Michael,
Scott Vonasek
402

The first part of your story was written by Dr. Jekyll. The second part was written by Mr. Hyde. By this I mean that you started off acknowledging how markets are based on people considering the trade-offs. But then this concept quickly went out the window when you talked about people voting on legislation.

It either is, or isn’t, necessary for people to individually consider and personally make the trade-offs.

Let’s take prohibition for example. It was something that the majority wanted. But did they consider and make the trade-offs? How could they? The trade-offs were decided afterwards by politicians. The politicians decided how much money to spend on prohibition… and which other areas this money should be taken from. But it’s not like the politicians were personally making these decisions with their own money. They made these decisions with other people’s money… but without other people’s brains or information.

Let’s imagine if politicians had been replaced with taxpayers. The majority still would have voted for prohibition. But rather than politicians deciding how much money to spend on it, and where to take that money from, each and every taxpayer would have decided on their own exactly how many of their own tax dollars to spend on prohibition. Each and every taxpayer would have thoroughly understood and appreciated that each tax dollar that they spent on prohibition was a tax dollar that they couldn’t spend on public education, public healthcare, national defense or any other public good. Each and every taxpayer would have weighed the benefits of prohibition against the benefits of the alternative uses of their own tax dollars. Then they would have spent their own tax dollars accordingly.

X = the amount of money that politicians spent on prohibition
Y = the amount of money that taxpayers would have spent on prohibition

What’s the difference between X and Y? Which amount is more optimal? If X is more optimal, then wouldn’t it be beneficial to eliminate markets entirely? Except, history rather clearly demonstrates that eliminating markets doesn’t work so well. Government officials really fail to get the balance right. But this isn’t just true for private goods… it’s true for all goods. Politicians can never have as much brains and information as all the citizens combined. Public goods are most definitely not an exception to this rule.

The private sector struggles with public goods because people can benefit from them even if they don’t contribute to them. So people don’t voluntarily spend enough money on public goods… which results in shortages. But it’s important to recognize that the issue here is not that people fail to value public goods. The issue is that people’s contributions will be less than their valuations. People will take the money that they didn’t spend on public goods and spend it on private goods instead.

Taxation eliminates this issue. If people can directly allocate their own taxes, it’s not like they’d have the option to spend them on private goods. Taxpayers wouldn’t decide between a new car and road repairs. They would decide between road repairs and cancer research. Each and every taxpayer would decide for themselves how many potholes they would be willing to endure for more funding for cancer research.

Turning the public sector into a market would be a pretty huge step. There are plenty of smaller steps that should probably be taken beforehand. Like turning Netflix into a market. Subscribers would have the option to decide how to divide their limited subscription dollars however they wanted among the nearly unlimited content. Right now subscribers don’t have this option because they don’t see the point in using their money to help signal their priorities.

This is why Medium isn’t a market either. The internet was invented before people understood what markets are good for. But I think, hope, that it can help facilitate understanding.