Market failure, government failure


We're all aware of the concept of market failure of course: and those who read around here are similarly going to be au fait with the concept of government failure. We tend to try and point out that government failure is going to be worse than the market kind, partly because of the incentives faced by the actors and partly because it's so much more difficult to reverse the government type of failure.

However, if you really want to have gobsmackingly awful failure you have to go further than mere government, bureaucracies, and get the politicians involved. Something which has just happened in fact, as a leftish but good economist notes, a Canadian economist, rightish economist, White House type, the economically literate and even the closest the US has to an economically literate social democrat notes. Congress has just made an entirely idiotic decision.

They've decided to bring back trade protectionism as a way of dealing with the economic downturn. The House version of the stimulus bill states that only US made iron and steel can be used in any of the projects funded. The Senate version says that anything used must be US made.

Einstein once said that lunacy was performing the same actions over again and expecting a different outcome. We tried this, protectionism, in the last big downturn and Smoot Hawley really didn't work all that well, did it? In fact, most people say that it made things worse, not better. I guess we simply have to conclude that the majority of the duly elected politicians of the USA are lunatics.

That economists are united in their opposition won't, unfortunately, make all that much difference. As last year's Nobelist*, Paul Krugman, has pointed out, it's when economists are most united in their policy proposals that they have the least influence.


* Yes, yes, Swedish Bank in honour of, still don't care.