Public Choice

I have read the first third of Pennington's Robust Political Economy, and found it an excellent read.

I am preparing a lecture on public choice and received welcome help from Pennington's book. However, the book does contain rather advanced material - especially Hayekian information economics - and I am looking for a more intermediary presentation, which I think I have come across in the form of the below lecture.

I do have, however, a little objection in that Pennington admits in his lecture too easily market failure, and even seems to equate it - at the end - with the time-consuming process by which entrepreneurs ferret out opportunities to improve the offerings of the markets.

Unfortunately, it is preponderantly held (in much of the public choice literature, too) that markets are perfect (imperfect or failing) if they produce (do not produce) an equilibrium state (usually defined as a Pareto optimum: no one can be made better off without making someone else worse off).

But this assumption (falsely presupposes the mathematically tractable commensurability of personal preferences and) entirely overlooks what markets are about and what their true merits are: one of the most important features of the processes that we subsume under the term markets is that they look with great success for unsatisfied desires and needs, for opportunities that have not been discovered yet. Markets are needed, good, and successful because the frontier of important and "quenchable" needs and desires and feasible opportunities is constantly expanding, thanks to human nature and thanks to entrepreneurs and the markets that they keep developing all the time.

I would always emphasise that if markets do not do what they cannot do, this is not market failure; i.e. if property rights do not exist or are ill-defined or are being violated, markets cannot operate; in such cases conditions prevail that do not represent market failure, but an absence, an impossibilty, an exclusion of markets.

 

Comments

[Eric Parks]

"We can't simply assume that, when people enter into the political process, they undergo the economic equivalent of castration; that they become muted agents whose only concern is to maximize the public good and welfare. We have to recognize that politicians are going to be concerned about their own power, they're prestige, their status. That voters, members of interest groups, people who participate in politics, are going to be arguing things that benefit themselves as much as any putative public good." - Dr Mark Pennington

Great quote from a great video within a great post. Thanks, Georg.