Why Public Goods Are Great and Gifts Are Underrated

Public goods and gifts often operate in overlooked spaces within economics and human interaction, where their value lies beyond traditional financial metrics. Public goods are often dismissed for being tax-negative but provide fertile ground for innovation and serendipitous outcomes by addressing unmet demand the private sector overlooks. Similarly, gifts transcend purely rational transactions, fostering emotional connections and addressing unrealized benefits. This article explores why public goods are indispensable and how thoughtful gift-giving enriches lives, advocating for a broader appreciation of these two underrated phenomena.

To understand my case for public goods, I first need to introduce Economics 101. As the price of a good decreases, its demand increases; conversely, as the price of a good increases, its supply also increases. Economists describe this as a negative relationship between demand and price and a positive relationship between supply and price. When these two lines are plotted on a graph, they intersect at what we call the equilibrium point—the price at which supply matches demand, satisfying all customers willing to buy at that price.

The triangle formed by the area to the left of the equilibrium point represents the total demand realized. However, if we remove the supply line, we’re left with just the demand curve. The area under this curve represents the total demand for a product, which is greater than the demand realized at equilibrium. This gap—the unmet demand—is where public goods shine.

The Case for Public Goods

Public goods exist to capture the demand the private sector cannot. Libraries and parks, for example, provide value far beyond the tax revenue they directly generate. They create opportunities for serendipitous interactions and innovations that might not occur otherwise by extending supply to anyone with ideas to benefit from them. The modern venture capitalism industry understands this well, as their mantra for the last two decades has been "innovation happens on the margins; the best bet for a business is to capture or create on the margins." Public goods do this by extending supply to everyone. They produce intangible benefits that cannot be easily quantified—think of how many group study sessions and collaborative breakthroughs happen in freely accessible libraries (Google was the brainchild of two people brainstorming in a library, not calculating the ROI of their library card).

Science is a prime example of this dynamic. The fastest producers of information and innovation lie within areas where experimentation costs are low (e.g., amateur astronomers discovering Pluto, creating the first vacuum, and documenting hundreds of new species). History shows that breakthroughs often come from experimentation, not theory. When the cost of experimentation approaches zero, more experiments occur, leading to serendipitous outcomes. Institutions like Bell Labs and Google demonstrate this principle. Their cash flows from profitable ventures enabled them to fund experiments that, even if they failed, had minimal cost and often resulted in groundbreaking innovations. Bell Labs housed the people who discovered background radiation supporting the Big Bang theory, the transistor, and the laser—all core components of modern technology. Google, through its "moonshot" division, "solved" protein folding and advanced autonomous driving. This is the power of experimentation and capturing total demand. Every businessperson will tell you that some innovations seem impossible until costs fall—the same is true with public goods.

Critics of public goods argue that capitalism’s objective function—shifting supply curves to the right through productivity increases—eventually closes the gap between realized and total demand. While this is true in many cases, the real question is whether the time it takes for this gap to close is worth the cost of subsidies. This is a subjective question, but it’s one that is important to consider.

My framework for public goods suggests that capitalism should reduce the cost of technology and fixed capital products until they can transition into public goods. For example, public education should remain accessible, as it’s more about accreditation than access to information—especially when resources like YouTube exist. Similarly, tax software, which is already free in many cases, should universally follow suit. In the future, I’d like to see 3G internet become a public good, along with robots to pick up trash.

The Value of Gifts

The concept of unrealized benefits also applies to gifts. Economically, gifts might seem inefficient because their theoretical value lies in surprise, anticipation, or reduced cognitive effort. Yet, gift-giving persists across income levels. What’s happening is that gifts reduce the cost of acquiring desired items while adding intangible benefits, such as emotional connection and reduced stress.

How to Give Great Gifts

Bulk Practical Items: Give something they use regularly in large quantities, e.g., a multi-month supply of pistachios.

Helpful Tools: Choose tools they’d enjoy but find too time-consuming or inefficient to acquire themselves, such as a curling iron or a portable phone charger.

Permanent Problem Solvers: Opt for items that solve ongoing problems, like a baby monitor or a fogless bathroom mirror.

Premium Upgrades: Give an expensive version of a common item, such as $100 scarves or $500 shoes.

Tailored to Their Interests: Consider their personality and preferences—a penny-pincher might appreciate bulk ground beef, while a design enthusiast could love a quirky art piece.

Sentimental Collections: Create a photo album or a collection of notes highlighting their virtues.

Private Presentation: Give the gift privately after an event or special occasion for a more personal touch.

Gifting Heuristic: Adopt an innovator's mindset—identify pain points and unmet desires, then deliver solutions.

What to Avoid in Gift-Giving

Overstepping Budgets: Avoid gifts significantly outside the recipient’s price range.

Thoughtless Gag Gifts: Unless they’re also functional, sentimental, or artistic, gag gifts often fall flat.

Duplicates: Don’t buy something they already have unless you’re replacing a broken item.

Overspending Publicly: Avoid making the recipient uncomfortable by showcasing a gift’s expense in public settings.

Excessive Intimacy in Public: Save deeply personal gifts for private moments.

Anti-Gifting Heuristic: Risk is disproportionately disincentivized, so it's best to steer clear of it.