“If the price elasticity of individual demand, i.e. the responsiveness to a (small) change in price, is significantly higher than zero over the applicable range, governments cannot efficiently “give away” goods or services. This is one of the most widely accepted principles in the theory of public finance…If government tries to supply goods or services that are privately divisible among separate persons at zero prices to users, the quantity demanded by all individuals in the aggregate will be significantly larger than the quantity that would be demanded at prices set by (marginal) cost except where the price elasticity approaches zero.”
“The presumption has been that, should governments try to give away services that fail to meet the required elasticity condition, they will find it necessary to extend supply to meet expressed demand, even at the expense of relative over-investment in the services….The alternative response that government might make in such situations seems rarely to have been considered. They may make decisions on the supply of the service independent of the demands on the service, and on the basis of quite different considerations. As a result, the inefficiencies may take the form of deterioration in the quality of the services themselves, including congestion of available facilities.”
“In his capacity as a participant in collective choice, the individual must balance costs against benefits. The individual will quite rationally indicate a preference for an aggregate supply of services that falls below such satiation levels. His choice, in a political-decision context, will be for a quantity of gross investment in health services much lower than that which would be required by a policy of providing constant-quality services to the extent indicated by privately expressed “needs.”
James M. Buchanan 1965
(James Buchanan was awarded the Nobel Prize in Economic Sciences in 1986)
Today, Christmas Eve 2009, a decisive majority of the United States Senate believes that it is acting as Santa Claus. Not so! For the poor and the elderly, the US Senate is Ebenezer Scrooge, before his visitation by the three Spirits, financing a small, inadequate goose, not a fat turkey, for the Christmas dinner table of the impoverished, starving family of his employee, Bob Cratchit.