 In several of the talks during the week, we've discussed issues that fall under the general heading of externalities and public goods. In other words, the theory of economic welfare and the relationship between different kinds of market behavior and welfare outcomes that you see in a market. And I want to give a little bit more systematic treatment today of the theory and practice of externalities and public goods and what role, if any, the government might have in addressing these kinds of scenarios. So, you know, what most economists believe, most mainstream or neoclassical economists would say, we're in favor of the market, we like markets, we like the free market, we support the free market, because free markets are really great. Or they would say, free markets maximize the wellbeing or the welfare of society. As long as a few little minor conditions hold, right, everything is perfectly competitive, so-called. All firms face perfectly elastic supply curves and input demand curves so there's no monopoly or monopsony. All market participants have the same information so there can't be any asymmetries or agency problems or information issues. All externalities are fully priced out and the government has supplied the efficient amount of all public goods. As long as those conditions are met, then we can step aside and say the market is great, the market is perfectly efficient. Right, because if any of these conditions fail to hold, if any of these conditions are not met, we have a little problem with market failure, okay? So if we have imperfections to competition like monopoly and externalities, if we have some Asians free riding on the actions of other persons, if we have asymmetric information or increasing returns or network effects, if prices are sticky rather than adjusting immediately and instantaneously, et cetera, et cetera, et cetera, et cetera, well then the market's not so good. Okay, so this is kind of like one of those, that joke, other than that Mrs. Lincoln, how was the play? Right, I mean, okay, if that's it, well then of course the market's awful, of course markets are never gonna be any good because it's impossible to meet these kind of conditions. Is that all? Is that all you're gonna impose on the market? Well, then why even bother to have markets at all? So what I wanna do in the next few minutes is evaluate some of these arguments for market failure and as you might anticipate point out some weaknesses both theoretically and empirically to these arguments. So we'll do a little bit of theory first and then discuss some case studies, of various externality and sort of market failure arguments and that's where most of the action in the Austrian and sort of libertarian literature has come from. So let's start by talking about the theory of externalities or what are called external benefits and external costs. How many of you students have seen a diagram like this before? So if you've taken a standard economics course at the undergraduate or graduate level, at some point you've probably seen some version of this analysis, which mostly comes from the great British economist AC Pigou and Pigou argued that well, in a normal market you have a supply and demand and the demand curve reflects the willingness of the buyers to pay for a certain number of units of the good at given prices. The supply curve reflects the willingness of sellers to bring goods to market at given prices and where the supply and demand curves intersect you have an efficient allocation of price and quantity. However, they say, right, that analysis only holds the standard analysis only holds if everybody sort of receives all the benefits and costs associated with their actions, right? So suppose this is the market for producing steel, let's say and the demanders of steel are companies that build cars out of steel or firms that buy steel to make buildings or whatever and the suppliers of steel are steel companies and when the steel producers decide how much steel to offer to the market at given prices, right? They're thinking about how much it costs them to produce that steel and whether they can earn a profit by supplying certain amounts of steel at prices they expect to receive. What are those costs? What are the costs of producing steel? Well, you've got to buy, you know, or you have to buy iron or and so forth, you have to hire workers, steel workers, you have to pay for, you know, some kind of a factory that produces the steel parts and you have to pay for the electricity and maybe there's insurance on the building and you have a marketing staff and so forth, right? So the entrepreneur has this set of costs that are associated with producing steel and the entrepreneur compares those costs to expected future receipts and deciding what to do just as we discussed on Monday. But the Paguvians say, what if there's another cost of producing steel? Namely when you produce steel in a big factory with a smokestack and smoke comes out the smokestack, you know, that smoke drifts, you know, onto the, into the neighboring areas and there's a farmer whose farm is right next to the steel factory and some of that smoke, you know, takes the form of, I don't know, acid rain or something and the acid rain goes down onto the farmer's crops and damages some of the farmer's wheat and the farmer has a reduced wheat harvest because of damage to his field that was caused by the smoke the steel factory is putting into the air. Therefore, according to Paguv, you know, if you really look