The tiresome second best
Rare, of course, is the perfect market. But when the defects are severe, the theory of the second best (first enunciated by economists Richard Lipsey and Kelvin Lancaster in 1956) tells us that the normal prescriptions dispensed by practitioners of the dismal science--namely, more deregulation and competition--don't apply. In fact, where the second best is firmly entrenched, it's impossible even to predict whether a move to less regulation or--gasp!--to more regulation will improve efficiency. You simply have to study the specifics of the situation. Worse yet, the right next move may change as the market mutates in response to altered conditions or to the policy itself.
This is a bitter pill for dyed-in-the-wool free marketers to swallow. That's especially so when it comes to punditry: It's a lot easier to prescribe another dose of free-market medicine than to deal with the intricacies of the second best. Which brings us back to vaccines and airlines. Clearly, neither market is working well now. But the right policy choices will take hard thinking. How many competitors do we want in each field? How much will we pay for broad availability and a high degree of safety? Who should foot the bill? Unfortunately, the demonstrated ability of Washington policymakers to deal with this tough sort of question is all too often, well, second best, at best.
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