Boudreaux on Posner on Hayek

Professor,

"The bottom line is that market failures are not necessarily more prevalent or more onerous than government failures. Indeed,

the number and intensity of government failures is likely greater than that of market failures given that majoritarian politics inherently involves winning coalitions forcibly imposing their wills upon losing coalitions. To assume, as Posner (like so many others) does, that legislation will more likely than not improve a market failure is unjustified."

What is the correct definition of "market failures"? Some people like to crank many things in there (poverty, inequality, etc.), what are the true market failures?

"I take issue with Posner's tepid assessment of the importance of Hayek's work."

I would never have guessed. :-)

Josh's list is a statement of the human condition in all endeavors including government. Is it possible that in a truly free market there is no such thing as market failure as it is usually construed?

Is 'imperfect competition' really a market failure? I would call it 'failure of a perfect competition model to describe reality', not a market failure. Anyway, 'market failure' implies that market 'fails' to provide something it is supposed to do. What is 'the market' supposed to achieve, so that it can 'fail' to reach the goal?

Same thing could be said about "imperfect information". How can that ever be a market failure? Is bringing perfect information to anyone the goal of individuals engaging in market activities?

I think the central issue here is whether we believe that the best way to organize human affairs is through the decentralized action of individuals (however you want to characterize that) or the centralized action of governments. Obviously, Posner is correct that some mix of the two approaches is inevitable and necessary. But the real debate is over what this mix should be. Don, following Hayek, would prefer to see more individual action and less government action.

Economics, while more "scientific" than most other social sciences, is not nearly as objective and subject to extrinsic proof as the hard sciences. So we will never be able to resolve this question through theory and models alone.

Ultimately, I think history and experience are our best guide to which approach is better overall. I would argue that history and experience (measured in terms of the goods and outcomes that most humans have valued over time) are on the side of more individual action and less government action.

After reading The Mystery of Capital I am even more convinced of the strength of spontaneous law to create rules that facilitate the "best" outcome over what elected officials can do.

Bedard: "So we will never be able to resolve this question through theory and models alone."

No, you have to live under both conditions to understand them. I have lived in both the US and France for a considerable period of time in each.

France is a "dirigiste" democracy that is run by a comparative handful of elite from a particular school who, over the past three decades, have shared control (between left and right) of the government levers, which they were educated to manipulate. This also promotes a disastrous cronyism at the highest level of goverance.

The attribute of meritocracy, so much underscored in the US, is of little consequence, since the elite determine who merits what in terms of running large corporations (that were once state-owned, but are progressively being privatized).

I wont explain America, because you probably know it well enough. I will underscore, however, that the two countries do not compare and the dissimilarities are not only in the institutions but the fact that France is a collectivist society (where community interests prevail over the individual) and America is an individualist society (where the status of the individual prevails over community interest).

The notion of liberty is therefore quite different between both nations. It is individual liberty that prevails in the US and national liberty (especially republican) that dominates in France.

This is somewhat simplistic and bears a further explanation. A collectivist society pursues policies that better all members of the community and therefore improving each individual member. A collectivist society tries to assure that the individual has the most opportunity to succeed personally, and in that manner the community as a whole is served.

These mentalities are starkly different in what they expect of the state. The collectivist look to the state to assure their welfare, and accept high taxes towards that objective. An individualistic society maintains that all individuals must look out for themselves, but there is no or little constraint to do so.

The happy medium between the two is perhaps the best of both possible worlds. The problem is this: Americans cannot understand the benefits of state intervention is certain sectors (notably health) and the French cannot understand that unbridled liberal markets obtain the best advantage for all its participants (and particularly the consumers).

As a consequence, the notion of liberty is similar, individual vs: collective.

Good post, but that quote is not from me. I think you're answering Warshawsky, wich I don't think is from France :)