Americans have much less trust in government than they did only a few decades ago. Libertarians, who want minimal government, are a growing force. And there is a faction, largely in the right wing of the GOP, that thinks many things the federal government does are unconstitutional.
These issues form a relevant backdrop to two apparently very different news stories that affect industries in Minnesota and illustrate a fundamental economic principle. There are certain goods, vital to the efficient use of resources and to prosperity, that private parties in a free market never will produce in optimal quantities. Yet such “public goods” are increasingly on the chopping block as unthinking stabs at deficit reduction gain support.
The first news item concerns Porcine Epidemic Diarrhea Virus, or PEDV. This coronavirus, endemic in many Asian countries after first appearing in the United Kingdom four decades ago, is not transmissible to humans and does not harm meat. But it does cause extremely high mortality in pigs not yet weaned from their mothers. Since it first appeared in the United States in May, it has spread to at least 20 states. It won’t wipe out the U.S. swine herd, but it will kill enough baby pigs so as to cut production and drive up meat prices for consumers. Hard-hit individual producers will incur large financial losses.
An array of federal and state agencies have mobilized to control the epidemic, including state departments of agriculture and land-grant universities. The U.S. Department of Agriculture’s Animal and Plant Health Inspection Service and animal disease research labs are in high gear. But the scale of the problem continues to grow.
The second news item is that of pending federal mining legislation, the National Strategic and Critical Minerals Production Act, which is supported by Minnesota’s two Democratic senators and Republican and Democratic counterparts from several other states. Primarily designed to increase domestic production of rare earths now dominated by China, the Senate version of the bill expands field work and other research by the U.S. Geological Survey to better identify and inventory our country’s mineral resources.
Neither of these government actions is raising much controversy. But are they economically justified? Why can’t private hog farmers address health problems in their own herds? Why can’t mining companies find their own mineral deposits, especially because existing legislation allows them to claim ore found on federal land with only minimal payments to the Treasury? Are these efforts by government even constitutional? If they are not, would a more strictly constitutional government or one following libertarian principles, say one headed by a President Rand Paul, help or hurt the U.S. economy?
Let’s examine the constitutional question. The constitution makes no mention of a department of agriculture or a geological survey. It does not refer in any way to rare earths or pig diarrhea. So for those in the GOP who read the constitution literally, expending federal funds to fight hog diseases or to find minerals probably is not allowed.
However, the document does authorize taxing to “provide for the … general welfare,” and mandates the new government to “regulate Commerce … among the several States.” I’m no attorney, but it seems that inexpensive food and a secure source of critical minerals improve the “general welfare” and their production constitutes “commerce.” And to “regulate” might include “to promote production of.” I think this meshes with the view of most legal scholars. And I think most Americans of common sense would agree.
But what if the fringe were correct and such government activities really violated the U.S. Constitution? What if libertarians who argue that all government should be no larger than a minimal defense and public safety forces and a court system to adjudicate disputes between private individuals?
Economic theory and a lot of economic history indicate we would be substantially poorer. Markets are wonderful social institutions that help us all live better. But they don’t always work perfectly, and one of the ways they break down is that they lack incentives for private businesses to provide goods that benefit society collectively and that are “nonrival and nonexcludable.” Economists call these “public goods.”
Nonrival means that a benefit to one person does not diminish the benefit to others at the same time. Nonexcludable means that it is difficult to keep the benefit from spilling over to all, even if they don’t pay. A tornado warning system with sirens is an example of a service that is nonrival and nonexcludable. So are many public health measures, whether for humans or hogs.
Markets also fail in many situations where there is very imperfect information available to decision makers. Information itself often is a public good. And markets can fail where the administrative costs of getting private parties together to address a collective problem is very high.
Nearly all of these conditions apply in the cases of PEVD and some in the case of compiling geological information. Yes, private hog producers do have an incentive to keep their own hogs from dying. But no individual producer will spontaneously fund large research or epidemic-control measures because that producer will bear all the costs, but most of the benefits will flow to others. And it is very difficult to get all producers together to fund this as a group, particularly when there is no way to coerce those who would stand back and free-ride on the efforts of others. In the absence of government, we never would have eliminated brucellosis or the screw worm or other animal health scourges that used to decimate production and drive up the cost of food for everyone.
Mining companies benefit from finding mineral deposits and do spend tens of millions of dollars prospecting. And they can keep this information confidential so it does not spill over to others. But it is extremely inefficient to have dozens of different companies covering the same ground and compiling the same information. Better to gather the basic information once and make it available to all. But again, that is difficult without government.
Provision of public goods is not a trivial issue. Learning to do so effectively was one of the key reasons that some countries, such as the Netherlands and then England and then the United States and Germany, over the past 450 years, broke away from the pack of other countries in terms of economic growth and prosperity. It is a key difference between Paraguay and Canada or Burundi and Switzerland. But it is something that is getting trampled underfoot in current posturing about tax cuts and deficit reduction.
When we say we need “across the board” spending cuts, or when we cut the Animal and Plant Health Inspection Service and the U.S. Geologic Survey via sequestration, but don’t cut farm crop subsidies or close the “carried interest” scam that lets hedge-fund managers pay lower taxes than anyone else, we shoot ourselves in our economic foot.