The Hierarchy of Public Goods

— Mainstream economic theory just assumes a market and just assumes a state that can correct market failures and provide for public goods. But the world doesn’t work this way, and it’s a problem that some economists think it does.

There are always markets of some sort or other. But they’re fairly primitive and limited except under pretty special conditions. And there’s not always an agency that can provide public goods through a system of public finance. Most places try to set one up, but it often doesn’t work because people don’t like to pay taxes, and the people who are supposed to collect them end up stealing the money, or the people running the state steal the money and buy themselves palaces, or warehouses of rocket propelled grenades, instead of building a sewage system like they said they would.

If G is a public good, and M is a mechanism for providing G, then M is a sort of public good, too, and so are the conditions for the functioning of M. If M requires tax compliance, and non-predation and non-corruption by agents of the state, then those things are what we might call higher order public goods. And we get these things by getting even higher order goods, like a certain socially prevalent level of trust, a not-too-high discount rate on future value, and the internalization of certain kinds of social norms. If we think of THESE things as higher order, and logically prior, kinds of public goods, then we’ll get over thinking of public goods as things that states provide. For in order for states to provide anything other than abuse, these things have to already be in place. We’ll also get over thinking of public goods as things that markets can provide better than states, because these are precisely the sorts of things that have to be in place in order for markets to work in anything other than a very limited and atrophied way. In order for markets to do much by way of providing lighthouses, to take a famous example, the market has to be developed enough to coordinate complex enforceable agreements. Getting to that point is itself a big achievement.

We need to get over stipulating ideal markets and ideal states, and work harder at understanding how even partially functional markets and states get to be partially functional, as opposed to fully non-functional, in the first place. How do higher order public goods like prosperity-conducive belief systems and social norms ever get going? How can you ever get a predation-limiting constitution that people don’t just ignore?

That’s what I want to know. Now, hurry!