Arnold Kling

Government: Friend or Foe?

Arnold Kling, Great Questions of Economics
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Thomas Friedman says that we should be happy with our government, because our officials are not as corrupt as in other countries.

Indeed, what foreigners envy us most for is precisely the city Mr. Bush loves to bash: Washington. That is, they envy us for our alphabet soup of regulatory agencies: the S.E.C., the Federal Reserve, the F.A.A., the F.D.A., the F.B.I., the E.P.A., the I.R.S., the I.N.S. Do you know what a luxury it is to be able to start a business or get a license without having to pay off some official?

However, Carl Pope and Ed Crane do not take such a favorable view of Congress and pending energy legislation.

The legislation does nothing to improve the efficiency of energy markets or to remedy any market failures. In fact, it makes matters worse by further distorting these markets with billions of dollars of taxpayer subsidies and other handouts to well-connected energy industries.

This shouldn't come as any surprise. When politicians lack the courage or wherewithal to solve problems, they reflexively subsidize politically potent industries that supposedly offer solutions.

Lynn Kiesling makes the case that markets regulate effectively when left alone. She takes on the politically popular "corporate reform" legislation.

Regulated transparency would not benefit companies, investors and consumers to the extent that the existing market mechanisms do. Imposing further regulated transparency beyond existing SEC regulations would weaken the network of private incentives that generate long-run efficiency through communicating information among firms, investors and consumers about their ideas, costs and resources.

I believe that Thomas Friedman makes an important point that there is a much lower "bribery tax" in America than in many other countries. And we have some regulatory agencies that are reasonably pure in the way they pursue their missions. However, Kiesling is correct in that the private sector often moves more quickly and flexibly to solve problems than does the legislative and regulatory structure.

Discussion Question. Libertarians argue that excessive government regulation reduces private sector vigilance. Could the private sector step in if, say, government meat inspection were discontinued?

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