Leading Economist on Why Political Problems are Policy Problems

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Recently Kevin Price, Host of the nationally syndicated Price of Business Show, interviewed Steven Horwitz.

How does politics look different if we model it as yet another set of institutions in which people are trying to make themselves better off through exchange? The main implication is that for a policy proposal to be accepted, it has to be compatible with the incentives faced by the political actors who will pass it. Those political incentives may have little to do with whether the policy under consideration is socially beneficial. This possibility of “government failure” means that we shouldn’t be surprised when actual policies are far from what the economist’s blackboard says is the ideal. It also means that from the very start of debating policy, we have to take into account of the possibility of this sort of government failure. It is not enough to say “well those are just political problems that we’ll deal with later.” The history of government intervention suggests that they will not, and cannot, be dealt with and will thereby make matters worse. Whenever a proposal to give government more power or resources is being offered for debate, it has to take these considerations into the proposal from the very start. Saying you think some regulation will improve matters but that you don’t trust the political process to “get it right” means that you don’t really think it will improve matters. The relevant standard of improvement has to build in the institutional incentives of the political process. Otherwise it is just wishful thinking.


Steven Horwitz is the Distinguished Professor of Free Enterprise and Director of the Institute for the Study of Political Economy in the Department of Economics in the Miller College of Business at Ball State University in Muncie, IN. He is also an Affiliated Senior Scholar at the Mercatus Center in Arlington, VA, a Senior Fellow at the Fraser Institute of Canada, and the economics editor at the Cato Institute’s libertarianism.org. He is the author of four books, including most recently Austrian Economics: An Introduction. He has written extensively on Hayek and Austrian economics, monetary theory and history, and American economic history, and is a frequent guest on radio and cable TV programs. He is also the 2020 recipient of the Julian L. Simon Memorial Award from the Competitive Enterprise Institute.

Website:  www.sghorwitz.com


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