I often get told that I must be a crazy free-marketeer because I’m an economist, as if there is something inherently pro-market about economic theory. So when I was reading an article in the JPE today it was refreshing to come across this:
The question whether – and why – markets may perform better than governments has fascinated economists for a long time, at least since the work of Hayek (1945). However, despite the importance of this question for economics and beyond, it is still hard to ﬁnd formal arguments for why markets may be able to outperform a benevolent government. Instead, the benchmark result is still provided by standard welfare theorems according to which a benevolent government can always replicate the market outcome, or even improve upon it if the market is aﬀected by failures such as adverse selection or externalities.
Now, it’s true that the article itself is about a set of circumstances in which markets always outperform the best governments — and the real world doesn’t always have the best — but it’s worth remembering that the core of economic theory is not at all the same thing as the political views of some of its practitioners.