"When philosophy paints its grey in grey then has a shape of life grown old. By philosophy's grey in grey it cannot be rejuvenated but only understood. The owl of Minerva spreads its wings only with the falling of dusk." -- G.W.F. Hegel, 'Preface', Philosophy of Right.
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'Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainity and agitation distinquish the bourgeois epoch from all earlier ones ... All that is solid melts into air, all that is holy is profaned.' Marx
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government and market failure
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October 23, 2008
Reed Hundt in Tech Policy and the Financial Crisis at Talking Point Memo's Cafe makes a good point about free market ideology that holds Government is not the solution to our problem; government is the problem:
This free-market ideology is precisely half right. But a 50% score on this test is not good enough. The ideology correctly sees government failures. But it ignores market failures.
The economist Arthur Pigou gets credit for developing the idea of a market failure early inthe 20th Century. Generations of economists and public policy students learned about externalities, such as when a factory gets to put the costs of its air pollution on the people who live downwind. The Pigouvian answer was for the government to correct the market failure, such as by making the polluter pay for the effects of the pollution. The health, safety, and consumer regulations of the 1960s and 1970s were designed to correct for such market failures.
However, he adds, this market failure story is incomplete:
By the 1980s, think tanks such as the Cato Institute and the Heritage Foundation were emphasizing the related idea of a "government failure." The general point is important and true -- sometimes there are market failures, but the failures of government regulation can be even larger. In such cases, the market failures are not worth correcting. A related point came from the "public choice" movement, led by Gordon Tullock and Nobel Prize economist James Buchanan, Jr. They criticized the view that regulation was a public-spirited effort to correct for market failures. Instead, they described regulation as "rent seeking," an attempt by interest groups to use the power of the state to enrich themselves. The idea of government failure thus began as a useful correction for over-enthusiastic regulators.
The idea of government failure thus began as a useful correction for over-enthusiastic regulators. In the best current approaches to assessing regulation, there is careful assessment of both market and government failures. The problem, though, came when free-market enthusiasts reached a deeply flawed conclusion -- there are only government failures, and few or no market failures worth addressing.The current financial crisis indicates otherwise.
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| | Posted by Gary Sauer-Thompson at 6:17 AM | Permalink |
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