Economics 101: Next lecture

 Okay, I'm back in the saddle. There are a couple of additional problems with the concept of the free market that don’t stem directly from the faulty assumptions. One is called “public goods.” These are goods that are “non-excludable,” which means that nobody owns them and you can’t require people to pay to use them; and non-rivalrous, which means that one person’s use of them does not deplete them for others.

An example is the oxygen in the air, but many public goods are created or protected by public policy. Straightforward examples are national defense and law enforcement, although obviously we can disagree about how much and what kinds of these goods we should be buying, and how to allocate the cost. Such public goods are created because they are thought to have positive externalities, that is they benefit all or most people beyond their direct recipients. Another example is public education, which creates a more productive workforce and civically competent population. If all families had to pay for their children’s education, many would not be able to afford it and some might choose not to. The result would be a much poorer society.

The road and highway network is not entirely non-rivalrous because, as I noted before, congestion makes it somewhat less valuable for everyone, and it’s also not entirely non-excludable because people without driver’s licenses or properly insured and inspected cars are technically forbidden to use it. These concepts are actually matters of degree.

The key point is that the market would produce much less in the way of roads and bridges than would be optimal for the general welfare. Investors might build a bridge or a highway here and there and make their investment back in tolls, but the result would be highly inadequate for the demands of modern commerce, work, school and social life. We can argue about the how much and what quality of public goods ought to be provided, and how the money should be raised, but the point is they are not traded in markets, and are not created in response to market demand, or not enough would be created to produce the optimum benefit to society. That is one more reason why there is no such thing as a "free market."