Arnold Kling further reflects on his excellent article about Masonomics that I linked to here in this two-word post:
I would say Joe, fine, there are many examples of market failure. And maybe you can do things to reduce government failure. But in the end, there is the issue of dynamics. Market failure tends to be self-correcting, because entrepreneurs have incentive to fix things. For government failure to be corrected, somebody needs the insight to know how to correct it and they need to overcome the political opposition to changing the system. In practice, the change does not happen. You cannot get rid of the mohair subsidy.
To me, the problem with the Stiglitz-MIT view is that they do not share the Masonomics view of the real nature of government failure. It is not just that special interests can gum things up. It is that however things get gummed up, they are persistently gummed up in an institution that is insulated from market competition.
It is reassuring to know that there is still a place that carries on the intellectual traditions and perspectives that we used to find at Chicago, UCLA, and Virginia (and Washington and Texas A&M). These traditions simply acknowledge that gubmnt failure is a constant problem that must be expected; that incentives always exist for gubmnt employees and bureaus to build the size of gubmnt and intervene in ways that do not always make other people better off.
Moreover, there are incentives for private folk to try to get favors etc. from politicians and bureaucrats. These people are a class of rent-seekers: people who seek a transfer of wealth from one person to another person without giving them something in return. While rent-seekers are rightly scorned, they are not the only ones at fault: government plays a roll as well.