Media Channel 2.0 — Blog — Kids Making Money

In a NYT op-ed titled “I Can Afford Higher Taxes. But They’ll make me Work Less,” Harvard’s Greg Mankiw explains that, while he makes enough money and lives a sufficiently modest lifestyle that he wouldn’t miss the money from a modest hike in the top marginal rate, he’d stop doing a lot of the productive work he now does.

Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. that is simply the miracle of compounding.

Now let’s put taxes into the calculus. first, assuming that the Bush tax cuts expire, I would pay 39.6 percent in federal income taxes on that extra income. beyond that, the phaseout of deductions adds 1.2 percentage points to my effective marginal tax rate. I also pay Medicare tax, which the recent health care bill is raising to 3.8 percent, starting in 2013. and in Massachusetts, I pay 5.3 percent in state income taxes, part of which I get back as a federal deduction. Putting all those taxes together, that $1,000 of pretax income becomes only $523 of saving.

And that saving no longer earns 8 percent. first, the corporation in which I have invested pays a 35 percent corporate tax on its earnings. So I get only 5.2 percent in dividends and capital gains. then, on that income, I pay taxes at the federal and state level. As a result, I earn about 4 percent after taxes, and the $523 in saving grows to $1,700 after 30 years.

Then, when my children inherit the money, the estate tax will kick in. the marginal estate tax rate is scheduled to go as high as 55 percent next year, but Congress may reduce it a bit. most likely, when that $1,700 enters my estate, my kids will get, at most, $1,000 of it.

HERE’S the bottom line: without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

Kevin Drum argues, rightly I think, that this isn’t very compelling.

Do you see the card he palmed? Basically, the effect of letting the Bush cuts expire is so tiny that the only way to make it noticeable is to compound it over 30 years, which reduces the eventual payout of his writing assignment from $2,000 to $1,700. (And even that’s probably overstated, since it assumes Mankiw pays all his taxes at their full statutory rate, which virtually no one does.) the rest of the reduction down to $1,000 comes solely from the estate tax. But even on the heroic assumption that you should take this year’s zero rate as the baseline for comparison, the estate tax has an exemption of several million dollars. Unless Mankiw leaves his kids a helluva lot more than they need for a down payment on a house, they won’t pay a dime of estate tax.

It’s actually much worse than that.   first, even if the Bush tax cuts don’t expire, Mankiw will still pay 35% on the new income, not 0%.   the difference is between getting to invest $650 and $604.   That’s not nothing, by any means, but it’s not as stark as assuming $1000.   Second, he’s calculating in a myriad of other policies that aren’t really on the table.

Moreover, most of us aren’t like Mankiw.   Despite his enormous success, he’s still been in the same house since 1987, doesn’t own a vacation home and has no desire for the trappings of a wealthy lifestyle.   That’s not normal!   most of us find a way to spend more money as our income increases.    If government takes a somewhat larger chunk of what we have, it arguably incentivizes us to work even harder since we now need to gross more to net the same.   now, that’s probably not true at confiscatory rates.   If the marginal dollar was being taxed at 91% — as it was from 1951 to 1963 — or even 70% — as it was from 1965 to 1980 — then it may well not be worth the effort.   But the difference between the current 35% and the 39.6%  we experienced from 1993 to 2000 wouldn’t keep me on the sidelines.

Now, I happen to prefer that Mankiw get to keep as much of the money that comes from the fruit of his labor as possible.   and that goes double for Joyner!

But, the fact remains that the United States federal and state governments perform some necessary and useful functions that have to be financed somehow.     I don’t think the fact that he “can afford it” is a reason to penalize Mankiw.   But, even if we had a flat tax in place on income at both the state and federal levels and got rid of capital gains and estate taxes altogether, the fact of negative incentives would remain.    Money beyond that level to maintain Mankiw’s desired lifestyle would be discounted by the fact that government is going to get a large cut.

never again

It’s no secret that David Stern wants to extend the NBA age limit rule, making high school players wait two years before they could enter the draft.

Despite detractors on both sides of the issue, extending the rule isn’t about the players, the college game or even the NBA.

