The Costs of Government Intervention
Consider the following argument: The market system produces some
particular outcome that is inefficient or is deemed to be undesirable on
other grounds; government has the legal means to improve the situation;
therefore, the public interest will be served by government intervention.
At first glance this argument is appealing. However, three important
considerations must be taken into account. First, the government
intervention itself is costly; second, government intervention is generally
imperfect and often fails; and third, the decision process regarding what
action to take is costly and imperfect. In the remainder of this section we
examine the costs of government intervention. We then turn to
government failures and government’s decision process.
In an effort to better evaluate the costs of government intervention,
economists distinguish between direct costs and indirect costs.
Direct Costs
Government intervention uses scarce resources. Civil servants must be
paid and computer systems need to be purchased. Paper, photocopying,
the steel in the navy’s ships, the fuel for the army’s tanks, and the pilot of
the prime minister’s jet all come at a cost. The same is true of the
accountants who administer the Canada Pension Plan, the economists