A public goods Economy I

In this series of posts I will explore what it would be like if an economy was entirely, or almost entirely, running on “public goods”. In this first post I will explore what “public goods” are, how we are already part of a public-goods-economy and how people excel at making public goods non-public.

What are “public goods”?

I will be trying to keep this as black-and-white as possible, for clarity of thinking, simplicity of concepts and because I want to think of the real-world in contrast to this “public goods economy” rather than argue normatively about it. If our theoretical public goods economy is going to be a very stark contrast, it serves its purpose. As a result I will be using a rather strict definition of what a public good is.

A public good is a good that has the following two characteristics: it it

  • non-rival, i.e. consumption or use of it by one agent does not diminish the amount available for consumption or use by another agent;
  • non-excludable, i.e. producers of, producers with or consumers of the good are unable to exclude any other consumer or producer access to the good;

Talking about such goods might only seem useful if we have any inkling whether such goods really exist, right?

Simple examples of public ‘goods’

So let’s first look at a few examples.

Love

Is Love is a public good? Well, let’s think for a moment: If I feel love for something, does that diminish the ability of anyone else to feel love for something as well? Clearly the answer is: No! So, it seems fair to assume that love is non-rival. Can I, or any other individual, be prevented from feeling love for something? The answer to that one is more tricky. At face-value I would be tempted to say: No. But then how about people whose neurological make-up or life’s experiences have made them unable to feel love for anything? It would seem very difficult to create a situation in which a human being is truly unable to experience love for anything. Humans are incredibly good at developing emotional attachments to people, animals, plants and non-living things, even to things that are past and no longer present.

It seems to me that love for something is probably a public good under the definition above. You might wonder whether “love for something” is at all economically relevant, for example, can it be traded or acquired other than by producing it yourself, for yourself? Interestingly enough, when you ask people about their perception of “love for something” they often experience that something as playing a role in the emergence of their love for it. Similarly, children that grow up to share a passion with one of their parents often experience this as having been given that love for something by their parents. Students that grow to become passionately motivated for a subject area often attribute that to one or more other agents such as teachers, fellow students, a book or other media, or another interaction they had with a fellow human, with something in nature, etc. It seems to me beyond reasonable doubt that love for something can be acquired from, or under the influence of, other people or objects. The fact that it can be acquired, that an individual could experience a demand for it, i.e. have a preference to experience love for something, does not automatically mean that this demand can be met. The supply-side of the public good “love for something” is … well … complicated.

Before we leave this example for what it is, let’s consider the receiving end of love. Is “being loved” a public good? Well, I would say it is definitely non-rival. If person A is being loved by person B, then this does not diminish the possibility of a third person C to also love A. So “being loved” is definitely a non-rival good. Also, “being loved” is definitely a good or service that you can only receive, although you might have some influence on triggering it.

Yet, it is interesting to note how, culturally, there are all kinds of mechanisms to attempt to make this a rival good. Asking someone to identify their “bestest friend” is as much such an attempt, as is the morality of associating the love for someone, who is already loved by someone else, with guilt and “sin”. Monogamous cultures institute a kind of “priority right” in the allocation of the good of “being loved” regarding living out that “good”. Children occasionally do that too regarding pets being loved, wanting to establish a property right on the basis of an emotion being felt.

The non-excludable and non-rival “love for” can itself be turned into a tool working towards rivalry and excludability being imposed on “being loved“. You might have wondered why I would deploy such a silly example as “love” for a discussion of rivalry and excludability. One reason being that I expect almost all of my readers to be familiar with it, a more important reason was that it stretches the notion that you might have had about what we can consider a “good” in the first place. But most importantly, I chose it because of the complications it introduces into a seemingly clear context. The “good” love has two sides that are seemingly culturally at odds with each other when both are considered public goods. At odds to such an extent that most cultures have developed elaborate moral and societal systems to establish which “being loved” versions are public good and which aren’t.

In post 19th century nation-states we are all encouraged to love our country and no one feels upset by their country being loved by more than one person. Not only are some humans in those same countries a little weary of citizens having love for multiple countries, many humans tend to be less liberal concerning multiple persons loving their partner in the same way they do. However, no one minds multiple siblings loving their brother/sister, etc. So, we start differentiating between a multitude of “love for” and “being loved” flavours, we devise intricate rules about what can be legitimately exchanged with whom, under which conditions and for what, and what constitutes treason … we humans are very good at making things very complicated. And to top it off, these rules are subject to constant change and revision.

Knowledge

Lets look at a more classic, and less opaque, case in Economics: Knowledge. It is kind of evident that “me knowing something” does not preclude you from “knowing exactly the same thing”. So, the trait of non-rivalry seems pretty much given. How about excludability?

