the nirvana fallacy

From a post by David Henderson:

When people advocate government intervention, they rarely, maybe never, tell us how the incentives will be set up so that government will do the right thing. Think about how asymmetric the argument is. Incentives in the private sector are such that someone will do something in his interest that hurts others in society, but he doesn’t take account of that hurt in his decision. Or, someone could take action that would benefit others a great deal but it isn’t in his interest to take the action. Notice the use of reasoning about incentives to show why the market fails. Therefore, continues the argument, we should have government intervene.

Did you catch the non sequitur?

The late George Stigler once said it’s like a judge at a beauty contest seeing just the first contestant and then awarding the prize to the second contestant.

Henderson is describing the Nirvana fallacy. This fallacy is when a imperfect something is compared to an idealized other. In this case, a market problem is being compared to a perfect and costless government solution. But reality does not work that way.

What should happen is a cost-benefit analysis to verify that all things considered the government is not worse than the free market. This is always failed by advocates of state action, although government problems abound.

The problems of government: dead weight loss due to taxes, dead weight loss due to regulations, cost of compliance of regulations, perverse government incentives, static and not dynamic handing of issues, tendency for government not to be held to any standard (poor employees are never fired and good employees are not rewarded), budget bloat (agencies are rewarded for maximizing and not minimizing budgets), special interest capture, etc. This does not even count the human toll, as the government enforces it’s actions against individuals.

When advocating state action, people need to keep in perspective the government costs involved.

About christopher fisher

The blog is meant for educational/entertainment purposes. All material can be used and reproduced in any length for any purpose as long as I am cited as the source.
This entry was posted in Econ 101, Economics, Goverment, State Worship. Bookmark the permalink.

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