First day in class last night and it felt good to be in the classroom. Have a high-energy professor named Kirsten Daniel (from Germany with a doctorate in economics) and the students are very engaged (but it's early; and it's econ). It's clear that she's passionate about the subject and from the first minute she proclaimed the most important thing that we will learn in this class: "MARGINAL BENEFIT EQUALS MARGINAL COST".
I did run across something in the reading that bothered me ... it's about how the public sector views investments. Our text - Managerial Economics by Samuelson & Marks - states "The objective in a public-sector decision ... is broader than the private-sector profit standard ... [a task] may be worth doing even it it fails to generate a profit for the government authority." Why shouldn't government be held to exactly the same cost-benefit standard as is the private sector. Now, I'm not an advocate of Ayn Rand (where's God in her world?), but the government does have shareholders (taxpayers) that are expecting a return (benefit) on their investment (taxes). Government delivers services because we are willing to pay for them - for us, the marginal benefit of receiving the service is equal to the marginal cost of what we are giving up to pay for these governmental services.
It's unclear to me what standard other than economic benefit can be used in evaluating a governmental expenditure. Providing social programs, while a compassionate response to a problem, is an economic decision and is evaluated on its economic merits. Unemployment benefits, head start programs, the VA and every other service provide a benefit at a cost that someone (taxpayers) is willing to pay and it is done because we've decided that the marginal benefit equals the marginal cost. Government's delivery of law enforcement services (or maintaining the military, for that matter) is based on the fact that the marginal benefit of providing this service is at least equal to its marginal cost and this benefit exceeds the opportunity cost of not delivering the service (the cost of lawlessness). The decision to build infrastructure is (or should be) made solely on its ability to deliver a marginal benefit that equals marginal cost. Even programs to preserve the environment are delivered because they reduce the long-term cost of maintaining our inventory (land, water, food supply, etc). We don't spend more combating global warming precisely because of a lack of evidence that those expenditures would produce a marginal benefit equal to the marginal cost.
I am at a loss to think of a single public sector good or service that should have anything other than an economic analysis at the heart of the "yes/no" decision. If anyone has an example, please let me know.
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