Government Failure
Even in the cases in which the benefits and costs of government
intervention can be easily identified and measured, governments, like
private markets, are imperfect. Often they will fail, in the same sense that
markets do, to achieve their potential.
The reason for government failure is not that public-sector employees are
less able, honest, or virtuous than people who work in the private sector.
Rather, the causes of government failure are inherent in government
institutions, just as the causes of market failure stem from the nature of
markets. Importantly, some government failure is an inescapable cost of
democratic decision making.
Decision Makers’ Objectives
By far the most important cause of government failure arises from the
nature of the government’s own objectives. Traditionally, economists did
not concern themselves greatly with the motivation of government. The
theory of economic policy implicitly assumed that governments had no
objective other than to protect the public interest. As a result, economists
needed only to identify places where the market functioned well on its
own, and places where government intervention could improve the
market’s functioning. Governments would then stay out of the former
markets and intervene as necessary in the latter.