Important Public Goods
Confused about public goods? Here are three things you didn’t know..
Public goods are a staple part of any country’s economy, and without
them, life as we know it would fall apart! Well, at least in the case
of national defence. Remember, a public good is neither excludable
nor rival, which is true in the case of national defence. The whole
country is defended from foreign threat, meaning each and every
person reaps this bene?t, which does not reduce the bene?t to anyone
else. National defence is a basic need the government has to provide,
and it is not cheap! It is the fourth largest category of government
expenditure. It varies from country to country (in 2008 €39 billion in
the UK and a whopping €502 billion in the US).
Basic research is a public good, with each new theory becoming part
of “the general pool of knowledge”. Ohhhh! The problem of the classic
“free-rider” rears its ugly head in this case though, with pro?t seeking
?rms using the knowledge of others and not bothering to create their
own! Knowledge creation is divided into different categories:
Speci?c technological knowledge- can be patented. The inventor
keeps most of the bene?t of his creation (excludable).
General knowledge- freely available to all (not excludable).
Governments encourage this public good, developing agencies such
as the UK research council to subsidize academic research in areas
such as medicine, and others to fund exploration programmes (ESA
and NASA). It is hard for governments to analyse the cost-bene?t, as
its difficult to decipher what lines of research will produce the largest
bene?t.
Lastly, ?ghting poverty. In this case, ?nancially successful families are
taxed to fund anti-poverty programme s devised by the government.
Why? Nobody wants to live in a poverty ridden society, yet no one
person can eliminate poverty. It is too big a problem. Private charities
also cannot solve it as the aforementioned “free-rider” donates
nothing. So the wealthy are taxed and everyone’s a winner. The poor
are enjoying a higher standard of living and the rich are enjoying a
society with less poverty.