As soon as someone hears of something that has happened or is happening that s/he doesn’t like, s/he goes, “The government ought to do something about it!”. Where does this idea that government can solve all of our problems (especially the economic ones) we face, come from?
This characteristic is a remnant of a thought from the past – before modern freedom, constitutional government, representative government, republicanism or federalism. For centuries, there was a doctrine accepted by everyone in this world, that a King, an anointed king, was messenger of the God and he had more wisdom than his citizens. King had supernatural powers and was able to provide and protect his citizens. As recently as the beginning of the nineteenth century, people suffering from certain disease were expected to be cured by the royal touch, by the hand of the king. Doctors were usually better; nevertheless, they had their patients try the touch of the king. Same reasoning can follow as to why a king should overlook other aspects besides the health of his subjects; other aspects like education, food and shelter. The very aspects of life that are best governed by the market interactions rather than decision of some king or benevolent government. One of the relevant examples from the context of Nepal is nationalization of education (both private and public) in 1971. Before 1971, schools were autonomous and functioned in a decentralized fashion.
Today most countries have democratically elected governments and very few monarchs have survived. But has the doctrine of the superiority of supernatural kings with inherited powers that can solve all problems of their subjects disappeared? At present, most of the government bodies consist of elected officials and not an anointed king, but the idea that there is someone wiser and more powerful that could govern and solve all problems of society has not gone away. This is evident from both the wishes of people for government intervention to solve problems, even if markets can provide better solutions, and also the wish of the governing body to try to expand its horizon to solve all problems that societies face by regulating, banning and subsidizing.
This is not to imply that a government does not have any role in the economy. It has very important roles, namely: maintaining law and order, and enforcing property rights so that it can create space for markets to function. Apart from its limited but very important roles, other actions like regulating prices, wages, rents and profits are beyond the scope of government because it does not lead to the desired result. Prices, wages, rents and profits are best determined by the market forces (demand and supply) and any attempt by government to regulate or control distorts the market and leads to unintended consequences like formation of cartels, shortage of goods and services, to name a few. This is also very evident in current crisis of fuel (apart from the Unofficial Blockade) that stems from the government being the sole provider of petroleum based fuel instead of allowing markets to work it out.
Why is it that government actions to intervene and regulate any aspects of the market, even if it arises with the best of intentions, like the minimum wage so a poor can make more money, rent control so a poor can afford a decent living space, price control on gasoline, milk, eggs and other basic goods so that an average earner can afford, banning of alcohol so that people will not be addicted to alcohol etc. do not lead to the intended outcome and only lead to negative unintended consequences instead? It is because in the centrally planned economy, everything depends on the talents, and gifts and perception of very few people that hold the decision-making power. That which the kings/dictators or governing committees do not know is never taken into account in the planning and decision-making and hence always the negative unintended consequences. Even if all the information that is required for sound policy-making is available to the king/dictators or government committees, their plan will never match the invisible hand of the market and the result of millions of interactions of households and businesses driven by self-interest and incentive.
Inspired by readings of Ludwig von Mises