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Government Action with Naive Expectations

Henri Erti
March 21, 2017

As a Brevard College graduate I can remember how in Introduction to Economics course we learned about market failure theory: an outcome where the market system fails to produce optimal outcomes, requiring government intervention. Yet, very little attention was given to the dynamics of government action and its subsequent possibilities of failure.

Type “failure of capitalism” or “free markets don’t work” to Google and you will find countless articles, books, videos, movies and podcasts.  Some of these are decent attempts to discredit the power of capitalism, but most are horrendous efforts to paint a stern image of laissez faire philosophy in exchange for intellectually lazy justifications for government intervention. On the flip side if you do Google search for “government failure” or “government interventions don’t work” the results are relatively narrow. In other words, government action is somehow considered axiomatically perfect, whereas free-markets are seen inherently unstable. This is ludicrous.

Where do such a trivial anti-capitalist and naive pro-government action attitudes stem from? One possible explanation could be the fact that measuring the absence of government intervention in the midst of market failure is empirically a formidable task. For example, supporters of 2009 Obama stimulus plan argue that without government action in the past, the economy today and in the future would be much worse off. Given that replicating a stimulus free Great Recession is an impossible task, critics of government action have a hard time proving their theorems against such silly assumptions.

But let’s examine this question from an epistemological perspective. Market failure acts as an incentive for profit-maximizing entrepreneurs to develop solutions. With government failures, the dynamics are starkly different. Failing government policies almost never die off. In fact, as 1976 Nobel Economics Prize winner Milton Friedman argued, temporary government policies tend to become permanent programs regardless of their failures.

A parting and rhetorical question for anti-capitalist and pro-government BC students: Why is that when noble government policies fail, many argue that these programs simply weren’t implemented correctly, but when a market failure occurs, the same anti-capitalist people are very quick to point out “ha, see capitalism doesn’t work”?

Why such grotesque intellectual inconsistency?