at all of the costs, not just the costs that are directly borne by the steel entrepreneur, but the costs that are borne by society, there are some extra costs, right? There's the cost of the damage to the farmer's field, the cost of cleaning up that damage or the cost of compensating the farmer or the cost of averting that pollution somehow, the cost of the farmer moving somewhere else and the steel producer should be taking those costs into account but isn't, right? So the idea is if you look at sort of, you know, the normal supply curve that reflects the private cost to the steel producer, the cost of hiring workers and buying the intermediate goods and paying for the electricity and so forth. But if you add on the cost to society of cleaning up the damage from pollution and the loss of crop yields and so forth, there's actually a higher cost, right? We need to add something to that marginal cost curve to get a social marginal cost curve, right? That's higher than the private marginal cost curve. And in the Paguvian analysis, right? Under the free market, which of course we know means factories are free to pollute as much as they want, right? And dump chemicals in the water and shoot people or whatever, right? The amount of steel you get produced is QP at a price of PP, that's the private equilibrium quantity of steel, but that's not efficient. Why? Because the steel producer is not taking into account all the costs of producing steel. If we could somehow force the steel producer to take into account all the costs, including the cost of helping out the farmer, right? Then the steel producer will be looking at that higher marginal cost curve and would choose a different quantity QS and would associate with a higher price PS. So the free market is producing too much steel, okay? I mean, it's a good exercise that I sometimes do with students in presenting this analysis. Say, according to Puguvian welfare economics, what is the optimal amount of pollution in a society, in a community? What's the optimal amount of pollution? And of course, everybody's instinctive answer is, none, zero, right? But according to the Puguvian analysis, that's not correct because the only way to get zero pollution is to have zero steel. But we like steel, right? We like to make things out of steel. So the neoclassical economics answer is, the optimal amount of pollution is however much pollution you get when factories are forced to take into account all the costs of production, including pollution, right? However much pollution you get at QS, the socially optimal quantity, that's the optimal amount of pollution, assuming that you've drawn the social marginal cost curve to incorporate all of the costs, right? You could do the same thing for so-called unpriced benefits, spillover benefits, where allegedly the market produces a quantity that's too small. So what are the remedies? The standard Puguvian remedy is the government should, if there's an external cost that's not being taken into account by the producer, a negative externality, the government is supposed to impose a tax on the producer that's equivalent to the amount of the damage caused by the externality. And then you know, presumably use that money to help farmers or something. And so if the steel producer is forced to pay a tax on each unit of steel produced, equal to the vertical distance between those two blue lines, then the steel producer acts as if he or she is taking into account all of the costs and then you get perfect optimality, okay? I mean, a lot of people who would identify as sort of free market economists, like Greg Mankiew, advocate very strongly for Puguvian taxes to battle climate change and so forth. So there are a number of problems with this kind of analysis, right? So again, just from a theoretical point of view, I mean, measuring costs and benefits, absent demonstrated preference, right? Without looking at the actions that people actually take is sort of ambiguous and subjective. I mean, what is the cost to the farmer of pollution? And that may be something that's not possible to quantify, right? Everybody's actions around me impose some benefits and some costs, right? I mean, Tho Bishop is sitting right there. Tho is a handsome guy, right? And so whenever I see him, I get happy and I get, you know, I give a bit of lecture just knowing that he's here, right? But I mean, I'm not collecting any, I'm not paying him any money for that, right? So in the Puguvian analysis, you know, Tho shows up at my lectures an inefficiently small amount of the time, right? Because he doesn't get, he doesn't get, he doesn't appropriate all the benefit of his action, right? So I should have to pay Tho to get efficiency because I like him being here. And if I didn't like, you know, Louie, I don't want him here at all. Where's Louie? Sorry. There's somebody I don't want here at all. You know, I should get compensation for that person showing up. I mean, we can make up all the positive and negative externalities we want, but that doesn't mean they're actionable because you can't demonstrate how much I benefit from this or how much this other thing hurts me outside of my action in the market, okay? You know, another problem, so-called comparative institutional analysis, you know, even if you believe this analysis was correct and appropriate, I mean, do you really trust some government agency to figure out the amount of the externality and to impose the tax in a way that's efficient? Now you've set up a big government