Scott Sumner On Some Good, Yet Generally Unknown, Free Market Arguments On Various Issues

See About those wacky libertarians.

"Consider areas where even pragmatic libertarians in the tradition of Milton Friedman might see a role for government; police and fire protection, education vouchers, etc. Then consider the following:
1. Denmark (a favorite country of progressives) has private provision of fire protection.

2. San Francisco (another progressive favorite) has private provision of police services in some areas, and the quality is apparently higher than for the government police, according to the metrics that progressives might want to use.

3. Friedman probably favored vouchers because it's "obvious" that otherwise the poor would not be able to afford an education. Except there is just one problem with this assumption. Tens of millions of the world's poorest students (who are an order of magnitude poorer than America's poor) do attend private schools without vouchers, throughout many of the poorest regions of South Asia and Sub-Saharan Africa. So maybe it's not "obvious" that the government must play a role in education.

In 2010 there were an estimated 1m private schools in the developing world. Some are run by charities and churches, or rely on state subsidies. But the fastest-growing group are small low-cost schools, run by entrepreneurs in poor areas, that cater to those living on less than $2 a day. Private schools enroll a much bigger share of primary-school pupils in poor countries than in rich ones: a fifth, according to data compiled from official sources, up from a tenth two decades ago (see chart 1). Since they are often unregistered, this is sure to be an underestimate. A school census in Lagos in 2010-11, for example, found four times as many private schools as in government records. UNESCO, the UN agency responsible for education, estimates that half of all spending on education in poor countries comes out of parents' pockets (see chart 2). In rich countries the share is much lower.
One reason for the developing world's boom in private education is that aspirational parents are increasingly seeking alternatives to dismal state schools. In south and west Asian countries half of children who have finished four years of school cannot read at the minimum expected standard (see chart 3). In Africa the share is a third. In 2012 Kaushik Basu, now at the World Bank but then an adviser to India's government, argued that India's rapidly rising literacy rate was mostly propelled by parents spending on education to help their children get ahead. "Ordinary people realised that, in a more globalised economy, they could gain quickly if they were better educated," he said.

In other words we've seen a huge global gain in education for the poor, a prime progressive goal, propelled by a radical libertarian ideological solution---private schools for the poor. Paid for out of pocket, no vouchers. And I'd guess 90% of progressives don't even know it happened.

I'm not claiming that any of these anecdotes are slam dunk arguments for private police, fire protection or schools. Indeed I have consistently advocated voucher systems, despite the evidence that they are not needed. Rather I'd make a different argument. Most progressives I talk to are not even aware of the arguments for abolishing the FDA, or for not regulating tobacco. They've never even heard the arguments. They are not aware of Denmark's private fire service, or San Francisco's private police force, or the enormous growth in private education in the third world (motivated by the appalling incompetence of the public schools in those regions.) Or they are appalled at how the "free market" in drugs is ripping off American consumers, without being aware that this is due to a government regulation that bans the importation of drugs from cheap foreign producers.

Without being aware of the serious arguments for laissez-faire, progressives are in no position to be contemptuous of the ideology. Until they've done their homework, they haven't earned that right.

PS. To head off comments on smoking, let me explain why the externality argument doesn't call for regulation. There are two arguments. One is that smokers impose budget costs on society through spending on Medicaid/Medicare, etc. This is true, but vastly overstated. Nonsmokers live much longer, and still end up dying of something. They still need Medicare. They also collect significantly more Social Security. The net budget cost imposed by smokers would call for just a very low cigarette tax; far, far lower than the current tax. The other argument is second hand smoke. That does call for regulation, but economic theory suggests that the optimal regulator is the owner of the property where the second hand smoke occurs. The owner of the restaurant, office building, or airline, is optimally placed to regulate the activity, weighing the costs and benefits of a ban. There is no market failure argument here. If second hand smoke in open air was a problem, say in parks, then government regulation would be called for on standard Coasian "transactions costs" grounds. But there is no evidence that second hand smoke outside of enclosed spaces is a significant health problem. This is EC101 economics, but I rarely meet economists who know this stuff."