The Economics and Ethics of Publicly Funding COSI
COSI is considering asking for a property tax levy in Franklin County to help finance its operations. In exchange, Franklin County residents would be able to visit COSI for free. The economic case for funding COSI collectively through taxes is very weak and voters should think twice before approving this new tax.
According to economists products can be classified in one of two ways. They are either "collective" goods or "private" goods. [1] A collective good is one in which everybody simultaneously receives the benefits from it. A good example would be national defense as the Pentagon protects all of us as a group. Another example, this one at the local level, would be a floodwall that shields an entire community from rising waters.
Private goods in contrast are goods that are enjoyed by some but not by others. McDonald's Big Macs are private goods. If I buy a Big Mac, then you can't have it. Food, like most goods, is a private good in that it is consumed one person at a time.
As a general rule, economists teach that private sellers can provide private goods efficiently. And as a general rule, we often looks to government to provide collective goods because the cost of privately providing collective goods is often too high for people to undertake in markets. This offers an economic explanation for providing food in private markets and national defense through taxation. [2]
So the big question then is this: Is COSI a collective or a private good? If COSI is a collective good, then perhaps paying for it collectively through taxes makes sense. But it should be clear to everyone that COSI is in fact a private good. It is a good that is enjoyed by some but not necessarily by others. As such, we should expect those who value COSI to pay for it and those who don't value COSI to not have to pay.
If those who value COSI are willing to pay enough to cover the costs of operating COSI then COSI will prosper and we have no problem. If, on the other hand, those who value COSI are not willing to pay enough to cover its costs, then COSI needs to find ways to reduce costs and failing that, perhaps should go out of business. This is the way with all private enterprises and COSI should be held to no different standard.
Ethically we might also ask why we should force payments from people who don't benefit from COSI? Families without children and the elderly may gain little from this scheme. It seems ethically questionable to say the least to require people to pay for things they don't want. Also, is it ethical to create a situation where poor taxpayers may end up subsidizing more affluent taxpayers? It is quite possible that the end result of the levy is that the residents of Linden will end up subsidizing the residents of Bexley.
Many who support the COSI tax will argue that the price of admission to COSI is too high for many to afford. Maybe this is so, but most Franklin County residents, including the poorest, find ways to pay for cable TV and other items without taxpayer support. Furthermore, this same argument can be made of all private goods, and while regrettable, the fact is that the "rich" can always afford more than the "poor."
There is little justification, economically or ethically, to require all of us to pay for COSI when only some of us stand to gain. We should continue to pay for COSI the way we pay for the rest of our private goods. Privately.
Footnotes:
[1] Here we include services with goods. Collective goods are more commonly called public goods or less commonly social goods. The use of the term "public good" however is confusing because it implies that only governments provide public goods, which is not the case.
[2] Interested readers can consult almost any economics textbook for a discussion of the private and public provision of collective goods. A particularly good example is Chapter 18 "Market Failures" in David Friedman, Price Theory: An Intermediate Text 2nd edition (Cincinnati: South-Western, 1990).
Robert A. Lawson, Ph.D. is Professor of Economics and George H. Moor Chair at Capital University in Columbus, Ohio and a Senior Fellow with The Buckeye Institute.
