Thursday, February 26, 2009

And Etna Erupts

Paul Krugman has a very useful lesson of Econ 101 on his blog about Bobby Jindal's jeering at volcano monitoring:

Traditionally, the division between conservatives and liberals has been over the role and size of the welfare state: liberals think that the government should play a large role in sanding off the market economy's rough edges, conservatives believe that time and chance happen to us all, and that's that.

But both sides, I thought, agreed that the government should provide public goods — goods that are nonrival (they benefit everyone) and nonexcludable (there's no way to restrict the benefits to people who pay.) The classic examples are things like lighthouses and national defense, but there are many others. For example, knowing when a volcano is likely to erupt can save many lives; but there's no private incentive to spend money on monitoring, since even people who didn't contribute to maintaining the monitoring system can still benefit from the warning. So that's the sort of activity that should be undertaken by government.

So what did Bobby Jindal choose to ridicule in this response to Obama last night? Volcano monitoring, of course.

Volcano monitoring is called a public good (whether impure or pure) because private for-profit firms can't elicit enough voluntary payments for it to provide the service to the degree that people really would want it provided. The problem is not that people don't want the service (if they live near volcanoes) but that everyone can figure out that the service can be obtained without paying for it (think of the old-fashioned lighthouse services). So the logical thing is not to pay for it and get the service anyway, except that everyone might have the same logical response and thus the service would not be provided at all. (Do you see some similarities to the troubles the music business is suffering right now? Internet technology is giving it some aspects of a public good (the difficulty of excluding those who don't pay) and the outcome could be less music in the long run.)

Why does the public sector do any better in the provision of public goods? The answer is an unpleasant one: It has the power to tax people.

Was that too boring for you? I also liked the Eschaton commenter who argued against volcano monitoring and signed the comment: Bobulus Jindalus, R-Pompeii.