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The Mises Review

Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays.


Public Policy and the Quality of Life: Market Incentives Versus Government Planning

Randall Holcombe

1 1996
Volume 2, Number 1


Living Well

Spring 1996

PUBLIC POLICY AND THE QUALITY OF LIFE: MARKET INCENTIVES VERSUS GOVERNMENT PLANNING
Randall G. Holcombe
Greenwood Press, 1995, 190 pp.

Randall Holcombe identifies a paradoxical feature of much public argument about economic issues. Socialism has collapsed. The Workers Paradise is no more, and even professed socialists rush to proclaim their allegiance to the market. (A socialist market, they say, will work better than a capitalist one.)

Only a market economy, then, can produce goods and services efficiently, conventional wisdom admits--except in one area. The "quality of life," and its associated problems, has in recent years assumed center stage. Questions of the environment, land use planning, public health, regulation of drugs, etc., cannot be escaped. These "aspects of the quality of life must be created collectively" (p. 8).

What is to be done about this sort of problem? Given the failure of socialism, one might expect a headlong rush to place all in the markets hands. Why not try what succeeds, rather than seek solace in futile schemes of governmental planning everywhere in ruins?

But the expected has not happened, and here lies the paradox to which Holcombe calls attention. Increasingly, the call is heard for more government. The market, it is alleged, cannot cope with collective goods of this sort; bring on the state!

As Holcombe notes, to call in the government, though socialism has collapsed, by itself generates no contradiction. Just because less government would have been desirable in socialist countries it does not follow that more government would be undesirable in market-oriented economies. Nevertheless, why not use what has worked, rather than what has not?

Holcombe makes clear the powerful considerations that militate against the success of political solutions to quality of life problems. Government employees do not face the exacting test of profit and loss; instead, success in government often consists in expanding the budget of ones agency. Further, once ensconced in a job, a bureaucrat is difficult to oust. He is free to go about his business in sovereign indifference to the consumer.

And if the government hireling does deign to notice anything outside his office, it is unlikely to be the public. Meanwhile, the public has little incentive to monitor closely the regulation of, say, trucking or electrical power. By contrast, special-interest groups usually have a great deal at stake when an agency directly affects them. Regulatory agencies thus often end up as impediments to the public interest.

And suppose the government somehow did attempt to serve the public, however unlikely that is. Our difficulties would not be over. What does the public want? Every important issue involves constant conflict as persons with diverse goals press for advantage. Absent clear property title for resources in dispute, no decision is ever final. The dissatisfied constantly aim to upset the status quo, and confusion reigns.

Professor Holcombe makes an overwhelming case that the state cannot be relied upon to improve the quality of life. But can the free market do better? Under a market system with clearly delineated property titles, owners of resources will tend to use them in a way likely to bring joy to the hearts of those wishing a better quality of life.

Holcombe makes his case theoretically and applies it to a number of key areas, including the environment, growth management and land use, housing and homelessness, health care, and the drug problem. Again and again, he makes illuminating remarks that reflect extensive scholarship and careful thought.

In the work of contemporary moral philosophers such as Rawls and Nagel, "future generations" operates as a never-failing means to berate the market. Holcombe clears up the confusion about the markets alleged inability to consider the interests of the unborn with a simple statement. "When markets for valuable resources exist, people do not need to consume the resources they own to benefit from them. If they preserve the value of the resources, they can sell them, so there is an incentive to conserve any resources that will have value to future generations" (p. 32).

"Pollution rights," however, do not seem the unmixed blessing that Holcombe imagines. No doubt he is correct that the holders of such rights will use them efficiently. But it does not follow, as Holcombe thinks, that pollution rights will lead to less pollution than regulation. This depends on the quantity of rights made available for sale.

This is a minor matter in what is on the whole a convincing book. The book is free of jargon, and the theory that he deploys can readily be grasped by lay readers. Holcombe does not locate the key to the mysteries of economics in the arcana of Gadamer, Croce, St. Anselm, or the Maharal of Prague. He instead goes about his work quietly, unpretentiously, and efficiently. His use of common-sense reasoning is a model of how applied economics ought to be done.

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