Must-read of the week:
Michael Lind over at Salon in Will conservatism bankrupt America?
Excellent on merit goods and how to pay for them. Excerpts:
... American government at all levels provides two kinds of goods — public goods, which are essential to the private sector but would never be provided efficiently if at all by the private sector, and merit goods, defined as goods that the private sector does produce, but in inadequate quantities or at unaffordable prices ...
The major merit goods that Americans have decided their government should provide are income maintenance, healthcare, education and housing... These merit goods can be provided either directly by government or indirectly, by means of government subsidies to the private sector, including tax credits, vouchers and subsidized loans.
At the purely public end of the spectrum are merit goods that are directly provided by government agencies, like public K-12 schools and public colleges and public clinics. In the middle of the spectrum are transfer payments, like income or unemployment insurance, which are collected and distributed by the government but spent mostly on private goods and services. At the other end of the spectrum are specific merit goods like private higher education, housing and most healthcare.
If ever there were a real-world test of competing public policy models, it is found in the realm of merit goods in America. In the last half century, we have not seen out-of-control cost inflation in merit goods that are provided directly by government, like public K-12 schools and direct income maintenance payments to citizens like Social Security and unemployment insurance. Instead, the runaway costs have all come from merit goods like higher ed, health care and housing which follow the conservative model of subsidizing purchases of privately-provided goods.
And has a political recommendation:
American progressives and centrists are missing a great opportunity to champion real and lasting budgetary savings by proposing the replacement of the unaffordable conservative voucher approach to all merit goods by two cheaper approaches, where competitive markets for merit goods cannot exist: public provision or utility-style price regulation.
Lind goes on to detail various merit good in detail (e.g. healthcare) but the basic economic point is captured in the excerpts above. Markets do not always work, and some markets do much worse when they are fueled by government money instead of having the goods delivered by the government.
Lind has written many thoughtful essays at Salon over the years. His history is that of an apostate (liberal?) Republican that has completely given up on where that party is headed. Today's essay is a good example of that new stance he's taken.
I believe Elinor Ostrom's work has a lot to add to this conversation as well. She died this week and her work deserves to be much better known - and used.
Lind's argument might have some merit, but it suffers from a terrible flaw.
Housing has two fundamental components: land and improvements.
Land isn't "provided" by the private sector at all. No one "provides" it; it's already there.
And because it's a resource in fixed supply, and a very important one at that, its price is bound to get bid up as the economy grows.