"Public Choice Theory Made Simple" explains why it's often expected that governments should address market failures, and the critical flaws in this belief. We discuss how markets are competitive processes, and without perfect competition, we cannot know what might have happened if it did exist. Thus, governments cannot fix market failures; they can only eliminate obstacles to competition. When externalities are blamed for market failures, it is argued that markets should determine the value of those externalities to the affected individuals.
The coercive power of governments and the absence of direct competition in the political system often lead to 'government failure,' which can be more dangerous than market failure. In representative democracies, the self-interest of a few individuals can result in decisions detrimental to the majority.
The term 'market failure' is frequently used by politicians, journalists, and students, but many lack a proper understanding of the government's ability to address these failures. Public Choice economics applies insights about human behavior to the process of government, offering valuable lessons for those interested in public policy.
This book helps readers understand the limitations of government intervention in market failures and explains the implications of Public Choice economics for designing government systems, a topic highly relevant in contemporary political debates.