I will admit that I usually have the TV on when I am working- yes, I realize that this isn’t the most efficient thing to do, but it gives me things to write about, so I think it’s a fair tradeoff. In this case, the thing that caught my eye was the following commercial:
What Rachel initially seems to be describing is what economists call either a public good or a common resource. The notable feature of these goods is that their use is not limited to paying customers (i.e. not “excludable”, in economic terms), in which case her argument makes sense. Unless a good that is not restricted to paying customers is attached as a loss leader to some good that is expected to be profitable, producing the good isn’t a very good business model for a private enterprise, even if it would be good for society as a whole. Think about it- if you, as a customer, could sit around and wait for other people to pay for something so that you could use it for free, wouldn’t you? The problem is that so would everyone else, so that thing would never end up getting produced. Economists call this the free-rider problem. In reality, people are more altruistic than economists generally assume, so they tend to contribute more than zero to public goods (public television, anyone?), but usually not enough to achieve the level of production that is best for society.
If producing a public good would be socially beneficial, then it can make sense for the government to step in and coordinate the funding of such a project. But is that what is going on here?
My internet research tells me that Rachel is at the Hoover Dam, and the shot in question is of one of the newly-constructed bypass road. (In fact, I believe that the structure in question is the Mike O’Callaghan – Pat Tillman Memorial Bridge. Also, the commercials were shot by Spike Lee, in case you were curious. I’m nothing if not a researcher.) Whether we’re talking about the bridge itself or the dam in general, the same question remains: could access be restricted to paying customers, thereby giving private enterprise an incentive to build such a structure?
Making the bridge excludable would be pretty straightforward- just install a toll booth. (Update: See the comment below regarding excludable bridges, because it’s awesome.) As for the dam itself, isn’t the main point of the dam to provide power to paying customers? From wikipedia:
Power from the dam’s powerhouse was originally sold pursuant to a fifty-year contract which terminated in 1987. When the contracts ended, the Bureau of Reclamation assumed control of the powerplant from the Los Angeles Department of Water and Power and Southern California Edison Co. The contracts were renegotiated and implemented for a 30-year period, and will expire in 2017.
How, then, is the Hoover Dam’s output not excludable? It is, in fact, restricted to the 15 paying customers that are included in the contract. Could these organizations not have banded together to finance the building of the dam in the first place?
I get it- it’s hard for companies to coordinate. It’s also possible that the cost of the dam is effectively subsidized by the government, despite the fact that the output isn’t free. It’s also the case that the Hoover Dam was built during the depression, when private enterprise was suffering from lack of credit availability and irrational skittishness about investment. But it’s nonetheless a fallacy in general to basically say “hey, this thing is big, so it has to be provided by the government.” I mean, look at Google. 🙂
There is, however, another argument to be made for the involvement of government in projects such as the Hoover Dam. If the dam provides positive side effects, or externalities, to those not involved in the production or consumption of the dam itself, then it can make sense for the government to subsidize these projects to the degree that they provide these third-party benefits. That said, a subsidy would be more like “hey guys, we’re going to throw a few bucks your way to get this thing built so that citizens can benefit from it as well,” not “oh here, allow us to build this thing for you.” Apparently, the dam provides flood control, irrigation water, and a tourist attraction in addition to hydroelectric power, so it’s not hard to see that positive externalities may be present. Also, I heard that hydroelectric power is good for the environment or something, so there’s that too.