Since Adam’s Smith’s famous metaphor of the “Invisible Hand,” economists in the classical liberal tradition have known that decentralized, competitive capitalism harnesses the self-interest of ambitious and talented individuals. Rather than using their powers to dominate others, extraordinary individuals in a free-market setting stay up worrying at night about how to please their customers.

In contrast, the government bureaucrat doesn’t have the same incentive structure.

A sophisticated critic might agree that in general, markets outperform government agencies. However, the critic could argue that this general presumption fails when it comes to energy markets, because of the threat of climate change. Here—the argument goes—capitalism’s normally efficient outcome is perverted, because businesses and consumers aren’t taking into account the impact of their actions on future generations.

Even if we accept the basic premise of “market failure,” we must balance it against the undeniable prevalence of “government failure. For example, if a cap-and-trade program ever went through, it would not be a textbook plan devised by academics. On the contrary, it would contain all sorts of loopholes and handouts of permits to favor politically connected groups.

When it comes to mundane items like restaurant meals and iPods, most people recognize the tremendous superiority of the free market versus government bureaucrats. Yet this conclusion doesn’t magically flip when we switch to the crucial area of energy. But it should because energy is so vital to our standard of living, we need to remove government interference and free entrepreneurs to serve consumers in this sector as well. Read the full story at:

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