PUBLIC GOODS SPENDING DRIVEN BY POLITICAL, NOT ECONOMIC FACTORS
December 3, 2004
The provision of supposed "public goods," such as health care and education, is essentially driven by political, not economic costs and benefits, say economists John Goodman and Phil Porter, thus leading to inefficient outcomes. This conclusion suggests that:
- The allocation of medical research dollars reflects the political power of disease lobbies rather than an effort to maximize years of life saved.
- The distribution of antipoverty dollars reflect the political muscle of well-organized groups such as the housing industry rather than the potential to reduce poverty.
More broadly, Goodman and Porter's study entitled, "Political Equilibrium and the Provision of Public Goods," models the interaction of political support among consumers and taxpayers and their economic self-interest to determine how public goods may be over- or under-produced and how government responds to changes in demand or costs.
The authors conclude that:
- Government is incapable of providing efficient production of public goods and will tend to respond to changes in market conditions in nonoptimal ways.
- There are large welfare losses in the public production of goods -- many times greater than typically found in the private sector.
Therefore, it may be preferable for government to choose a level of funding, but allow taxpayers through the use of tax credits, to allocate dollars to specific programs. Additionally, implementing user fees would be useful in improving efficiency and reducing political distortions, explain Goodman and Porter.
Source: John C. Goodman and Philip K. Porter, "Political Equilibrium and the Provision of Public Goods," Public Choice, Vol. 120, Issue 3_4, 2004.
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