This is the fundamental problem with modern liberal economic thinking:
>>First, it’s a well-understood though not often mentioned point that even in a plain-vanilla market, a monopolist with high fixed costs and limited ability to price-discriminate may not be able to make a profit supplying a good even when the potential consumer gains from that good exceed the costs of production. Basically, if the monopolist tries to charge a price corresponding to the value intense users place on the good, it won’t attract enough low-intensity users to cover its fixed costs; if it charges a low price to bring in the low-intensity user, it fails to capture enough of the surplus of high-intensity users, and again can’t cover its fixed costs.<<
Sure, it's well understood that certain people want others to provide a service that certain people find very valuable, but aren't willing to pay for. That doesn't mean that service must be provided by the government when private parties refuse to provide it.
In 2003, I wanted an online store where I could purchase all of my pet-related supplies. This would make me, and society, far more productive because we would not have to spend time going to the pet store and purchasing those products. We could all then spend that extra time being productive. Potential consumer gains exceeded production costs.
Unfortunately, actual consumer gains did not exceed pets.com's production costs. So it died. And guess what? It turns out that when a company learned how to properly structure, supply, and support such a service at the right price, people were willing to pay for it, and thus actual consumer gains exceeded actual production costs.
The government didn't have to step in and supply this vital service to its citizens. Some of the smarter citizens figured out how to do it, at assuredly a fraction of the cost of whatever government program might have been implemented.
Note: before you claim that pets.com failed for some other reason, please stop. I picked it as an obviously frivolous example. You can substitute most other recent government programs if you’d like.
His argument is not that it costs more to run Google Reader than there is benefit, so we need the government to run it. His argument is that the benefit to society of Google Reader is greater than the cost to society of Google Reader. Outside of a free market, it is better for society to have Google Reader. Unfortunately, there is no price structure that allows Google Reader to exist as a for-profit service. The market is inefficient, and the government should step in to fix this inefficiency. Therefore, it might be useful to run some services like Google Reader as government services.
I think that Google Reader should not be government-run, but he raises a larger point. There could be some internet services that would be better run by the government, and we don't really have any today. I don't think we can dismiss that possibility. I can't think of any sites like that right now, though.
Right, that's what he's saying. He believes that a certain good makes society better off. And yet, the pricing mechanism, the fundamental underpinning of capitalism, shows otherwise. (I'm speaking obliquely about Reader, but more broadly about nearly everything technocrats love that people aren't willing to pay the full cost of.)
You can argue that this reasoning is flawed (people aren't rational!), but the results are hard to argue with. The market does a fabulous job of allocating resources. Individuals, no matter how smart, don't.
As an aside, I'll point out that this is essentially meaningless as a critique of free-market economics, since people's actual behaviors are the only viable external indicators of their underlying preferences that we have, so the only reasonable conclusion to draw from the observation of allegedly "irrational" behavior is that the hierarchy of values motivating that behavior isn't what we expected it to be.
In other words, since all human behavior is a product of underlying motivations, the behavior itself can't contradict the actual existing motivations, but can only contradict others' erroneous assumptions about what those motivations were; all economic activity is therefore rational by definition.
With this in mind, the whole debate regarding the rationality of economic actors becomes nonsensical; the critique is an attempt to falsify a tautology.
Please read up on public goods, natural monopolies and externalities before you claim that the capitalistic market outcome always reflects what a good is worth to society.
>>First, it’s a well-understood though not often mentioned point that even in a plain-vanilla market, a monopolist with high fixed costs and limited ability to price-discriminate may not be able to make a profit supplying a good even when the potential consumer gains from that good exceed the costs of production. Basically, if the monopolist tries to charge a price corresponding to the value intense users place on the good, it won’t attract enough low-intensity users to cover its fixed costs; if it charges a low price to bring in the low-intensity user, it fails to capture enough of the surplus of high-intensity users, and again can’t cover its fixed costs.<<
Sure, it's well understood that certain people want others to provide a service that certain people find very valuable, but aren't willing to pay for. That doesn't mean that service must be provided by the government when private parties refuse to provide it.
In 2003, I wanted an online store where I could purchase all of my pet-related supplies. This would make me, and society, far more productive because we would not have to spend time going to the pet store and purchasing those products. We could all then spend that extra time being productive. Potential consumer gains exceeded production costs.
Unfortunately, actual consumer gains did not exceed pets.com's production costs. So it died. And guess what? It turns out that when a company learned how to properly structure, supply, and support such a service at the right price, people were willing to pay for it, and thus actual consumer gains exceeded actual production costs.
The government didn't have to step in and supply this vital service to its citizens. Some of the smarter citizens figured out how to do it, at assuredly a fraction of the cost of whatever government program might have been implemented.
Note: before you claim that pets.com failed for some other reason, please stop. I picked it as an obviously frivolous example. You can substitute most other recent government programs if you’d like.