POLICY PRACTICALITY AS OPPOSED TO POLICY FAITH.

It's semester break all over the U.S. and probably Canada, which means this is a good time to start thinking about next semester's political economy courses.  We'll give the Trenchant Observation Of the New Term to Michael Munger.

Pigou, to his credit, recognized that the concepts of “market failure” and “externality” actually require an investigation of the specific institutions of state intervention. He may have been too optimistic about the prospects for improving state action, but he had no illusions about the problem states faced in acting correctly.

Yes, in the best Joseph Stiglitz fashion, you can invent an omniscient central planner and demonstrate that he can achieve efficiency, but if the knowledge to be an omniscient central planner existed, somebody could get rich off it.

[Pigou] also was careful to note that what later came to be known as the market-failure paradigm should be applied with care. Usually, the logic of Pigouvians goes like this: markets fail (by externalities, asymmetric information, etc.), so the state should act. Of course, that would only be a complete prescription if one is reasonably certain that the actual actions of the state are likely to be an improvement over the actual results obtained from the market.

The main thrust of the public choice movement was to correct this naïve optimism about the state. There are two main types of problems identified in the work of James Buchanan, Gordon Tullock, and the other scholars who developed the public choice critique starting in the 1960s.

Put another way, vulgar Pigouvians ought recognize the limitations of state action, whether or not they are prepared to grant some of the harsher criticisms of state action that might follow from public choice theory. Just teach the controversies.