If you’ve ever taken an economics class, you’ve surely heard something like this: Market failureI don’t think I’ve heard much about it government Failure. Part of the appeal of the public choice tradition for me was its very clear exposition of the latter. But In this episodeI’ll leave it to longtime favorite Mike Munger to add a twist to my pensive comfort.
First, Munger provided some of the earliest insights into public choice. good Before we get to the classic story (even Pigou makes an appearance!), Munger explains that the history of the concept of market failure arose as a result of attempts to explain large fluctuations in overall economic activity. Economists at the time thought that such “failures” could be mitigated by making markets and the price system work, but wondered whether there were interventions that could shorten the duration. As host Russ Roberts nicely puts it, “Can government outperform the private sector by taking over some of its functions, or by improving, intervening, regulating, subsidizing, or taxing the private choices that arise in the market, the set of private activities?”
We invite you to join us in digging into this complicated history and share your thoughts with us today.
1- Firstly, why do you think so? Laissez-faire is Is it really that difficult for politicians and the public to accept?
2- Why does Munger believe this? Arthur C. Pigou Should he be considered the first public choice theorist? To what extent did he convince you? Really Interpreting Pigou ExternalitiesAccording to Munger? As Munger says, “He (Pigou) Wish “The economist has an intuition about getting prices right. He thinks that you can’t do that in a democracy.” As evidence, Munger cites the following quote from Pigou:
Munger explains why most of the misunderstandings about Pigou Ronald CoaseAnd most importantly, what does all this mean for how we should think about market failures?
3- In about 28 minutes, Munger describes four types of market failures. What are they? Which ones are subject to democratic fluctuations? Which ones can likely be fixed by letting markets function without intervention? Which ones would benefit most from government action?
4- Munger suggests that we need to invent new government institutions based on expertise to guide markets correctly by setting prices correctly. As Roberts says, “Markets fail, governments fail. Therefore, The thirdMunger agrees, but says we don’t yet know what the third one is. Is this answer satisfactory to you? To what extent will government be sufficiently insulated from political pressures to innovate and experiment? Should we turn our attention to making the bureaucracy more efficient, as Roberts suggests? What alternatives do you think might work? you Do you have a suggestion? Please explain.
5- If we were to rethink government action as Munger suggests, how would that change our approach? Industrial PolicyMunger cites his own article:Good industrial policy is impossible(In Democracy) he writes:
…The usual separation of markets and politics – that markets will perform better than democracies in deciding how to allocate resources – was not only accepted by the Cambridge welfare economists, they anticipated the public choice debate by 60 or 70 years. They just had a different solution. Their solution was to set up committees of experts who would work to get prices right in each sector. An empirical question?
Is this Is it an empirical question? If so, how do we begin to answer it? Can we find the “third way” mentioned above by decomposing government failures into institutional and procedural failures?
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