1. The objective of public policy is to maximize the efficiency of capital allocation.
2. Who is efficient at capital allocation is independent of public policy.
3. Efficiency of capital allocation is measured by stock market capitalization.
1) would assume that building a Lamborghini Veneno Roadster is a better allocation of capital than building 10 homes. Or treating 100,000 cases of malaria.
2) would assume that someone who benefits from government subsidies is intrinsically better at capital allocation than someone who doesn't.
3) would assume that tulips sellers were really, really, good capital allocators for a while, and then suddenly were terrible capital allocators. Or that the number of cars produced isn't really a relevant metric for an auto company.
Very good points. Externalities and other market failures are also better addressed by governments than capital markets, as is well understood and was conceded even by Milton Friedman.
1. The objective of public policy is to maximize the efficiency of capital allocation.
2. Who is efficient at capital allocation is independent of public policy.
3. Efficiency of capital allocation is measured by stock market capitalization.
1) would assume that building a Lamborghini Veneno Roadster is a better allocation of capital than building 10 homes. Or treating 100,000 cases of malaria.
2) would assume that someone who benefits from government subsidies is intrinsically better at capital allocation than someone who doesn't.
3) would assume that tulips sellers were really, really, good capital allocators for a while, and then suddenly were terrible capital allocators. Or that the number of cars produced isn't really a relevant metric for an auto company.