In a recent post, Paul Walker criticises the idea that “deadweight loss wouldn’t exist if we had a government monopoly”. He is right but in another idealistic sense the idea of no dead-weight loss is also correct right.
If the government acts as a monopoly we will still have dead weight loss, as it comes from the “loss of surplus” relative to the situation where “surplus” is as large as possible (given demand and the monopolies cost structure).
But if government blatantly sets price equal to the marginal cost of the last unit dead weight loss will melt away. This does not imply that profit is dead weight loss in any sense of the word, and it does not tell us that the solution will be “dynamically efficient” (where is the incentive to invest, to develop), but it does tell us that a government that is behaving this way could achieve the “perfectly competitive” price and quantity.
However, this is all 100 level stuff that I don’t particularly care about. My interest lies with the “debunking of microeconomics” that Steve tries to achieve on Paul Walker’s blog.