Government as Deux Ex Machina

Almost all economists recognize that there are some market failures that must be corrected by government intervention, the disagreement is over their prevalence. Some economists see widespread and costly market failures, and that government can intervene effectively to overcome them.

This is from Mark Thoma.

Notice a category missing? The category includes me. It’s economists who do “see widespread and costly market failures” but don’t see how “government can intervene effectively to overcome them.” The debate between advocates of government intervention like Mark and critics like me is still unjoined–by Mark. What he has not shown us and, more upsetting, what so few advocates of government intervention even try to show us, is how a government regulator will have the right incentive to do the right thing. Will the government regulator be fired if he screws up? Not typically. Will he get a huge bonus if he does something right? Not typically. And how, with a centralized information system, will he get the information needed to make a good decision, something I wrote about in the context of dealing with terrorism? I don’t read Thoma as much as Arnold does, but I read him a fair bit and I’ve never seen him deal with these issues. Have you?