One Takeaway
We tend to evaluate government programs by their intentions and market alternatives by an impossible standard of perfection. Once we agree to judge both by their results, the conversation changes entirely.
The Perfection Trap
Watch any policy debate long enough and you’ll notice something strange. The standard for evaluating government action is whether the intentions are good while the standard for evaluating market alternatives is whether the outcomes are perfect.
Someone proposes a government program to address housing costs. The question asked: “Will this help?” If it seems like there’s a good chance the answer is “Yes!”, then the plan moves forward.
Maybe on the flip side, someone else suggests that removing zoning restrictions might allow the market to produce more housing. The response back: “But what about developers who cut corners? What about neighborhoods that change? What about people who fall through the cracks?”
One side has to show it’s trying. The other side has to prove it’s flawless.
Economists have a name for this. Harold Demsetz called it the nirvana fallacy — comparing real-world market outcomes to an ideal version of government action that simply doesn’t exist.
And I get the attraction. The market is messy, imperfect, and full of tradeoffs. So we often reach for the public sector as a shortcut. But the public sector is also messy, imperfect, and full of tradeoffs. We just don’t hold it to the same standard as markets.
The result is predictable. Public sector programs grow and stack up on one another because the bar for creating them is low and the bar for eliminating them is impossibly high. Markets get excluded because the bar for trusting them is perfection — and perfection doesn’t exist anywhere, under any arrangement.
Compared to What?
The most important three-word question in economics is: compared to what?
Every action has two sides: its benefits and its costs. Economics is uniquely helpful helps us think through both sides of the equation rather than simply being content with one side. When looking at costs and benefits we need to ensure that our support for an idea, a policy, or a program is based on relevant comparisons of alternatives rather than simply the potential benefits of our preferred choice.
The correct standard for evaluating market solutions is not “is the market perfect?” Instead the more helpful question is “does the market handle this better or worse than the alternative?”
Similarly, the correct standard for evaluating public-sector solutions is not “could this government program help someone?” Instead the more helpful question is “does this produce better outcomes than what would happen without it — including the unintended consequences it creates?”
People tend to be skeptical of markets. They are quick to see how they are imperfect. These visible imperfections take hold of our attention quickly. From a comparison to perfect situations, these arguments have merit. The problem is perfection is never the relevant comparison.
“But markets could increase inequality!” Compared to what?
The Institute for Justice found that occupational licensing requirements average nearly a year of education and over $260 in fees for lower-income occupations — locking out the very people who can least afford the barrier. Zoning regulations routinely prevent affordable construction; according to Brookings, single-family-only zoning covers three-quarters of residential land in most U.S. cities. Regulatory capture protects incumbents at the expense of newcomers. The question isn’t whether markets are perfectly equal. It’s whether they handle inequality better or worse than what we have now.
“But markets might cut corners on safety!” Compared to what?
Government inspectors missed the structural failures that led to the Surfside condo collapse in 2021, killing 98 people. FDA approval delays have cost thousands of lives that earlier access to treatments could have saved — including a moratorium on beta-blockers that the FDA itself later estimated might have saved up to 17,000 lives per year. The question isn’t whether market accountability is perfectly safe. It’s whether people with skin in the game make better safety decisions than people without it.
“But some people will fall through the cracks!” Compared to what?
People are falling through the cracks right now — in systems with the specific intention to prevent it. The question isn’t whether a market-oriented approach would be perfect. It’s whether it would catch more people or fewer.
Once you start asking “compared to what?” you realize the case for government intervention is rarely made on its actual merits. It’s made by comparing its best intentions to the market’s worst possibilities…when in fact the worst possibilities of governments are often just as bad if not worse.
Winning on the Margin
Dropping the perfection standard doesn’t mean dropping standards. It means adopting a more helpful one.
The helpful standard isn’t “does this fully solve the problem?” Very little ever solves problems outright. The helpful standard is “does this make things better or worse than the current situation?”
I call this winning on the margin. The idea comes from one of the most fundamental concepts in economics: marginal thinking. We don’t make decisions in grand, all-or-nothing leaps. We make them one step at a time. The question is never “is this perfect?” It’s “is the next step an improvement?”
Think about it this way. If you’re overweight and your doctor says the best thing you can do is exercise for an hour a day, but you can only find 15 minutes — do you skip it entirely because it’s not the full hour? Of course not. Compared to the ideal, 15 minutes falls short. Compared to nothing, it’s a big step forward.
The same thinking applies to economic problems.
Does removing a licensing barrier solve workforce shortages? No. But states that have reformed their licensing requirements have made it easier for qualified people to work in fields where they’re needed. That’s winning on the margin.
Does zoning reform solve the housing crisis? No. But when Minneapolis eliminated single-family-only zoning, researchers found measurable reductions in housing prices. That’s winning on the margin.
Does price transparency in healthcare fix the entire system? No. But researchers at Chicago Booth found that when states required hospitals to disclose prices, costs for common procedures dropped by an average of 7% — and up to 14% for patients paying out of pocket. That’s winning on the margin.
None of these are complete solutions. That’s the point. Complete perfect solutions almost never exist. We won’t find them from markets. We won’t find them from government. We aren’t going to magically be given them from outer space (well maybe alien technology could solve a few problems in an instant…).
None of these are complete solutions. That’s the point. Complete solutions don’t exist — not from markets, not from government, not from anyone. What exists is better and worse. And the question we should ask about every policy proposal, every program, every intervention is simple: does this move us forward or backward compared to what we have now?
Not compared to a fantasy. Compared to the real-world alternative.
Before We Do Something
When the standard is perfection, innovation becomes impossible. Every new approach can be killed by asking “but what if something goes wrong?” Every reform can be blocked by someone who benefits from the current system raising a hypothetical worst case.
Meanwhile, the programs already in place never face the same scrutiny. They persist not because they work, but because eliminating them requires proving a negative: that nothing bad will happen without them.
The cost of demanding perfection is that we never try anything new. We never remove barriers because we can’t guarantee the result. We keep optimizing a system we aren’t sure works instead of trying one that might work better — because “better” doesn’t meet the standard of “perfect.”
Before we do something, we should at least agree to judge both sides by their results.