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Tragedies of the Commonest Sort

March 22, 2010

The passage of Health Care Reform is truly astounding from both historical and political perspectives, given the complex interplay between public goods and politics.

I have pretty much always accepted that tragedies of commons are counterpoints and exceptions to presumptive market efficiency, but it is always startling how intuitive and obvious that logic may be when seen in real life. Take, for example, the regrettable case of Bluefin tuna. The scarcer tuna become, the higher the price each carcass fetches; once the fish have been exterminated, the investors can just cash out or shift their investments into another industry. It makes perfect economic sense to accelerate such “over-grazing,” rather than come to an agreement to place reasonable limits that might foster a more long-term sustainable environment and market. And since such vested interests have a voice in their own regulation (read: lobbying/bribing the relevant officials), even outside attempts to enact appropriate limits appear unlikely to succeed.

Less-than-optimal efficiency in the production of goods or services will almost always occur whenever there is some other value at stake other than the raw production of whatever good or service is at issue. The policy question is therefore what qualifies as another value worth taking into consideration. Though it sounds like it should be almost tautological, “externalities” don’t always qualify for subsidy or taxation because they can often be recharacterized as something else by their proponents or detractors. Indeed, what can we truly call a “public good” in a universal sense? People are naturally politically skeptical, and will assume that the good or service just has some value that is particular to the preferences of the commenter who believes that the good is currently being over- or under-produced. This leads to less market intervention–and therefore inefficient levels of production–even where there is some strong evidence that a serious public good or spillover cost is at stake. More often, it just seems regrettable that the market doesn’t act the way we might personally want it to, like when a concert hall and administrative expenses take a much larger share of the revenues than the charity the concert is purported to support.

Along the same lines, even in cases where the level of production is not at issue, lack of market transparency and institutional biases can create their own artificial inefficiencies in the production of public goods. For example, Hannity’s “charity” is apparently just a vehicle for him and his organization to collect revenues and spread its own gospel, without forwarding the money along to the purported recipients (in this case, disabled and wounded veterans).

According to its 2006 tax returns, Freedom Alliance reported revenue of $10, 822, 785, but only $397,900–or a beyond-measly 3.68%–of that was given to the children of fallen troops as scholarships or as aid to severely injured soldiers.

On the other hand, 62% of the money went to “expenses,” including $979,485 for “consultants” and an “advisor.” Yes, consultant/advisors got more than double what injured troops and the kids of fallen troops got. The tax forms show that “New World Aviation” got paid $60,601 for “air travel.” Was that for Hannity’s G5? Like I said, neither the charity nor Hannity is talking. And finally, that year, Freedom Alliance spent $1,730,816 on postage and shipping and $1,414,215 on printing, for a total of $3,145,031, nearly half the revenue the charity spent that year and about eight times what the injured troops and the children of fallen ones received.

How patriotic. Luckily, the public availability of tax returns allows for some transparency, as long as any researcher or journalist is motivated enough to fact-check those claims. In the end, there might be some efficiency and justice in the market for charitable donations; the market for Sean Hannity could correct itself in more ways than one.

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