Avoid the Temptation of Second-Best Solutions

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The theory of the second best in economics is explained here. It’s basically that two government interventions, each wrong, may produce a better situation than one of them. In any situation, the second best theory will typically be used as an argument in favor of more regulation. This can be done in the internet case by pointing to various non-competitive elements within the industry.

I am strongly against second-best solutions, and I think that position accurately reflects the core Austrian and Rothbardian stance. More regulation in the name of a supposed second-best improvement surely perpetuates a bad regulatory situation, namely the reliance on free-market destroying regulation, and obscures the option of creating a better situation, one of greater free entry and competition. If there is in fact a monopolist or oligopolist who charges high rates or governments that prevent entry, that’s the incentive for entry. That’s the source of pressure from potential competitors and current users to get freer entry. If instead this pressure is vented in more regulation and controls, the result will be to freeze the “market”, really compromise it entirely.

There’s little hope of ever getting a free market by endorsing more control by a government agency.

5:45 pm on July 16, 2014