Thursday, July 21, 2005

General Philosophy

One more point on Isaac's post below. He writes:
Henry poses an interesting question in this post: what is the effect on the political outlook of economists of solving for the optimal policy all the time? I have the opposite answer than Henry. He seems to think it makes them trust government to much, which is odd, considering that economists are famous for their libertarian instincts. Rather, I think, it makes them skeptical of any policy that emerges from the political process because it diverges from that optimal policy they've solved for in their models. They'd love to endorse a policy, but can't because it's not perfectly optimal.
Half-agreed. Let's consider economics in the Ec 1 sense for a moment. The standard Ec 1 course has two general themes. One is that markets work pretty well: perfect competition and so forth. The other is that markets don't work very well: monopoly, externalities, public goods, etc. Importantly, each of the market failures come with a government solution. You regulate the monopoly, tax a negative externality, have government explicitly provide public goods.

If you stopped after the first half of the course, you'd probably become a libertarian. If you stopped after the second half of the course, you'd probably become a technocrat. But I think both of these responses are wrong. The first doesn't recognize the failings of markets and the second doesn't recognize the failings of government. Markets aren't always efficient and policy isn't always optimal. The failings of government I'm talking about here have nothing to do with price controls or central planning or anything of that sort. Those sorts of "failures" are absolutely considered in the technocrat framework. Rather, I'm talking about the inability of government to separate itself from politics and enact ideal or near-ideal policy. There may also be some doubt as to whether we can formulate ideal policies for the real world.

So, libertarians and technocrats, step back from your views a bit. Consider the world in its total imperfectness. Use caution when embracing both markets and government policies.

In other news, I've found an airline that claims it can fly me from Budapest to London or Paris for 320 Hungarian forints. 320 Hungarian forints is about $1.50.

(Brad DeLong made this point a while ago, but I can't seem to find a link!)

1 Comments:

Blogger Lawrence said...

"Markets aren't always efficient and policy isn't always optimal. The failings of government I'm talking about here have nothing to do with price controls or central planning or anything of that sort. Those sorts of "failures" are absolutely considered in the technocrat framework. Rather, I'm talking about the inability of government to separate itself from politics and enact ideal or near-ideal policy."

Nicely said. Government can never get outside of itself, it is always government. There is no objective, outside standard to judge government by, but rather it is viewed and judged by the public and, more specifically, the various factions in the public that compete to shape the government policy. That's why government control of economic activity often leads to conflict between the government and a freely functioning civil society - once the government controls the system by which civil society enacts its competion of ideas, then each faction in that civil society no longer feels so free to be critical of the government. This is a point that Friedrich Hayek tried to explain in his book The Road To Serfdom, of which I recently wrote on my own weblog - www.whatIsLiberalism.com

3:57 AM  

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