I've been reading your site for a while now and love the new podcasts. I'm looking forward to this Sunday. You may also recall a few months back I sent you an article about MF Global which I was happy to see caught your attention.Just to be clear, those who advocate the current public fire departments shouldn't be considered specifically Keynesians, but statists, that is, it is those who want government to interfere and prevent a free market fire system. Most Keynesians would likely fall into this camp, but Keynesians would only be a nearly complete subset that overlaps a much larger group of statists who advocate public fire departments.
I was introduced to Austrian Economics and Libertarianism a few years ago and unfortunately I don't believe I know enough to reply to some questions such as the one I got from a co-worker detailed below.
My co-worker is a Keynesian who loves Krugman, but he has an open mind and I'm certain given the right refutations of his theories, he would quickly realize the Austrians have it right. We were talking about the evils of government and how the Fed and the GSEs contributed to the housing bubble when I said we should get rid of them and allow the free market to do what it does best. I mentioned no banker in his right mind would make the kind of sub-prime loans that were made in the early part of the 2000's. That turned into talk about privatizing roads and ultimately led to his question.
"What about fire departments? If my house is burning and we had private fire departments are you saying I would have to pay them $X.XX to put out the fire? What if I didn't have the money, would my house burn down?"
I came up with a couple solutions such as paying premiums to the fire department for coverage, charities popping up to help people who couldn't afford to pay, and neighbors helping out for fear of the fire spreading to their homes, but I was wondering if you had any thoughts on this.
As for how a private sector fire system would evolve, the beauty of the free market is that there is no one central plan that would be forced on us all. You may have one view of how a system might develop. I may have another and still others may have even other ideas. Over time the best ideas are likely to emerge through out an economy via entrepreneurs. But in a free market, anyone who wants can try an idea and attempt a solution---versus just a bureaucratic central planning coercive solution
You might want to ask your Keynesian, Krugman-loving, friend why he doesn't see people leaving piles of their own money out on their lawns. Or even laying around openly in their houses. Or why most people lock their doors when they leave their cars. The point being that people take steps to protect things of value.
It's thus possible, that most would likely do so with regard to fire protection service for their house. They would likely by some kind of monthly on-demand service. Banks writing mortgages would most likely demand that fire protection service be obtained before a mortgage is issued. Another option might come about because of fire insurance. Before public fire departments, insurance companies provided fire protection service, which resulted in their having to pay out less in insurance. Bottom line: We don't know exactly how a fire protection service would develop, but a house is a very valuable good, so ways to protect such a good from being destroyed by fire would certainly develop.
In the final analysis, though, if someone is irresponsible and does not sign up for fire protection service, is your friend suggesting that the government should force us all to pitch in for such a person? If so, then ask him if someone is reckless and leaves his car doors open with the keys in the ignition, if the government should be able to force us to pay for a new car for him.
Individual responsibility for houses, cars etc. are best left up to the individual. Otherwise, moral hazard develops where people aren't concerned about their property because the government backs them up with coerced money taken from the rest of us. Government involvement results in paradise for the lazy and irresponsible, with the rest of us having to pick up the tab.
But, in the end, it comes down to individual liberty. Government shouldn't have the right to take money from anyone for anything. That a sector where government gets involved always is less efficient is the secondary argument.