ETS business test and Adam Smith Thursday, Jan 28 2010 

Today I took the ETS business field test. ETS exams are “assessments designed to measure the critical knowledge and understanding obtained by students in a major field of study,” according to their Web site. It’s a standardized test taken across different universities to measure, among other things, the success of the school’s core curriculum within a specified field. Everyone in the College of Business is essentially required to take the exam in their last semester. It really has no effect on the student, unless they do exceptionally well, in which case it may look good on a résumé because the test is taken among AACSB-accredited universities. Whether or not other colleges within the university also take an ETS exam for their respective field, I do not know. The topics covered in the business field test included, for the most part, accounting, financing, international business, business law, ethics, marketing, economics, statistics, and management. Some areas were emphasized more than others; for example, there were maybe three questions on ethics and perhaps 35 or so questions on accounting and financing, within the 120-question exam. The first question on my exam was about economics, which I thought was a good thing. The actual question itself, however, I did not think was so great.

I don’t remember the wording of the question exactly or or all the supplied answers (and they say I’m not allowed to reproduce any of the material from the exam), but the question was about Adam Smith and his seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations. The question, if I remember correctly, was asking what Adam Smith advocated in The Wealth of Nations as something to increase the productivity of labor. There were four choices, and it was obvious enough that “division of labor” was the “most appropriate” answer. Everyone knows Adam Smith’s famous exposition of the division of labor in a pin factory. It’s how he begins his magnum opus. “The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour,” writes Smith in this popular Edwin Cannan version of The Wealth of Nations (5th ed.). This is the Adam Smith everyone praises with all sorts of accolades.

Not very many people know the real Adam Smith, the one who wrote a few hundred pages later that the division of labor will cause people to have “no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur.” The result, the real Adam Smith says, is that the division of labor will causes people to become “as stupid and ignorant as it is possible for a human creature to become.” This “torpor of the mind,” he says, makes “him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life.” This brutal effect “renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues.” He concludes that these are the natural consequences of the division of labor, that is, “unless government takes some pains to prevent it.”

Obviously enough, this Adam Smith does not get very much attention. Part of this, I suppose, is because not very many people read this Adam Smith. They read how he opens The Wealth of Nations, but don’t get much further. Another reason might be because it doesn’t suit the interests of those who wish to wield Adam Smith’s name in defense of their economic ideology. Writes Gavin Kennedy, one of the foremost scholars on Smith, “[Adam Smith’s legacy] has been stolen by modern economists to service their ends of legitimising their equilibrium mathematical models.” It might not be convenient for them to talk about the real Adam Smith who railed against greed, who never believed in an “invisible hand,” or who lambasted the “merchants and manufacturers” whose interests had “been most peculiarly attended to” by extorting “from the legislature for the support of their own absurd and oppressive monopolies” (in other words, corporations and their influence on politics, e.g., through unlimited “donations”).

It is true Adam Smith exposited that the division of labor increases productivity, but also that it leads to people becoming “as stupid and ignorant as it is possible for a human creature to become.” This is why I found the question in the ETS exam to be a little naïve. Was he advocating or was describing? I think he did more of the latter than the former.

A comment on the recent Supreme Court decision Saturday, Jan 23 2010 

Recently, the Supreme Court ruled in Citizens United v. Federal Election Commission that corporations (and labor unions) can spend unlimited amounts of their money on elections. Essentially, the Supreme Court ruled that corporations can run campaigns. Many have lauded the decision as a great defense of First Amendment rights.

Is it? “Freedom is awaking from its coma today,” declares conservative Rush Limbaugh. Dr. Spagnoli, writing on his blog, states, “there’s no reason to deny corporations [free speech].” This is because “free speech [is a human right],” he says. I agree with Dr. Spagnoli, free speech is a human right. But are corporations humans?

As it happens, corporations are not people. They are social constructs, entities created to carry out specific functions. However, as I discussed in a earlier blog post, Are corporations individuals?, corporations slowly became considered “persons” through a series of judicial rulings. There is no law that says corporations are humans. It’s not anywhere in the Constitution. The Fourteenth Amendment was passed after the Civil War to give rights to people, specifically the newly freed slaves. It declared, “No State shall … deprive any person of life, liberty, or property, without due process of law.” It affirmed the rights of people. It was there to protect blacks from the evils they had endured under the brutal regime of slavery that had oppressed them for centuries.