bureaucracy that could become corrupt and could be captured by special interests and has a resource cost of its own. I mean, the solution, you know, the cure might be worse than the disease even within this kind of framework. You know, another question we'll turn to in just a moment is, you know, whether efficiency defined in this way should really be the goal of the legal system anyway as opposed to some notion of being consistent with rights and forcing people's rights rather than maximizing efficiency. And so just from thinking about it theoretically, I think we could conclude that, you know, externalities defined as spillover benefits and costs that are not fully priced out in the market are ubiquitous. They're all around us. We all benefit from things that other people do without paying for it and we all act in ways that other people might wish we didn't act without their ability to stop us. But so what? I mean, that doesn't mean there's anything actionable that comes out of that. There's no obvious public policy response. There's no regulation that can fix externalities. Externalities are everywhere and so what? Doesn't mean we should do anything about them, okay? Now, there's yet another way to think about externality problems and to say, well, let's go back to my pollution example. You know, if Thoe, if his home is next to my home, right, and I have, let's say I've been painting my house, I have some leftover paint thinner and other toxic chemicals. If I just take that bucket and walk over to Thoe's house, I guess I'd do this at night and dump this in his backyard, you know, and then he found out about it later. I mean, Thoe could, he could take me to court, right? He could sue me for property damage, but we wouldn't say Thoe is the victim of negative externalities, right? We'd say Peter dumped garbage in Thoe's backyard and Peter violated Thoe's property rights, right? So if by externality, we mean smoke that drifts over to somebody's land and then, you know, it ends up on that other person's crops and damages his crops, that sounds a lot more like me dumping my garbage in Thoe's yard than some kind of nebulous externality issue, right? So if property rights are well-defined, right? And if someone else engages in some action that violates your property rights, then there should be a remedy through that, through the legal system, right? That's a tort. It's a violation of my person or property. Externalities sort of have nothing to do with it. So you might say the solution to externality problems is simply to define property rights very carefully, to say that if somebody else is polluting and the polluting actually does damage to your property and you can prove it in court, then you can enjoin that action or you can sue for damages. Now you wouldn't be able to sue for climate change, some nebulous thing that doesn't have a direct measurable impact. You'd have to be able to demonstrate some causal relation between some harm that you have suffered to person and property and some action of some other person, okay? So it might be difficult to do that in practice, but you could. Now this way of thinking about externality problems has actually become quite common among economists, especially in the field of law and economics, largely thanks to Ronald Coase, who came up with sort of a new way of thinking about property rights solutions to externality problems, right? So what Coase contributes to the discussion is the following. I mean, you know, okay, so I dump garbage on those in those backyard. That seems like a pretty obvious case of me violating those property rights. Okay, but what if, you know, what if like Bob Murphy, I'm a very bad singer, right? And I just sit on my back porch and I sing a really, I'm really loud and really off key and it hurts those ears. Is that a violation of those property rights? I mean, that one is hard. Or to make it sort of an intermediate case, you know, if I drive my car onto Tho's grass and damage his grass, okay, that's a pretty obvious case of trespass. But what if I have one of those little drones? Okay, if I fly my drone over Tho's house, is that a violation of Tho's property rights? Well, I mean, it kind of depends on how we define property rights in air, okay? If Tho owns the land on which his house is built, most people would say, yeah, he also owns the air, you know, a few feet above that. If I fly my hovercraft, you know, six inches off the ground and park it in his backyard, that would be trespass, right? But if I own a jet plane and I fly 30,000 feet over his home, we probably wouldn't consider that to be trespass, right? So how high does your shaft of air go that you own? That's not something that we can sort of obviously figure out ahead of time. So people say, well, wait a minute, you can't use property rights, you can't turn externality problems into property rights problems because you don't know what the property rights are. We don't know what constitutes trespass or tort without having to deal with these technical questions like how much air does Tho own above his yard? So the Kosian approach says, we don't have to worry about that, okay? Let me explain what Kos argues and then point out some deficiencies to Kos's reasoning. So Kosian welfare economics, I mean, it's not at all like, sort of Rothbardian welfare economics, right? It's very sort of positive and value free. And Kos says, well, instead of talking about one person causing harm on another, that's sort of old fashioned and scholastic. We