Sunday, November 11, 2007

Why Free Markets Work Best (aka Reason 429 Small Government is Better)

I know that I'm hardly the first person to ever have this thought, but some of the comments in this thread at Megan McCardle compelled me to point it out again. Specifically, lovers of government planning like to see a problem, cry "market failure", accuse libertarians of wanting to "do nothing" and of "fetishizing markets."

So, for the one hundred millionth time: libertarians don't wish to "do nothing," but instead insist that the market will provide the best solution with the fewest (or at least most limited) unintended consequences. We recognize that short-sighted solutions can and often do create more problems than they solve.

On the other hand, free market solutions combine the wisdom of every interested person in the world and, rather than seeking compromise amongst that wisdom, encourage competition and adaptation . In other words, free market solutions provide a vehicle for making sure that the best ideas out of the entire world will rise to the top and succeed, while bad ideas will fail or be forced to change. Government-based solutions, on the other hand, ensure only that the thinking of a select group of policy-makers is enacted, usually based on political compromise amongst those policy-makers. In some cases, especially in a democracy, those "policy-makers" are really a majority of the voting public, but as we have learned time and again, what is most popular is not necessarily what will work best in practice.

To sum up: the free market ensures that everyone living everywhere within the market has an opportunity to have input on the solution; government-based problem-solving on the other hand ensures that only a portion of people living within the market have an opportunity for input on the solution. So, I ask: which is more democratic?

Oh, one other thing: if a particular government-based solution doesn't work, the people charged with correcting the failure will be the very people who came up with the failed idea in the first place- and good luck getting them to admit they were ever wrong! On the other hand, if a particular market-based solution turns out to be a failure, the people charged with correcting the failure will be the competitors with the superior solutions (who people will start preferring over the failed market competitor).