Questions for Interventionists

In an earlier post, I pointed out that we do not exist in a state of nature.  As many economists have been pointing out since at least Ronald Coase’s famous 1960 paper The Problem of Social Costs, we exist in a complex world of pre-existing social, economic, legal, and legislative arrangements.  These arrangements influence our actions.  Like Chesterton’s Fence, we cannot pretend they do not exist, nor discard them because we do not understand their purpose.  

And yet, many interventionists do ignore current arrangements.  The models they use ignore important aspects of reality, aspects that may show their interventions will do more harm than good.  Models are an important aspect of any reform proposal, but they are hardly sufficient.  Just because some model implies some desirable outcome does not mean the outcome will come about in reality.  Further, since models are dependent on their assumptions, any model can be used to justify any outcome.  

To prevent this issue of dueling models, allow me to propose some questions for interventionists.  These are questions to help justify their proposed interventions.  But first, two quick comments:

First, I am using “interventionist” is a very broad sense to mean any scheme that uses the power of government to intervene in economic relations for any purpose.  Interventionism includes (but is not limited to): market failure corrections, non-revenue taxes/subsidies (eg Pigouvian taxes), protectionism, industrial planning, nudges, etc.  

Second, I am placing the burden of proof squarely on the shoulders of interventionists.  In this sense, my approach here is very conservative: the status quo is taken as preferred over change unless shown otherwise.  This burden of proof can be met and overcome.  In that sense, my approach here promotes change.  The point here is to avoid radical and unproductive changes often advocated by interventionists while allowing potentially useful changes to arise.  

With the preliminaries out of the way, let’s get to the questions.

Question 1: What is the current state of affairs? 

This question is important because it sets the stage.  Of course, it is impossible to articulate every single aspect of the current state of affairs.  Rather, one should focus on the most salient (eg, direct laws, institutions, etc).  

Answering this question also helps prevent critical empirical errors that most interventionists make.  For example, if you ask almost any advocate of a carbon tax in the US, they will say “there is no price for carbon in America.”  That statement is factually incorrect.  There is no monetary price, sure.  But there is a price of carbon.  There are all sorts of preexisting arrangements that influence the price of carbon.  These preexisting arrangements, as Coase pointed out, are crucial.  If they are misunderstood, then interventions can make the situation worse.

Answering this question also helps understand why existing patterns are what they are.  And that leads us to our next question.

Question 2: Why have pre-existing arrangements failed?

If the answer to Question 1 leads one to conclude that there is indeed a failure, now we need to understand why that failure has occurred.  Is there something about the current state of affairs that triggers that failure?  What are the actual causes of the failure?  What are the incentives people face?

Understanding both pre-existing arrangements and why they fail help prevent cascading failure, where a mistake keeps getting repeated and repeated.  For example, a justification for tariffs is that trade can displace workers and it may take them time to adjust.  But current programs, like Trade Adjusted Assistance and Unemployment Insurance already exist to take care of those problems.  Research shows, however, that those programs actually extend the time it takes for workers to adjust to trade shocks.  Why have they failed?

In many cases, interventionists just assume the cause and go from there.  For example, it is often just assumed that public goods cannot be provided by the market in optimal quantities.  But research by Ronald Coase, Elinor Ostrom, and even Adam Smith shows that is not the case; public goods are often provided in sufficient quantities.  Despite the models, interventions could cause a failure to appear where there is not one.  

Question 3: Is your proposed solution the best method achievable? 

Hopefully, by this point, the interventionist has a pretty good understanding of the current state of affairs.  Now is the time to start considering proper interventions.  Note that this question actually has two elements to meet: 1) the intervention is the best method to achieve the goal, and 2) the intervention is achievable.

There are many ways to address this first element.  The word “best” here is deliberately vague and subjective: what is “best” will ultimately be determined by the analyst given their goals and preferences.  Consequently, there are many ways to determine “best.”  Calculating net present value is one way.  Utilitarianism is another way.  And so on. 

But what is best may not be a positive intervention (meaning that one takes a new action) at all.  Indeed, while investigating Questions 1 and 2, one may discover that the best thing to do is remove an existing intervention!  

The second element relates back to our first question.  Whether or not some intervention is achievable will depend on the current institutions.  A system where policy is decided by direct voting will have different achievable options than a dictatorship, which will have different options than one where a deliberative body acts, etc.  

Considering achievability will also force the interventionist to come to terms with the data they have.  We rarely have the data we want.  Costs and benefits are subjective and psychological; they depend on the situation one faces.  Monetary costs still matter, of course, but they are not the same as total costs once we move into collective decision making (for more on this point, see James Buchanan’s Introduction in L.S.E. Essays On Cost).  Confusing the two has led to many interpretive mistakes.  

These three questions are just the beginning.  Answering these can help shape interventions, but they still do not justify them.  More questions abound: ethical questions, political questions, legal questions.  But I hope they can provide a useful framework for discussing reforms.


Jon Murphy is an assistant professor of economics at Nicholls State University.


Feb 7 2024 at 2:13pm

Good post! I’ve personally become much more skeptical/cautious of interventions, specifically Pigouvian taxes or market failure corrections.

“Markets fail. Use markets.”

