State Bailouts: The Tragedy of the Commons

Kid Dynamite submits:
Readers may be familiar with Garret Harden's Tragedy of the Commons. As Wikipedia describes it: Central to Hardin's article is an example (first sketched in an 1833 pamphlet by William Forster Lloyd), of a hypothetical and simplified situation based on medieval land tenure in Europe, of herders sharing a common parcel of land, on which they are each entitled to let their cows graze. In Hardin's example, it is in each herder's interest to put the next (and succeeding) cows he acquires onto the land, even if the carrying capacity of the common is exceeded and it is temporarily or permanently damaged for all as a result. The herder receives all of the benefits from an additional cow, while the damage to the common is shared by the entire group. If all herders make this individually rational economic decision, the common will be depleted or even destroyed to the detriment of all. Simply: each individual has incentive to do the exact action which, if everyone does it, will result in a pareto-inferior (aka: worse) result for everyone. It's not entirely unlike the Prisoner's Dilemma. I've been using the Tragedy of the Commons to describe the downward spiral which I think will result if the Federal Government starts bailing out cities and states from their failed budgetary decision. Yesterday, in the NY Times, I read the article "Obama Presses for Aid to Cities and States," and could only think: and so it begins. {tangent: this post has nothing to do with Obama - this piece would be identical if you changed all the "Obamas" to "Bush," "Palin," "Clinton," or anyone else - so please save your partisan rantings for another blog} The NYT says: President Obama on Saturday implored Congress to provide more aid to states and cities to blunt “the devastating economic impact of budget cuts” by local governments that imperil the jobs of teachers, the police, firefighters and other public employees.Complete Story »