It’s what’s best for the game of basketball itself. and that’s why Stern’s wish should come true.

Speaking on behalf of the players, Congressman Steve Cohen, who represents the recruiting hotbed of Memphis, gave a forceful interview with the new York Times about Stern’s proposal:

Cohen said that one of his primary arguments against the rule, which is part of the collective bargaining agreement between the league and union, was that soldiers can fight for their country at age 18 but not play in the N.B.a. he also noted that predominantly white sports like hockey, baseball and golf lack similar restrictions.

The age limits rule’s detractors aren’t just on the players side; former coaches like Indiana’s Bobby Knight have expressed concerns about forcing kids to take classes who don’t want to be there damages the integrity of the game.

The age limit rule was never about its stated intention—improving player development and getting high schoolers more ready for professional basketball.

Preps-to-pro players have been overwhelmingly successful in the NBA; the careers of future hall of famers like Kevin Garnett and Kobe Bryant certainly weren’t affected by missing out on college. for physically mature players like LeBron James and Amare Stoudemire, there was hardly even a transition phase—both were rookies of the year.

Dr. eric seiger

EA's Spielberg collaboration binned <b>News</b> – Page 1 | Eurogamer.net

EA's Spielberg collaboration binned News. PC Xbox 360 PlayStation 3 Wii News by Fred Dutton. Yesterday. Steven Spielberg's second collaboration with EA, codenamed Project LMNO, has been canned, the publisher has confirmed. …

Fox <b>News</b> Poll: Coons Leads O'Donnell By 16 Points In DE-SEN | TPMDC

The new Fox News poll of the Delaware Senate race finds Democratic nominee Chris Coons continuing to lead Republican Christine O'Donnell by a landslide margin — and also reaffirms that the GOP would have likely picked up this seat if …

Fox <b>News</b> – Fox Business | new Ad | two Networks – Solve | Mediaite

Back in June, a Fox Business Network promo featured only Fox News stars, touting the new financial channel. now there's a new marketing strategy out, in ads playing on News Corp. cable news networks but also across the dial, …

Dr. eric seiger

In a NYT op-ed titled “I Can Afford Higher Taxes. But They’ll make me Work Less,” Harvard’s Greg Mankiw explains that, while he makes enough money and lives a sufficiently modest lifestyle that he wouldn’t miss the money from a modest hike in the top marginal rate, he’d stop doing a lot of the productive work he now does.

Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. that is simply the miracle of compounding.

Now let’s put taxes into the calculus. first, assuming that the Bush tax cuts expire, I would pay 39.6 percent in federal income taxes on that extra income. beyond that, the phaseout of deductions adds 1.2 percentage points to my effective marginal tax rate. I also pay Medicare tax, which the recent health care bill is raising to 3.8 percent, starting in 2013. and in Massachusetts, I pay 5.3 percent in state income taxes, part of which I get back as a federal deduction. Putting all those taxes together, that $1,000 of pretax income becomes only $523 of saving.

And that saving no longer earns 8 percent. first, the corporation in which I have invested pays a 35 percent corporate tax on its earnings. So I get only 5.2 percent in dividends and capital gains. then, on that income, I pay taxes at the federal and state level. As a result, I earn about 4 percent after taxes, and the $523 in saving grows to $1,700 after 30 years.

Then, when my children inherit the money, the estate tax will kick in. the marginal estate tax rate is scheduled to go as high as 55 percent next year, but Congress may reduce it a bit. most likely, when that $1,700 enters my estate, my kids will get, at most, $1,000 of it.

HERE’S the bottom line: without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

Kevin Drum argues, rightly I think, that this isn’t very compelling.

Do you see the card he palmed? Basically, the effect of letting the Bush cuts expire is so tiny that the only way to make it noticeable is to compound it over 30 years, which reduces the eventual payout of his writing assignment from $2,000 to $1,700. (And even that’s probably overstated, since it assumes Mankiw pays all his taxes at their full statutory rate, which virtually no one does.) the rest of the reduction down to $1,000 comes solely from the estate tax. But even on the heroic assumption that you should take this year’s zero rate as the baseline for comparison, the estate tax has an exemption of several million dollars. Unless Mankiw leaves his kids a helluva lot more than they need for a down payment on a house, they won’t pay a dime of estate tax.

