A Serious, Untimely Book.

• Author: Bourne, Ryan
• Position: Gaining Ground: Markets Helping Government

Gaining Ground: Markets Helping Government

By Clifford Winston

306 pp.; Brookings Institution Press, 2021

In his 2001 Nobel lecture, economist Joseph Stiglitz outlined many ways in which markets might not be as efficient as suggested by textbook models that assume perfect information. After explaining why informational asymmetries might deliver more "market failures" than previously thought--that is, deviations from perfectly competitive outcomes--he concluded that this "implies there is a potentially important role for government."

Stiglitz made his point with scholarly care, but for a long time a stronger claim has been made by intellectual leap: that markets are widely imperfect, and their outcomes can be improved by the state. This feeds into the current policymaking Zeitgeist, in which governments are assumed to be well-placed to make corrections. Almost all modern policy proposals, from childcare subsidies to fuel efficiency standards, are justified at some point by some theoretical market inefficiency, taking for granted that the government can eliminate or mitigate it.

When the 2018 Nobel in economics was awarded to Paul Romer and William Nordhaus, the committee noted the pair's "findings put the spotlight on a specific market failure. Both laureates thus point to fundamental externalities that--absent well-designed government intervention--will lead to sub-optimal outcomes." "Market failure necessitates government solution" is the mantra of interventionists in both major American political parties and, these days, much of the economics profession too.

More markets, less government / In his new book Gaining Ground, veteran Brookings Institution microeconomist Cliff Winston offers a much-needed corrective, reminding us how much this interventionist framework represents a backslide in good economic thinking.

Citing hundreds and hundreds of studies on federal, state, and local governments' policy records across numerous functions, Winston shows that markets are often more robust at reducing inefficiency than governments' corrective efforts. His extensive survey of the academic literature on economic and social programs suggests an expansion of markets, not their curtailment, would better deliver on our widely shared political goals of improving material living standards, broadening opportunity, and protecting families from unforeseen hardships.

For example, while there is scant evidence of antitrust laws enhancing consumer welfare, he...