For free-marketeers, the government is always the bad guy. As President Ronald Reagan memorably put it in his first inaugural address: “In this present crisis, government is not the solution to our problem; government is the problem.”

Since the 1980s, markets have been idealised as the only way to achieve an optimal allocation of resources. A sound economy is guided by the spirit of entrepreneurialism, not politics, because the price mechanism reliably conveys information about the value of goods and services. Buyers bid, sellers sell to the highest bidder, and all parties are well-informed, rational decision-makers. An equilibrium price is always reached, ensuring an efficient outcome. It’s a perfect world.

The real world, however, is not perfect. Market participants face transaction and information costs. Negative externalities and market failures are inevitable. Even ardent advocates of laissez-faire agree that some government intervention is sometimes needed, though the state should not do anything that will distort market outcomes.

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