After the Santa Claus State Self-Destructs, Then What?

AEI President Arthur Brooks:

citizens say they want government to help them, politicians oblige, but citizens loathe the result. How do we cut this Gordian Knot? The solution is a real philosophy that outlines what the government should do—and, just as importantly, not do. Our elected officials must then show courage and leadership by governing according to this philosophy.

What is that governing philosophy? Here is an answer from the great economist and Nobel laureate Friedrich Hayek: As regards the economy, the government should provide a minimum basic standard of living for citizens, and address market failures in cases where government action can do so cost effectively. That’s all.

We should acknowledge that markets are not perfect. Market failures can occur when we have monopolies (which eliminate competition), externalities (like pollution), public goods (the military, for example), and information problems (such as when people cheat others in the marketplace). Nearly all economists agree these kinds of failures can justify some degree of state intervention.

Obviously, there is plenty of room for debate in this philosophy. What is a minimum basic standard of living? And are certain services—for example, the Smithsonian Institution—public goods? How much waste can we find in the defense budget? These are the arguments we should be having.

But there are many others we shouldn’t be having, because the answers are clear. Should we bail out car companies? (No: GM would fail precisely because markets are working, not because they are failing.) Should we leave the retirement age at 65 even though people are living much longer than ever before and taking more than they ever paid into the Social Security system? (No: This is middle-class welfare, not a minimum basic standard of living.) Should we continue to prohibit people from buying health insurance from companies across state lines? (No: This induces market failure.) Do we need high-speed trains to take us to St. Louis? (No: This is not a public good.) And so on.

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