Economists’ Normative Case for Government Intervention is a Very Poor Positive Theory of that Intervention

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The economic theory: the state intervenes in the economy in order to prevent free-riding – in order to internalize externalities – in order to better ensure that all private parties pay the full marginal costs of their activities, and that all private parties reap the full marginal benefits of their activities – in order to promote competition – in order to protect the weak from the strong.

The political reality: the state intervenes in the economy in order to promote free-riding – in order to externalize costs and benefits that the market has reasonably internalized – in order to better ensure that politically powerful private parties escape the full marginal costs of their activities, and that politically disfavored groups be stripped of much of the marginal benefits of their activities – in order to promote monopoly – in order to render some people weak who are then pillaged by the strong.

(The above obviously owes much to the late, great Ronald Coase.)

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