Privatization. For many liberals, it’s a bad word.
Patrick Harris’s September 2012 letter criticizing my proposal to privatize Kirkland’s pool states, “there are some things that are done for the greater good of the community and not just to make a dollar.” He also noted that 40 percent of Kirkland pool’s costs are borne by the city (read “taxpayer”) and that it would cost $8 to use the pool without subsidy versus $4 now.
But it’s not good for the community to put tax dollars into inefficient areas. And that’s just what subsidy does. If a private pool wouldn’t exist because it’s unprofitable at $8 per person, that means the people don’t want it, or don’t want it bad enough.
Subsidy is bad, even when supporting good things like swimming pools. Subsidies distort the natural forces of the market by misdirecting resources into inefficient areas, shrinking the overall economic pie. It’s like putting wood into an inefficient fire for heat: less “bang for your buck.”
Mr. Harris believes a pool (like buses) is a “public good.” But he is mistaken. The only justification for government subsidy is for a true public good, and swimming pools and buses are not at all “public.”
There’s only a public good when there’s a market failure. The three market failures are:
1. Natural monopoly where there is the “free rider” problem. For macro goods like national defense. If I don’t pay my taxes, the airspace over my house still gets protected.
2. Common pool good, or “public good.” Like birds in the air or fish in the sea. A common pool good is such that a seller can’t enforce property rights; he can’t “exclude.” Fish already caught I can sell, but fish in the sea, I can’t. This leads to the “tragedy of the commons,” where fish are over-harvested because property rights in them can’t be enforced.
3. Uninternalized externality. It’s like dumping poop on my lawn and not picking it up, or playing loud music, or polluting the air.
It’s an “externality,” or damaging spillover onto others, that the seller doesn’t have to pay for. To “internalize” means to make the producer reflect the cost of the externality in their product, that is pay for its cleanup; like a lawn mower catching the cut grass.
But a swimming pool is not a natural monopoly, common pool good or beset with externalities. I can easily invest, exclude (patrons enter through one gate only), charge and seek profits from a pool. Thousands of Americans have pools in their backyards. A pool is a very private good.
So if in a private market the cost to use Kirkland’s pool went up to $8 (from $4), then that’s the natural price. If it’s unfeasible to run it at that price, without subsidy, then the “market won’t bear it,” and there should be no pool.
If a free market won’t provide a private good, then the people don’t want it. That’s what economics teaches us: let the market decide.
Should Kirkland subsidize a skating rink? Skating is great, as is hockey, but no, Kirkland should not run an ice arena. If the market won’t bear it, then so be it. But like private skating rinks, I can guarantee you there would be affordable private pools to swim in with privatization.
Should Kirkland subsidize a water park with slides and high dives? How about a golf course? No. Let the private sector handle those.
Remember, there is no “right to recreation” or “right to entertainment.” You don’t have a “right to a pool.” So that justification for government involvement is gone. And if its not a true public good, then there’s no argument at all for public subsidy. Just because something is a good thing, doesn’t mean government should provide it.
Privatization maximizes the overall economic pie and leads to increased standards of living and prosperity for a burgeoning middle class. The sky will not fall under privatization. Privatization shouldn’t be a scary or dirty word. Its what has created the great American success story over 235 years.
Jeff E. Jared is a Kirkland resident and attorney who writes from a libertarian and law-and-economics perspective.