It’s actually much worse than that.   first, even if the Bush tax cuts don’t expire, Mankiw will still pay 35% on the new income, not 0%.   the difference is between getting to invest $650 and $604.   That’s not nothing, by any means, but it’s not as stark as assuming $1000.   Second, he’s calculating in a myriad of other policies that aren’t really on the table.

Moreover, most of us aren’t like Mankiw.   Despite his enormous success, he’s still been in the same house since 1987, doesn’t own a vacation home and has no desire for the trappings of a wealthy lifestyle.   That’s not normal!   most of us find a way to spend more money as our income increases.    If government takes a somewhat larger chunk of what we have, it arguably incentivizes us to work even harder since we now need to gross more to net the same.   now, that’s probably not true at confiscatory rates.   If the marginal dollar was being taxed at 91% — as it was from 1951 to 1963 — or even 70% — as it was from 1965 to 1980 — then it may well not be worth the effort.   But the difference between the current 35% and the 39.6%  we experienced from 1993 to 2000 wouldn’t keep me on the sidelines.

Now, I happen to prefer that Mankiw get to keep as much of the money that comes from the fruit of his labor as possible.   and that goes double for Joyner!

But, the fact remains that the United States federal and state governments perform some necessary and useful functions that have to be financed somehow.     I don’t think the fact that he “can afford it” is a reason to penalize Mankiw.   But, even if we had a flat tax in place on income at both the state and federal levels and got rid of capital gains and estate taxes altogether, the fact of negative incentives would remain.    Money beyond that level to maintain Mankiw’s desired lifestyle would be discounted by the fact that government is going to get a large cut.

never again

It’s no secret that David Stern wants to extend the NBA age limit rule, making high school players wait two years before they could enter the draft.

Despite detractors on both sides of the issue, extending the rule isn’t about the players, the college game or even the NBA.

It’s what’s best for the game of basketball itself. and that’s why Stern’s wish should come true.

Speaking on behalf of the players, Congressman Steve Cohen, who represents the recruiting hotbed of Memphis, gave a forceful interview with the new York Times about Stern’s proposal:

Cohen said that one of his primary arguments against the rule, which is part of the collective bargaining agreement between the league and union, was that soldiers can fight for their country at age 18 but not play in the N.B.a. he also noted that predominantly white sports like hockey, baseball and golf lack similar restrictions.

The age limits rule’s detractors aren’t just on the players side; former coaches like Indiana’s Bobby Knight have expressed concerns about forcing kids to take classes who don’t want to be there damages the integrity of the game.

The age limit rule was never about its stated intention—improving player development and getting high schoolers more ready for professional basketball.

Preps-to-pro players have been overwhelmingly successful in the NBA; the careers of future hall of famers like Kevin Garnett and Kobe Bryant certainly weren’t affected by missing out on college. for physically mature players like LeBron James and Amare Stoudemire, there was hardly even a transition phase—both were rookies of the year.

Dr. eric seiger

EA's Spielberg collaboration binned <b>News</b> – Page 1 | Eurogamer.net

EA's Spielberg collaboration binned News. PC Xbox 360 PlayStation 3 Wii News by Fred Dutton. Yesterday. Steven Spielberg's second collaboration with EA, codenamed Project LMNO, has been canned, the publisher has confirmed. …

Fox <b>News</b> Poll: Coons Leads O'Donnell By 16 Points In DE-SEN | TPMDC

The new Fox News poll of the Delaware Senate race finds Democratic nominee Chris Coons continuing to lead Republican Christine O'Donnell by a landslide margin — and also reaffirms that the GOP would have likely picked up this seat if …

Fox <b>News</b> – Fox Business | new Ad | two Networks – Solve | Mediaite

Back in June, a Fox Business Network promo featured only Fox News stars, touting the new financial channel. now there's a new marketing strategy out, in ads playing on News Corp. cable news networks but also across the dial, …

