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Quotation of the Day…

… is from page 172 of my late Nobel-laureate colleague Jim Buchanan’s 1987 paper “Man and the State,” as this paper is reprinted in James M. Buchanan, Federalism, Liberty, and Law (2001), which is volume 18 of the Collected Works of James M. Buchanan:

Failure or success has too often been measured in terms of the standard economists’ criterion of efficiency, the ability to get goods and services produced and distributed, to add to the wealth of nations. Markets may fail against the efficiency standard, even in some relative sense. But even in failure markets allow persons to retain exit options without which liberty cannot be secured.

DBx: The important point that Buchanan makes here has several implications, two of which are:

– To the extent that human beings value liberty as an end in itself – that is, apart from whatever instrumental value liberty has for increasing our material prosperity or even our happiness – the decline in liberty should be entered on the cost side of any cost-benefit analysis of government intervention. To leave it off – to fail to account the loss of liberty as a ‘cost’ – is unscientific if and to the extent that any individual values liberty. The fact that this cost is especially difficult to render in monetary terms doesn’t justify excluding it from cost-benefit calculations.

– When government intervenes to correct real or merely alleged market failures, it typically – as Buchanan notes – blocks off exit options. The Pigouvian tax must be paid. The toilets must use no more than X amount of water per flush. Plastic straws may no longer be offered for sale. Yet to block off exit options is to block off options that might have been used by entrepreneurs to devise better ‘solutions’ to the market failures than those imposed by government. The loss of the prospect of these better ‘solutions’ is also a cost of government intervention, one admittedly difficult to see and practically impossible to quantify. Yet who can deny that it’s real? (This cost of intervention would be nonexistent only if the state really were godlike.)


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