What happens when government intervenes in the economy? Three examples from different sectors illustrate why government intervention in the economy frequently does more harm than good.
First is an excellent essay on the economics of resource pricing, particularly oil, and how politics interferes with the market to articificially drive prices higher. Second, is the example of deficit spending in Canada and how the ramifications are still being felt in the economy today of the twenty year experiment with full Keynesian intervention in the economy. Last, there is the realization that the current fad for biofuels at the behest of government policy has created a global food shortage that has drastically raised the price of grain worldwide. Ironic that the fight against possible global warming may result in more actual, real-life deaths than would result if government's had not intervened.
There is a theme running through all three articles: that government intervention has cost more than it has gained. History is resplendent with examples of state interference in the economy devastating that economy: if Mugabe didn't exist in Zimbabwe, we only have to look at North Korea or Castro's Cuba, or back to Pol Pot's Cambodia, Mao's China and Russia under Stalin, to see the effects of full centralized, government economic planning.
So why in the face of such overwhelming contradictory empirical evidence, is state intervention in the economy still the default policy option advocated by studies, especially those relating to resources?
Maybe it is because the majority of studies owe their existence to government funding. First rule of academia: generate further research. Never bite the hand that feeds you. And the hand that feeds most academic studies and most advocacy groups are government agencies, using third party analysis to generate public support for increased intervention by the agency that sponsored and/or initiated the study the third party so carefully summarized for the media to use as a soundbite.
Is all government research tainted, bad or biased? No, government funding is very useful for primary data collection and purely scientific enquiry. The problem is when scientific enquiry becomes enmeshed with larger public policy objectives and dogma, when science is funded in order to supply the justification for government economic or social intervention. By default, most (if not all) environmental research has some relevance to government policy, economic policy or social engineering. As the example of climate change shows, even the most esoteric of intellectual pursuit can have its day in the media spotlight.
What makes it deficient, is that government funded research has an inherent bias towards increased government intervention as the primary (if not the only) solution that is justified by the research. And, as we have seen, rarely is increased centralised, government planning, a good answer to complex issues of sustainability.