Dr. eric seiger

Dr. eric seiger

Dr. eric seiger

EA's Spielberg collaboration binned <b>News</b> – Page 1 | Eurogamer.net

EA's Spielberg collaboration binned News. PC Xbox 360 PlayStation 3 Wii News by Fred Dutton. Yesterday. Steven Spielberg's second collaboration with EA, codenamed Project LMNO, has been canned, the publisher has confirmed. …

Fox <b>News</b> Poll: Coons Leads O'Donnell By 16 Points In DE-SEN | TPMDC

The new Fox News poll of the Delaware Senate race finds Democratic nominee Chris Coons continuing to lead Republican Christine O'Donnell by a landslide margin — and also reaffirms that the GOP would have likely picked up this seat if …

Fox <b>News</b> – Fox Business | new Ad | two Networks – Solve | Mediaite

Back in June, a Fox Business Network promo featured only Fox News stars, touting the new financial channel. now there's a new marketing strategy out, in ads playing on News Corp. cable news networks but also across the dial, …

Dr. eric seiger

In a NYT op-ed titled “I Can Afford Higher Taxes. But They’ll make me Work Less,” Harvard’s Greg Mankiw explains that, while he makes enough money and lives a sufficiently modest lifestyle that he wouldn’t miss the money from a modest hike in the top marginal rate, he’d stop doing a lot of the productive work he now does.

Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. that is simply the miracle of compounding.

Now let’s put taxes into the calculus. first, assuming that the Bush tax cuts expire, I would pay 39.6 percent in federal income taxes on that extra income. beyond that, the phaseout of deductions adds 1.2 percentage points to my effective marginal tax rate. I also pay Medicare tax, which the recent health care bill is raising to 3.8 percent, starting in 2013. and in Massachusetts, I pay 5.3 percent in state income taxes, part of which I get back as a federal deduction. Putting all those taxes together, that $1,000 of pretax income becomes only $523 of saving.

And that saving no longer earns 8 percent. first, the corporation in which I have invested pays a 35 percent corporate tax on its earnings. So I get only 5.2 percent in dividends and capital gains. then, on that income, I pay taxes at the federal and state level. As a result, I earn about 4 percent after taxes, and the $523 in saving grows to $1,700 after 30 years.

Then, when my children inherit the money, the estate tax will kick in. the marginal estate tax rate is scheduled to go as high as 55 percent next year, but Congress may reduce it a bit. most likely, when that $1,700 enters my estate, my kids will get, at most, $1,000 of it.

HERE’S the bottom line: without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

Kevin Drum argues, rightly I think, that this isn’t very compelling.

Do you see the card he palmed? Basically, the effect of letting the Bush cuts expire is so tiny that the only way to make it noticeable is to compound it over 30 years, which reduces the eventual payout of his writing assignment from $2,000 to $1,700. (And even that’s probably overstated, since it assumes Mankiw pays all his taxes at their full statutory rate, which virtually no one does.) the rest of the reduction down to $1,000 comes solely from the estate tax. But even on the heroic assumption that you should take this year’s zero rate as the baseline for comparison, the estate tax has an exemption of several million dollars. Unless Mankiw leaves his kids a helluva lot more than they need for a down payment on a house, they won’t pay a dime of estate tax.

It’s actually much worse than that.   first, even if the Bush tax cuts don’t expire, Mankiw will still pay 35% on the new income, not 0%.   the difference is between getting to invest $650 and $604.   That’s not nothing, by any means, but it’s not as stark as assuming $1000.   Second, he’s calculating in a myriad of other policies that aren’t really on the table.

Moreover, most of us aren’t like Mankiw.   Despite his enormous success, he’s still been in the same house since 1987, doesn’t own a vacation home and has no desire for the trappings of a wealthy lifestyle.   That’s not normal!   most of us find a way to spend more money as our income increases.    If government takes a somewhat larger chunk of what we have, it arguably incentivizes us to work even harder since we now need to gross more to net the same.   now, that’s probably not true at confiscatory rates.   If the marginal dollar was being taxed at 91% — as it was from 1951 to 1963 — or even 70% — as it was from 1965 to 1980 — then it may well not be worth the effort.   But the difference between the current 35% and the 39.6%  we experienced from 1993 to 2000 wouldn’t keep me on the sidelines.

