Steven Horwitz has an interesting article dealing with government failure. He maintains that while evil or incompetence on the part of politicians and bureaucrats is sufficient to cause government failure, neither is necessary. That is, government officials can be both well-intentioned and highly competent and still fail in their duties.

His point turns on the Hayekian knowledge problem. For example:

… the failures of the Federal Reserve are not the result of the Fed’s being run by a cabal of global bankers intending to undermine the U.S. economy; nor are the failures the fault of the incompetence of the Board of Governors or Federal Open Market Committee.  Even with the kindest, most public-spirited, and most brilliant economists at the helm, the task facing the Fed is simply impossible.  No one can control the money supply and manipulate the macroeconomy the way the Fed is expected to.  It cannot obtain the knowledge it needs to undertake that task, unlike firms in the market, which can rely on the prices to inform their decisions.

The lack of recognition of this simple fact results in bad economic policy. Most government regulation is passed oblivious to the knowledge problem. Ignorance produces overregulation and underperformance.

Even if we are governed by angels, their good intentions cannot produce good results where knowledge is dispersed.