It’s been an interesting summer for an amateur economist, watching government decide to supply things that pretty clearly aren’t public goods.
In downtown Minneapolis a professional football stadium just opened with about a half-billion dollars of taxpayer money in it, while in Bloomington residents have started getting a guide to recycling and garbage collection now that the city will be organizing pickup come this October.
It’s the culmination of a long process in Bloomington that led to weeping at City Hall meetings, and that’s no exaggeration, about the lost right to choose one’s own garbage hauler.
Meanwhile, the window is once again open for utilities and other groups to apply for grants under the state of Minnesota’s “Border-to-Border” program to bring subsidized fast Internet access to people who choose to live in areas too remote for cheap service to be available.
While pro football stadiums might seem completely unrelated to garbage pickup or Internet service — and a dead horse not worth beating further as a debate topic — what these all have in common is that they aren’t public goods.
The term public good comes from economics and definitely doesn’t mean what politicians are talking about when they insist that something needs to be done for “the good of the public.” A pure public good is something that pretty much only government will supply, and they are pretty few in number.
A textbook example is light from a street lamp, because the benefit one homeowner gets from that light doesn’t cause anyone else on the street any less benefit. Immunizing kids is often thought of as another public good.
How are those things like garbage collection? They’re not. Trucks pick up from one house at a time and can easily skip the house that didn’t pay its bill.
It’s common to hear politicians argue that garbage pickup is really just like electricity, and City Hall is looking out for the public good by not letting five electric companies all string power lines down the same street hoping to capture a customer or two. What a mess that would be.
Actually, it didn’t take long after Thomas Edison more or less invented the electric power industry for a different economic problem to surface. Electric companies stopped competing and started leaving each other alone to completely dominate a local market.
The capital costs for distribution lines and generating plants were so astronomical that once established in a neighborhood or town, it made absolutely no sense for any competitor to try to break in. There weren’t five sets of wires running down any street, there was one. And hooking up to it cost whatever the power company said it would.
By 1898, the powerful head of Chicago Edison was calling for government regulation, fearing cities would solve what was called the natural monopoly problem by kicking the private companies out.
Unlike electric power, there’s very little to keep a new garbage hauler out of the market. There were gently used trucks listed online this week for $70,000, and that, along with a license and a website, appear to be about what it takes to get into the business.
Far from one company developing a monopoly in a city like St. Paul, the city’s website this week provided 17 haulers to choose from, including one called Gene’s and another called Pete’s.
The haulers likely pitch superior service, but differentiation seems to come down to price. Losing the chance to seek the cheapest price in the market, of course, was one of the economic issues raised by the die-hard opponents of organized garbage collection in Bloomington.
The people who wanted it organized by the city had an economic argument, too. Having multiple trucks go down the street generates more air pollution, traffic and noise than just one does, and far more wear on city streets. All these things have costs, too, and costs that aren’t borne by the hauler or the customer.
An economic case for subsidizing broadband isn’t even as strong as organized garbage collection, although the electric utility analogy comes into play here, too. Fast internet access isn’t a nice-to-have, advocates say, it’s a must-have like the electricity it takes to run a refrigerator or keep the lights on.
Here the problem is not too many competitors going after the same lucrative customers, and eliminating the risk of competition by forming local monopolies. It’s having so few potential customers in sparsely populated areas that no company can justify the capital investment.
This summer, crews have been building out a project in Itasca County paid for in part with a $1.98 million state grant announced last year. Having fast internet service will be a godsend for the potential customers in the area — all 1,255 of them. Just the state portion of the project alone works out to nearly $1,600 for each.
I may have missed it when I went looking through the list of “market failures” published in my handy economics reference book, but it was hard to come up with one that seemed to apply here. It could be as simple as the local provider correctly assumed customers in a low-density area wouldn’t pay what it would really cost to bring broadband there.
Twin Cities taxpayers could probably be talked into supporting initiatives such as this one if they understood that the median household income is about $47,000 in Itasca County, as of the latest estimate.
That’s only a little over half what it was in metro counties like Washington County, east of St. Paul. Of course, affluent areas think they need the taxpayers’ help, too, as Washington County municipalities had applied last year and were disappointed not to get it.
If free market advocates in Bloomington are still steaming and need a place to go vent their emotions, there may be opportunities yet this year for some more public weeping.