MARKETS WHERE POSSIBLE, STATES WHERE NECESSARY
Don Boudreaux posts on Café Hayek Blog (7 March) HERE a thoughtful quote and commentary, typical of his literate, hard Libertarian thinking, titled “Witch Doctory”, from pages16-17 of the 3rd edition of Paul Krugman’s and Robin Wells’s Economics (2013): “When markets don’t achieve efficiency, government intervention can improve society’s welfare. That is, when markets go wrong, an appropriately designed government policy can sometimes move society closer to an efficient outcome by changing how society’s resources are used… An important part of your education in economics is learning to identify not just when markets work but also when they don’t work, and to judge what government policies are appropriate in each situation.”
Don reports this passage from Jim Gwartney’s talk at the 2014 meeting of the Public Choice Society (in Charleston, SC – one of Don’s “favorite towns on the planet”). Jim Gwartney notes that “too many econ textbooks are ignorant of public choice” and the Krugman-Wells text “apparently has zero mention of public choice or of government failure (despite that book’s many mentions of market failure).”
The theme of Jim’s talk “was that it is not only intellectually sloppy or lazy but, in fact, deeply unscholarly and unscientific for economists today to ignore public-choice analyses of political decision-making. The quotation from Krugman’s and Wells’s book “is just one example – of the still-widespread failure of economists to take public choice seriously… and an embarrassingly large number of such texts – many written by the world’s most acclaimed economists, such as Paul Krugman – are surprisingly naive and unscientific. The authors of these texts pretend to write about reality, but they instead write about a fantasy world and “Far too many economists, such as Krugman – because they either ignore or are ignorant of public choice – simply assume that government somehow is not affected by the many imperfections that these economists readily find in markets”
Don Boudreaux suggests that Krugman and Wells should have ended with a different concluding paragraph that he kindly writes for them:
“An important part of your education in economics is learning to identify not just when governments work but also when they don’t work, and to judge what market policies are appropriate in each situation.” That is, “if someone suggested that you assume that markets always work perfectly (or always work better than government), what sort of scientific credibility would you accord to that person? I hope none. It’s profoundly misguided simply to assume that, if government fails to achieve some attainable and desirable outcome, that outcome can be achieved instead by markets that are assumed to operate perfectly. Such an assumption about market perfection (or superiority) would be unscientific. But such an assumption – as is made by too many economists today – about government perfection is equally unscientific.”
Jim Gwartney rightly laments that far too many economists today simply assume that the witch doctor – the state – has both the miraculous powers and the benevolent interest necessary to cure all social ailments, or at least to deal with these ailments better than can admittedly ‘imperfect’ markets.”
These are typical debating styles in ‘close-quarter’ contests between adherents of polar opposite ideas, common in economics, and rampant in politics, such as in ‘Markets versus ‘States’ debates.
However, I suggest, the habit is universal on all sides of these irresolvable arguments.
Many people are deeply antagonistic to Markets, even considering them immoral and unnatural. Others are equally antagonistic to States, considering them captive to special, corrupting interest groups or dictators and fantasists.
I prefer to be guided by the philosophy closer to the pragmatics of Adam Smith: Markets where Possible, State where Necessary”.