should just say that, well, harm occurs because of something that I did and something that Tho did, right? I mean, I punched Tho in the face. You could say I caused his bloody nose by punching him, but you could also say he caused his bloody nose by failing to duck when I swung my arm. And each of those is an equally legitimate way to describe what happened. That's the notion of reciprocal harm. Kos also argues that, Tho and I ought to be able to strike some deal. We ought to be able to negotiate to sort of solve this kind of problem and we can do so efficiently. That leads to the conclusion that the initial allocation of property rights under certain assumptions does not determine how property is eventually used. The initial allocation of property rights does not determine how the property is ultimately used. Let me give you an example. And we'll do it with drones, okay? These drones are cool. And I don't think you can get your Amazon stuff from a drone right now, but probably within a few months you will. Maybe you can in some places. So imagine the following, imagine several different cases, right? So imagine that there are two legal regimes. In one legal regime, the courts rule that if you own a house, you own the air all the way up to 10,000 feet. So if anybody brings their drone or whatever over your land within 10,000 feet, that's trespass. That's a violation of your property rights. So you have the right to prevent people from flying drones over your house if you want to. Okay? So that's the left-hand column there. The right-hand column describes another legal regime. Suppose the courts have said no, as long as they're not like buzzing around your window, somebody can fly a drone over your house and that's not a violation of your property rights anymore than an airliner flying 50,000 feet or 30,000 is a violation of your property rights. So imagine two different legal regimes, okay? Now, also imagine two different sort of economic situations for how things are valued, okay? So suppose that there's a case where the property owner is me, it's my home. If a drone occasionally flies over my house, I don't care, it's not a big deal. It doesn't bother me all that much, right? And suppose that Amazon can make a lot of money by using drone deliveries, okay? So in a sense, the highest valued use of the air above my house is to have little Amazon drones flying through it, delivering people's packages, okay? So that's the scenario in the sort of top row. But you could also imagine, okay, now it's not my house. I'd say it's a sanitarium where people are recovering from catastrophic illness or war veterans or shell-shocked veterans are recovering from horrible injury and they need total peace and quiet to be able to recover, some kind of convalescent facility. And if there's any noise at all, it will get people very upset. And so in that case, the value of peace and quiet, the value of keeping the drones away is greater than the value to Amazon of being able to, you know, because they can always fly around. So imagine a scenario where, you know, it's really more important to keep the drones away than for the drones to be allowed to fly. So that gives us four possible scenarios, right? By interacting these two dimensions, you know, two by two, we have four possible outcomes. So suppose that the legal system says, Amazon has the legal right to fly above your house and it's the case that you don't really care that much if drones fly above your house. You know, what would we actually expect to see? A lot of drones flying above your house. Okay, we would expect to see drones flying in a world where drone operators have the legal right to fly above your house and that's more valuable than you keeping the drones away. Likewise, imagine the legal system says, a drone operator cannot fly above your house without your permission and you really don't like drones or you're running a business where it's really important not to have any noise. What would we expect to see then? We would expect drones will not be flying above your house, right? They'll detour around and fly over somebody else's house if they go way up in the sky or Amazon will use trucks or something else. Okay, so I mean, it seems pretty obvious you don't need any analysis to come up with this. But what about the other two cases, right? Suppose the law says that you have the right to keep drones away from your house. But assume also that Amazon is making a lot of money from operating drones. And imagine you own a lot of real estate and it would cost Amazon a lot to have to detour around your property. Amazon would really like to be able to fly its drones above your house but legally you can prevent Amazon from doing so. What would you expect to happen in that case? Yeah, Amazon will just knock on your door one day and say, gee, the law says we're not allowed to fly above your house without permission. We're making 20 grand a day on these flights above your house. Could we pay you like $2,000 and you let us fly above your house? Or I mean, if you're a good bargainer you might demand 19,000 or something like that. But yeah, I mean, the fact that you can legally prevent Amazon from flying above your house doesn't mean they won't. It just means if Amazon is flying above your house they'll pay you for it, right? So you could imagine that the drone operator pays for the right to fly over this property. And so you still get drones flying. Okay, likewise, imagine that Amazon has the legal right to fly over