Market Failure in the Marketplace of Ideas

In a response to David Bernstein, Jack Balkin defends public universities on economic grounds: he claims that free expression creates positive externalities, and therefore private markets will underproduce opportunities for it:

For me, freedom of speech involves important infrastructural elements in technology and institutions that undergird and enrich the system of free expression, produce an educated citizenry and give them the tools and the practical opportunity to participate in the growth and development of culture. … Put in economic terms, the infrastructure of free expression is a public good that markets will underinvest in.

Juan Non-Volokh takes apart the economic argument, pointing out that (a) the existence of positive externalities at most justifies subsidized universities, not government-run universities; (b) the prospect of government failure often outweighs market failure; and (c) government provision tends to crowd out private provision of public goods.

I wish to add one more response. As I’ve argued before (and I think Ronald Coase made the same point), ideas produce both positive and negative externalities. There is no discipline of profit-and-loss to assure the weeding out of the bad ideas and the retention of the good ones. As a result, the economic theory of market failure offers as much support for taxing and restricting expression as for subsidizing and promoting it. It is strange indeed that liberals who have nothing but contempt for product markets voice such confident support for the marketplace of ideas, even though the latter are subject to potential failures that are arguably much greater.

If the government could distinguish between the good and bad ideas, then it could subsidize only the good ones. But I have little or no confidence in government’s ability to make such distinctions wisely, and the blanket subsidization of public universities assures funding of both the good and the bad. The strongest case for freedom of expression, I would argue, rests not on economic efficiency but on the inherent danger in giving a coercive government the power to decide what’s good and bad in the realm of ideas. From that perspective, David Bernstein’s position makes a great deal of sense: having public universities ipso facto puts the government in the position of having to make distinctions that it has no business making.