A. C. Pigou
said as much.
It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. A loud-voiced part of their constituents, if organized for votes, may easily outweigh the whole.
At Knowledge Problem, Michael Giberson
wonders where the market-failure-warrants argument came from.
Maybe someone has researched the question carefully. In the absence of someone setting me straight, I'll blame Paul Samuelson.
Samuelson's influential Foundations of Economic Analysis refers to Pigou several times, according to the book's index, but so far as I noticed just once it mentions that the presence of Pigou's external costs means "there is of course need to interfere with the 'invisible hand'." (p. 196)
And at Kids Prefer Cheese, Michael Munger
suggests that market "
failure" is the
warrant of last resort, if it is a warrant at all, for government action.
Why would you think that the government can get prices right for externalities? Why do you think the government WANTS to get prices right, given how much money there is to be made from campaign contributions from rent-seekers?
Particularly where there are countervailing rent seekers?
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