Government actions often help more people than intended. On Monday, the National Hurricane Center classified Hurricane Felix as a Category 5 storm and predicted it would hit Honduras and Belize in two days. Earlier, the center had warned Aruba, Bonaire and Curacao about Felix. Their residents took precautions. U.S. taxpayers spend millions on the Hurricane Center. Why does it warn other countries?
Hurricane prediction is a classic example of a “public good” in the sense economists use the term. A public good is one that won’t be produced by the private sector in a free market, because any company that might make the product would bear the entire cost, but the benefits would spill over to others who don’t pay.
Without government action, the good or service in question won’t be produced. National defense, police and fire protection, weather prediction, childhood vaccinations and aids to air and water navigation are all examples of public goods.
Knowing when, where and how hard storms will hit the United States saves lives and reduces property damage. The benefits of the National Hurricane Center to our country alone outweigh the costs.
The additional cost of warning other nations is near zero. If we release predictions to news media, it is hard to keep Aruba or Belize from hearing about it. There is no practical way to charge for the benefits provided to these other nations.
There are other government programs where benefits spill outside the United States. Federal crop subsidies often increase production and lower the prices of food and fiber. But the effects of cheaper ag products are worldwide, for bad as well as for good. We cannot lower the cost of corn, cotton or wheat in the United States without lowering it in world markets.
The 1872 Mining Law that still regulates access to federally owned mineral deposits in the United States has similar effects. In contrast to federally owned oil and gas, where we auction off drilling rights to the highest bidder, we give away the right to mine copper, silver, lead and other minerals.
The justification in 1872 was that giving public property away would benefit society as a whole by making useful raw materials cheaper and fostering employment and settlement in western states.
That was true in 1872, when mining was highly labor-intensive and world metal markets were not well integrated. Neither condition is true anymore. Giving away a mineral deposit lowers the cost of the resulting products to 300 million Americans, but it also lowers it for another 6 billion people around the globe.
Yes, we get paid for agricultural and mineral exports, but these don’t recoup the explicit or implicit government subsidy in farm bills and the Mining Law that flow to other nations.
© 2007 Edward Lotterman
Chanarambie Consulting, Inc.