When to Rely on Coercion, Arnold Kling | EconLog | Library of Economics and Liberty


Arnold Kling writes:

In the revised edition of The Company of Strangers, Paul Seabright writes (p. 26),
One of the great intellectual achievements of modern economics has been to work out very precisely the circumstances under which decentralized systems of market exchange can produce results that are efficient, in the sense of improving the condition of every individual as far as possible whenever this can be done without harming someone else…as we shall see, all real-life systems of market exchange fail to live up to these demanding conditions

These sorts of statements are often the start of an intellectual swindle, which goes.
1. Markets are great, under some conditions (no externalities, perfect information, commodity-like products).

2. Those conditions often fail in practice.

3. Therefore, in practice we often need government.

The swindle is that (3) implicitly assumes that whenever markets fail, government is the solution. But no theory of government is used to back this assumption.

I’d restate this as:

1. we want a social structure that is optimal for all ideally

2. This needs to cause actions to be take that are socially desieable

3. But the actors are only interested in their own interests

4. Number 3 is true of government officials as much as others

5. So coming up with a social structure best for all when that’s not the primary objective of anyone is hard.

When to Rely on Coercion, Arnold Kling | EconLog | Library of Economics and Liberty.

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