Now, I happen to prefer that Mankiw get to keep as much of the money that comes from the fruit of his labor as possible.   and that goes double for Joyner!

But, the fact remains that the United States federal and state governments perform some necessary and useful functions that have to be financed somehow.     I don’t think the fact that he “can afford it” is a reason to penalize Mankiw.   But, even if we had a flat tax in place on income at both the state and federal levels and got rid of capital gains and estate taxes altogether, the fact of negative incentives would remain.    Money beyond that level to maintain Mankiw’s desired lifestyle would be discounted by the fact that government is going to get a large cut.

never again

It’s no secret that David Stern wants to extend the NBA age limit rule, making high school players wait two years before they could enter the draft.

Despite detractors on both sides of the issue, extending the rule isn’t about the players, the college game or even the NBA.

It’s what’s best for the game of basketball itself. and that’s why Stern’s wish should come true.

Speaking on behalf of the players, Congressman Steve Cohen, who represents the recruiting hotbed of Memphis, gave a forceful interview with the new York Times about Stern’s proposal:

Cohen said that one of his primary arguments against the rule, which is part of the collective bargaining agreement between the league and union, was that soldiers can fight for their country at age 18 but not play in the N.B.a. he also noted that predominantly white sports like hockey, baseball and golf lack similar restrictions.

The age limits rule’s detractors aren’t just on the players side; former coaches like Indiana’s Bobby Knight have expressed concerns about forcing kids to take classes who don’t want to be there damages the integrity of the game.

The age limit rule was never about its stated intention—improving player development and getting high schoolers more ready for professional basketball.

Preps-to-pro players have been overwhelmingly successful in the NBA; the careers of future hall of famers like Kevin Garnett and Kobe Bryant certainly weren’t affected by missing out on college. for physically mature players like LeBron James and Amare Stoudemire, there was hardly even a transition phase—both were rookies of the year.

Dr. eric seiger

Dr. eric seiger

EA's Spielberg collaboration binned <b>News</b> – Page 1 | Eurogamer.net

EA's Spielberg collaboration binned News. PC Xbox 360 PlayStation 3 Wii News by Fred Dutton. Yesterday. Steven Spielberg's second collaboration with EA, codenamed Project LMNO, has been canned, the publisher has confirmed. …

Fox <b>News</b> Poll: Coons Leads O'Donnell By 16 Points In DE-SEN | TPMDC

The new Fox News poll of the Delaware Senate race finds Democratic nominee Chris Coons continuing to lead Republican Christine O'Donnell by a landslide margin — and also reaffirms that the GOP would have likely picked up this seat if …

Fox <b>News</b> – Fox Business | new Ad | two Networks – Solve | Mediaite

Back in June, a Fox Business Network promo featured only Fox News stars, touting the new financial channel. now there's a new marketing strategy out, in ads playing on News Corp. cable news networks but also across the dial, …

Dr. eric seiger

Dr. eric seiger

EA's Spielberg collaboration binned <b>News</b> – Page 1 | Eurogamer.net

EA's Spielberg collaboration binned News. PC Xbox 360 PlayStation 3 Wii News by Fred Dutton. Yesterday. Steven Spielberg's second collaboration with EA, codenamed Project LMNO, has been canned, the publisher has confirmed. …

Fox <b>News</b> Poll: Coons Leads O'Donnell By 16 Points In DE-SEN | TPMDC

The new Fox News poll of the Delaware Senate race finds Democratic nominee Chris Coons continuing to lead Republican Christine O'Donnell by a landslide margin — and also reaffirms that the GOP would have likely picked up this seat if …

Fox <b>News</b> – Fox Business | new Ad | two Networks – Solve | Mediaite

Back in June, a Fox Business Network promo featured only Fox News stars, touting the new financial channel. now there's a new marketing strategy out, in ads playing on News Corp. cable news networks but also across the dial, …

