Monday, August 28, 2006

A Typical New Experiment

On the first anniversary of Katrina, Kudlow and Company dedicated a segment to the role of government in times of crisis. Jared Bernstein of the Economic Policy Institute argued the administration missed a golden opportunity for a "bold new experiment." I'm not sure what he meant by this. Presumably this means more free market activity and less government. Drastically less government, allowing New Orleans to just be rebuilt but reimagined.

Bernstein, however, works for a leftist think tank and has agrued for more spending on "rebuilidng the Gulf Coast" and fewer tax cuts so I doubt he has much faith in the market.

People always tell me the market is great but it can't handle emergencies or disasters. I don't get this. In times of crisis information is incomplete at best. Normal lines of communication fly apart. Scarcity hits new heights. Do we really believe politics, which ignores the pricing mechansim (arguably the best way to convey information) and relies on the good will of bureaucrats to distribute these scarce resources, to be better than the private sector?

Look around you. Virtually every great service or product in our society was forged by free minds in free markets. Virtually every shameful or horrid thing an institution has done was done by politicians of one breed or another. In times of crisis, it simply make more sense to involve the institution that best handles information and scarity. It would certainly be a new experiment to allow freedom in times like those, but the record of markets is so good, so proven, I would hardly call it "bold."

3 comments:

SmoothB said...

Every great service, besides defense, you mean? That's sort of the ultimate times-of-crisis/emergency/disaster service? Or are we working with the "defense is bad" system, or possibly the "markets are better at defense too" line?

David said...

Hence the qualifier, "virtually."

David said...

To elaborate, I include defense in on of the few things government does better than the private sector not because defense is for emergencies (in fact most of defense today is for deterrent purposes) but because it is a public good. If the private sector tried to provide it, we would have a lot of free riders and probably an undersupply of defense. (It is certainly a good question if an under or over supply is more desirable but my risk-averse nature wishes for oversupply.)

Bringing water to people who demand water--emergency or not--is not a public good. Neither is rebuilding homes or repairing highways (some of my colleagues may disagree on that last point). You might be able to make a good case for vaccinations but safe to say there are few exceptions.