Government failure, not ‘market failure,’ is the real crisis today

With governments around the world asserting ever-increasing authority while proving less competent every day, the newly elected president of Argentina told a gathering of global elites in Davos, Switzerland, last week a truth they surely found harsh if they listened at all: Freedom is humane and productive, and coercion is inherently destructive.

Despite its proponents’ fine-sounding ideals, “socialism is always and everywhere an impoverishing phenomenon that has failed in all countries where it’s been tried out,” Javier Milei told the World Economic Forum meeting, noting that “it also murdered over 100 million human beings.” It was good of Milei to mention that, as the globosocialist WEF crowd seems to have forgotten it.

In contrast with the failures of socialism, the benefits of freedom are obvious. “Countries that have more freedom are 12 times richer than those that are repressed,” Milei said. “The lowest [income] percentile in free countries is better off than 90% of the population in repressed countries. Poverty is 25 times lower, and extreme poverty is 50 times lower.”

In the face of these obvious facts, socialists pose the specter of “market failure,” the idea that governments have to control the economy because markets don’t always work. Milei bluntly said that’s false: “There are no market failures.”

Milei is right. “The market” is not a machine that can be adjusted and perfected by force. It is the entirety of voluntary exchanges of goods and services in a particular geographical or otherwise designated area, a world of human endeavor in which people exchange goods and services each for their own benefit.

These actions benefit people because when two parties freely agree on an exchange, it is because they both perceive it as being the best deal they can make. In that way, markets distribute resources to their most economically efficient and humanly preferred uses, via the price mechanism. Prices show the value people place on each of the countless goods and services on offer and thereby help determine what products and services people will invest in and how much real and human capital should be dedicated to them.

That is why socialism and the heavy hand of government cause the misery Milei mentioned: Their actions distort the messages of the price system, thereby decreasing the overall value of human endeavor. Interfere enough, and you get the dismal results Milei cited. As Ronald Reagan noted in his first inaugural address, “In this present crisis, government is not the solution to our problem; government is the problem.”

Milei does Reagan one better, observing that government is always the problem. “If transactions are voluntary, the only context in which there can be market failure is if there is coercion, and the only one that is able to coerce generally is the state, which holds a monopoly on violence,” Milei told the WEF. “Consequently, if someone considers that there is a market failure, I would suggest that they check to see if there is state intervention involved. And if they find that that’s not the case, I would suggest that they check again, because obviously there’s a mistake. Market failures do not exist.”

It is important to note that government actions can be justified if aimed at social causes considered to be more important than the optimal production of goods and services. Among these, most of us would include protection from foreign invasion, control of crime, adjudication of disputes, provision of public rights of way, and so on. These actions, however, are not justifiable as remedies for mythical market failures, and their proponents are lying or deluded if they make that claim.

Government action imposes costs. The only honest course is to acknowledge those costs and debate whether the benefits justify them.

The debate over the existence of market failure is not a trivial matter of semantics or obscure economic theory. It is of monumental importance because if there were such a thing as market failure, governments would be justified in all sorts of interference in the production of goods and services, to “save” us from that “failure.”

As Milei notes, however, there is no such thing. The public has a right — and in democratic polities the duty — to require that every single instance of government interference be justified by specific benefits to the whole public (and not just special interests). Politics is about the choices a people and their government make as to how much to interfere with “the life project[s] of others,” to use Milei’s apt term. It inherently risks destruction and often creates disaster on an enormous scale.

Having assumed the presidency only last month, Milei, a self-professed libertarian and “anarcho-capitalist,” is only the most recent of many pro-market conservatives elected to high office all around the world. With countless countries being run into the ground by coercive, collectivist, self-styled do-gooders — including the United States — people all across the globe are increasingly expressing discontent with big government.

The trend of our time is not mythical market failure but real government failure. Milei’s words to the WEF should serve the global elites as both an admonition and a warning.