Arnold Kling  

Market Failure and Government Failure, Again

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In the Christian Science Monitor, Nick Schulz and I write,

When innovation-driven excesses and imbalances are recognized in the marketplace, the system can correct itself quickly. This is less the case when government policy failure occurs.

The theme is that when markets go wrong, government is not necessarily the solution. Too bad we did not include a link to Clifford Winston on that topic.

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CATEGORIES: Political Economy

COMMENTS (4 to date)
Walt French writes:

Were regulation to focus primarily on markets where failures either (a) happen most frequently or (b) do NOT correct satisfactorily or (c) are most harmful to innocent bystanders, your concerns about slowness of correction due to regulation actually could be exhibiting reverse causality.

Perhaps you could take a broader view of all markets (so there'd be less chance of retrospective bias) and highlight those where you think regulation would be most/least helpful. Live examples would help, rather than just using some generic problems as Things To Oppose.

Babinich writes:

"In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralised decisions of a government, and certainly the harm is likely to be counteracted faster.”

– Sir John James Cowperthwaite

Andrew writes:

I'm a fan of the Masonomist vein of research and thought. However, please dispense with the straw man (implicit here but explicit in other essays such as "So You Want To Be A Masonomist?") that Chicago inhabits the extreme laissez faire pole of the markets/intervention continuum.

Milton Friedman constantly pointed out that the solution to market failure was, paradoxically, more markets, not fewer. And, as my Money & Banking prof there explained several times during our course, the essence of Chicago thought is a liberalism that doesn't deign to presume what someone else's utility curve looks like. That chap was one of your MIT PhD classmates, BTW.

In fact, reviewing the recent history of Chicago School thought, clamor for as many markets as possible is the only consistent thread of thought evident during the past 60 years.

I understand the Masonomists' ardent desire to establish their own brand. However, as with most marketing, one detects more than a whiff of disingenuous seduction when it comes to product differentiation.

Randy writes:

The problem with the argument that the correct response to market failure is to allow the market to correct itself, is that the people making the argument aren't really answering the challenge. The leftist doesn't think of market failure as a price out of balance, but as a condition of inequality. The market doesn't care about inequality and will never "correct" it. The best response to the leftist challenge that the market has "failed" is, "So what, so has government".

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