your house but you really, really, really, really don't want them to and you're rich or you're operating a business that makes it highly profitable. You have a lot of retained earnings. What would happen then? You would pay Amazon to stay away. Okay, so the landowner could pay Amazon to fly somewhere else. And so you would not get any drone flights. So Kose's argument is, so what ultimately determines whether or not drones will fly above your house? It's not whether the legal system gives the property right to the landowner or to Amazon. Right, in other words, it's not the columns that matter. It's the rows. Okay, so if drone flights are the highest valued use of that space, we would expect to see drone flights either because Amazon has the right to begin with or because Amazon purchases the right from the landowner. If peace and quiet, the absence of drones is the most valuable use of that space, we would not expect to see any drones either because they're legally prohibited in the first place or because the landowner bribes Amazon to go fly somewhere else, okay? So Kose's argument is, if property rights are exchangeable in the market, then what outcome you ultimately see, how property will ultimately be used, depends not so much on who initially has that property right, but rather on what is the most valuable use of that property right, okay? Just as we say, does anybody have like a funny hat or something, you know, you got a hat. If I inherit a hat from my grandparents it's a really valuable hat, it's worth a lot to collectors, but I hate hats, right? We wouldn't expect me to hold onto that hat forever. Somebody's gonna buy it from me, right? That hat will eventually make its way into the hands of someone who really values it a lot, regardless of who initially had it. Kose is arguing that property rights also, if they are tradable, will end up in the hands of parties who really value them a lot, regardless of who initially had them. Here's another sort of fun example. Is anybody here from Chicago? Famous example of Chicago at Wrigley Field, the so-called Wrigley Rooftops. So for those of you not familiar with this case, this is a famous baseball field in Chicago, it's home of the Chicago Cubs. It's one of these old baseball parks. It's right in the middle of a densely populated urban area, and on the street behind the ballpark there are rows of houses from which you can see into the park. Okay, so for years people would just watch the games from these windows and from the top of the roof, and then eventually the people who own these properties put up their own little stands. Okay, so this right here is not part of Wrigley Field. There's a street back here, and these are buildings across the street that are owned by other individuals, right? Who make money selling access to Cubs games. Okay, for years the Cubs have fought to shut these people down. The Cubs have gone to court many times to argue that this is an unfair free riding on the activities of the Cubs. Most recently they filed a copyright infringement suit because these people when they advertised their seats are saying, you know, you can see a Cubs game and maybe they would even have like the Cubs logo in their ad and the Cubs tried to sue for violation. Ultimately what happened is most of these owners, they agreed to pay a licensing fee to the Cubs if the Cubs would leave them alone. Okay, so the Cubs are making some money off of them. But here's the point, right? First of all, if the Cubs really didn't want to lose money to these people, the Cubs could build a giant wall to block the view. Right, they could if they wanted to, okay? Or something else the Cubs could do is simply buy out those properties, just make a cash offer to those building owners so the Cubs would then fully command that space. But the point is, right, what's the highest valued use of that area above those houses? The thing that has the most sort of commercial value, seats for people to watch Cubs games. Okay, so even if the courts gave the Cubs the legal right to have those buildings demolished, it would not make sense for the Cubs to do so. It would make more sense for the Cubs to simply purchase the property right from these owners. Right, the most efficient use of that space is to allow people to watch Cubs games. The Coss's argument is that this is what we would expect to see regardless of the legal arrangement of rights. The only difference is who pays money to whom. Right, you still get the same outcome of people watching the games. But of course, so that leads us to some difficulties with this argument. So the sort of positive version of what has come to be called the Coss theorem is as follows, if property rights are tradeable, exchangeable, and parties can bargain efficiently, then the initial allocation of property titles does not affect resource use and wealth creation, i.e. the creation of value and putting these resources to use. Probably get into several problems with this. One problem is what you might call sort of a normative version of the Coss theorem, which Coss himself seemed to endorse. Coss says, well look, he says, suppose there really is a case with drone flights. There really isn't argument about the drones. But in fact, there's some impediment to exchange. It's too hard to negotiate. It's too hard to get all the different parties together to work out an efficient deal. What should the judge do? According to Coss, the judge is supposed to reason like an economist and say, well, if the property