Well, corporate lawyers were very savvy, and they began to say, “look, corporations are persons.” Corporations deserve the protection that was meant for freed slaves. In fact, when you look at the history of it, it’s very perverse. According to work done by Doug Hammerstrom, of the 150 cases involving the Fourteenth Amendment heard by the Supreme Court up to Plessy v. Ferguson, only 15 involved blacks. The other 135 were brought by corporations. This is the exact opposite of what we would expect to happen. However, through a series of activist decisions by judges, which has no basis in law, corporations gained personhood. Richard Grossman proclaims, “600,000 people were killed to get rights for people, and then with strokes of the pen over the next 30 years, judges applied those rights to capital and property, while stripping them from people.”

So now they can say corporations deserve the rights of flesh-and-blood persons, like the right to free speech; the ability to sue others; the right to “life, liberty, or property”; the right to own other businesses; the right to run campaigns; and so on. But there’s nothing inherent to a corporation that says its a person and deserves the rights of flesh-and-blood people. That’s only come about through very perverse judicial activism (e.g. Santa Clara County v. Southern Pacific Railroad). Moreover, there’s nothing in economic theory that says corporations ought to be treated as persons. That corporations should run campaigns has got nothing to do with capitalism. There’s nothing about efficiency that says corporations should be allowed to do this. In a free and competitive market, it wouldn’t happen.

Anyone who argues that corporations should be treated as persons and have the same rights would also have to accept that corporations should also then be allowed to run for office, hold office, to vote in elections, and so on. But no one agrees with that and for obvious reasons. Moreover, Dr. Spagnoli does not say that only corporations should have the rights of persons. He also says, “corporations, trade unions etc.” should not be denied the right to free speech. Well, what does “etc.” constitute? If a corporation is a person, why not a sports team? Can a townhome association be considered a person under the Fourteenth Amendment? Why not?

What happened before corporations were granted the rights of persons? They were chartered by the state to carry out some function that was meant to serve the public good. They had a specific charter, their shareholders were accountable, they had limited rights, they were regulated, and so on. That they should be running campaigns was completely unfathomable, particularly to the Founding Fathers, who were vary wary of corporate power. Within this framework, corporations had moral obligations to the communities they served. With judges granting corporations personhood, however, the moral obligations we ascribe to flesh-and-blood persons was not ascribed to corporations. The moral obligations and social responsibility that corporations have, according to people like Milton Friedman and Ayn Rand, is to serve their own interests. The only obligation corporations are to have is to maximize profits. These are not the same type of moral obligations we think flesh-and-blood people have. Most decent people, ignoring extreme ethical egoists, believe we ought to consider what happens to other people, that we have an obligation not to harm others, that we should not rape the environment, that we should not ignore grave injustices, that we should treat flesh-and-blood people as ends rather than means, and so on. Even those who support corporate personhood do not ascribe these moral obligations to corporations. These are very special types of “persons” indeed.

Should people have the right to free speech in a democracy? Yes. Are corporations people? No.

Haiti Thursday, Jan 14 2010 

Please see this post from The China Rose blog for information about the recent earthquake in Haiti, as well as relevant context to the tragedy and Haiti’s history of poverty and instability. As Haitian streets run with blood and its air fouled by the stench of piled-up corpses, let this tragedy remind us of the human suffering that exists in the world and serve as an opportunity to learn something about the history and lived realities of Haitians, which has got little to do with “bad luck.” For those of us with money, a donation cannot help the hundreds of thousands now feared dead, but it could make a difference for the poor masses of Haiti, who lived in extreme poverty and on less than a dollar a day even before the earthquake struck.

While the tragedy in Haiti is almost universally recognized as such, the response from right-wing extremists (or is it mainstream?) has been rather shocking and saddening. Rush Limbaugh, for example, claims President Obama’s response to the disaster will be used to “burnish” his “credibility in the light-skinned and dark-skinned black community in this country. It’s made to order for him. That’s why he could not wait to get out there” to offer support for the those devastated by the disaster. And while the right will continue to decry government spending as “inefficient” and “evil,” the Haitians rummaging through the debris of what was once their homes, their neighborhoods, their schools, or their places of worship, I’m sure, think quite differently of it. Meanwhile, as Limbaugh is busy throwing political jabs at Obama’s offer to provide relief to those enduring the pangs of sudden and utter disaster, Pat Robertson, the voice of conservative Christianity, claims that the earthquake (and the rest of Haiti’s ills) was a consequence of “a pact to the devil” Haitians made over 215 years ago to liberate themselves from France’s colonial rule.

