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8.2: Categorizing Public Policy

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    Among the differences between U.S. liberals and conservatives are the policy preferences prevalent in each group. Modern liberals tend to feel very comfortable with the idea of the government shepherding progressive social and economic reforms, believing that these will lead to outcomes more equitable and fair for all members of society. Conservatives, on the other hand, often find government involvement onerous and overreaching. They feel society would function more efficiently if oversight of most “public” matters were returned to the private sphere. So why do many aspects of society come under the umbrella of public policy to begin with?

    Different Types of Goods

    Think for a minute about what it takes to make people happy and satisfied. In our daily lives, we experience a range of physical, psychological, and social needs that must be met. At the very least, we require food, water, and shelter. In very basic subsistence societies, people acquire these through farming crops, digging wells, and creating shelter from local materials. People also need social interaction with others and the ability to secure goods they acquire, lest someone else try to take them. As their tastes become more complex, they may find it advantageous to exchange their items for others; this requires not only a mechanism for barter but also a system of transportation. The more complex these systems are, the greater the range of items people can access to keep them alive and make them happy. However, this increase in possessions also creates a stronger need to secure what they have acquired.

    An image of a small house surrounded by a field and several trees.
    Figure 1. This Library of Congress photo shows an early nineteenth-century subsistence farm in West Virginia, which once included crops, livestock, and an orchard. (credit: modification of work by the Library of Congress)

    Economists use the term goods to describe the range of commodities, services, and systems that help us satisfy our wants or needs., such as the food you eat or the home you live in, as well as the systems of transportation or public safety used to protect them. Most of the goods you interact with are private goods, which means that they can be owned by a particular person or group of people, and are excluded from use by others, typically by means of a price. For example, your home or apartment is a private good reserved for your own use because you pay rent or make mortgage payments for the privilege of living there. Further, private goods are finite and can run out if overused, even if only in the short term. The fact that private goods are excludable and finite makes them tradable. A farmer who grows corn owns that corn, and since only a finite amount of corn exists, others may want to trade their goods for it if their own food supplies begin to dwindle.

    A public good is a commodity or service that is made available to all members of a society. Typically, these services are administered by governments and paid for collectively through taxation. Examples of public goods include law enforcement, national defense, and the rule of law. Unlike private property, they are not excludable and are essentially infinite.

    Forests, water, and fisheries are a type of public good called common goods, which are not excludable but may be finite. The problem with both public and common goods is that since no one owns them, no one has a financial interest in protecting their long-term or future value. Without government regulation, a factory owner can feel free to pollute the air or water, since he or she will have no responsibility for the pollution once the winds or waves carry it somewhere else. Likewise, someone can hunt all the migratory birds or deplete a fishery by taking all the fish, eliminating future breeding stocks that would maintain the population. The situation in which individuals exhaust a common resource by acting in their own immediate self-interest is called the tragedy of the commons.

    How do we trade these goods? Proponents of free-market economics believe that the market forces of supply and demand, working without any government involvement, are the most effective way for markets to operate. There are two general basic principles of this type of economics

    • just about any good that can be privatized, the most efficient means for exchange in the marketplace. People facilitate trade by creating a currency—a common unit of exchange—so they do not need to carry around everything they may want to trade at all times. As long as there are several providers or sellers of the same good, consumers can negotiate to find a price they are willing to pay. Likewise, providers can negotiate to find a price buyers are willing to accept. If prices begin to rise too much, other sellers will enter the marketplace, offering lower prices.
    • it is largely unnecessary for the government to protect the value of private goods. Farmers who own land used for growing food have a vested interest in protecting their land to ensure its continued production. Business owners must protect the reputation of their business or no one will buy from them. In short, industries have an interest in self-regulating to protect their own value. According to free-market economics, as long as everything we could ever want or need is a private good, and so long as every member of society has some ability to provide for themselves and their families, public policy regulating the exchange of goods and services is really unnecessary.
    An image of a power plant with large columns of smoke billowing out of its four towers.
    Figure 2. Air pollution billows from a power plant before the installation of emission control equipment for the removal of sulfur dioxide and particulate matter. Can you see why uncontrolled pollution is an example of the “tragedy of the commons”?

    Classic Types of Policy

    An image of the construction of a bridge for a railroad.
    Figure 3. In an example of distributive policy, the Union Pacific Railroad was given land and resources to help build a national railroad system. Here, its workers construct the Devil’s Gate Bridge in Utah in 1869.

    Public policy ultimately boils down to determining the distribution, allocation, and enjoyment of public, common, and toll goods within a society. While the specifics of policy often depend on the circumstances, two broad questions all policymakers must consider are

    • who pays the costs of creating and maintaining the goods
    • who receives the benefits of the goods

    When private goods are bought and sold in a marketplace, the costs and benefits go to the participants in the transaction. Your landlord benefits from receipt of the rent you pay, and you benefit by having a place to live. But non-private goods like roads, waterways, and national parks are controlled and regulated by someone other than the owners, allowing policymakers to make decisions about who pays and who benefits.

    There are three primary ways to categorize policies:

    • Distributive policy tends to collect payments or resources from many but concentrates direct benefits on relatively few. Highways are an example. This policy is common when society feels there is a social benefit to individuals obtaining private goods such as higher education that offer long-term benefits, but the upfront cost may be too high for the average citizen.
    • Regulatory policy concentrates costs and diffuses benefits. In other words, a relatively small number of groups or individuals bear the costs of regulatory policy, but its benefits are expected to be distributed broadly across society. This policy is most effective for controlling or protecting public or common resources. Among the best-known examples are policies designed to protect public health and safety, and the environment. These regulatory policies prevent manufacturers or businesses from maximizing their profits by excessively polluting the air or water, selling products they know to be harmful, or compromising the health of their employees during production.
    • Redistributive policy redistributes resources in society from one group to another. Most redistributive policies are intended to have a sort of “Robin Hood” effect; their goal is to transfer income and wealth from one group to another such that everyone enjoys at least a minimal standard of living. Typically, the wealthy and middle class pay into the federal tax base, which then funds need-based programs that support low-income individuals and families. A few examples of redistributive policies are Head Start (education), Medicaid (health care), Temporary Assistance for Needy Families (TANF, income support), and food programs like the Supplementary Nutritional Aid Program (SNAP). The government also uses redistribution to incentivize specific behaviors or aid small groups of people. Pell grants to encourage college attendance and tax credits to encourage home ownership are other examples of redistribution.

    Think it over

    • Of the types of goods introduced in this section, which do you feel is the most important to the public generally and why? Which public policies are most important and why?

    Resources

    1. David Mildenberg, "Private Toll Road Investors Shift Revenue Risk to States," 26 November 2013. http://www.bloomberg.com/news/articles/2013-11-27/private-toll-road-investors-shift-revenue-risk-to-states (March 1, 2016). ↵
    2. http://www.history.com/topics/inventions/transcontinental-railroad (March 1, 2016). ↵
    3. http://www.dollartimes.com/inflation/inflation.php?amount=49&year=1919 (March 1, 2016). ↵
    4. Upton Sinclair. 1906. The Jungle. New York: Grosset and Dunlap. ↵
    5. http://www.fda.gov/AboutFDA/WhatWeDo/History/ (March 1, 2016). ↵
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