Digest

This episode of EconTalk explores the concept of government failure, challenging the traditional view that government intervention is inherently flawed due to information and incentive problems. Host Russ Roberts and guest Michael Munger delve into the history of economic thought, highlighting the contributions of the Cambridge Welfare School, which advocated for government experimentation as a means to improve market outcomes. Munger argues that this school of thought, often overlooked in favor of public choice theory, recognized the limitations of both markets and politics, proposing a third way: a technocratic approach where experts, insulated from political pressures, would guide markets through trial and error. Munger contends that this approach, while not without its own challenges, offers a more nuanced perspective on government intervention and should not be dismissed out of hand. He further emphasizes that the idea of government failure is often mischaracterized, as governments are capable of failing in ways that go beyond simply failing to correct market failures. Munger and Roberts discuss various examples of government failures, including the failure to provide basic state functions like border control and law enforcement, as well as the procedural failures that arise when governments attempt to choose between Pareto optima. The episode concludes with a call for a more nuanced and empirical approach to evaluating government intervention, acknowledging that both markets and politics have their own inherent limitations.

Outlines

00:00:00

Introduction

This Chapter introduces the topic of government failure and the guest, economist Michael Munger of Duke University. It also provides background information on the concept of market failure and the history of economic thought surrounding government intervention.

00:01:43

The Cambridge Welfare School and Government Experimentation

This Chapter explores the Cambridge Welfare School's perspective on government intervention, arguing that government can play a role in improving market outcomes through experimentation. Munger highlights the work of Arthur Cecil Pigou, who recognized the limitations of both markets and democracy and advocated for a technocratic approach where experts would guide markets through trial and error.

00:52:45

Government Failure: A More Nuanced Perspective

This Chapter delves into the Keach-Munger article on government failure, challenging the traditional view that government intervention is limited to correcting market failures. Munger argues that governments can fail in substantive ways, such as failing to provide basic state functions or failing to maintain a stable currency. He also discusses procedural government failures, which arise when governments attempt to choose between Pareto optima.

01:06:34

Public Sector Experimentation and the Future of Government Intervention

This Chapter concludes the discussion by acknowledging the potential for public sector experimentation as a means to improve market outcomes. Munger argues that the Cambridge Welfare School's perspective on government intervention, while often overlooked, should not be dismissed and may offer valuable insights for navigating the complex relationship between markets and government.

Keywords

Q&A

• What is the traditional view of government failure, and how does Munger challenge it?

  The traditional view of government failure is that government intervention is inherently flawed due to information and incentive problems. Munger challenges this view by arguing that it ignores a more sophisticated argument for government intervention based on experimentation, as advocated by the Cambridge Welfare School.

• What is the Cambridge Welfare School's perspective on government intervention?

  The Cambridge Welfare School argued that government can play a role in improving market outcomes through experimentation. They recognized the limitations of both markets and democracy and proposed a technocratic approach where experts, insulated from political pressures, would guide markets through trial and error.

• What are some examples of government failures that go beyond simply failing to correct market failures?

  Munger identifies several examples of government failures, including the failure to provide basic state functions like border control and law enforcement, as well as the procedural failures that arise when governments attempt to choose between Pareto optima.

• What is the potential for public sector experimentation, and why should it not be dismissed?

  Munger argues that public sector experimentation, while not without its own challenges, offers a more nuanced perspective on government intervention and should not be dismissed out of hand. He suggests that it may offer valuable insights for navigating the complex relationship between markets and government.

• How does Munger's perspective on government failure differ from the traditional public choice view?

  Munger's perspective differs from the traditional public choice view by acknowledging the potential for government intervention to improve market outcomes through experimentation. He argues that the Cambridge Welfare School's perspective, often overlooked in favor of public choice theory, offers a more nuanced and sophisticated understanding of the relationship between markets and government.

Show Notes