Again, this is where the difficulty starts. There are plenty forms of knowledge for which it is very hard to exclude people from acquiring them. Excluding someone from the knowledge about whether it is now night or day would require extreme measures such as locking them up in isolation without access to natural light. But of course this is done to humans occasionally. It points to knowledge being mostly non-excludable, if it weren’t for the fact that some of the resources you might need to acquire that knowledge, i.e. such as your freedom, might be excludable goods themselves. Sometimes knowledge becomes part-excludable because access to it requires other knowledge first. Primary school kinds aren’t taught algebra, calculus or research-essay writing, because they first need to learn arithmetic, reading and writing.

Although knowledge’s ‘innate’ hierarchies may seem to dictate the existence of this “prerequisite” knowledge, it is not always that clear cut. Many hierarchically organised curricula are actually just embedding the historical path along which that knowledge was discovered into the didactics. Do you need to have learned classical mechanics before you can do quantum- or relativity-theory? No! But making quantum theory or Relativity accessible to people without a training in classical physics requires a profound and time-consuming didactical rethink that most teachers are not willing to engage in because it adds cost for them without tangible benefit. In addition there can be strong cultural, societal and economic incentives to make certain chapters of knowledge excludable by didactic or other means. You might see a theme developing here.

Drinking water

Lets look at another classic, and more materialistic, case in Economics: drinking water. Now, the more you think about it, the more complications will arise here too but let’s do the simple version first and try to stop in time. In all countries drinking water supply is either not organised, or publicly organised with some role for private entities, or entirely publicly organised. Excluding an individual from a drinking water supply leads to lethal consequences within days. As a result, a persistent attempt at excluding someone would likely attract murder charges. This suggests that although it can be done, it is generally not something that is ‘allowed’. Evidently your local private drinking water company might sanction you for not paying the bill, but it is highly unlikely they would be allowed to fully exclude you from drinking water without some alternative supplier being forced to step in, or public authorities doing so. I would say the non-excludability of drinking water would be a fair assumption, although that does not automatically extend to “clean drinking water”.

Wait! What? Did we find an example of an non-excludable good at last? Well, with the implied caveats, yes. But what about the non-rival nature of drinking water? Well, there is some subtlety involved here. Evidently if we have two cups of drinking water and I drink one, then this does seem to diminish your ability to drink two. However those cups of water were drawn from a water source, perhaps an aquifer or a river, that is typically a renewable resource. So, as along as our rate of use of it does not exceed the rate at which the resource can replenish itself, we could be forgiven for considering it an effectively non-rival resource. But, well it is non-rival actually even more so for another subtlety.

Most of the water we take in as humans, we also depose of again through breathing and urination mainly. We release that water back into the biosphere that we extracted it from. In a very true sense that really does make it entirely non-rival. We are not consuming water, our claim on water is transitory. We might degrade the quality of the water in the process, as evidently people would prefer not to drink urine. But the biosphere provides clean-up services for that as well. Industrial usage of water is different as it may contaminate the water with substances that the biosphere is unable to remove again. Although the natural evaporation of water typically also removes those, and deposits them elsewhere in the ecosystem. So, it seems to me there is substantial reason to view drinking water as a public good, despite the fact that humans are very good at preventing each other from access to pretty much anything.

The reason for including this example of a public good is because it highlights something quite stark: how consumption as part of a natural cycle can make a rival good a practically non-rival good. This is even more true for the subsequent and final example, that highlights yet another interesting aspect.

Oxygen

Oxygen is perhaps the most critical of all critical substances for human life. Where a total lack of food will likely lead to death within a few dozen days, and a total lack of drinking water might do so in a few dozen hours, a total lack of oxygen will do this within minutes. Now you might balk at thinking of oxygen like an economic good at all, but consider these two examples:

  • oxygen for a covid19 patient: there can be no doubt that this requires particular oxygen and particular administration of the oxygen and that the pandemic has shown that we most definitely do apply economic and cost considerations to this facility;
  • oxygen on ISS / a Mars colony: evidently ISS astronauts only survive because they treat oxygen aboard as a public good. Equally evidently the government of a human Mars colony would need to provide oxygen as a public good in much the same way Earth settlements aim to provide drinking water, with the additional complication that there is practically no naturally available O2 on Mars and it needs to be produced from Martian resources.

But how is this on Earth? Evidently there are no nations and economies that provide this crucial ingredient for our lives, because they don’t need to. It is again an “eco-system service” that the biosphere provides. Like with drinking water, our oxygen supply is part of a cycle, the O2/CO2 cycle of animal + plant life on our Earth. But there is something quite exceptional about this cycle that you may not have considered in the example of drinking water: it is an exchange process, it is an economic process.

