Brad DeLong on the Public Sector vs. the Private Sector

He writes,

Now we know that as bad as market failures can be, government failures can be worse. We badly need new effective institutional forms. But the decreasing salience of “Smithian” commodities in the twenty-first century means that rational governance would expect the private-market sphere to shrink relative to the public.

Pointer from Tyler Cowen.

I think of Brad DeLong as a Jekyll-Hyde character. The bad Brad DeLong snarks and snarls. The good Brad DeLong is insightful. This post is the good Brad DeLong. Read the whole thing. I am only commenting on part of it now. I would like to comment more on his discussion of the risk premium, but I think I need to see a longer, less hurried version of it.

In the quoted passage, his point is that as the share of the economy that produces stuff decreases and the share that provides health care, education, and information increases, we will see more informational asymmetries and externalities. This might mean that we need an expansion of existing government. However, when I think of “new institutional forms,” I think of the organizations of civil society and entrepreneurs.

Recall that Tyler and Alex see informational asymmetry being conquered by the Internet and entrepreneurs who make use of it. Recall also my comments on reputation systems as regulators.

Recall also my catch-phrase: Markets fail. Use markets.

3 thoughts on “Brad DeLong on the Public Sector vs. the Private Sector

  1. My problem underlying the thinking like that in his talk is that as long as massive governments retain massive taxat8 on and repression power then, “no problemo!” Well, maybe that is the unseen problem. But almost as troubling, why can’t they eve imagine it?

  2. Government actions are large and varied. What perhaps we need is an expansion of certain government sectors and a contraction of other government sectors.

  3. As inequality grows, we will see less of the market and more of what the wealthy want, as much through non-profits as government. We will have what they want us to have and their persuasion will take priority over market innovation.

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