In English, public means “of or pertaining to the public” – that is, to citizens as a group. Private means “of or relating to private persons.” That’s the classic legal definition. Now, if you‘re just trying to understand what I’m talking about, here’s a little example from real life: If you bought a condo, did you call the condo association or the property manager and tell them how much money you want to invest there so that you can rent it out for a few hundred dollars a month? That seems a pretty clear example of a private transaction; but what about a condo that belongs to the local government?
Take My Law Economics Of Municipal Governance quiz shows us that there are two types of homeowners in this example – the government homeowner and the property-owner. Which one should the government focus its limited resources on? It should be concentrating on the government homeowner because that’s who has the money. It would make much more sense to prevent the growth of wealth rather than encouraging economic growth.
In another economy, say Singapore, it would be different; their currency is the S Forex. Their economy is geared to making their currency rise against other currencies. The interest rate is low, and their trade surplus is high. That means they can afford to pump more money into the economy.
Now take a look at Greece. Their economy is based on the euro and the single European currency. Their municipal governance is messed up, and they are dependent on external help to stay afloat. The European Central Bank (ECB) has been bought large quantities of Greek bonds (sovereign bonds) to keep the debt-to-income ratio down and supply more money to the credit markets so they can buy Greek government bonds.
This isn’t how normal government works, although you wouldn’t think that they’d be that stupid. This is an example of the type of interventionist approach that is not appropriate for every situation. Even when there is a clearly defective transaction or system – such as in the Greek banking sector – the interventionist approach goes in only for the time it takes to fix whatever is wrong.
Take my Law Economics of Municipal Governance quiz and study what the true lessons are for governments and their ability to regulate the markets. The lessons are that regulation doesn’t work; central planning doesn’t work; free-market capitalism doesn’t work; and the public good must be protected from concentrated corporate interests that have an unfair advantage over the rest of us. If you learn this lesson the hard way – by watching how markets crash and burn – you’ll be much more likely to avoid these disasters in the future.
You also learn that there is nothing in economics like the real world. The real world doesn’t respond in the same way to government intervention, either in the form of bailouts disguised as community development programs. It’s a case of “the rent gets the rent.” This means that when an investor decides to invest in a piece of property in a town, that property will be worth more than the amount of money that it will cost to rent it out to someone else, even if that investor decides to rent the property out to someone else. As long as there are people willing to pay the rent, there is no problem.
