externality and free rider

There's a good deal of discussion in public policy that centers around provisions for a variety of "public goods". Some of these indeed are public goods, in the economic sense of the term. For examples
1) Common defence
2) Education
3) Public roads and transportation
4) General health
5) Assistance for disaster or unanticipated events (acts of war or terror, victims of crimes, natural disasters, catastrophic illness or injury principably)

We may add to these things that are considered important enough for social or cultural reasons that add costs to others when they are incorrectly funded, such as the re-alignment of large numbers of specialists to new specializations when the economy changes and their special talents and educations become less economically viable, or the provision of funds for retirement, health care, and education. These latter become important because when they are not provided, they deprive others of heuristic benefits and even productive and measurable incentives and gains.

Most of these are things that have long been known and thought to be in the public good by administrations stretching back to the Northwest Ordinance or the Massachusetts charter of government in the US (in particular education). They have continued, in various forms, to be approved of as necessary operations of the state by all but the most strident anarchists or libertarians. What I think needs to be questioned is the distinctions between properly allocating funds to pay for externalities and to cover the free rider problem, often by mandating them through taxes or forced savings, and the supposed need for governments to administer these funds once mandated into existence. For example, it is probably necessary for governments to price education at some minimal level such that its citizens will provision for it appropriately and not diminish or harm the chances of success and aplomb for their children. It is not necessary that governments run schools, or if they do, that they should do so within mandates that excludes competition. Similarly, it is probably necessary that some minimal accommodation be made for public health by individuals. It is not necessary that governments should determine how this minimal accommodation be dispensed or spent.

I bring this up because I'm still working through the cap-trade and carbon tax problem. Basically I think it will be acknowledged by most economists that pollution is a negative and undesirable externality. It is possible that if people were made aware of the costs of their energy consumption or food consumption or the amount of waste or pollution produced to make goods for their enjoyment that they would demand to price in these costs to be paid by the producers, and thus be able to have the cost of pollutants paid for. This does not however appear to be a pressing concern outside of maintaining visibly clean water or air. I accept that carbon should be regarded as a pollutant, or at least as undesirable, when unnecessarily produced as a byproduct of human activity. If we must have energy, it would be suitable to produce it in ways that are renewable or have fewer negative costs involved. So it makes sense to me to price in those costs in addition to the tremendous benefit of having cheap energy. As with health care however, it seems that there is a sense of entitlement to this. We seem to assume we should be entitled to have cheap gasoline and coal-fired power plants that are so cheap and so far away just as we assume that our employers should provide first dollar health care coverage for us. This makes it incredibly hard to state openly and plainly the political point of any reforms. For health care the idea of a good reform (from my perspective) is that consumers will pay more and share the cost of their health care. That is the essential point. Likewise, with energy and fuel costs, they will have to pay more. Again, that is the point. The idea is to decrease wasteful or irrational consumption choices by consumers while still maintaining their ability to consume the necessary productions of energy or health care. Instead we are promised that it will not cost us more. I think it may be entirely reasonable to set up a net zero price model for energy, to raise the tax on energy production where it contains pollutants, and simultaneously lower the taxes on income or payrolls such that the tax will become a more voluntary means of generating revenues and will, in effect, pay for itself when it reduces the market's consumption of wasteful or harmful goods (rather than the more expensive route of trying to regulate and police the market and to mandate what goods may or may not be produced, such as through CAFE standards). But without the ability to make these views plain to people, with their resistance to them and the resistance to the idea that they ultimately may be the ones making some choice about their participation in particular markets, the natural result of administrators of public policy is to make the choices for them and to tax in other ways in order to pay for those choices, strictly limiting the ability of the public to price its own relevant interests and values by diverting more money toward problems. Often rather than diverting more money toward solutions or benefits (the broken window fallacy). The costs of our choices do not diminish or magically go away when we make them through public institutions and pay for them with taxes anymore than they do when we refuse to allow those public institutions to make these choices (as we have done thus far in the health care debate). We still must face them.