Belmont Club

Subsidizing the "good stuff"

Nina Totenberg and Charles Krauthammer debate the merits of continuing public support for NPR after the Read More. The case for Public Radio is that without a subsidy it would be underprovided. “Such quality” could never be sustained by the market. Readers may recall the post discussing Paul Krugman’s argument that British food was bad because of “market failure”. The British, for historical reasons he said, had gotten used to the taste of lousy food and thereafter demanded it. Without some other factor intervening to change the public taste, they would continue to eat bad food forever. The same argument underlies the case for public broadcasting.

The BBC is held up as an example of quality which would be underprovided if the market were left alone. The way to correct the underprovision, in the case of the BBC, is by imposing a “license fee”, which is really a tax. But that tax goes towards providing a public good: providing high culture which everyone (who pays a license fee) can consume. It’s the Bad British Food argument applied to another kind of taste; not the culinary sort, but the cultural one. If people don’t know what’s good for them they won’t consume enough of it.  If you could provide haute cuisine that everyone could consume without reducing its availability to somebody else, why wouldn’t you? And because public broadcasting is a available to all — it is,  like national defense, a benefit to all  — so it needs to be given a leg up by the state. And as with the BBC so with NPR and PBS.

Wikipedia summarizes the classic case for public broadcasting. The emphasis has been supplied.

An economic rationale for public broadcasting is that it exists to provide coverage of interests for which there are missing markets. Public broadcasting can supply those topics which have social benefit that would otherwise not be broadcast due to believed unprofitability. Society is willing to pay for such programming, but markets fail to provide it. Typically, such underprovision exists when the benefits to viewers are relatively high in comparison to the benefits to advertisers from contacting viewers.

Very well. But who designs the degustation menu of culture at which the public sits? It is a nontrivial problem to decide what to subsidize.  The problem was highlighted by the Ron Schiller covert taping itself. Ron Schiller’s apparent preferences for “coverage of interests” are controversial. Jews, Tea Party members and bitter clingers may not be in accord with his choices — or NPR’s. The correct coverage of interests is nothing so clear cut as providing for a common defense, for example.

To ask who makes the choice about what “coverage of interests” should be supplied to ask who determines programming for NPR. If not the market, then the NPR board must make that determination. But isn’t this dangerous? Doesn’t it create the possibility of subsidizing propaganda without the market being able to veto it via consumer choice? Wouldn’t it be better to get government out of the opinion shaping business altogether?

Consider another case where a subsidy was once deemed socially beneficial: the subsidy for ethanol. “U.S. Senators introduced the BioFuels Security Act in 2006. “It’s time for Congress to realize what farmers in America’s heartland have known all along – that we have the capacity and ingenuity to decrease our dependence on foreign oil by growing our own fuel,” said U.S. Senator for Illinois Barack Obama. And who can quarrel with the idea of decreasing foreign energy dependence.

But as always, there is no free lunch. Just as the subsidy to the BBC differentially benefits the A and B consumer markets at the expensive of the C and D, which prefer lower-brow entertainment, this may be the case with ethanol. It has made a contribution to the social benefits of driving cars but at the cost of reducing the affordability of food in the Third World. It may have sounded like a good idea once, but is it really?

So who is right? Tottenberg or Krauthammer? You be the judge.

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Perhaps a more interesting claim is put forward by commenters at MSNBC, in response to an article on the excellence of Japanese Building codes. One commenter said in admiration of the way Japanese skyscrapers shrugged of the tremors like a dog shaking off water, “Truly amazing. Great example of the value that can come from smart government regulation, meanwhile, in the US yesterday our Congressional leaders felt it was too intrusive for the government to mandate energy efficient light bulbs as a way to reduce US energy consumption. The estimated savings are as much as 10% and lowering the total energy demand would also lower the cost per KW to consumers.”

Another commented, “And the tea bagging GOP leaders cry, “no government regulation! No expansion of government!” It is shamefully irresponsible to think one single US corporation is going to put human safety above profits.” Yet another said, “dang government intervention. Building codes keeping buildings and bridges intact, the FAA keeping the planes in the air, police and fire departments keeping us safe. To those who are tired of taxes but insist on the standard of living, you are hypocrites! How else do you think standards are set? Free market? Just out for a buck. There needs to be a touch of socialism in capitalism and vise versa to keep it honest.”

But I am not so sure the market has nothing to do with this. People who build high-rise buildings have an interest in ensuring their survival. And property developers do consider this. I had a recent conversation with someone whose family owned a building in Brisbane that had been flooded out in the recent catastrophic rains. Before they constructed the edifice, the principals did a search of the flood records in Brisbane and found that it was indeed in a once-in-a-hundred-year flood zone. Although it was not mandatory, they took out flood insurance. In consequence when the central business district was recently inundated, they were among the few buildings to have coverage.

It would be senseless to construct buildings in geologically inert Australia to the standards of Tokyo, Japan. But it might make sense in San Francisco to have higher than normal standards. The question would then be: given an earthquake in the Bay Area, will the survival of the structure be due to the voluntary standards or to the standards required by one of the most liberal states in the union?  Recently Christchurch was flattened by an intensity 6+ quake.  Was that due to some deficiency in New Zealand building standards or to the fact that they were less traumatized in their history by earthquakes, as opposed to the catastrophe-inured Japanese?

Finally one should observe that frequent catastrophes cause building adaptation in the Third World, where there is little regulation to speak of.  Because floods are so common in the Philippines, no one in his right mind carpets the floor. Therefore when floods strike, it is merely a question of applying the squeegee and the mop. Nobody required the bare floors except common sense. Still there is some scope for regulation that goes beyond market requirements, as when a catastrophe could be so severe that it is not wholly encapsulated in the investment logic of decision makers. But if regulation were everything, then we would expect there to be a direct relationship between size of government and safety, which I doubt exists. There might be a correlation between Japaneseness and building quality, but that is another matter.

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