Alex Bokov wrote:
Is government intervention bad because it causes inefficiency by
distorting the proper market value of real estate, education, wages,
etc? Or is this inefficiency worth it because it creates areas with
high concentrations of technological infrastructure and educated
workers so that technology progresses faster than it would if
wealth/people/tech were distributed purely according to the dynamics
of a perfectly competitive market?
### We exchanged some posts about my belief that the government is actually
needed to protect the free market from destroying itself, in July of this
year, I think. I had to stop posting for some time because of a busy
rotation but I still retain the same conviction (although I could see the
validity of much of what you and Daniel Ust were saying).
Not surprisingly, I give the affirmative answer the second question you
posed. High concentrations of technological infrastructure (be it irrigation
channels, hand-operated looms or chip fabs) produce a lot of wealth. This
wealth must be protected from being looted and destroyed by internal end
external aggressors. The usual organization that springs up to provide such
protection has the territorial form of a government. Since a good government
will let the golden goose lay more eggs than a bad government, differences
between territories grow, further attracting some types of market
investments to the prosperous areas, in a positive feedback loop. A
government is a burden but it allows the market to flourish, just like
sturdy doors and walls keep the fox out of the chicken coop.
Rafal
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