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Sunday, June 10, 2018

How Should We Think About Public Policy Proposals? Government-By-Unicorn

Despite ample evidence, people still seem to believe in the unicorn of the omniscient, omnipotent, benevolent government.

In one of my favorite articles in recent years, my friend, mentor, and sometimes-internet troll Michael Munger pointed out that we live in a world inhabited by people who believe in strawberry-farting unicorns. Or at least they believe in their political equivalent: all-knowing, all-powerful, all-seeing, all-wise-and-benevolent government that ascertains the public good and makes policies in order to effect it.

People Still Believe in Political Unicorns

This simply isn’t an accurate description of reality. People respond to incentives, pursue their own interests, and suffer from cognitive limitations when they are voting or working for government just as they do when buying, selling, and working for firms. The implications are stark. First, a supposedly-cynical approach to government has a lot more explanatory power than the unicorn alternative. Second, even when people think they are pursuing the best interests of society through political channels, they probably aren’t because they are imposing their own preferences and their own visions of The Good on others.

You’re likely to encounter public policy proposals assuming political will is the only barrier to desirable social outcomes.

Consider regulation, for example. The cynical approach says that people embrace regulation because it creates barriers to entry. Even purely benevolent service providers—plumbers, for example—might want a strict licensing regime in order to ensure that people get high-quality plumbing services. There are two problems. First, some people are willing to accept lower quality in order to get lower prices. Second, rather than pay the higher prices some people will simply do without—or do themselves. In both cases, they’re worse off.

A distressing number of comments you’re likely to see in the public square don’t recognize this trade-off. They also don’t recognize that people working in and for government respond to incentives. In academic research, on newspaper op-ed pages, and in day-to-day conversation, you’re likely to encounter public policy proposals assuming political will is the only barrier to desirable social outcomes. See a problem? Government can fix it, and perhaps the only reason government doesn’t is that people who don’t want to share or play nice willingly obstruct it.

Introducing the Munger Scale

We lack right now a mechanism by which to evaluate proposals. I propose we fix that with what I’ll call the Munger Scale out of deference to Munger’s article. On a scale of zero to five unicorns, we can say the following about public policy:

Zero Unicorns: You generally agree with Bastiat that “The state is that great fiction by which everyone tries to live at the expense of everyone else,” but you think his definition might be a little too charitable.

One Unicorn: We could at least train Leviathan to act like a unicorn sometimes. Government is likely unnecessary but inevitable.

Two Unicorns: Government will mess up if it tries to intervene in individual markets, but it can fix business cycles with a combination of wise monetary and fiscal policy.

Three Unicorns: Markets fail and governments should tax negative externalities, subsidize positive externalities, and provide public goods. You probably learned this in an introductory economics class.

Four Unicorns: The government can also intervene to fix asymmetric information, moral hazard, an unjust distribution of wealth, and a whole host of other things. If there’s a problem, the state can solve it with wise policy. The only thing stopping the government is a lack of political will.

Five Unicorns: It’s the final crisis of capitalism, Charlie Brown, and the socialist utopia is right around the corner.

Reprinted from Forbes.

  • Art Carden is a Professor of Economics, author, and co-editor of the Southern Economic Journal.