Dr. eric seiger

EA's Spielberg collaboration binned <b>News</b> – Page 1 | Eurogamer.net

EA's Spielberg collaboration binned News. PC Xbox 360 PlayStation 3 Wii News by Fred Dutton. Yesterday. Steven Spielberg's second collaboration with EA, codenamed Project LMNO, has been canned, the publisher has confirmed. …

Fox <b>News</b> Poll: Coons Leads O'Donnell By 16 Points In DE-SEN | TPMDC

The new Fox News poll of the Delaware Senate race finds Democratic nominee Chris Coons continuing to lead Republican Christine O'Donnell by a landslide margin — and also reaffirms that the GOP would have likely picked up this seat if …

Fox <b>News</b> – Fox Business | new Ad | two Networks – Solve | Mediaite

Back in June, a Fox Business Network promo featured only Fox News stars, touting the new financial channel. now there's a new marketing strategy out, in ads playing on News Corp. cable news networks but also across the dial, …

Dr. eric seiger

EA's Spielberg collaboration binned <b>News</b> – Page 1 | Eurogamer.net

EA's Spielberg collaboration binned News. PC Xbox 360 PlayStation 3 Wii News by Fred Dutton. Yesterday. Steven Spielberg's second collaboration with EA, codenamed Project LMNO, has been canned, the publisher has confirmed. …

Fox <b>News</b> Poll: Coons Leads O'Donnell By 16 Points In DE-SEN | TPMDC

The new Fox News poll of the Delaware Senate race finds Democratic nominee Chris Coons continuing to lead Republican Christine O'Donnell by a landslide margin — and also reaffirms that the GOP would have likely picked up this seat if …

Fox <b>News</b> – Fox Business | new Ad | two Networks – Solve | Mediaite

Back in June, a Fox Business Network promo featured only Fox News stars, touting the new financial channel. now there's a new marketing strategy out, in ads playing on News Corp. cable news networks but also across the dial, …

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EA's Spielberg collaboration binned <b>News</b> – Page 1 | Eurogamer.net

EA's Spielberg collaboration binned News. PC Xbox 360 PlayStation 3 Wii News by Fred Dutton. Yesterday. Steven Spielberg's second collaboration with EA, codenamed Project LMNO, has been canned, the publisher has confirmed. …

Fox <b>News</b> Poll: Coons Leads O'Donnell By 16 Points In DE-SEN | TPMDC

The new Fox News poll of the Delaware Senate race finds Democratic nominee Chris Coons continuing to lead Republican Christine O'Donnell by a landslide margin — and also reaffirms that the GOP would have likely picked up this seat if …

Fox <b>News</b> – Fox Business | new Ad | two Networks – Solve | Mediaite

Back in June, a Fox Business Network promo featured only Fox News stars, touting the new financial channel. now there's a new marketing strategy out, in ads playing on News Corp. cable news networks but also across the dial, …

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What is a public good?

One can classify goods by the following two criteria: rivalry and excludability. a good is rival if its usage by one consumer reduces availability to others. In contrast, non-rival good can be used by every consumer in parallel. If a producer manages access for every user individually, the good is called excludable. Non-excludable (or voluntarily non-excluded) goods are available for everyone interested. Thus, we get four groups of goods:

• Private good (rival and excludable): iPhone, Toyota Prius.
• Common-pool good (rival and non-excludable): Customer support, water in a river, conference rooms in an office building.
• Club good (non-rival and excludable): Cable television, Windows 7.
• Public good (non-rival and non-excludable): National defense, roads (excepting toll roads), GPS Satellites, Wikipedia.

Public goods are produced in a number of areas: city infrastructure, education, law enforcement, peace, safety/security, energy, environment, health, food safety, social security, employment, transportation, tourism, mass communications, and financial systems. In this essay we will have a look at the concept of public goods enterprise (PGE) – an organization that produces non-rival non-excludable goods at profit.

Comparing public goods to other concepts

Let us recall the definitions of several related concepts. Non-profit is an organization that does not distribute profit to its shareholders (all money are reinvested in operations and development). Charitable organization is a non-profit that serves some charitable purpose, in many cases helping those who can not help themselves. Charitable organizations are eligible for certain tax benefits. Social enterprise is entrepreneurial organization (i.e. typically for-profit) that is committed to make a certain change of philantropic nature. Emergent venture is a subclass of social enterprise that is characterized by tech-based approach, focus on enrichment needs, business sustainability and small-to-medium scale.

