Friday, July 18, 2008

Would Pigou join Mankiw's Pigou Club?

A great quote from good old AC himself via Gabriel:

It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or will ever wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure and to personal corruption by private interest. — Pigou A., Wealth and Welfare 1920, p. 296

This is basically what I told my professors when I was in grad school over and over. Its not fair to compare actual market outcomes with idealized public outcomes. It has to be actual vs. actual. I was considered a right wing nut. Then when I took my first job as an assistant professor at GMU, I found myself having to say things like not all market outcomes are unimprovable by real world governments. I was considered a left wing nut!

On balance, I guess though the right wing nut label is more accurate. It never ceases to amaze me how people look to government for solutions to problems at least partly caused by government. For example, is it really a good idea to expand the Fed's powers given their recent performance? Yet that is pretty much what is happening. Similarly, people are looking to governments to deal with rising food prices which are significantly caused by the self same governments' insane agricultural and alternative fuel polices.

1 comment:

hmessenheimer said...

“…conditions have changed. We now have several decades of experience with government intervention. It is no longer necessary to compare the market as it actually operates and government intervention as it ideally might operate. We can compare the actual to the actual. If we do so, it is clear that the difference between the actual operation of the market and its ideal operation – great though it undoubtedly is – is as nothing compared to the difference between the actual effects of government intervention and their intended effects.”
—Milton Friedman, 1962