Do we have a spending problem?

The usual suspects have been passing around a chart they claim shows that we don't:

(clic the pic for an even more bigger image!)

Well, I have to say that it sure looks like a spending problem to me (N.B. I am not a Republican or a "conservative").

Remember that the graph is in per capita terms. Population growth has averaged right around 1% a year over this period, so there's a lot more spending than it seems.

Often it's appropriate to express things in per-capita terms, but government spending is *not* an obvious candidate. First off, much government spending is on public goods, which by virtual of their being non-rival (or partly non-rival) in consumption means that per-captia is a very poor way to express their spending levels. Defense spending per-capita is kind of a weird and meaningless concept. Infrastructure falls in the middle. Eventually population growth would require greater infrastructure spending due to crowding or faster depreciation, but per-capita is just not a completely appropriate way to express it. Entitlement spending might be best expressed per-recipient rather than per-captia.

Another strange thing about the graph is it attributes total spending to the president in office. This is just weird. Yes Bush was a terrible president. Yes we spent like crazy and ran up deficits with nothing to show for it. I get it. I agree with it. But the president doesn't control Federal spending, he only has the veto threat to try and shape congressional decisions. He doesn't have any real direct lever to affect state and local spending at all.

There is simply no reason to expect that real government spending per capita should constantly rise and there is not reason to impute said spending completely to the president in office when it occurred.

Are Roads Public Goods?

Economists tend to think of the role of government as (1) enforcing contracts, adjudicating disputes as a neutral referee, and providing an infrastructure in which the transactions costs of exchange are low, and (2) acting to correct "market failure" through regulation or direct provision in the case of public goods.

A "public good," as Angus has pointed out a number of times, has two features (or, from a pure market perspective, "bugs").  These are (a) non-rivalness in consumption and (b) costly exclusion.

"Non-rivalness" means that the good is not subject to consumption or being "used up."  If I turn on my radio, that does not reduce the amount of radio waves available for you to listen to.  If the radio signal is broadcast, everyone in the range of the broadcast can listen.  It does not cost more to broadcast radio signals in a city compared to the country, because consumption is non-rival.

"Costly exclusion" means that much of, all of, or even more than the price that could be charged for the good or service would be dissipated by trying to collect the charges.  Radio seems like a "costly exclusion" good, though it is possible to encrypt the signal so that only someone with decoder can listen.  (By and large, commercial radio "solves" this problem by inverting the market:  listeners are the "product" and advertisers pay for access to eardrums.  One ad crowds out another, and it is easy to exclude would-be advertisers who don't pay.  The other model, of quasi-public goods and no commercials, may be solved with voluntary provision, as I argued in this NPR "Planet Money" segment.  Tote bags and coffee mugs for all you good contributors!)

Now:  the question, since we have the setup.... Are roads public goods?  The answer is quite difficult, and there is no one-size-fits-all correct response.  (More after the jump...)

Fair Trade Frolics

This is just remarkable. Mr. Overwater did convince me of the importance people on the left attach to good intentions, regardless of whether the consequences are actually good. I think that is a big explanation of the popularity of "fair trade": I am paying more for this, an act of sacrifice and therefore of virtue. The fact that essentially none of the money actually makes it to the farmers is beside the point. I sacrificed, and therefore I am a good person.

But it's bizarre that people actually think the fair trade scam makes food healthier, or that it has fewer calories. Wow. You bedwetters believe that whatever lame secular god you worship will bless you with thinness, because you performed the good work of paying more for regular old coffee that happens to have a "fair trade" label on it.

The “Fair Trade” Effect: Health Halos From Social Ethics Claims

Jonathon Schuldt, Dominique Muller & Norbert Schwarz
Social Psychological and Personality Science, forthcoming

Abstract: The authors provide evidence that social ethics claims on food packaging (e.g., fair trade) can promote the misperception that foods are lower-calorie and therefore appropriate for greater consumption. In Study 1, participants evaluating chocolate provided lower calorie judgments when it was described as fair trade — a claim silent on calorie content but signifying that trading partners received just compensation for their work. Further establishing this effect, Study 2 revealed that chocolate was perceived as lower-calorie when a company was simply described as treating its workers ethically (e.g., providing excellent wages and health care) as opposed to unethically (e.g., providing poor wages and no health care) among perceivers with strong ethical food values, consistent with halo logic. Moreover, calorie judgments mediated the same interaction pattern on recommendations of consumption frequency, suggesting that amid the ongoing obesity crisis, social ethics claims might nudge some perceivers to overindulge. Theoretical and applied implications are discussed.

Nod to Kevin Lewis

Your post is full of fail

Over at "Democracy in America", M.S. appears to be a bit confused about what the words "rival" and "excludable" mean, as well as over whether a picture proves or disproves his point.

He's taking on LeBron over whether the government does or should mainly provide public goods. He has somehow grokked that public goods are non-rival (my consumption doesn't reduce the amount available for you to consume) and non-excludable (you can use the good whether you pay for it or not). As I pointed out earlier, national defense is pretty close to a pure public good.

In the real world, things are not so simple, as some goods may be conditionally rivalrous and excludable (James Buchanan called these "club goods") and some goods are forced to be non-excludable by force of law.

M.S. says the following:

Roads are rival and excludable. Unemployment insurance is rival and excludable. Health insurance for seniors is rival and excludable. Primary education is rival and excludable. Police protection is rival and excludable. Art museums and history museums are rival and excludable. Swimming pools, parks and zoos are rival and excludable.

Well, roads are conditionally rival and generally non-excludable by dint of government policy. That is, the government levies taxes, builds roads and anyone can drive on them without paying a fee (turnpikes and private toll roads are few and far between in this country).

Same goes for primary education. I don't see how one can claim that primary education in the US is excludable. It could be excludable, but government policy has made it non-excludable.

In theory, police protection is close to a pure public good in the area where the police have jursidiction. Now it's true that if a cop is at my house, there's one less cop around to go elsewhere, but the "law and order" brought by a police force is non-rival. And, at least in theory, police don't charge victims of crimes for their services. Anyone can have the police come and fill out an accident report.

Anyone making the statements M.S. made on an exam in an undergrad public econ course would be getting an F.

Then comes the funny fail part of the post. After the rant about how roads, parks, and museums are "rival and excludable", i.e. NOT public goods, MS concludes as follows:

So, then we have the second claim, that with public goods, adding extra people to the mix with no spending boost is compatible with those additional people getting more or less the same services as the previous consumers. I think my objection to this is best illustrated with a few pictures.

And people, can you guess what he shows pictures of? A road, a beach, and a museum!

In other words, the very things he just got done vociferously claiming were NOT public goods!

Yikes!