I Pencil, Behavioral Economics, and Alcohol Regulations
Australian economist John Quiggin recently penned a rebuttal to Leonard Read's I Pencil. Quiggin claims that the pencil is not the product of the free market, but of a mixed economy.
"In the end, Quiggin declares, 'The fact that a particular form of organization exists and functions does not prove that it is optimal.' Ironically, Quiggin’s entire response to I, Pencil uses this reasoning (especially regarding his US Forest Service example), which he now disputes. He even declares by fiat that, 'The push for privatization ended in the Global Financial Crisis.' Amazingly, Quiggin ignores the fact that governments removed market forces from the economy, namely the ability to go bankrupt, and created a moral hazard with implicit bailouts before extreme risks were taken. Overall, Quiggin fails to rebut Read’s basic premise: Not a single person on the face of the earth knows how to create a pencil, and no centralized planners are required for its production."
Government policies are often justified on the grounds that humans don't act rationally in their own interest.
"Real world bets are made in context — there are always questions to be raised before rushing into a transaction. Many policy proposals from behavioral economists ignore that insight — that transactions have transaction costs. This is one reason why those policies are so often foolish."
In the most recent Alcohol Regulation Roundup, Policy Analyst Michelle Minton outlines what's happening in debates about alcohol regulation around the nation.
Read the full roundup here.