rights were tradeable, I think they would end up in Tho's hands. So I'm just gonna decide in favor of Tho. The judge is supposed to decide what's the value maximizing arrangement and then impose that by Theot. Okay, now that's a different argument from just saying, well, I predict if parties could bargain, this is what they would bargain to, okay? So number of problems both with the positive and normative versions, right? So I mean, of course, Coss fully recognizes as just notion that sometimes mentioned, sometimes parties won't be able to bargain efficiently. Okay, there's also a question of what's meant by value. Right, I mean, this is an objection that's been raised by Walter Block. Go back to my example with the hat. You know, the Coss theorem seems to imply that I got this hat from my grandmother, but this hat is some kind of really valuable resource. You know, if you put the hat on display in a museum, people would come and pay money to see it. Therefore, we would not expect me to keep the hat because some museum would buy it from me. And if they're bargaining frictions, the Cossian judge should simply give it to the museum. But I mean, what if this hat has a lot of sentimental value to me, right? Has a lot of personal subjective benefit to me. I wanna have it in my house. I wanna hold it in my hands. I wanna put it on my head because it reminds me of my grandfather, even though I'm not making any money off of it. And yet there's some museum that could make thousands of dollars if it had the hat. Who cares? I mean, I still should get to keep the hat. Whereas the Coss theorem suggests that if I won't sell to the museum, the court should just give it to the museum. Okay. You know, there are long-term effects of reallocating property titles. Judges make mistakes. So maybe we don't wanna entrust judges with this power. And sort of empirically, it's the case that in fact, people rarely litigate these kind of disputes anyway. I mean, usually if I were to dump garbage on Tho's land, rather than Tho take me to court, or rather than some complicated scheme where Tho pays me a certain cash amount to keep my garbage on my own lawn. People just sort of usually work this out amongst themselves. They go to the village elder and say, hey, help us figure this out. We can't agree on whose land this is. Or Tho's a nice guy. I don't wanna make him mad. I'll stop doing it because I wanna maintain good relations and so forth. People tend to solve these problems on their own without using the court system at all. Okay. So what about public goods? Even economists who would accept some of these criticisms of the standard externality analysis might still say, well, gosh, we've gotta have the government provide public goods. I don't know if any of you were in Bill Butos' seminar on science and government. He talked about this issue in the context of science. So it's another thing you get in your mainstream textbooks, right? That typical goods that are rivalrous, meaning two people can't consume them at the same time and for which consumption is excludable, meaning you can prevent non-payers from consuming, those are provided efficiently in the market. Market's great on private goods, but if goods are non-rivalrous, meaning multiple people can consume them at the same time, and consumption is non-excludable, meaning it's hard to pay people not to withhold the good from people who don't pay, then the free market doesn't do the job. Then the free market doesn't provide enough. There's a picture of the lighthouse on my title slide. It's a famous example used by Paul Samuelson. Samuelson says, well, every ship in the harbor benefits from the lighthouse. You can't pinpoint the beam only towards the ships that have paid for lighthouse services, right? And a ship over here can benefit from the lighthouse without interfering with a ship over here that benefits from the lighthouse. Therefore, no entrepreneur can make money from supplying lighthouses. Only the state can provide lighthouses and fund them through taxation. That's the only way to get a lighthouse because the free market will not provide enough of these types of goods, so-called public goods. So what are some problems with this? Conceptually, the notion of public goods suffers from the similar difficulties to the problems of externalities that we discussed before. So again, the standard argument is one of rivalry that if a good is non-rivalrous, it's difficult for entrepreneurs to provide this good profitably on the market. You can consume it and I can consume it at the same time. For example, something similar to the lighthouse, a firework show, okay? I'm watching a beautiful firework show. Tho is watching the firework show. That doesn't detract from my enjoyment, right? And you can't prevent people who didn't pay from watching the firework. So there will never be a private firework show. Okay, of course, if you've ever been to Disney World, you might question this sort of example, but that's a sort of standard analysis in the textbook. Okay, so first of all, what does rivalry actually mean? Have you ever been to a firework show like for the 4th of July or for some holiday in a really crowded, like a park? So I mean, yeah, maybe 10 people can watch a firework show without interfering with each other. Maybe you can cram 100 people into the park to watch the beautiful firework show. But how about a thousand or a million or a billion? I mean, at some point, we really are getting in each other's way, right? And we really