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Quotation of the Day…

… is from page 189 of Arjo Klamer’s 1983 volume, Conversations with Economists; specifically, it’s from his March 1983 conversation with the monetarist economist Karl Brunner; the quotation below is part of Brunner’s response to Klamer’s question “Keynesians object that your theories are unrealistic and emphasize market failures, such as price rigidities, in their argument.  How do you react to these objections?”

The argument is that because of the market failures, the government has to intervene.  That is a classical example of the goodwill theory of government.  It expresses a belief that the government will find the proper solution to maximize social welfare and will act to achieve that solution.  But “government failure” characterizes the reality of political institutions.  The goodwill theory of government offers us little guidance to understand our socio-political world.  The “government failure” can frequently be much worse than the alleged “market failure” when assessed in terms of the public’s welfare.