re: EBC Book #1 - Economics in One Lesson by Henry Hazlitt

To expand on the private vs public issue, there are two instances when the public sector should provide the service, in my opinion. The first is when the private sector refuses to supply it and the benefit of funding said service on the backs of taxpayers far outweighs the expense. A perfect historical example of this would be the rural municipal utilities (and, on a somewhat related note - the co-ops). The private sector refused to go into certain rural communities because the returns weren't there, so the public sector ran utilities on its own with the help of tax subsidies. I think few people in those communities would prefer not having electricity to being taxed for those services. We are arguably seeing this same principle play out today with rural broadband.

The second case is when the public sector can actually supply the service more cheaply. This can and does actually happen as corporate taxes, a required return, and other payments are often too large for the private sector to offset. However, when comparing the cost of these services, the public sector proponents almost never include taxes and millages in their cost of service. While the private sector is subject to certain taxes the public sector isn't subject to, citizens receiving the public service are also subject to certain taxes they wouldn't have had to pay if the service were private. Of course, as you said, it was the government who created this tax asymmetry in the first place, so we can hardly rely on them to be honest about it in the first place.

I've found that when you also consider the greater economies of scale the private sector is able to achieve and the inherent waste in the public sector (ever hear about how hard it is to fire a "civil servant"?), the private sector, assuming their own cost structure is efficient, can almost always deliver the service more cheaply. I would include what you said about "bad actors" as one example of public sector inefficiency. This all ties back to the concept of spontaneous/emergent order in the free market system. In the private sector, the free market has an incredible ability to separate the wheat from the chaff, forcing the chaff to either improve or become uncompetitive. There is no such mechanism in the public sector.

To bring things around full circle, however, just because the private sector can provide a service more cheaply doesn't mean they will choose to provide it (e.g. where the returns aren't there either on an absolute basis or opportunity cost basis). So there is indeed a need for public sector services, but in an advanced economy like the U.S., that need is becoming rare. One obvious way to bridge the gap is through PPP, something gaining steam in America but nonetheless something we are still tremendously behind the curve on.