A famous theorem in economics states that a competitive enterprise economy will produce the largest possible income from a given stock of resources. No real economy meets the exact conditions of the theorem, and all real economies will fall short of the ideal economy—a difference called “market failure.” In my view, however, the degree of “market failure” for the American economy is much smaller than the “political failure” arising from the imperfections of economic policies found in real political systems. The merits of laissez-faire rest less upon its famous theoretical foundations than upon its advantages over the actual performance of rival forms of economic organization.
If only it were possible to beat this point into him.
Looking around the world, we don’t have any examples of countries with successful model of state-run economic organization that have consistently over the long-term provided a higher level of standard of living or faster growth than the many countries with market-based systems–that is, not just a different set of constraints and rules to a fundamentally market-oriented economy, but a genuinely different model where the economy is run primarily through the political system. That fact tends to confirm Stigler’s suggestion that real-world political failures in economic management can be severe.