Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

Krugman: Government intervention always hurts people

Jerry Stratton, April 17, 2010

Update: Looks like I was right. When Krugman wrote that “no one can be made better off without making someone else worse off”, he was saying that a free market ensures that each side gets a good deal. When we try to give one side a better deal, such as through government regulations, this necessarily means that the other side is worse off.1

That paragraph should definitely have been picked up on by the Times’s editors; as it stands, the last sentence is a giant topic jump from the rest of the paragraph. It makes no sense in normal English and it’s unexplained as a term of art.

If I have the terminology right, he wasn’t saying that the free market necessarily makes one side worse off. He was saying that intervention into the free market necessarily makes one side worse off.2

So, for example, if I’m willing to pay no more than $100 for health insurance, and there’s a company out there willing to sell me the insurance I want at $100, we both win. They get my business and I get my insurance. But if the government comes in and forces me to buy insurance from that company for $120 (probably by requiring services that I’m never going to use), then I’m made worse off.

And it isn’t just me that’s made worse off. It’s everyone who buys health insurance. I’m being forced to pay an amount that would have otherwise caused me to find a different source for health insurance. This reduces the competition that normally would maximize service (quality health care) while minimizing the price of that service.

In response to Trying the market, or “No, you are.” : I think I’ve figured it out. When people say they’ve tried the market and found it wanting, they’re really just trying to deflect criticism of government policies. They’re trying to pretend that the problems government causes are someone else’s fault—in this case, the free market.

  1. Often, the government will intervene by adding some third party to the mix, so that both parties are worse off. For example, by placing employers between people and their health insurance, or requiring everyone to buy through a government exchange. In the latter case, it’s the exchange that wins. In the former, no one wins: employers end up spending resources on something that has nothing to do with their business, resources they would otherwise use to hire more employees, pay more to current employees, and/or provide lower prices. In some cases, the intervention may look like it benefits one side when it fact it killed that side off and replaced it with a new side. Alcohol sellers thrived during prohibition, but they weren’t the same alcohol sellers who existed before prohibition. Legitimate sellers went out of business. Government intervention in the alcohol market attracted a completely different kind of seller.

  2. Of course, then he goes on to try to justify a massive market intervention by the government.