How does this compare to public good enterprise? Well, PGE can be both for-profit and non-profit, as it only characterized by its product and not by the profit spending mode. PGE can produce both charitable goods (e.g. documentary about food safety) and luxury products (GPS sattelities). Public goods market is the overall ecosystem of supply and demand of non-rival non-excludable products. Non-profits, charities, social enterprises, emergent ventures as well as for-profit corporations can all be players in this market. We use the name public good enterprise (PGE) to describe any entrepreneurial entity on public goods market. the key common challenge for PGEs is to find means to produce freely available goods.

Public goods have several prejudices associated with them. the first one is that selling public goods to governments (and to foundations) is hard and corruption is typically involved. of course, there is certain truth to that. However, some governments are genuinely looking for vendors of public goods. some foundations make it simple to pitch them. We get better marketplaces to sell public goods. and corrupt governmental suppliers are still looking for subcontractors. At second, public goods are associated with charity and non-profit. it is not encouraged to make a fortune on saving African kids from AIDS. However, public goods is a much broader category than just survival needs of poor people. think about city fireworks or a web-based fine payment system. one should think about a public good as a regular product with an indirect business model. Finally, sponsor-based business model does not reached mainstream status in technology sector. on the other hand, sponsorships and donations pay for fine arts, performing arts, museums, education, environment protection and event industry. Public goods need sponsors. So the tech industry will eventually embrace sponsor-driven products.

Business models

To produce public goods an enterprise needs to raise startup and R&D funding and then to find a sustainable source of operating revenue. there is a number of options for startup funding. to begin with, there are generic VC firms as well as VC firms with specific focus on public goods (Omidyar Network, good Capital, Unreasonable Institute). secondly, one can bootstrap from foundation/governmental grants. then, there are special loan programs, like the one that was received by Tesla. Finally, public good enterprise can receive significant non-monetary investment in terms of volunteer help, media support, free facilities, technology and data donations.

Non-rivalry and non-excludability of public goods leads to so called “free rider problem”. everyone looks for others to fund the creation of public goods. As a result, public goods are underproduced. there are three primary ways to approach this problem and establish operating income for PGE:

• Pledge-based mechanisms. In this case, the producer of public goods sells directly to future users. a producer can set a threshold and ask for commitments. If the total amount of commitments exceeds the threshold, the production of public good is started. Kickstarter enables fundrising campaigns of this type.
• Pooled money. another approach is to pool money from a community members to a single source. then this proxy organization decides how to spend the pooled money for producing public goods. Governments, non-profit foundations, industry associations, chambers of commerce and home owner associations are typical examples of this approach.
• Complementary products. A producer of public goods can also fund its operations through selling additional products. for example, World Wildlife Fund (WWF) is selling the rights to use its panda logo for commercial purposes (e.g. on credit cards) in order to rise funds for nature conservation programs. Selling name rights is another common scheme (e.g. Sloane Business School). Mozilla funds the development of Firefox browser by auctioning the default choice of search engine. Finally, public goods can follow freemium (PBWorks, gitHub) or ad-supported (Google Search) business models.

The opportunity

It is likely that demand for public goods will grow over the next few years. We see the increase in foundation money (e.g. “Giving Pledge” movement), developing countries become richer, corporations embrace the concept of corporate social responsibility, citizens of socialist and authoritarian countries (Sweden, North Korea) are giving their governments large shares of GDP to be spent in public interest. a for-profit enterprise has a lot of advantages in this market. it can invest in technology and people and attract large venture capital. Working on public goods means working on big problems: jobs, education, environment, health, transportation.

There are two emerging clusters of web-based public goods. the first one is marketplaces. CharityNavigator connects donors and charities, Kiva connects lenders and entrepreneurs, Kickstarter connects artists and supporters, CatchAFire connects volunteers and charitable projects, Alter Eco connects farmers with fair trade buyers, Spot.us is crowdfunding platform for investigative journalism. the second area is knowledge publishing. KhanAcademy and SupercoolSchool publish lessons, Ushahidi aggregates crisis reports, Wikipedia organizes encyclopedic knowledge, TED shares big ideas, OpenCongress makes law-making two-directional process and Ashoka profiles best social entrepreneurs. Other areas not far behind: mobile applications, e-government, payment and financial systems, social networks and communication systems.

