Who should pay for Big Bird?

Yesterday I asked ‘Why do we tax people?’ and the answer was ‘To pay for stuff’. Some of the stuff the government taxes us to pay for would not, supposedly, be provided privately because of the ‘free rider’ problem. But there is other stuff the government taxes us to pay for. It does so, in these cases, because people would, apparently, not pay for them willingly. These are known as ‘merit goods’.

Merit goods in theory

My old Penguin Dictionary of Economics defines merit goods as

A commodity the consumption of which is regarded as socially desirable irrespective of consumer’s preference. Governments are readily prepared to suspend consumers’ sovereignty by subsidizing the provision of certain goods and services, for example education.

‘Society’ is simply an aggregation of individuals. If we want to see what goods this society desires, we can see what it buys. If the individuals comprising society buy Cokes, McDonald’s, and tickets for NASCAR, then we can say that these things are ‘socially desirable’.

People who argue for merit goods would not agree. To them, there is some way of assessing the desirability of otherwise of independent of the observed outcomes of consumer preferences. As former speaker of the House of Representatives Thomas P. O’Neill III put it, “Often what the American people want is not good for them”. Goods assessed by this standard as being of merit but which consumers don’t buy are merit goods and must be provided by the state.

Merit goods in practice 

The argument for merit goods is used to justify government spending – and the taxation to support it – on things such as the arts and ‘public’ broadcasting. People won’t pay for them, the argument goes, but it is socially desirable that they be provided anyway.

How is this criteria on which we judge social desirability constructed? Who does it? The usual answer is government, acting on behalf of ‘society’. But remember, society is simply an aggregation of individuals. Some will desire this, some will desire that. Those who desire the arts are catered get government subsidy. Those who desire NASCAR do not. This is not a decision taken by ‘society’ but by government, which is not the same thing. And all the government is doing is taxing individuals to subsidize the activities of some sub set of these individuals.

There is little merit in the merit goods argument. It is simply the attempt to get government to make other people pay for something you enjoy but which they may not. As the economists William and Hilda Baumol noted,

The term merit good becomes a formal designation for the unadorned value judgement that the arts are good for society and therefore deserve financial support…[the] merit good approach is not really a justification for support – it merely invents a bit of terminology to designate the desire to do so. 

John Phelan is an economist at the Center of the American Experiment