When should the government intervene? In introductory economics classes, we introduce market failures. In intermediate economics classes, we discuss them in detail. In advanced and phased lessons, we get into the nuts and bolts of different ways pure exchange doesn’t work and how, in theory, government can improve things.
In theory. Many assumptions are made by textbooks about governments, their abilities, and their motivations. A benevolent, omnipotent, and omniscient government can impose a tax equal to the external costs measured in externalities. That’s a good assumption for heroes, and it’s important not to mistake the model for reality and its assumptions for plausible explanations of the world as it is.
Until then, a presentation from philosopher Jason Brennan inspired the paper I am contributing to a symposium on Journal of Private Enterprise with donations from my late friend and the Liberty Fund donation Steven G. Horwitz. Brennan and his colleague Christopher Freiman explain how all the arguments for controlling consumer choice apply equally to political choice. Of course, we are naive and irrational in the supermarket. The problem is worse at the polls because our incentives are worse.
Brennan and Freiman explain that, therefore, there are several conditions that the government must meet before it can override people’s decisions. I summarize them here. First, we must ask whether the problem we want the government to solve is an unintended consequence of another government policy. Are you concerned about the environment and insufficient urban density? Let’s examine how government policies stop urban sprawl (for example, single-family zoning).
Second, the private sector has already addressed many market failures. Are you worried about foreign substances from cigarette smoke in restaurants and bars? That’s already factored into wages and prices–again one unintended consequence of urban smoking bans was that people drove to the suburbs to drink.-then he kills people driving home.
Thirdly, the governments are not always clear to us actually we run with people actually choose those who deal with the motives they do actually face will improve things. “Affordable housing” can be fixed tomorrow if we remove rent controls and layers of red tape that prevent new construction. Telling people you support policies that lower their housing prices or challenge their cherished beliefs is a good way to ensure that don’t do it be re-elected.
Fourth and fifth, it is up to us to ask whether the policy passes cost-benefit analysis and how it changes people’s compensations. The Transportation Security Administration, for example, is a colossal waste of resources with a cost per life far greater than the cost per life saved by other policies and programs. The TSA also made flying less convenient and encouraged more driving—which meant more highway deaths.
Finally, even if the policies pass all of these tests, people may have rights that override the proposed policies. Anyway eugenic policies of forced sterilization they pass all other tests—which they probably won’t—violating people’s bodily autonomy and therefore unfit.
How should we decide when and where to intervene? As Steven Horwitz and I argued a long time agomarket failure is a necessary but not sufficient condition. Before trying to cure this or that disease, we must make sure that the cure is worse than the disease.
Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University.
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