I’m still trying to minimize typing, but since it’s tax season I thought I’d capture two short aphorisms on government:

• “The government performs certain essential functions” is different from “It’s essential for the government to perform certain functions.”

• A “public good” is not simply something that’s good for the public.

I love The Economist, but even they fuck up from time to time. An article in the current Technology Quarterly really boiled my blood; I wrote a letter in response:

SIR – I was surprised and disappointed by the poor economics in ”Pulling the plug on standby power” (Technology Quarterly, March 11). You argued that “[e]quipment-makers do not have any incentive to use more efficient components, after all, since the cost (in higher power consumption) is borne by their customers.” But this is as absurd as claiming that auto makers have no incentive to make fuel-efficient vehicles because drivers, not manufacturers, bear the cost of petrol. Indeed, the entire article was awash in the principal fallacy of central planners everywhere: “The market has failed; we can fix it.” Thank goodness for the article that followed, in which economic development pioneer Iqbal Quadir noted that “[t]op-down approaches do not work. The bottleneck is at the top of the bottle.”

Michael Hartl
Orange, California

I should note that the Quarterly was excellent overall, as usual. In one article they even got right the meaning of the term hacker.

In the comments to my post on privatizing the USPS, IdahoEv makes a thoughtful analysis to the effect that maybe the USPS monopoly is actually a good thing. I like his arguments, but I think they fail to clear the three hurdles from my previous post. It may be that the USPS reaches some global optimum by using force to exclude competition, but—even discounting the cost of the lost freedom—it’s hard to know a priori; such arguments read more like rationalizations for the status quo. Moreover, a love of such analyses lies at the heart of every good central planner—Markets might be good, they think, but markets are dumb; surely with a little intelligent intervention we can do even better. But, as counterintuitive as it seems, the failure of central planning suggests that you really can’t.

Indeed, the private sector routinely competes successfully with the government even in the face of deeply entrenched, subsidized competition. Private schools exist despite their public counterparts; private security agencies thrive even in the face of police competition; professional mediators and arbitrators ply their trade despite a monopoly court system. The glorious history of black-market postal services (including one run by Lysander Spooner, a hero of libertarians everywhere) and the success of UPS and FedEx suggest that mail is no different. And if private mail delivery does that well against a government monopoly, it’s not too much of a leap to anticipate even greater success in that monopoly’s absence. (Dangerous exercise: apply this argument to schools, protection agencies, and courts.)

When it comes to privatization, what I’m usually worried about is not that we’d be screwing up some beautiful public-goods global optimum, but rather that the government would botch the privatization. Turning the private sector loose on the thorniest problems of our time—security, say, or education, or traffic—could easily lead to disaster if done stupidly.* California’s energy ‘deregulation’ is perhaps the most dramatic recent example of this. But breaking the USPS’s monopoly is so simple that even the government could get it right: Homeowners—you now own your mailboxes!

*I wish that, rather than cockamamie public policy, optimal privatization were the policy wonk’s wet dream—Let’s figure out the best way to auction off the L.A.-area freeway system, and solve the traffic problem once and for all. Now there’s some ‘central planning’ I could get behind.

Do you own a home? If you do, you may be surprised to learn that you don’t own all of it.* Outside your home is a box, which you own, but inside the box there is space, which you don’t—that space is owned by the United States Postal Service. Reflect for a moment on how bizarre this is. This strange legal situation is the source of the Postal Service’s monopoly on first-class and standard (third-class) mail. I’m sure that FedEx would love to deliver your letters, but US law forbids it.

*If you don’t own a home, put yourself in the place of your building’s owner.

Fortunately, the simplicity of the USPS’s monopoly suggests a way to break it with the stroke of a pen. All it would take is a tiny change in the law: henceforth, property owners own the space inside their mailboxes. This would free homeowners up to make contracts with Federal Express, UPS, and any of a large number of current and potential competitors to the USPS. It would put people in control of their mail.

What does this matter, when it only costs 37¢ 39¢ to mail a letter? Historically, black-market postal services typically undercut USPS prices by at least a factor of 2–3. According their website, the USPS takes in approximately $70 billion in annual revenue, so opening the postal market to competition could save consumers $35–$45 billion a year—hardly an amount to sneeze at. Not only would it cost you less to mail your Christmas cards, you can bet your Netflix would get cheaper, too.

In addition to these obvious savings, breaking the USPS monopoly would expose a hidden cost to high postage rates, one which makes the $35–$45 billion estimate conservative and even a little misleading: current prices may very well prevent entirely new businesses from forming. A price factor of 2–3 in the other direction—$1.20, say, for a first-class letter—could very well wipe out operations such as Netflix. Who knows what sorts of innovative services might become feasible if you could mail a letter for 13¢?

There are problems in the world. Hard problems. Who should solve them? Government should.

Well, maybe not. Most advocates of government action to fix Problem A with Policy X make three key assumptions:

1. Policy X will fix Problem A.

2. The government, if empowered to do X, will in fact do X, and will keep doing X (only) as long as Problem A remains a problem.

3. The benefit due to fixing Problem A is worth the cost of Policy X.

In my view, many government policies fail #1, and those that don’t almost invariably fail #2. The few policies that seem both well-conceived and well-executed either fail #3 outright or provide insufficient evidence of passing a cost-benefit analysis. The set of policies that unambiguously clear all three hurdles is minuscule.