The Role of Government and Market Failure--Part 1 of many

Over the past two years there has been a lot of back and forth between Tom and I over the role of the government and the appropriate size of the government. While I can't safely label any of us as pro large government or not, I do believe that we both agree that governments serve a very important purpose. This is not the purpose I am going to discuss in this post, since I do not want yet to bring into the discussion the role of property rights and contract enforcement. What I want to talk today about is the role of government is smoothing economic crises.
By and large I am looking at the impact of the current oil crisis on both the US and European countries. I think we can all agree that the US has been suffered much more from the rapid increase in oil prices than European countries have. The average citizen now pays a significantly larger chunk of their monthly income on gas, and a lot of the income is spent on gas that is used for rather basic needs with highly inelastic demand curves, such as driving to and from work. The impact on the European worker is significantly lower.
There are many explanation, and the pending baking crisis in The US is but one of them. What I want to focus on is the importance of governments and their role in providing semi-public goods in smoothing out such crises. When it comes to the private market and driving your own car there are many places in the US where the alternatives are virtually inexistent. With few exception, public transportation in the US lacks coverage and fails to provide a significant substitute to driving one's own car.
In contrast, most European countries have significantly better developed public transportation networks. This implies that when oil prices skyrocket people where governments tend to be larger and provide more public good, even if these goods are subsidized, have alternatives and can switch to substitutes, thus avoiding a blow to their monthly balance sheets.
In the following days I will add a simple model that discusses the situations when the existence of semi-public goods as substitutes to purely private goods ends up being beneficial. Until then, I am merely trying to make the point that current events prove that larger governments may add to people's ability to smooth their consumption over time and avoid stochastic shocks. Considering that research shows that most people are risk averse (except maybe very religious people as I mentioned I an earlier post and those who gamble or play the lottery), one could conclude that it is in their best interest to support larger governments who can provide them with this quasi-insurance from unexpected crises.