We’ve posted recently on the topics of market failure and government failure. Market failure is the term used to describe the phenomenon where markets do not allocate resources to their highest and best use. The term is insensitive to severity, which invites public misunderstanding. For example, it can refer to severe situations where markets don’t even exist, and it can refer to cases so trivial that they deserve sustained attention only from underemployed academic economists.
Government failure is the term used to describe the phenomenon when regulation does not accomplish its intended goals. It is also insensitive to severity. It covers situations where the consequences of government action are socially devastating, or so severe that the regulatory “cure” is worse than the disease, or instances in which some of the net benefits of regulation are not achieved. A common problem in government regulation is the refusal to take account in regulatory design and implementation the predictable consequences of market and personal adaptation.
Economists and advocates of market allocation use both of these terms. Advocates of government regulation also use the term market failure, but they do not use the term government failure. They do not have any term to describe that phenomenon.
Decades ago the government of China embarked on a “one child” policy. This policy had several significant governmental failures associated with it including mass abortion and infanticide of females. It is now estimated that the ratio of boys to girls at birth is 1.12 to 1. (A ratio of 1.05 to 1 is normal. Higher ratios are found only in Armenia [1.17:] and Georgia [1.15:1].) China now has an extraordinary shortage of young women.
Recently China has established a “one dog” policy. What government failures can we expect?