There is no such thing as market failures; there are only market solutions.
The problem with mainstream economics, as Steve Horwitz points out, is that they start with the assumption of perfect allocation. When that does not occur -- because it cannot occur -- a market failure is proclaimed. But if one starts with the question of how anything gets allocated at all, of how one can get any kind of coordination at all, then one comes to the realization that markets do a great job. It's idealism vs. realism. Where do you begin? If you begin with an idea situation -- of perfect allocation, perfect knowledge, and perfectly self-interested rational actors (who of course have perfect knowledge) -- then you will always end up terribly disappointed with the real-world system. And you will look to other "solutions" to solve the problem. Of course, if one starts with reality in the first place, realizing that perfection is not possible, then what is interesting is that order and coordination comes about at all. One cannot presume order -- one has to explain it. Mainstream economics, presuming what should be demonstrated, cannot. Austrian economics can. And does.
9 comments:
re: "But if one starts with the question of how anything gets allocated at all, of how one can get any kind of coordination at all, then one comes to the realization that markets do a great job"
I'm quite sure mainstream economics acknowledges that markets do a great job! Indeed, this is the biggest theme of mainstream economics, Troy.
You've been absolutely massacring strawmen lately, Troy! You really oughta come at economics with more humility.
Which definition do you prefer? This one: "This occurs when there is an inefficient allocation of resources in a free market." Here they argue that "social benefits" and "social costs" are at issue. Which always begs the question of who is the one deciding such things. Based on some statist's preference, the market is likely to "fail", even though it does and can do no such thing. Here it is defined as a "Situation where resources cannot be efficiently allocated due to the breakdown of price mechanism caused by factors such as establishment of monopolies." Mises dealt with this as far back as Human Action, yet mainstream economics hasn't learned a thing from him about it. Which is why it's present in this definition. Follow their link to "market inefficiency," and you get "Situation where the current prices do not reflect all the publicly available demand and supply information, due to negligence or breakdown of buyer-seller communications." What causes that breakdown? Well, considering the term being defined, the assumption is that it is inherent to the market. In reality, such breakdowns are able to be traced directly back to government actions and regulations. Thus, this is not an example of a market failure, but government failure. This definition really sums up what I am arguing against: "An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium." Indeed, the problem is that "certain economically ideal factors" cannot be realized. How do we know? Because one cannot achieve equilibrium! Fallacy upon fallacy! Idiotic notion upon idiotic notion! If one reaches equilibrium, that is the end of any market activity at all. Thus, it's not market failure to fail to realize some ideal posited by mainstream economists.
The very concept of market failure assumes the economy is not living up to some ideal posited by some economist. That is the height of arrogance, to believe that perfection can be achieved, that you know what it is, and that failure to achieve your definition of perfection is failure. I point this out as being arrogant and, ironically, it gets me called arrogant. That's a laugh.
Troy, you can "do a great job" and not be efficient in the sense that economists use the word "efficiency". My initial point was that mainstream economists - even acknowledging the quite real phenomenon of market failure - universally agree that "markets do a great job" at coordination.
Second - I've never heard of inequality or monpoly power refered to in and of themselves as "market failures" (perhaps the product of certain market failures). Don't go to businessdictionary.com and pretend that's a reasonable source.
The investopedia definition has nothing to do with market failure.
To a certain extent, I'm not sure why I'm even bothering to engage - perhaps it's because I rarely come across someone with such an underdeveloped understanding of what he's talking about and such a willingness to pontificate to and trash others. Stick to lit crit, or at least stick to what you know in economics.
Your final comments make you an asshole. But I continue to engage too for some reason.
I used those definitions because those are the distilled versions widely available. They come directly out of econ 101.
Now, do you deny that a market failure is defined as markets do not producing or allocating goods efficiently? And that this is based on mathematical models? Or do you have a better definition? If so, please share. You complain without correcting. Give me your definition of market failure, if you're not using the one that I and every source I've looked up uses. Maybe then we can move forward.
re: "Now, do you deny that a market failure is defined as markets do not producing or allocating goods efficiently?"
As I said, this is exactly the definition. This is nowhere near the same as saying that mainstream economists don't think "markets to a great job", which was my initial point. What I was surprised at was that monopolies or inequality is considered a "market failure". That's news to me. Market failures can lead to monopolization, perhaps. I'm not sure what inequality has to do with it.
I oughta ignore you calling me an asshole, but look Troy. For the last 48 hours you've been telling people what they do and do not think, calling them dumb, and accusing them of failing to grasp things. In the past you've called Keynesians idiots, and you've all but called them statists in this comment section and in the past as well. You talk a big talk for a guy that writes about (and teaches?) literature, and you ought to be more humble when you approach these things. You sure as hell shouldn't call me an asshole until you can find an instance of me calling you or Austrians "idiots", "dumb", or "statists" or suggest that they revel in the destruction of tsunamis. You've done said all of these things, man. Where do you get off telling me I'm an asshole for suggesting that you may be wrong when you say that market failures imply a lack of realism about the great job that markets do in allocating resources.
When you arrogantly tell me to stick to what I know, that makes you an asshole. I have never said that to anyone. I haven't even argued that your opinion isn't worth crap because you don't have a Ph.D. Nor have I, over on Coordination Problem, argued that because Steve has a Ph.D., and you don't, that only his opinion of my argument matters. Why? Because none of that is irrelevant. What matters is the arguments being made, not one's educational background.
However, when someone who knows more about a field -- say, Keynesian economics -- I take what they say seriously, and endeavor to correct my ignorance. I don't take it personally, but rather go and get my Keynes off the shelf and start reading. In this case, I know more about far-from-equilibrium, self-organizing processes than you do. I have been studying them for a long time, and I have published articles, and have articles coming out, on them. So when I tell you that you don't know what you're talking about, the right thing for you to do is correct your ignorance rather than getting upset because I pointed out your ignorance. That attitude is what prevents people from learning anything.
An idiot, in the original Greek sense (as I always use it) is id-iota, I-one. It describes those who concern themselves with themselves at the expense of their social obligations. I think that is an accurate description of anyone who supports anti-social, pro-government (but I repeat myself) policies.
And let me be clear: Keynes was a statist. There is a reason the fascists loved him. Keynes even argued for mercantilism, which is all his work really advocates. Which in its modern form is crony capitalism. Which is a form of statism. Why deny what is obvious? Keynes supported state intervention, and understood the government as being generally beneficial, particularly during a recession (which he failed to recognize as being caused by government, instead ascribing it to mystical "animal spirits"). He's a statist and, as far as I can tell, so are you. Why deny it? Why be ashamed of it? Be who you are.
I will note, Daniel, that I don't happen to think you intended to be an asshole in your statement. But that's what saying something like that will inevitably be interpreted to be -- and it's just plain irrelevant in an argument.
OK, asshole, statist... why do I bother. You've lectured me all day yesterday while peddling a deeply flawed understanding of neoclassicism and Keynesianism. I haven't corrected you on complexity work (something I spent several years working on several years back, btw - I'm not speaking out of ignorance as you seem to assume), but you have been trying to lecture me on stuff you clearly don't have a grasp of. And I'm the asshole? This is hopeless, Troy.
Right, I don't have a grasp on something that dominates my dissertation and which I've pu8published papers on. THis is pointless, as you are a child
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