Tue, 10 May 2005

Perfect Competition, Perfect Markets

If you talk to people who are opposed to solving problems via the market, some of them will bring up an odd objection. They'll say that you only get optimum resource allocation in a completely free market, with so many buyers and sellers that no one could influence the market, and with "perfect information". Two examples: David C. Korten, and John E. Ikerd.

If those conditions do not exist -- if there is not perfect competition -- then these people think the case for government intervention is proven. This is foolish. When choosing between two possibilities, you do not compare one against perfection and if it's found lacking, choose the other. You compare the two choices against each other.

Many people think that government control of monopolies eliminates the problem of monopolies. This is foolish. They compare how monopolies would behave without government control against how monopolies would behave when controlled perfectly by government. They're making a very simple logical error. Government is itself a monopoly! All that they're doing is substituting the need to control multiple monopolies with the need to control one monopoly.

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