Given its monopoly power over the legitimate use of force, people have a tendency to believe that the government, particularly a democratic representative government, can solve all types of problems. Further, if things do not go well, people tend to think that it is be- cause the “wrong” people won the last election. Public-choice analysis suggests that the problem is more fundamental: there is sometimes a conflict between winning elections and following sound policies. For some types of activities, there is reason to believe that the political action that will help get one elected will, at the same time, reduce income lev-els and living standards.
Both the market and the political process have shortcomings.
Understanding the strengths and weaknesses of both sectors is important if we are going to improve our current economic institutions. When the government protects property rights, enforces contracts, and provides a stable monetary environment, economic prosperity is more likely to ensue. The basic problem, however, is how a society can obtain the benefits of the protective functions of government and at the same time constrain it to those activities where it is a productive force.