Externalities and Culture

This is why I’m skeptical of government intervention even in the face of externality arguments. Local preservation and development offers an example. A legal battle is brewing between the city of Memphis (which owns Beale Street), the management company that runs Beale Street, and some of the merchants. Let’s grant the assumption that there are positive externalities associated with the existence and preservation of historic Beale Street. In the face of the knowledge problem identified and explained at length by F.A. Hayek, I don’t think a government can have the information they would need to produce the socially optimal level of “Memphis-ness” by owning Beale Street. Outsourcing its operation to a private firm was wise, but the article linked above suggests that this isn’t really working so well.

According to an old cliche, taxes are the price we pay for a civilized society. I would change this to say that in light of the insurmountable knowledge problems inherent in state action, uninternalized externalities are the price we pay for a civilized society.