One Takeaway
Before we set out to solve a social or market problem, we should ask who has the best information, who bears the consequences, and what’s causing the problem in the first place.
Who is “We”
There’s a pattern in many of the conversations happening in communities across the country.
Here’s how things generally play out. Someone raises a problem with some broad topic like housing, healthcare, workforce, or education. Maybe they rant online, talk to a news station, or write an Op-Ed. They may even reach out to a local lawmaker or public official. Everyone agrees the problem is serious.
Then the conversation skips straight to what I call the “What are we going to do about it?” problem.The “we” in this question matters.
Usually that “we” doesn’t mean you. It usually doesn’t mean your neighbors. It doesn’t mean local businesses or entrepreneurs closest to the problem.
In these conversations “we” almost always means government.
Our nation seems to have gotten to the point where the decision that the government must be the one to act to solve these problems goes without saying. The only question allowed becomes how much should be spent in the process. But rest assured. GOVERNMENT MUST DO SOMETHING.
In these cases, the relevant economic question is not “Should we do something?” It’s “Who should do it, and what happens when they get it wrong?”
Look Around
Before we accept that government must act, a different question has to be answered first. “Is the public sector already doing something to cause or contribute to the problem?”
Take housing. One reason costs are so high in most major metros is due in part because zoning codes restrict what can be built and where. In many cities, multifamily housing is prohibited on the majority of residential land. The supply can’t respond to demand which stops developers from being able to try.
The response when people say housing is too expensive? More subsidies. Barely anyone mentions zoning or land use reform (or repeal). They’d rather have a new program layered on top of the old limit.
Look at healthcare. One reason costs keep climbing is due to licensing restrictions limit the supply of providers, certificate-of-need laws prevent new facilities from opening, and price transparency is virtually nonexistent. The market signals that would drive competition and lower costs have been suppressed.
The response when people say healthcare is too expensive? More government spending. Not competition and transparency.
Take workforce shortages. Often they’re made worse due by occupational licensing that blocks qualified workers from entering fields where they’re needed.
The response when we have a lack of some occupation? More funding for training programs. Not fewer barriers.
In each case, the pattern is the same. The seen solution gets funded. The unseen cause goes unaddressed. The result? More politics. Less markets.
And political conversations are different than economic ones. Politicians, lobbyists, pundits, and speechwriters, all love to make mention of economic statistics.
They’ll talk about jobs, unemployment, and wages. You hear buzzwords like “economic development” or “economic impact.” This makes it seem like economics is part of the equation. But just because you mention economics it doesn’t mean you are actually making decisions informed by economics.
In truth, mentioning economics without mentioning how markets fit into the equation is simply politics choosing to use vocabulary that’s harder to question.
Who Bears the Consequences?
So why does the pattern persist? Here’s the core of it: the people making the decisions don’t bear the consequences of being wrong.
Officials choose policies that affect millions of people. When those policies work, the officials take the credit. When they fail — when the housing program doesn’t reduce costs, when the workforce initiative doesn’t fill the shortage, when the spending doesn’t produce results — the officials don’t lose their jobs. They don’t lose their businesses. They don’t lose their money.
They lose yours.
In fact, failure often becomes a justification for more funding. The program didn’t work? It must not have been big enough. The shortage persists? We need a new initiative. The costs keep rising? We need more spending.
The market works differently. When someone in the market makes a bad decision, they bear the cost.
A business that misjudges demand loses customers.
An investor who backs the wrong idea loses capital.
A company that fails to adapt goes under.
This isn’t cruelty. It’s accountability. It directs resources toward what works and away from what doesn’t.
The default setting of reaching for the political approach for every problem we face is what I’d call a mind virus. The automatic leap from “problem exists” to “government must solve it” is so attractive it can become infectious.
But, because it’s attractive, there’s never a stop along the way to question it. No one stops to ask whether the people making the decisions have the knowledge to get it right, or if they’ll bear any consequences if they don’t. They just take the promise at face value and decide they no longer need to worry about it.
What Markets Actually Do
I know what critical readers may be saying right now. “But these problems are serious! Something HAS to be done. And markets aren’t perfect!” I agree.
Something should be done. We shouldn’t just sit back and let problems continue. What we need are solutions that reduce, or solve, the problem. What we don’t need is to be content with actions that make it seem like something is being done and then washing our hands of it.
Luckily, the market is great at solving big problems, even if it isn’t perfect.
Every major technological advance, from agricultural revolutions to the internet, did not come from a committee deciding what to do. They came from millions of people responding to signals, experimenting, failing, adapting, and discovering.
The market process is the third, often unspoken, option besides “do nothing” and “government manages it.”
Markets find ways to get people to care without relying on force. They don’t depend on the wisdom of whoever shows up to the meeting and yells the loudest. They work with built-in accountability.
The Bottom Line
Before we do something to address social and economic problems we should ask whether the market process has been given a chance. Not as an afterthought. As the most basic economic question there is: are the people with the best information and the strongest incentives the ones making the decisions? And will they bear the consequences if they’re wrong?