Thomas L Hutcheson
Feb 7 2024 at 4:55pm

I have become more skeptical of of the alternatives to Pigou taxation. 🙂

Jon Murphy
Feb 8 2024 at 6:10am

Yeah.  I think Pigouvian taxes are extremely misunderstood, both on theoritical grounds and empirical grounds.  Despite Coase’s 1960 paper The Problem of Social Cost, the vast majority of economists (including free market economists) have a poor understanding of appropriate conditions for a Pigouvian tax.

Thomas L Hutcheson
Feb 7 2024 at 4:53pm

The proof of the pudding is in the eating.

Could you apply your schema to a problem of your choice. [My choice would be the harm predicted as a result of increasing concentrations of CO2 in the atmosphere, but your call.]


Jon Murphy
Feb 8 2024 at 6:01am

With respect, I think you’ve fundamentally misunderstood this post. It’s not about problems per se. I’m discussing a means of considering proposed solutions. Problems do play some role (Q1) but the goal here is to think about optimal solutions, if they exist, to problems

Thomas L Hutcheson
Feb 10 2024 at 3:54pm

OK.  Demonstrate how to get to an optimal solution to a problem that may or may not exist.

Jon Murphy
Feb 11 2024 at 11:24am

Sorry, the “they” in my comment to you referred to whether an alternative existed. In other words, the costs of moving from one equilibrium to another may exceed any benefits from that move. So, even if theoretically some other equilibrium exists that is superior to the current position (however determined), if the marginal costs of getting there exceed the marginal benefit, then the status quo is superior

Thomas L Hutcheson
Feb 11 2024 at 5:04pm

Lots of things are possible.  I just want to see how you apply your theoretical framework to arriving at a conclusion that the status quo is superior in some specific issue.

Richard W Fulmer
Feb 7 2024 at 5:30pm

I suggest the following additional questions:

4 – What are your feedback mechanisms? That is, how will you determine whether your intervention worked?

5 – Do you have the ability to adjust your intervention in response to feedback? This includes the issue of whether you will have the political power to introduce adjustments in the face of opposition by those who benefit from the original intervention.

Thomas L Hutcheson
Feb 8 2024 at 6:08am

Now THESE are good questions, particularly the first, because the numerical value of the intervention is at best good only for a marginal change.  But the intervention will change the marginal values.  We might estimate that we should admit some number of immigrants of determined characteristics this year, but their admissions will change the value of admitting more or less next year,


Jon Murphy
Feb 8 2024 at 6:10am

Great additional questions

john hare
Feb 7 2024 at 5:54pm

I see all sorts of existing failed interventions. War on drugs, cost plus oversight, racist policies that are supposedly anti.  What I don’t have is a good idea of how to intervene to get the results i would want. Or the certain knowledge that my ideas wouldn’t make things worse.

David Seltzer
Feb 7 2024 at 7:23pm

Jon: Nice post! Question 4: With all the evidence available that demonstrates the failure(s) of intervention, Why do the central planners still intervene in markets? Hayek tells us it’s the pretense of knowledge and the insuperable limits to knowing everything. That’s reasonable but, at it’s source, why do individuals continue to forcefully interfere with private arrangements? I suspect a raft of clinical psychologists/psychiatrists have several hypotheses. That you are asking the questions indicates an endemic problem that defies any real solution or Sowell’s trade-offs.

Richard W Fulmer
Feb 8 2024 at 9:32am

While interventions have a poor track record of improving the general welfare, they usually improve the lives of a few. Those few have a much bigger interest in obtaining the interventions and keeping them in place than the rest of us have in preventing or eliminating them.

David Seltzer
Feb 8 2024 at 2:24pm

Richard, always enjoy your comments. Yes some have an interest in keeping them in place. Buchanan and de Jasay have written extensively on this. Regulatory capture. Agencies are influenced by industries the agency regulates.


Knut P. Heen
Feb 9 2024 at 8:04am

A cushy job pushing other people around instead of producing something useful yourself is quite attractive to the interventionist.

Thomas L Hutcheson
Feb 10 2024 at 3:56pm

Pushing people around is hard work.  I’ve been working on a tax on net CO2 emissions and have little to show for it.  🙂

Jim Glass
Feb 10 2024 at 11:28pm

With all the evidence available that demonstrates the failure(s) of intervention, Why do the central planners still intervene in markets?

Politicians respond mightily to incentives.

Feb 8 2024 at 12:49pm

It seems to me that most of the questions posed thus far speak primarily to establishing the criteria for determining whether or not government intervention is warranted as a remedy to correct for real or perceived market imperfections.  I think Richard Fullmer’s question concerning the government’s ability to make adjustments to an intervention is a salient one (although I would argue it’s more a matter of political will, rather than power, in facing down any opposition from its beneficiaries).  Even staunch free market ideologues like Hayek and Friedman believed that some limited form of government action was justified where market failures legitimately exist.

Jon Murphy
Feb 8 2024 at 1:17pm

Absolutely. My questions are just the beginning.

Rob Bradley
Feb 10 2024 at 3:24pm

This applies to electricity, which is not a ‘common pool resource’ requiring government organization (per Lynne Kiesling).

Jon Murphy
Feb 11 2024 at 6:27am

They apply to any situation. These questions are quite general.

But do note that I state they can be answered and intervention can be justified. Interventions, such as in the electricity market, can very well be justified.

Comments are closed.


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