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Put not your faith in central government

Summary:
We’re told often enough that government must intervene, take charge, because of market failure. Part of this is simply because the general conversation misunderstands what economists mean by market failure. Which is not that all flavours of all markets have and will fail to deal with a particular point or problem. Rather, that markets as currently constituted aren’t doing so.Thus we get Nick Stern’s statement that climate change is the world’s largest market failure ever. His point being that carbon costs and prices are not in market prices, they are externalities to the market processes. As his Review then goes on to insist the solution is not then to use non-market processes. It is to lever the externalities into market prices and so use market processes to solve the problem. Market

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We’re told often enough that government must intervene, take charge, because of market failure. Part of this is simply because the general conversation misunderstands what economists mean by market failure. Which is not that all flavours of all markets have and will fail to deal with a particular point or problem. Rather, that markets as currently constituted aren’t doing so.

Thus we get Nick Stern’s statement that climate change is the world’s largest market failure ever. His point being that carbon costs and prices are not in market prices, they are externalities to the market processes. As his Review then goes on to insist the solution is not then to use non-market processes. It is to lever the externalities into market prices and so use market processes to solve the problem. Market failure is not, in this and many other insistences, a declaration that markets fail, it’s that they don’t exist and must be created. The same is true, for example, of dealing with the commons problems of fisheries through individual transferable quotas, one of the few things known to actually solve the problems.

Along with this is insufficient consideration of government failure. Even in those cases where markets don’t work and cannot be created or adapted to do so it is not therefore true that government will. Government has its own modes and methods of failure. Consider, say, water provision to First Nations in Canada:

Amid mounting frustration, Whetung and other Indigenous leaders have launched national class-action lawsuits against the federal government. Arguing the federal government failed to provide clean water and forced communities to live in a manner “consistent with life in developing countries” they are suing the government for C$2.1bn (US1.7bn) damages – the costs associated with years of bottled water trucked and a water treatment system for the whole community.

Despite being one of the most water-rich nations in the world, for generations Canada has been unwilling to guarantee access to clean water for Indigenous peoples. The water in dozens of communities has been considered unsafe to drink for at least a year – and the government admits it has failed.

We’ve known how to do this for a couple of centuries now. Millennia if we think about water itself, the Romans and their aqueducts, if we emphasise the clean part then since perhaps the 1850s and that incident with the water pump handle in Soho. Providing potable water is something we collectively know how to do. So, why isn’t it being done?

As a consequence of colonial-era laws, Indigenous communities have been barred from funding and managing their own water treatment systems, and the federal government bears responsibility for fixing problems.

Ah, yes, government does have its own modes and methods of failure. Central government, far away from the problem, perhaps more than most.

A water treatment system for a community is certainly a collective problem but it’s not obvious - to be polite - that government is the solution now, is it?

Curve Lake First Nation, a forested community in southern Canada, is surrounded on three sides by fresh water.

But for decades, residents have been unable to safely make use of it.

Perhaps we should stop being polite about it? That comment about government being short of sand in a desert is meant to be a joke rather than a diagnosis, isn’t it?

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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