Self-Correction in Markets and Politics

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http://econlog.econlib.org/archives/2012/11/self-correction_1.html

Bryan Caplan offers an interesting insight about “self-correction,” which seems to mostly apply when one is the caretaker of her own resources or the resources of one (or a group) whom she cares about. I doubt this will strike any reader as a revelation. But it does provide an explanation of why so many bad economic policies seem to never die. The reason they exist is economic illiteracy, the reason they are so difficult to repeal is that there are diffused costs and concentrated benefits.  So even if economic literacy went up, to 51% let’s say, repeal would be a difficult process since the individual gains from doing so are much smaller than the individual losses. The group of would-be losers are small and able to organize, thereby making themselves better lobbyists. LearnLiberty has a good video explaining this in terms of sugar production:

This is clearly a bad thing. How do we solve it? Well, widespread economic literacy (real economics, not the mathematical garbage taught in most classrooms) would be a start. Such knowledge of economic reasoning should lead people to the conclusion that government intervention in markets rarely, if ever, leads to the purported outcome; indeed, it usually makes things worse. Built on the foundational idea that initiated force is unacceptable and that all government action is backed by such force, rejection of the State is the only logical conclusion at which one can arrive. I have my doubts that the State will be dismantled piecemeal (that is, it’s not going to be the case that the public sees the harms of import quotas then abolishes them, sees the evils of the minimum wage laws and then abolishes them, etc.). Rather, large swaths of the State will be rejected wholesale. Hopefully trade protections (as well as a host of other interventions) will be included.

Thanks for reading.

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