Recently I wrote this post on public choice theory were I suggested that often it is applied very inconsistently. Gene Callahan has a post on the same theme. It's too good to quote selectively:
"Libertarianism Calls for Bigger Government... or so a libertarian argument I just ran across implies!
The argument was against supporters of Keynes. I ran across it in private correspondence, so I can't point you to where to find it, but it runs as follows (Argument A):
1) Keynes's supporters say that his policies don't necessarily call for bigger government; instead, Keynes said governments should run surpluses in good times and deficits only in bad times, a recommendation which is entirely size neutral.
2) However, Keynes's advice was unrealistic; knowing public choice theory, we can see that, in fact, governments will love running deficits and hate running surpluses, and so will only pay attention to half of his advice.
3) Therefore, in fact, Keynes's prescription calls for more government.
So, let us apply this to a libertarian policy stance (Argument B):
1) Libertarians say that the market should decide both when a firm should grow large and when it should fail. No one should step in to bail out market losers, no matter how big they are nor how many people they employ.
2) However, their advice is unrealistic; knowing public choice theory, we can see that, in fact, governments will happily allow businesses to make profits and grow large (profits can be taxed and large businesses are great campaign contributors, etc.), but will be very reluctant to allow them to fail.
3) Therefore, in fact, libertarians' prescription calls for larger government.
Folks, it is the exact same argument with closely analogous specifics filled in differently in each. I don't see how anyone can buy A and not also buy B. (Well, except for the fact that they like the conclusion of argument A and don't like the conclusion of argument B!)"
I've never understood why some people seem to think that public choice theory and the economic incentives of politicians introduces such an obvious counter-argument to [fill in the blank] policy. What's worse is that when the present the argument, they treat the other side like freaking five year olds with no concept of market efficiency or the problems with planning.
What's most amazing to me about macroeconomic stabilization policies in particular is that we've had over a half century now of actually somewhat poorly executed macroeconomic policy making, and things are pretty good in the United States. We are a vibrant, innovative, constitutionally limited market democracy. We have major problems but somehow macroeconomic stabilization policy - with all the public choice warts which I've never denied exists - still seems to be doing pretty well.
Do we have a counter-factual? Do we have a successful constitutionally limited market democracy that is doing equally as well that has completely eschewed macroeconomic policymaking? Not that I'm aware of.
So please, don't treat me like a child when it comes to the economics of government intervention 101. I know the implications of public choice theory. My claim - the claim you have to choose whether to disagree with or not - is that macroeconomic stabilization works in theory in a frictionless model, it seems to work well enough in practice, and our experience with it including all the public choice problems that come with it seems to be quite good. What's the counter-argument?
Simply pointing to the reality of public choice problems and government failure is not a reason not to do it. When I point to "market failures" (I hate the term - but you know what I mean), do I present it as a reason to abandon markets? No, of course not. I'm a pro-market economist. One can recognize market failures without abandoning the market. For some reason some people have this idea in their heads that simply recognizing government failures implies the obligation to abandon government.
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