In the latest Econtalk podcast, Don Boudreaux on Public Choice , Boudreaux of Cafe Hayek and George Mason University points out a common error by critics of free markets. The error is in comparing the functioning of the free market to an idealized perfection:
…compared to what? It’s not the merits of the market compared to some ideally-performing government, or ideally-performing dictator–it’s compared to government as it is likely to perform as the alternative to the market. Also wrong to hypothesize a perfectly working market and assume that’s what’s happening in reality.
I hear this all too often. The reasoning usually goes something like, if a market does not work exactly how I want, then we must rely on government instead — as if the government is perfect or can someday be.
Markets are not perfect, but neither is government. Government has proven to be much less perfect because of the feedback loops and incentives. Markets are self-healing, governments keep pumping in blood without attending to the wounds.
The next time someone suggests government as a means to achieve perfection, ask them which government program is the model on which such perfection should be based.