Predictions for the market of public goods

• Better markets for public goods. The biggest barrier for producing public goods is the cost and complexity of sales to governments and foundations. Ideally, selling/buying public goods should be as easy as 1-click experience at Amazon. Existing procurement systems have a lot of room for improvement. We need specialized modern marketplaces for selling technology solutions to local governments, large public organizations (schools, hospitals), industry associations. DonorsChoose and Kickstarter are promising examples in this direction. We need a centralized market for corporate sponsorships. the public history of past spending would be very useful to identify sponsors of future products. Finally, a system to track demand (”wishlists”) for public goods should be created.
• Sponsor networks. like in advertising-supported media, the task of fundraising/selling to governments and the task of making public goods tend to be separated. Naturally, we will have sponsor networks, affiliate networks, large foundations and large governmental contractors who are good at collecting money. In turn, these entities will transfer most of the money to the layer of producers. while the first layer is under “be non profit” pressure and is subject to corruption, the second layer can focus on the actual creation of goods.
• Metrics and measurements. the easier it is to measure the public benefit, the easier it is to sell it. We need more metrics and quality control solutions in the areas of education, environment, and health.
• Improved venture funding. some venture and seed funding is already available to public goods enterprises. Hopefully, we will see more such sources in the future.
• Increased spending for public goods. Another important direction is to allocate government/corporate/foundation budgets for funding creation public goods. In particular, we need more transparency and centralization around corporate social responsibility programs. Right now, raising corporate sponsorship requires a lot of legwork and personal connections. another opportunity is to connect public goods spending to new tech clusters (Skolkovo, Chile, Boulder). Channeling technology demand to these places will bootstrap the ecosystem, attract talent and venture capital.
• Low cost public goods. because selling to governments and foundations is hard, and because there is no liquid market for public goods, the prices are very high. Thus, an important direction for innovation is to deliver the most standard public goods at the lowest price possible (as Walmart and EasyJet do in case of private goods).
• Connected community. one of the reasons why Silicon Valley is not contributing much to public goods is the long distance to Washington DC. Public goods industry will succeed if we connect tech cluster, government/foundation cluster and user cluster (education/environment/health needs). Silicon Valley entrepreneurs should travel to places were public goods are in highest demand. We need conferences, education programs, role models, best practices, directory of existing activities and players. it would be great to have a tradeshow where tech industry showcases available products to governments and foundations.
• Private goods companies to enter public goods sector. Private goods companies like Apple, HP and Sony accumulate enormous talent and technology assets. when they work on public goods (e.g. Apple iTunes U or Google PowerMeter) they consider it to be a philanthropy rather than business. As a result, these teams are underfunded and the projects are underdeveloped. once we have a more efficient market for public goods, the contribution from these companies can reach the next level.

Takeaway lessons

1. Public goods is a great opportunity for the tech industry. As the market for private goods gets more competitive every day and large corporations seize the control over most profitable areas, it is time to shift technology ventures to the market of public goods. there are huge opportunities in the areas of healthcare, education technology, environment protection, governmental data, employment marketplaces, and financial systems.
2. The nature of public goods dictates the choice of business model. If your product belongs to the category of public goods then your revenue sources are direct sponsorships, governments, foundations and complimentary products. At the times, ad-supported business model was driving most of innovations in the web industry. now it is time for sponsor-driven technology. Public goods are private goods. while a good is public with respect to end-users, it is still a private good for sponsors, foundations and governments. it is especially true for local public goods (knowledge translations, tourism marketing campaigns). therefore, the regular business practices can be used. Customer development just becomes sponsor development.
3. The progress in public goods technology is tied to improvements of the marketplace. once we will have a unified market for selling/buying public goods and widely accepted impact metrics, the speed of innovation increases dramatically.

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