For everyone who has studied economics, you have no doubt heard a lot about market failures. I suspect you have heard little about it the government failure. Part of the allure of public choice culture for me has always been its very clear definition of the latter. But for this episode, leave it to all-time favorite Mike Munger to put the wrinkle in my easy thinking zone.
First, Munger lays out the latest information on public choice well before the general story (it even includes Pigou!). Munger describes the history of the concept of market failure as an attempt to explain large fluctuations in aggregate economic activity. Although economists of the time believed that allowing markets and the price system to function would reduce such “failures”, they wondered if there were any interventions that could shorten this period. As host Russ Roberts put it well, “Can the government bypass the private sector, by taking over some of its jobs or by improving, by intervening, by regulating, by subsidizing, by taxing, the choices that can come from the private choices of the market, the collection of private jobs?”
We hope you’ll join us in digging into this bustling history, and we hope you’ll share your thoughts with us today.
1- First, why do you think laissez-faire is so hard for politicians- and citizens!- to accept?
2- Why does Munger believe that Arthur C. Pigou should be considered the first public choice writer? To what extent did he convince you? How should indeed interpreted what Pigou says about externalities, according to Munger? As Munger says, “He [Pigou] looking for to get the prices right. He has an economist’s view on this. You think that democracy will not do it.” As evidence, Munger points to Pigou’s quote below:
Why does Munger say that most of our apparent misunderstanding of Pigou comes from Ronald Coase? And more importantly, what does all this mean about how we should think about market failure?
3- At 28 minutes in, Munger describes four types of market failure. What are they? Which are more or less democratic variables? What could be solved by letting the market work, no intervention? Which would benefit most from government action?
4- Munger suggests that we need to create a new set of government institutions based on information that will guide markets in the right direction by getting prices right. As Roberts says, “Markets fail, governments fail, so we need a the third thing.” Munger agrees, but says we don’t even know what the third thing is yet. How satisfactory is this answer to you? To what extent can government be immune enough to political pressures to innovate and experiment? Should we direct attention to making positions more effective, as Roberts suggests? What are the possible alternatives you suggest? Explain.
5- If we have to rethink government action as suggested by Munger, how does this change our approach to industrial policy? Munger refers to his article, “Good Industrial Policy Is Impossible” (for democracy), where he writes,
…the traditional separation between markets and politics, where markets are likely to do better than democracy in deciding how to allocate resources, is not just accepted by Cambridge Social Economists: they are waiting for General Election debates in 60 or 70 years. They just had a different solution. Their solution was to have expert commissioners whose job it would be in each industry to get the prices right. An important question?
is this important question? If so, how can we begin to answer it? Can we find the “third way” mentioned above by dividing government failures into institutional and procedural failures?
(0 COMMENTS)
Source link