One way that some defend laissez-faire policies is by arguing that markets work perfectly. This view is not persuasive; market power, or information asymmetries, or externalities, or public goods, are present to some degree in virtually any setting.
Thus one can always make a plausible case for at least some intervention, and that is why many economists are fairly interventionist. A critical assumption behind this perspective, however, is that intervention is the right amount; too much intervention can be worse than doing nothing. Ultra-strict pollution controls on cars would make them so expensive that commerce would grind to a halt. Subsidizing education too much encourages people to get degrees even when they would be better off getting a job. Too much redistribution discourages work and savings so much as to make the economic pie vanish. And the costs of taxation increase with the amount of revenue raised, so as government grows this cost becomes increasingly important.
This issue is crucial because government programs do not stay small. The reason is that all entities,” whether individuals, firms, non-profits, or government agencies, attempt to survive. And one path to survival is getting bigger. This can mean growing in size, or it can mean expanding the mission, or both. Either way, interventions that make some sense if small inevitably become large. This is especially problematic because government faces no competition; thus, bad performance is not readily driven out. Moreover, government often controls the information necessary to assess its own effectiveness.
Consistent with this view, most government programs expand enormously and pursue activities much broader than their original missions. Indeed, it is hard to think of more than a handful of examples where government has contracted. This is not proof of “excessive” expansion, but it certainly makes you wonder.
Consider as illustration the Consumer Product Safety Commission, which among other duties verifies that toys for children are safe. Few would deny this is a worthy goal, and the intended beneficiaries cannot necessarily take care of themselves. Regulators must recognize, however, that making toys safer means making them more expensive (otherwise, manufacturers would do it on their own). Thus, regulators must choose an appropriate tradeoff between safety and cost.
Benevolent and omniscient regulators would choose the level of safety by balancing the welfare of children against the increased costs of toys. But real world regulators who, consciously or subconsciously, want to expand their mission, will perceive heightened dangers from toys because this means more toys to regulate. Real world regulators will minimize the effects on costs, again to increase the scope of their activities. And real world regulators might go from low-cost interventions like warning labels to outright bans of particular toys.
Thus, while protecting child safety is a reasonable objective, and while modest, careful regulators might plausibly nudge the private sector in a beneficial direction, actual regulators will almost certainly regulate too much.
This consideration applies generally. Civil Rights legislation evolved from prohibitions against discrimination to affirmative action. The Pure Food and Drug Act went from requiring truthful disclosure of ingredients to banning many foods substances and regulating the development and marketing of most medicines. Social Security grew from protecting the low-income elderly who could not work to providing retirement income to millionaires. Antitrust evolved from prohibiting monopolization to proscribing a large range of plausibly competitive practices (e.g., vertical “restraints”).
If excessive or undesirable policies were easy to fix, scale back, or eliminate, the problem of mission creep and overexpansion would not be overwhelming. But government programs are hard to eliminate, even if they work badly or become unnecessary. Every program benefits some interest group, even if it harms society overall. These interests campaign to forestall sensible cuts with tales of lost jobs and other “disastrous” consequences. The knowledge that this will happen, and inevitably prevent some desirable cuts in government, is therefore one reason to avoid new government in the first place.
I think this is one of the more convincing reasons for anarcho-capitalism. The fundamental monopoly the government always has (by definition) is on retaliatory force. The monopoly on retaliatory force is what guarantees the growth. Has any government reduced its size willingly? Even the limits of government and the “check and balances” of the constitution fell to the events of the day. I think the more interesting question is “are we past the tipping point of government growth in the US.” Is it too late? Or can debate on the blogsphere turn us around? … ; )
Posted by: paul | July 17, 2006 at 04:09 PM
No one defends laissez-faire policies by arguing that markets are perfect (whatever that means) any more than physicists defend Newton's first law of motion by arguing that there is no friction. Rather, the unpersuasive view that markets are perfect is a classic straw man argument by interventionists that they attribute to laissez-faire proponents.
Posted by: mobile | July 18, 2006 at 02:31 PM