i.e. private market price) and social welfare maximising price are very different, as roads tend to be natural monopolies. So I'd suggest the phrase 'market price' in this context is probably not the best one to use: if public roads were privatised, the 'market-price' would be the 'monopolist profit-maximising price'. This produces a socially sub-optimal outcome as well as an economically inefficient one (i.e. monopoly pricing results in deadweight loss, except in the extremely unlikely edge-case of perfect price discrimination). Lastly, it's pretty disingenuous for you to say I'm just picking out 'edge-cases'. Yes, you're correct that water is abundant at the moment (and therefore has a low market price). And yes, sometimes acts of charity by the rich (which are commendable) can alleviate minor equity concerns or correct minor market failures. But if you'd like me to choose something you might consider a 'non-edge case', I'm willing to give it the old college try: It is estimated (conservatively) that 13% of the world's population suffer from undernourishment, and 9.6 per cent live in 'absolute poverty' (again using a conservative estimate i.e. the World Banks'). Reductions in global mal-nutrition and absolute poverty have been achieved, in part, due to massive government expenditures on overseas development aid (ODA), estimated at $160 billion in 2013 by the OECD. Private charities contributed an additional 15-20 per cent on top of this figure. Even in the United States (a country noted for its culture of private philanthropy), it is estimated that roughly 1 in 4 children live in a state of 'food-insecurity'. It should be pretty obvious that (relatively minor) 'private charity' expenditures are hilariously inadequate for solving huge (and ongoing) equity problems like 'global hunger'. So you'll have to pardon me when I say: your assertion that private charity can deal with 'edge-case' inequities and market failures is utterly insane.

by spangry 10y ago

stretchwithme 10y ago

In a market economy, people are a lot less likely to be THAT poor or to be surrounded by similarly desperately poor people unable to help them quench their thirst. In the desert of San Jose, California where I live, water costs a half cent per gallon. Even if the market price is 10 times that, a gallon of drinking water would only cost a nickel. In the US there is $300 billion a year in charitable giving. I'm not worried that no one will give free drinking water people who can't afford a nickel a day for water. In fact, there are free water fountains already. So I don't think that is a serious consideration. The problem we would help solve by adopting more market oriented prices is vastly more important than edge cases that are already handled by other efforts. As to your first point, public ownership generally does not set market prices for resources. Governments often don't even have the means to determine what the market price is. And then they don't change them in response to conditions. Or they just give them away for free, making it impossible for the private sector to compete. Free things result in greater demand and shortages. And pressure to create more of the resource to give away, more than the population would use if there were a market price. Our roads are a good example. At rush hour they are clogged with traffic. Drivers pay nothing more for traveling at 5 pm than they do at 5 am. More roads are built so more can be given away. And the additional capacity is only needed part of the time, making it even more expensive. By contrast, a road with demand-based prices would be most profitable if the price was high enough to keep too many drivers from getting on the road. Too many drivers and traffic slows to a crawl. And that happens every day. And that only happens because of the public ownership. But you are right. One can say that if the decision makers understood this issue, public ownership would not be a problem. Roads would have market prices. And they do in Singapore. It's not a democracy. The decision makers do understand the issue and you pay more to drive at rush hour there.

spangry 10y ago
It sounds like we more or less agree then, in principle, on the government ownership side of things. However I do have a few minor quibbles (see below). It's also worth noting there are instances where the government pricing is inefficient because they are not giving certain things away for free. A concrete example (from Australia), although you might again accuse me of 'picking edge-cases': the Australian government charges between $20 to $40 for downloading information from the national corporate registry (e.g. per-corporation information about shareholders, directors, company address etc.). This 'product' is very obviously provided by an automated script pulling information from the corporate registry database and shoving it in to a PDF template. In other words, the marginal cost of production is some number approaching zero and there's no argument for price-rationing given consumption is almost perfectly non-rivalrous. In effect, the government is levying a very narrowly based sales tax at a rate approaching infinity per cent. Not particularly efficient. That aside, and more on your example (roads): I agree that road-usage is mis-priced by the government and it would be economically efficient to levy a 'variable congestion charge' (like Singapore, as you note). This would also naturally put a brake (heh) on government over-provision of road infrastructure. However, and this is what led the government into trouble in the previous example, when setting the price for using the road, the government's objective should not be profit maximisation. Rather, the government's objective should be maximisation of total social welfare (total social benefit - total social cost). In your specific example (roads) it's a near-certainty that the profit maximising price (i.e. private market price) and social welfare maximising price are very different, as roads tend to be natural monopolies. So I'd suggest the phrase 'market price' in this context is probably not the best one to use: if public roads were privatised, the 'market-price' would be the 'monopolist profit-maximising price'. This produces a socially sub-optimal outcome as well as an economically inefficient one (i.e. monopoly pricing results in deadweight loss, except in the extremely unlikely edge-case of perfect price discrimination). Lastly, it's pretty disingenuous for you to say I'm just picking out 'edge-cases'. Yes, you're correct that water is abundant at the moment (and therefore has a low market price). And yes, sometimes acts of charity by the rich (which are commendable) can alleviate minor equity concerns or correct minor market failures. But if you'd like me to choose something you might consider a 'non-edge case', I'm willing to give it the old college try: It is estimated (conservatively) that 13% of the world's population suffer from undernourishment, and 9.6 per cent live in 'absolute poverty' (again using a conservative estimate i.e. the World Banks'). Reductions in global mal-nutrition and absolute poverty have been achieved, in part, due to massive government expenditures on overseas development aid (ODA), estimated at $160 billion in 2013 by the OECD. Private charities contributed an additional 15-20 per cent on top of this figure. Even in the United States (a country noted for its culture of private philanthropy), it is estimated that roughly 1 in 4 children live in a state of 'food-insecurity'. It should be pretty obvious that (relatively minor) 'private charity' expenditures are hilariously inadequate for solving huge (and ongoing) equity problems like 'global hunger'. So you'll have to pardon me when I say: your assertion that private charity can deal with 'edge-case' inequities and market failures is utterly insane.