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{This was originally a Point/Counterpoint article in the Colorado Springs Gazette, the “Right” point being from John Horner. Published June 22, 2011.}

The standard argument liberal intellectuals offer against free-market conservatives goes something like this. Economists agree on a definition of something called Pareto optimality, named after the guy who thought of it. Basically, it’s a state of affairs where any change makes someone worse off. There are also well-developed mathematical ideas for equilibrium and perfect competition. These all assume that human beings are perfectly rational.

My lefty colleagues in academia then point out the obvious: These are mere abstractions. The real world isn’t like that. Those who argue for less government either delusionally idealistic or blindly dogmatic. I’ve been accused of both.

This argument has more strawmen than a “Wizard of Oz” film clip. And as an economic argument, it deserves to be taken just as seriously.

First, I’m not even sure what “unregulated capitalism” means. To me, the regulations required for capitalism to function are an essential part of any society’s well-being, and should be considered as an integral part of capitalism itself. These include fair courts administering impartial justice, rules for protecting and enforcing property rights, sound accounting principles, punishment for fraud, stable currency, contract law, and tort law.

None of this is big news. The economists who study such things may quibble about the details, but they are in widespread agreement about the basics.

Americans take the existence of these institutions for granted, but you’d be surprised how few of the world’s population are fortunate enough to live under them.

But here’s the real fly in the markets-aren’t perfect ointment. Stay with me on this, because what I’m about to say is going to sound crazy. Are you ready? OK, here goes: Government isn’t perfect either.

You might think this is obvious, but ask yourself: How often do we actually consider the difference between politics in theory and politics in practice? Any high school economics student can quote half a dozen examples of market failure. How many know about political failure?

Although we seldom admit it, representative democracy has its idealized version too. It consists of smart, thoughtful voters electing wise, altruistic representatives appointing ever wiser and more altruistic public servants who have access to more knowledge than we do. They then use that knowledge to work tirelessly to solve the problems of our day.

And what kind of laws does this optimal system produce? Thoughtful, incisive, and finely-tuned, of course. Passed with a clear public purpose, they never benefit special interest groups. Idealized government is like a surgeon with a scalpel, applied only where needed, sworn to first “do no harm” and then to solve the problem. Nothing more.

So how often does legislation in practice differ from liberal-optimality?

Every single time. Politicians do whatever it takes to get elected. They pass laws that benefit specific groups. These laws have unintended consequences that last for years. Regulatory agencies become dominated by the groups they’re supposed to regulate, making rules that subvert public interest in the name of private gain.

These aren’t exceptions or aberrations. They are how the system actually works. And yet, markets get judged by failure, politics by success. Is that fair? That, as Hamlet says, is the question.

On behalf of all defenders of economic liberty, I hereby concede once and for all that markets deviate from the mathematical equations that have tortured students in economics courses since the beginning of time. Before I die, I’d like to convince one well-intentioned liberal that government suffers from the same deficiency.

Rampant capitalism, after all, cannot create a permanent underclass, run up trillions of dollars in debt, and waste the blood and treasure of our nation in fruitless attempts to reshape the world. That takes activist politics, a welfare state, central planning, and contempt for the idea of constitutionally limited government. These are all things the left has enthusiastically embraced since the Russian revolution.

Markets aren’t perfect. But guess what: They don’t have to be. They just need to be better than the alternative.

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