This is a CU Colorado Springs student blog for the following courses: Intermediate Microeconomics and Austrian Economics.

November 5, 2014

Interventionism

lately I have been reading a lot of Mises for my economics class, and have been conflicting with some ideas he has, but one idea i have to agree with is his views on Interventionism. It seems that in the U.S. Interventionism has been a huge topic of interest and has been put in affect all over the nation. In Mises opinion there should be very minimal intervention by government and quite frankly I would have to agree with him.
So Why does Mises think Interventionism should be minimal? Well Mises analyses Interventionism by observing certain government intervention and seeing if it achieves the end goal that is desired, and in most cases it is not. let's take a simple example of a price ceiling on good A. Now that good A is less expensive, more people can buy than producers are willing to produce at the ceiling price. This creates a shortage, and in a shortage there are certain people that are willing to pay a higher price so a black market is created with higher prices for good A. In the end Intervention has created a shortage and has not successfully been able to lower prices. Mises explains this inefficiency well in Economic Policy: Thoughts for Today and Tomorrow, when he states "The government wants to interfere in order to force businessmen to conduct there affairs in a different way than they would have chosen if they had obeyed only the consumer."
The city of portland is also a great real life example of why government interventionism doesn't work. In the city of Portland, the Government is very concerned about sprawl. In order to decrease sprawl the government has enforced many laws such as urban growth boundaries, reduced parking, smaller yards, public transportation, and many other things. The problem is that this is not what the market wants thus forcing people who don't prefer the new laws out of the jurisdiction of the metro area of portland to other suburbs and cities, thus creating more sprawl. Once again showing that intervention in most cases achieves the opposite of the target goal.
The problem with interventionism is simple. In a market, the absolute best you can do is to match the exact preferences of the consumers. If this is the case, the best government intervention can do is to help the market achieve the exact preferences of the consumer, which is exactly what the market would do anyways without any government intervention, therefore intervention can only do worse than the free market, deeming interventionism inferior to the free market.