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Thursday, May 31, 2007
More on the Inherent Superiority of Government
A follow-up post to the one on Bryan Caplan's assault on government: I think I may have confused what normal people mean by efficiency with what economists mean by efficiency- that is, an efficient decision is one whose benefits exceed both the opportunity and out-of-pocket costs. Caplan, I presume, means that government services let people consume irrationally. People don't have to pay for the service, so they consume more than they would otherwise. This is irrational, I guess.
The Kevin Drum point, which is a good one, is that irrational consumption isn't necessarily bad. People should get some extra stuff, because we should all want the same if we were in that position and the richest country in the world can and should be a decent one.
I'm still struggling to push this debate further- that government services aren't necessarily "overconsumed" because people don't pay for them.
This is the anti-government, pro-market ideology in a nutshell- government is inefficient but nice, the market is cruel but builds character and is good for you. It's the Daddy market and the Mommy state, if you will.
The problem is it doesn't square with reality. It's false. Government services can be much more efficient than the market. Our health care system is the case in point. Nearly every other system in the world is cheaper and more effective, and nearly every other system has more government involvement. Pretty significant correlation, don't you think?
But it's also that the dreaded "moral hazard" factor is not decisive in driving up health care costs. Moral hazard the term economists use for when people do risky things, or overconsume, because they don't have to pay for it. Economists think that health insurance encourages this kind of behavior.
This great article takes down this argument better than I can. The point is that health care is different- people inefficiently consume because they're following medical establishment's advice, not just because they have insurance.
Health care doesn't lend itself to efficient provision in decentralized markets, because markets give too much power and bad incentives to medical professionals. Government could do it better.
Posted by Matt Lewis
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