Although I never claimed to be fair and balanced, this opinion is for my Chicago trained friends, and Stefan. Many economic models treat government as a benevolent social welfare maximizing entity, and many liberals implicitly assume the same in their policy recommendations. One useful insight that emerged from the Chicago school was the inadequacy of this model of government. There does not exist a single agreed upon social welfare function to maximize. Government employees and politicians skew policy implementations by acting on their own preferences, which will generally include many components in addition to improving society, such as personal wealth, power, and popularity. And even an entirely well-meaning government will lack the competitive pressures necessary to weed out inefficiency and waste. These effects mean that virtually all government programs do not work as well in practice as in theory, or as their proponents intend. Any proposed government policy should therefore be supported only if the good it achieves more than outweighs the inevitable inadequacies (unintended consequences, inefficiency, and possible corruption) that will arise in its implementation. For example, based on first order economic theory, increasing the earned income tax credit and similar welfare programs should be more efficient at reducing poverty than increasing the minimum wage. In practice, when comparing these two policies one would want to consider, along with more obvious factors, which one increases by more the size and scope of government and its associated potential for inefficiency and abuse.
Posted on: Thu, 24 Jul 2014 20:13:36 +0000
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