Government as Information Concierge

I have abandoned the market failure premise that supports government intervention into any market.  Government should promote market activity by encouraging independent consumers and producers to interact and exchange goods and services.

Government can help maintain the ease of entry and exit into markets by refereeing disputes through the court system and compiling and disseminating data on producers and consumers that can aid in increasing the level of transparency in market transactions.  Agencies of government compile large amounts of data that can be used for this purpose.

For example, the U.S. Department of Commerce, through its Bureau of Economic Analysis, publishes data on the economy including information on the growth in gross domestic product.  The Federal Reserve provides the public with data on interest rates and per capital productivity.  In addition to its jobs report, the U.S. Department of Labor reports on changes in inflation by publishing the consumer and producer price indexes.

Arguably these tasks could be contracted out to the private sector, but economic data published under a private party’s imprimatur would always be subjected to concerns about reliability and credibility.

Even after abandoning market failure as a reason for market intervention on the part of government, I cannot ignore that buyer and sellers may have imperfect information about a good or service’s attributes.  Imperfect information may introduce inefficiencies in trade which leads to a dampening of trade and probable slowdowns in the overall economy. If anything by establishing an inventory of information, government can carry out its role as a promoter of the flow of commerce without having to regulate the transactional relationships of market participants or the participants’ entry into the market place to begin with.

It’s unfortunate that for all their rhetoric about free markets that the Republican Party and in particular their nominee for president have not been able to offer an in depth argument for no market intervention and the proper role of government in the markets.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
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2 Responses to Government as Information Concierge

  1. Kenneth Ciszewski says:

    I’m guessing that this means that

    “The American Centrist If there is no market failure, there should be no regulation”

    has now been changed to

    “The American Centrist There should be no regulation”.

    The following line suggests that this may be true:

    “If anything by establishing an inventory of information, government can carry out its role as a promoter of the flow of commerce without having to regulate the transactional relationships of market participants or the participants’ entry into the market place to begin with.”

    Having accurate information about the economy at a high level is certainly a necessary and helpful condition to promote commerce. However, that kind of information alone is not sufficient to create the transparency mentioned, because there are many other kinds of information needed to give consumers enough information to know what they are getting in trade in any particular transaction. Accurate disclosure of individual product and service specifications and contract requirements is also important.

    Further, information alone is not sufficient to protect consumers from monopolistic business practices, predatory pricing, credit card contract abuses by card issues, abuses by mortgage lenders, fraudulent advertising, the list goes on. In addition to information, there needs to be power to keep such abuses in check. Markets don’t fail only due to defective or insufficient information. Markets sometimes fail when some participants in the market do things that make them fail. The buying of stocks on the margin that led to the Great Depression in 1929 is one example. The mortgage backed securities tendered right before the recent Great Recession that were found to contain many “subprime” mortgages whose payback value was found to be questionable because they were given to borrowers who really did not qualify for them is another.

    There are times when the transactional relationships between market participants need to be regulated ahead of time. Not every market participant is honest and above board. Trying to redress grievances and regain losses caused by fraud or deceptive behavior can take a long time, and doesn’t always work. Look at what happened with Enron, who’s CEO was touting the success of his company while his underlings were hiding bad deals daily, or who’s energy trading division manipulated energy supplies to force up prices artificially, costing consumers in California millions of dollars. It’s sometimes better to prevent the horse from escaping the barn than trying to find him after he escapes.

  2. Ken Ciszewski says:

    Alton–I see you’ve changed what’s on your mast heat to “Government should not create or otherwise intervene in markets.” I think that’s a lot clearer than your previous motto: “If there is no market failure, there should be no regulation”.

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