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The third lesson?

October 9, 2019 - 11:34 -- Admin

Another review of Economics in Two Lessons has come out. It’s by David Henderson and appears in Regulation, published by the Cato Institute (link to PDF). There’s a blog post with extracts here.

Unsurprisingly, given the source, it’s mainly critical of the analysis, but still has some kind words about the book. This para gives the flavour

Quiggin is a good writer who lays out much of the economics well. His analysis of rent control and price controls in general is a thing of beauty. Along the way, though, he makes small and big mistakes. He also shows by omission that the book, to be complete, badly needs a third lesson, on why government works so badly even when it intervenes in cases where markets work badly.

Tyler Cowen made the same point about a “third lesson” on “government failure” in his brief notice of the book. Of course, I discuss specific failures of government policy, such as rent control and the use of military power to generate economic benefits, both of which are noted by Henderson

The idea of “government failure” isn’t just that governments sometimes get things wrong – that’s true of all kinds of decision. Rather, it’s the claim, central to public choice theory, that government actions are driven by concentrated interest groups, rather than by ideas or broad social classes.

There’s some truth to this idea, as I note when I talk about regulatory capture in the book. But overall, I don’t accept it. In our current situation, we need more government action, not less.