Robertson, who also claims the September 11 attacks were God’s punishment on Americans for being too secular, claimed on the Christian Broadcasting Network‘s The 700 Club, “something happened a long time ago in Haiti, and people might not want to talk about it. They were under the heel of the French. You know, Napoleon III and whatever. And they got together and swore a pact to the devil. They said, ‘We will serve you if you will get us free from the French.’ True story. And so, the devil said, ‘OK, it’s a deal.’ And they kicked the French out. You know, the Haitians revolted and got themselves free. But ever since, they have been cursed by one thing after the other. Desperately poor.”

Mr. Robertson would do good to first read some history. First, the Haitian Revolution of 1791 was well before Napoleon III’s time. Instead, the Haitian slaves spent most of their time fighting the powerful armies of Napoleon Bonaparte (i.e. Napoleon I). Napoleon III was not yet born by the time Haiti gained independence in 1804. Robertson’s ignorance of basic historic facts reflects the level of thinking required to make such bizarre and perverse statements. But, “You know, … whatever.” As for this “pact to the devil,” Robertson again faces a contradictory reality. According to Jean Gelin, a Haitian pastor who commented in 2005 on this supposed pact, “One would agree that such a strong affirmation should be based on solid historical and scriptural ground.” However, Gelin continues, “it is nothing more than a fantasist opinion that ultimately dissipates upon close examination.”

I would like to congratulate Mr. Robertson, however, for making at least one true statement. It’s true “something happened a long time ago in Haiti, and people might not want to talk about it.” What happened is what’s been described as “the greatest of all the slave revolts,” which “forever altered the fate of black people in the Americas.” This “pact to the devil” that liberated Haiti from its racist overlords was really what normal people call Enlightenment thinking. That the Haitian Revolution closely followed the American and French revolutions is no accident of history. The great leaders of the Haitian Revolution, like Toussaint L’ouverture and Jean-Jacques Dessalines, took seriously the idea “that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” They believed, as their contemporaries in this Age of Reason did, that power lies in the people, not kings and nobility. They challenged the religious orthodoxy of the Divine Right of Kings. These were the true roots of liberation theology—an understanding of Christianity that stresses the scriptural teachings of freedom, social justice, human rights, and supporting community—a striking contrast to Western and conservative understandings of Christianity, to be sure. That Mr. Robertson “might not want to talk about it” is understandable.

However, this Haitian revolution went beyond “the limited definition of freedom adopted by the French and American revolutions,” writes Haitian historian Patrick Bellegarde-Smith. Instead, continues Bellegarde-Smith, the Haitian Revolution that Robertson describes as “a pact to the devil,” was based on the “universal freedom for all humankind.” That slaves could rise up and overthrow the slave regime in the 1790s, the first time in the Western Hemisphere and perhaps in the history of the world, indeed was nothing short of a great inspirational source for those still suffering under the grips of slavery and those wishing to liberate them, from Fredrick Douglass in the United States of America to Simón Bolívar in South America.

Once again, “Even in its hour of utter devastation,” to again quote Cunningham, “Haiti, the western hemisphere’s poorest country, teaches the rest of the world some valuable truths.” The question is if anyone’s paying attention.

So much ado, but about what? Thursday, Jan 14 2010 

I get tired writing about global warming (read: anthropogenic climate change). As far as I am concerned, the main conclusions are settled. The main conclusions that I’m talking about is the mainstream consensus outlined by the IPCC and supported by every major academy of science in the world and virtually every scientist publishing research on the matter. The consensus is that human activity is responsible for recent climate change, that this climate change has adverse effects, and that the effects are going to worsen if we continue down the “business as usual” path. That’s settled, no question about it. I would like to leave the quibbling over minor uncertainties, model improvements, and further refinement of the theory to the more capable scientists who publish legitimate research in the technical literature. I find myself, however, having to defend against the main conclusions of the theory of anthropogenic climate change, because people find opportunity to attack it whenever it becomes politically convenient. That’s essentially what we call partisanship (i.e. hackery). These people like to pretend they are engaging in some sort of scientific inquiry, so label themselves “skeptics.” But we know this is not true—the real skeptics (e.g. Lindzen) are few and far between—so I label them “septics,” borrowing the term from William Connolley, who explains the meaning on his blog.