The Economics of Oxygen

This is perhaps the oldest “market” on our planet. I know this must come across as a rather bold statement. There is no money in this market, you might say. True that. It is a pure barter market. Oxygen breathing organisms receive their oxygen in exchange for carbon-dioxide. The organisms dependent on carbon-dioxide do the same, but in reverse. Let us study for a moment how this market works.

The pools of oxygen and carbon-dioxide

Plants tap into the pool of CO2 produced by animal life, and equally the animals tap into the pool of oxygen produced by plant-life. Each side produces a good that is non-excludable for agents in the other side of the market. Each side requires for that productivity the non-excludable good produced by the other side. As a result a cycle emerges that, like in our previous example, makes the two goods essentially non-rival. The O2/CO2 market escapes the constraints of barter economies for a few reasons:

  • Double coincidence of wants: where in regular barter economies this causes issues because wants are diverse and temporarily transitory, this is not the case in the O2/CO2 market. The want for these two goods is permanent and its existence is baked into the very markets itself. All that varies is the magnitude of the wants as a function of the amount of biomass on both sides of the market.
  • Indivisibility of goods: as both goods traded are molecular there is no issue about indivisibility even though formally there are indivisible units.
  • Lack of standards for deferred payments: in a barter market, not having one of the wanted goods means you cannot exchange for the other, this can lead to many agents that need good A not being able to provide good B in payment and hence lead to the collapse of the market, or the market running very inefficiently. But the O2/CO2 market circumvents this issue by eliminating the need for instantaneous transaction from individual to individual by both goods being public goods.
  • Difficulty in storing wealth: in a barter economy of perishable goods it is difficult if not impossible to ‘save’ or ‘invest’ for future consumption. The O2/CO2 market also doesn’t allow for “wealth” other than the wealth of the two public good pools, which is a shared wealth between the two sides of the market.
  • There is no common measure of value: in a barter economy this can be a problem, in a way it complicates things when the barter economy is one of many different kind of goods. One would need to know the exchange-rate of every good relative to every other good in order to be able to manage life in a barter economy. Money introduces a single ‘good’ with respect to which all others are measured in value. Looking at the O2/CO2 market one might say it avoids this problem by not having more than just 2 goods.

The last bullet point deserves a little closer look. I highlighted the O2/CO2 market because it is such a neat barter market in two public goods. But is it really just a 2-goods economy? And how come the populations of these two categories of agents not skyrocket to infinity? The populations of the O2 producing agents are kept in check by competition between those agents for resources needed for their production of O2, these rival resources are not CO2, but land and sun light. Similarly the CO2 producing agents have populations held in check by rival goods on their side of the economy. But it feels as if we are missing something, doesn’t it?

The reality of the public goods markets in the biosphere is that they go beyond O2 and CO2. There are extensive networks of predator-prey relationships between plants and animals and amongst animals. Fungi and bacteria also play crucial and easily overlooked roles. The barter-market of public goods in the biosphere is actually a huge, multi-goods market. Nature cares as little about the molecule that gets ripped apart in the mitochondria of the living cells, as it does about the organism that gets consumed by another.

Where does this leave us?

So far we did not explore the human economies of this world, that is something that will have to wait till future posts. I gave a rather straight forward definition of what a public good is, applied it to a few weirder and a few less weird examples of public goods. The purpose of those examples was two-fold: they

  • highlighted the efforts which humans make in order to turn certain public goods non-public goods;
  • highlighted the principle by which nature makes certain non-public goods public goods by incorporating them into cycles of production and consumption;

The idea to look at the biosphere as a huge barter economy in public goods might seem puzzling, and no doubt there are many critical remarks and caveats that could, and perhaps should, be made with that image. The barter economy of the biosphere comes with the problem that the biosphere does not intrinsically differentiate in the value of a CO2 molecule, a tree, a pet dog and a human being. The biosphere has no preferences, except a preference for existing in he first place. Perhaps that deep down inside, the only real preference of the biosphere and the entire non-biological ecosystems it relies on, is nothing more than a complicated restatement of the second law of thermodynamics. Just as evolution by natural selection is essentially an entropy-driven process, the emergence and ever-growing complexity of the barter economy of life may also simply be driven by entropy … that thing in nature that will keep growing for as long as it can.

Many economic ideas, profit-optimisation, utility-optimisation, competitive markets, etc, have deep common roots with many competition and optimisation processes in the natural world. Perhaps we can take the “barter economy of public goods” view of the biosphere as a thought-provoking starting point to explore whether, in our human economies we can recreate some of nature’s sustainability, stability and diversity by also an analogous ‘bartering in public goods’. Perhaps as humans we can then resolve the riddle that has so far eluded Nature: how to recognise the difference between the value of a carbon-dioxide molecule, or a 5-mile asteroid, or a bright star and that of a living organism, or a world of Dinosaurs, or us.

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