Semantics

As I prepare for the class that I'm teaching in the Fall, I came across a term that has always irked me. It's only semantics perhaps, but here goes. As the book defines it:

Market failure- occurs when markets, operating on their own, do not lead to a socially optimal allocation of resources.

When you hear that there is a "market failure" it seems to imply that markets are the wrong way to organize production of the good in question. In reality, a market failure is simply that the market is producing too much or too little of the good.

It doesn't follow from the fact that markets produce to much or too little that alternative means of production will be better. For instance, without regulation there is pollution (one kind of market failure). Our alternative is regulation to correct for the market failure. However, the regulation could be bad in a number of ways: causes output to fall too much, causes prices to rise too much, limits competition, has other unintended and undesirable outcomes.

If we're going to have a term for when markets are not maximizing social well-being, why don't we also get a term for when government does not maximize social well-being. I suggest this:

Government failure- occurs when the costs of gathering information, regulating behavior and monitoring for infractions of the law outweighs the potential benefits of a particular public policy; in other words, when the cure is worse than the disease.