Kearl-ing, Part Deux

This is the second in a four-part series of posts about the best lecture of my collegiate experience.  You can find Part 1 here.

Mini-Sermon #2

The second segment of Professor Kearl’s final lecture was a perfect example of what Harry Truman must have felt like when he pined for a one-handed economist; after spending the entire semester extolling the virtues of free markets, and advocating for government intervention in cases where markets break down—monopolies, externalities, public goods, and so forth—Kearl pulled a mental 180 on us.  The decision, he explained, is not between imperfect markets and perfect governments, but between imperfect markets and imperfect governments.  As much as we’d like to look to government to help fix broken systems, often the cure is worse than the disease.

An example of this breakdown in policy is suggested by the proponents of Public Choice Theory, which states that a very positive result for a few individuals will usually win out over a minor negative result for many individuals, even if the cumulative costs far outweigh the benefits.  For example, Americans pay about three times as much for sugar as our friends abroad (24¢/lb versus 8¢/lb), owing to a sugar subsidy which goes to 1,000 sugar farmers with an average income of over a million dollars!  This tax costs us sugar lovers relatively little individually, but impose a HUGE inefficiency on Americans cumulatively. 

This imbalance between dispersed costs and direct benefits has pretty strong implications for our system of government. The few sugar farmers have a LOT to gain, while the rest of us have relatively little to lose; hence there is no lobby for Sugar Consumers, but you can bet there is one for Sugar Producers.  The policy makers will have a comparatively loud voice urging intervention in the sugar market, and will act accordingly.   

Of the four mini-sermons, this was by far the most focused on traditional economics; but its power for me really came from the dexterity with which Kearl could move between advocating for and against government involvement in the market.  It reminded me of a F. Scott Fitzgerald quote I read this past week: “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.”  I think most of us could use a little more of that ability.