One of the more resilient errors in policy analysis – in Canada, anyway – takes the following form:

a) Public goods should be provided at zero price by the government.

b) Therefore, goods provided by the government should have zero price.

The former assertion is correct, but b) is a non sequitur: not all publicly-provided goods are public goods.

There are several recent items that demonstrate the extent to which confusing public goods with publicly-provided goods leads to bad policy outcomes:

1) Pauline Marois' proposal to freeze government-set prices of goods and services (electricity, daycare, tuition, etc).

The Quebec government has a long history of using administered prices to advance the partisan interests of the party in power (example), so it really shouldn't be a surprise when the opposition tries to play the same card. Happily, the proposal seems to be getting almost no traction, and Mme Marois appears to have backed away.

In Quebec, the most important administered price is for electricity. To the everlasting chagrin of my colleague and office neighbour Jean-Thomas Bernard, the price that Quebec consumers pay is something like half the marginal cost of production. To the extent that anyone tries to justify this state of affairs, the reasoning invariably takes the following form:

• Low-income households have difficulty paying their electricity bills.
• Low electricity prices will make it easier for low-income households to pay their electricity bills.

This is spectacularly beside the point, of course. The problem isn't that electricity prices are high – the problem is that low-income households have low incomes. It doesn't make any sense to reduce prices for everyone; if you want to protect low-income households, give them money. If the government of Quebec sold its electricity at the full market price, it could easily afford targeted transfers, with rather a lot more to spare.

2) Brock University's Steven Renzetti's study (pdf) on water pricing for the CD Howe Institute:

In the past … most Canadian municipal water agencies have viewed water prices as a mechanism principally for revenue generation and not as a policy instrument to signal scarcity or to encourage efficient water use. But there is growing interest in the potential role for water pricing to achieve these roles.

On average … municipal water agencies lose or cannot account for 20 percent of the water leaving their treatment plants. They face a significant backlog of infrastructure repairs, and replacement costs have been estimated to be billions of dollars. They do not know how much water is consumed by one-quarter of their residential customers whose water use is unmetered…

Economic theory and empirical evidence argue strongly in favour of reforming water pricing. Potential avenues for reform include:

• expanding the use of water meters;
• moving to a full-cost-accounting approach for water pricing; and
• using seasonal surcharges to better reflect the marginal costs of water use during peak summer months.

This is an ongoing, uphill battle. One of the consequences of having enormous resources of fresh water is the widely-held belief among Canadians that water should be free. It's hard to persuade people that what costs money is treating it and transporting it to a convenient location.

3) A proposal from the Educational Policy Institute to increase tuition fees:

Caught between the surge in enrolment that happens in every
recession, and the looming slowdown in government grants and private
donations, Canada's colleges and universities must consider hiking
fees, boosting student aid and cutting the ranks of big-ticket senior
staff, said the report.

The good news, say the authors, is that
many Canadians can afford to pay more. "The average net tuition a
student pays in Canada, once you factor in inflation and tax credits,
has gone up less than $90 in the past 10 years – to $4,066 from $3,985
– while family incomes have increased a lot," said analyst Alex Usher,
co-author of the report by the institute, based in Toronto, Virginia
and Australia.

"Also, there is a smaller percentage of students
borrowing to pay their tuition, because so many have been able to find
work," said Usher, whose report states bluntly, "The question in Canada
is not whether families can contribute more (to tuition): on average,
they can."

One would predict a negative response from the Canadian Federation of Students, and one would be correct. And it's a howler, even by CFS standards:

"It's fascinating that while every government in the world is saying we
can't raise taxes, to increase what is really a flat tax on students –
tuition – completely ignores the reality of the economy."

What's even more fascinating is the CFS' invincible sense of entitlement. They seem to be under the impression that if only the government got out of the business of charging tuition fees, the world would arrange to provide them with a free university education. Memo to the CFS: the people who work at universities are not unpaid volunteers.

To the extent that we're concerned about efficiency, governments should attempt to reproduce market outcomes and set prices equal to the marginal cost of production. To the extent that we're concerned about poverty and inequality, governments should provide transfers to low-income households.

Yes, I know that there are also political economy issues to consider; they are dealt with here.