progressivism, individualism, and the public ... - Telmarc Group

The Telmarc Group
PROGRESSIVISM, INDIVIDUALISM, AND THE PUBLIC
INTELLECTUAL
Another example is spectrum, frequency spectrum used for wireless. There are two ways
to go. One is a Coasian way of creating real time bidding for the spectrum by users which
can now be accomplished electronically. The other is the classic way in which the FCC
auctions off spectrum. It can be shown that the auction results in inefficient use of
spectrum and adds the burden of Government control and regulatory delay. What is the
best way to proceed? Let us examine Coase.
5.2.1 Coase's Theorem
We begin with a simple overview of Coase's Theorem. Coase's famous observation is
stated in the Library of Economics and Liberty is 117 :
"Firms are like centrally planned economies, he wrote, but unlike the latter they are
formed because of people’s voluntary choices. But why do people make these choices?
The answer, wrote Coase, is “marketing costs.”… But because markets are costly to use,
the most efficient production process often takes place in a firm. His explanation of why
firms exist is now the accepted one and has given rise to a whole literature on the issue."
The article continues:
"Economists before Coase of virtually all political persuasions had accepted British
economist Arthur Pigou's idea that if, say, a cattle ranchers cows destroy his neighboring
farmer’s crops, the government should stop the rancher from letting his cattle roam free
or should at least tax him for doing so. Otherwise, believed economists, the cattle would
continue to destroy crops because the rancher would have no incentive to stop them..."
As I have argued before the Pigou school is one of central Government control via
taxation. A favorite approach by Mankiw and the Harvard economists. If you don't like it
tax it. In contrast Coase recognizes the efficiency of the market, if left to its own merits
and that is saying something for a man who was an ardent Socialist when he began his
analysis.
The article concludes:
"This insight was stunning. It meant that the case for government intervention was
weaker than economists had thought…"
Now on point as regards to health care Coase talks of the light house and how they
functioned without Government control. Specifically:
"Coase also upset the apple cart in the realm of public goods. Economists often give the
lighthouse as an example of a public good that only government can provide. They
choose this example not based on any information they have about lighthouses, but rather
on their a priori view that lighthouses could not be privately owned and operated at a
117 Buchanan, James M. and George F. Thirlby, http://www.econlib.org/library/NPDBooks/Thirlby/bcthLS5.html
Page 109