For anyone who has taken an economics class, you have probably heard a lot about it. market failure. I guess you have heard relatively less about it. government Failure. For me, the appeal of the public choice tradition has always been the very clear explanation of the latter. But in this episodeLeave it to perennial favorite Mike Munger to put the brakes on my contemplative ease.
To begin, Munger places the first ideas on public choices GOOD Before the typical story (it even includes Pigou!), Munger describes the history of the concept of market failure as arising from the quest to explain the large swings in aggregate economic activity. While economists of the time thought that letting markets and the price system work would smooth out these “failures,” they wondered whether there were interventions that could shorten this period. As host Russ Roberts aptly puts it, “Can government outcompete the private sector, either by taking over some of its tasks or by improving, intervening, regulating, subsidizing, taxing, the choices that would emerge from a private market choice, from a set of private activities?”
We hope you’ll join us as we dig into this complex story and share your thoughts with us today.
1- To begin with, why do YOU think laissez-faire is so difficult for politicians – and citizens! – to accept?
2- Why does Munger believe that Arthur C. Pigou should he be considered the first public choice theorist? To what extent did he convince you? How should we Really interpret what Pigou has to say about repercussionsaccording to Munger? As Munger says, “He (Pigou) wanna “Prices must be fair. He has an economist’s intuition about this. He thinks that democracy will not achieve it.” As proof, Munger cites the following quote from Pigou:
Why does Munger say that most of our apparent misunderstandings about Pigou come from Ronald Coase? And most importantly, what does all this mean for how we should think about market failure?
3- At about 28 minutes, Munger explains the four types of market failures. What are they? Which are more or less subject to the vicissitudes of democracy? Which are most likely to be resolved by letting the market function, without intervention? Which would benefit most from government action?
4- Munger suggests that we need to design a new set of government institutions based on expertise that will properly guide markets by setting the right prices. As Roberts says, “Markets fail, governments fail, and so we need a third thingMunger agrees, but says we don’t even know what the third thing is yet. How satisfactory is that answer to you? How insulated can government be from political pressures to innovate and experiment? Should we focus on making bureaucracies more efficient, as Roberts suggests? What alternatives might be considered? You suggest? Explain.
5- If we are to rethink government action in the way Munger suggests, how does this change our approach to governance? industrial policy? Munger refers to his article, “Good industrial policy is impossible“(in a democracy), in which he writes,
…the usual separation between markets and politics, where markets are likely to be more effective than democracy in deciding how to allocate resources, was not only conceded by the Cambridge welfare economists: they anticipated the public choice arguments by 60 or 70 years. They just had a different solution. Their solution was to create expert commissions whose task would be to set the right prices in each sector. An empirical question?
Is it An empirical question? If so, how can we begin to answer it? Can we find the “third way” mentioned above by distinguishing between governmental failures and procedural failures?
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