David’s excellent point below is not just applicable to antitrust. Rather, it is the proper mode of analysis for all public policy questions, and it deserves to be reiterated. Too often policy arguments proceed as follows: A) the market “fails” because it does not produce the theoretically optimal result, therefore B) government intervention is necessary. But B does not follow from A. The failure of market processes to produce an optimal result does not ensure that the political process will do a better job. From a libertarian perspective – or any perspective that is inherently suspicious of government intervention – the burden should be on those advocating government intervention to explain why the political process can be expected to produce a better result than the marketplace. In such an inquiry, the theoretical virtues of government intervention are no more relevant than a basic equilibrium model of perfect competition. Both are blackboard abstractions that often have little bearing on what occurs in the real world. What matters is how political intervention — and make no mistake, government intervention in the marketplace is always political — is likely to affect the status quo ante, and whether the consequences of such intervention (and the attendant rent-seeking, transaction costs, etc.) constitute an improvement in the real world.
Political intervention in the marketplace may be well intentioned, but that does not make it any more likely to generate positive results. Indeed, insofar as noble intentions leave the likely consequences of such interventions unexamined, such policies may make us all worse off.
ADDENDUM: An example of well-intentioned political intervention with negative effects isthe Endangered Species Act. As I noted here, there is empirical evidence that in some parts of the country the ESA actually increases the rate of habitat loss.
UPDATE: Henry Farrell at Crooked Timber takes liberties with this post, and commenter ASG catches him being too cute by half.
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