Again, we find the septics at the SCSU Scholars blog making a bunch of ado, in their regular fashion. But about what? Essentially, nothing. Dr. Banaian, professor and chairman of the economics department at SCSU, using a satirist’s Web site for reference (though, be careful in pointing out the fact, or you’ll be accused of ad hominems), complains about the use of principal components analysis (PCA)—a statistical procedure used in the analysis of data—in a 1998 paper written by Michael E. Mann, Raymond S. Bradley, and Malcolm K. Hughes (hereafter referred to as Mann et al.). The problem for Dr. Banaian lies in the fact that, as he explains it, “PCA is a technique that, in the social sciences, has been found to be highly sensitive to the inclusions of new proxies.” This might be true, in part, he says, in the natural sciences, but he’s not really sure, probably, in part, because he hasn’t read about it. That might be a wild supposition, but given that the professor even admits to us that he hasn’t even bothered to read the paper he criticizes, it’s not beyond legitimate possibility. This, he says, “increases my skepticism,” though “septicism” probably would have been more fitting.

I try to point out to the professor that the Mann et al. paper, the basic conclusion of which is that contemporary warming is anomalous (differing from previous warming), is valid and supported by virtually the entire scientific community that’s spoken on the issue, including those scientists who have published criticisms of the Mann et al. paper. Dr. Banaian says Mann et al. are wrong, I say they are correct. I better provide some evidence, right? One might reasonably make that assumption, so I link to a report done by the National Academies of Science (NAS), which concluded, “The basic conclusion of Mann et al. (1998, 1999) … that the late 20th century warmth in the Northern Hemisphere was unprecedented during at least the last 1,000 years … has subsequently been supported by an array of evidence …” Summarizing the report, Nature, the prestigious scientific journal, writes that the the NAS “affirms [the] hockey-stick graph,” while Roger A. Pielke, Jr., a critic and pretty close to being a skeptic himself, writes, “the NAS has rendered a near-complete vindication for the work of Mann et al.” In addition to the NAS report, I linked to two peer-reviewed articles that support Mann et al.‘s use of PCA and the accuracy of their reconstruction of past temperature. The first paper, by Wahl and Amman (2007), is a response to McIntyre (who Dr. Banaian later appeals to) and McKitrick. Wahl and Ammann say, “the Mann et al. reconstruction is robust against the proxy-based criticisms addressed. In particular, reconstructed hemispheric temperatures are demonstrated to be largely unaffected by the use or non-use of PCs to summarize proxy evidence from the data-rich North American region.” Moreover, I provide a link to a blog post written by climate scientists discussing McIntyre and McKitrick (the people the aforementioned satirists relies on) and the various “false claims” they make regarding Mann et al.‘s use of PCA.

Well, one might think this is all well and good. Science, after all, is an objective field in which one can appeal to evidence, and the evidence can be judged on its merits. If someone has a differing point of view, they can provide the scientific evidence to support it. So it would be reasonable to assume that evidence should be welcomed when there’s a contradictory claim. It helps you evaluate the claims being made. But it’s dangerous not to drink the Kool-Aid. The cost of not jumping on the politically-convenient (but scientifically-bankrupt) bandwagon of the septics is that I get derided for posting “a link dump”—because contradictory evidence isn’t welcome. Instead it constitutes “linking dumping” to “the cross-referencing, daisy-chain-refereeing bunch from the Mann gang.” I never link to Mann nor anyone from his “gang,” but these types of facts are not supposed to matter. (Although, even if I had linked to Rutherford et al., which includes Mann, and the defense they provide for the methods used in the Mann et al. paper, so what?) I ordinarily would not think much of this; it’s the typical rhetoric the septic retches up whenever confronted by an “inconvenient truth” (science). The thing is, you don’t typically see the type of anti-intellectualism displayed among self-professed scholars. The septics I usually speak with on a near-daily basis, though their rhetoric is virtually identical, don’t usually come from academia. Perhaps that says something. But when you get accused of being a “pedant” trying to enter “Valhalla,” I think this says something quite serious about the culture of this so-called “skepticism,” which has always had at its roots a derision of science and an acceptance anti-intellectualism. I personally find it to be pretty dangerous.

But let’s say we ignore the rhetoric and accept Dr. Banaian’s argument. Does it mean anything? It means nothing. We’re talking about a 1998 paper that has been updated by the authors and commented on multiple occasions over the years, and further supplemented by numerous, independent research that has all come to the same basic conclusions that Mann et al. came to in their paper. Any suggestion that the Mann et al. paper is crucially relied on to support the basic conclusions made by the IPCC or even that contemporary warming is anomalous is transparently absurd. So even if Mann et al.‘s paper was invalid (though it wasn’t), it says nothing about our understanding of climate reproduction or contemporary warming. The so-called “hockey stick” graph that appears in the Mann et al. paper is but one of many “hockey sticks” that exist in the literature on climate reconstruction. See, for example, this image put together by Robert Rhode; a similar image is found in the IPCC’s latest report (Chp. 6 of the WGI contribution) and elsewhere. Mann et al.’s (1999) graph is the plain blue line in Rhode’s image.