are interfering with other people's use of that resource. So remember, the thing we're talking about is not fireworks in the abstract. The economic good or servicing question is a particular fireworks display in a particular town on a particular day. And that may very well be rivalrous, depending on the physical characteristics and so forth. Same thing with exclusability, right? They used to say radio was a public good. Why? Because if you're broadcasting radio on a certain frequency, you know, 98.7 FM, anybody with a radio who can turn it to that frequency can listen to your show. You can't stop them from listening to it. Therefore, the free market cannot provide radio stations, right? Well, some very clever entrepreneurs in the 19-teens, 1920s figured out a way to sell, sorry, figured out a way to provide radio services, radio broadcasts at a profit, namely what? How do radio stations make money? Advertising, yeah. They figured out if you bundle the free music or talk show or whatever with a good that somebody else is willing to pay for, namely advertising, you collect money from advertisers, not from the end user. Oh, and then some people figured out something like satellite radio, right? If you have SiriusXM or some other kind of satellite radio and you don't pay your subscription, you don't get it. Okay, if you get your music through Spotify or iTunes or some service like that and you have certain kinds of premium versions, if you don't pay, you don't get it. Okay, so my point is it's not the case that radio as some kind of abstract thing is inherently non-excludable for all time. No, entrepreneurs are always figuring out clever ways to exclude non-payers and to bundle the provision of the service with something else that clearly is excludable, okay? So then we get back to the same kind of problem that we had before. Suppose it were the case that something like a firework show in a particular location at a particular time really were non-rivalrous and non-excludable. Suppose it really is the case that no private entrepreneurs are producing a particular firework show at a particular time. Does it follow that social well-being is enhanced if the government levies attacks on everybody in the community and then puts on a firework show? From the point of view of the concept of demonstrated preference, right, that preferences can only be demonstrated in action, the answer is, well, no, we don't know that for sure, right? How do we know that each person who gets to watch the firework show gets a marginal benefit that's greater than the marginal cost of the money that was taken from them in taxes? I mean, the government can just assert that, right? But if a good or service is produced by the state through taxation, we simply have no way of knowing whether it provides benefits in excess of the costs. Okay, so my point is, even if you could imagine some kind of public good that the market is not currently providing, it doesn't follow that well-being is enhanced if the government does provide it. I mean, the government provides a lot of things that the market doesn't. People say, well, if it weren't for taxation and government spending, we wouldn't have put a man on the moon. You know, because we all benefit just from the knowledge that a man was on the moon, right? It's probably, you know, sort of like Jeff mentioned this in his previous talk. I mean, yeah, you could also say if it weren't for Pharaoh and his power to enslave, we wouldn't have the pyramids. They're all the biologists. But why do we need the pyramids? I mean, why are we better off with the pyramids? Yeah, the government can tax you and build all kinds of things and call them public goods. That's not a scientific explanation that social welfare has gone up, right? In other words, something that, when the government produces something that doesn't pass the market test, we have no way of knowing whether it's welfare enhancing. Whereas something that comes, that goods or services that emerge on the free market through the voluntary decisions to buy and sell and so forth of all of the people who are involved in production and exchange, we can say that that is welfare enhancing because it emerged on the market, okay? I already mentioned some of the case studies. Actually, there's several papers on the lighthouse. It was an example that was used by Coase. Coase showed that in fact, most British lighthouses were not provided by the state. They were provided by private entrepreneurs. Though the story's a little bit complicated. Coase showed that the way the lighthouse owners made money is they collected fees from the owners of loading docks, right? So the money, yeah, the ships didn't pay the lighthouse owner, but the ships had to pay a docking fee and then the owners of the docks kicked back a fee to the lighthouse. It wasn't a pure laissez-faire solution because there was a lot of government involvement even in that, but roads, bridges, I've all been provided privately on the market, contract enforcement. If you listen to any of Bob Murphy's talks this week right on the Stateless Society, we know that all kinds of legal and judicial services can be provided on the market. I've already talked about a lot of these. Okay, so my conclusion is that at best, public goods are sort of a theoretically interesting, but non-actionable case. There's no rationale for government intervention in the market from the fact that maybe public goods exist. Okay, so I'll stop there. Thank you. Thank you. Thank you.