The literature on the issue is robust. Contemporary warming is anomalous—unprecedented within the past 1,000 years. The cause is explained by the theory of anthropogenic climate change. We can and should dismiss the feverish rhetoric as ado about absolutely nothing.

Democracy vs. libertarianism Monday, Jan 11 2010 

One of the problems that ideologues of any persuasion probably run into is the problem of democracy. What do I mean by “the problem of democracy”? What I mean by this is that the democratic majority often does not adhere or conform perfectly to the ideology that a person or group may have. This can be a problem for the ideologue if he or she professes to be a democrat (a supporter of democracy). So, for example, the libertarian may decry the government’s role in society, despite the democratic majority wanting social programs or government regulation. Thus, any claim that we should wipe out social spending is inherently anti-democratic in this sense. My previous post on government involvement touches on this issue. Of course, the ideologue can bypass this “problem” if they do not profess to be democrats. Instead, we should simply implement the policies of our ideology, no matter how much the public is opposed to it. That is, we become authoritarians. For the libertarian or the anarchist, this is inherently paradoxical. We cannot claim to be libertarians and authoritarians at the same time—the ideas are necessarily opposed to each other. It is not possible to authoritatively implement our policies in the name of libertarianism, for example. That isn’t to say no one has tried; for example, Augusto Pinochet, in his brutal dictatorship over Chile, enacted free-market reforms in the name of “liberating.” We know that’s hypocritical, and we understand the perversity in his understanding of “liberty.” Here, “liberty” means liberty for the corporation, not for the people. Thus, the ideas of libertarianism and anti-democratic measures are incompatible.

How can the ideologue cope with “the problem of democracy”? How can we accept certain principles that the majority rejects, yet still call ourselves “champions of democracy”? I have two suggestions, and others are welcome. First, be what could be called a philosophical ideologue (cf. philosophical anarchism). That is to say, you keep your beliefs in whatever ideology you choose, but you accept the majority’s opinion as the opinion that should be adhered to. So, for example, if you’re against social spending, but the majority supports it, you continue to believe that social spending is wrong but accept the majority’s choice as the will of the people. For some, this might seem like an unpleasing solution, which I accept. It does seem contradictory to accept the choice but at the same time to not accept the choice. It would seem as if we are not truly adhering to our ideologies (that’s a common argument against anarchists who do not support the overthrow of the state—they’re not real anarchists). Do we or do we not accept that argument? The other thing I suggest is that we teach or advocate our ideology in a way that is not anti-democratic. We explain our philosophies (non-coercively) to others in the hopes that they will accept them. In this way, we can influence the outcome of the democratic choice without resorting to authoritarianism.

I accept that others may not accept this. They may say we have to cling to our ideologies, no matter what. We must reject the democratic majority. They may not say it in this way, but it is what they’re saying. I reject this argument and find it to be dangerous. Over ideology, I am a democrat.

P.S. This is a further exploration of a concept that Dr. Spagnoli explores on his blog in a post titled “What is Democracy?” In it, he explains, “Napoleon Bonaparte propelled his armies across Europe on behalf of the universal principles of liberty, equality and fraternity . . . Napoleon’s armies occupied Europe because they wanted to export French principles and French civilization. . . . France was the advance guard of the struggle of humanity for freedom and against old-style authoritarianism.” The parallels to contemporary foreign affairs are obvious enough. Claims Dr. Spagnoli, “Attacking, conquering and occupying other countries, even with the purpose of liberating these countries from oppression and archaic authoritarian forms of government, seems to be highly illogical and self-contradictory. It’s incompatible with the very principles of democracy (democracy is self-determination).” The question being raised is, “are we allowed to impose or enforce democracy in an authoritarian way?” Likewise, I raise the question if libertarians are allowed to impose or enforce libertarianism in an authoritarian way. I say no.

Is the government inefficient? Sunday, Jan 3 2010 

I found this passage somewhere on the Internet, unknown author:

This morning I was awoken by my alarm clock powered by electricity generated by the public power monopoly regulated by the U.S. Department of Energy. I then took a shower in the clean water provided by the municipal water utility. After that, I turned on the TV to one of the FCC-regulated channels to see what the National Weather Service of the National Oceanographic and Atmospheric Administration determined the weather was going to be like using satellites designed, built, and launched by the National Aeronautics and Space Administration. I watched this while eating my breakfast of the U.S. Department of Agriculture-inspected food and taking the drugs which have been determined safe by the Food and Drug Administration.

At the appropriate time as regulated by the U.S. Congress and kept accurate by the National Institute of Standards and Technology and the U.S. Naval Observatory, I get into my National Highway Traffic Safety Administration-approved automobile and set out to work on the roads built and maintained by the local, state, and federal departments of transportation, possibly stopping to purchase additional fuel of quality level determined by the Environmental Protection Agency, using legal tender issued by the Federal Reserve System. On the way out the door, I deposit any mail I have to be sent out via the U.S. Postal Service and drop the kids off at the public school.

After work, I drive my NHTSA car back home on the DOT roads, to a house that has not burned down in my absence because of the state and local building codes and fire marshal’s inspection, and which has not been plundered of all its valuable thanks to the local police department.

I then log on to the Internet, which was developed by the Defense Advanced Research Projects Administration and post on freerepublic.com and FOX News forums about how SOCIALISM in medicine is BAD because government can’t do anything right.

What this passage is getting at is the myriad functions that government serves— sometimes unbeknown to the general public—and it only begins to scratch the surface. It would, I think, be pretty safe to say government is responsible for or at least crucially linked to the development of modern society, not free markets. That’s just a descriptive statement, and I believe the main point of the quoted passage. There are some, like those “on freerepublic.com and FOX News forums,” who bemoan government and its supposed inefficiency, yet take for granted all the things it provides them (like roads and police protection).

The question, really, is an economic one. One issue that arises concerns what are called public goods. In technical terms, a public good is any “good that is non-rivalrous and non-excludable.” All non-rivalrous means is that when one person uses that good another person is not restricted from also using that good (e.g., when I log on to the Internet, this does not preclude you from doing the same). All non-excludable means is that no one wanting access to the good can be reasonably denied access to that good. A decent example might lighthouse beams that provide light to ships, regardless of which ship it might be (that is, it’s difficult to exclude other people from seeing this light). As the Wikipedia article points out, “there may be no such thing as an absolutely non-rivaled and non-excludable good; but economists think that some goods approximate the concept closely enough for the analysis to be economically useful.” (The economic idea of public goods, by the way, was developed by Paul Samuelson, the pioneering Nobel laureate who died just three weeks ago.)

The problem that arises is that public goods are not produced efficiently in “free markets.” They’re under-produced. This causes what is called market failure; the market does not operate efficiently. The reason for this is because you can’t make a profit off of it, or not very much the closer the good approaches the concept of a public good. If a good produces a benefit to society that the creator of the good cannot profit from, there’s little economic incentive to produce such a good. That’s standard neoclassical economic theory, anyway. The idea is tied to what are called externalities. A positive externality is something people benefit from, e.g. clean air, but those who benefit from it don’t necessarily have to pay for it. An example I get from Milton Friedman, the great free-market thinker, is that when I plant a pretty garden in my front yard, other people get to experience the benefit of it without having to pay or do any work for it. Again, these are under-produced in free markets, according to standard theory, because there is not enough economic incentive to produce these things.

Well, one solution has been to have the government produce goods for public use, which is where the entire passage quoted above comes from. The result is that we all get to benefit from government involvement in the market place. I get the ability to tell the precise time because the government has taken the initiative to keep accurate account of time—something theory tells us profit-maximizing corporations would be unwilling to do.

At the same time, however, as the story above illustrated, people still bemoan government and its attempts to provide for the public good. The market is great, it will provide us all the things we need, and it will do so efficiently, they might say. The socialist might respond by pointing out that this is not necessarily true, and point to things like externalities and asymmetric information, which exist nearly everywhere, and conclude the market rarely works efficiently. For this reason, we need the government to provide for the public good, particularly when the unfettered market cannot. The right-winger (if they’re not Austrian) might concede that things like externalities and asymmetric information exist but posit that the government still ought not get involved because that would constitute an abridgment of our freedom, is coercive, evil, etc. The question becomes harder. Indeed, for many the question is not only economic but also ethical. At this point, I think most people begin to ask what the right balance is between market forces and government involvement. The question is left unanswered and, in mind, the answer remains to be seen.