There can be non-governmental actions to improve them, so, yes, it’s not the same. Also, the bigger problem was the fact that you summarized with the weaker statement “government probably won’t make things better” rather than the stronger statement “government will probably make things worse”; the former led you to the weak conclusion “Therefore we should focus on other stuff” rather than the strong conclusion “Therefore we should oppose permitting the government to touch this stuff”.
Non-governmental actions are either markets, which won’t solve market failures, or they’re non-market solutions, which are either governmental or pseudo-governmental with the same potential problems as government solutions. Or can you give an example of a solution to a true market failure that avoids the problems that government action has?
New technology, such as the internet and myriad apps based on hyperconnectivity, can enable market solutions to what were previously market failures. Innovation in legal structures (Dominant Assurance Contracts are an interesting recent idea; prediction markets seem to be expanding and carry some promise) can also enable market solutions (one could categorize this as contractual “technology”). Thus, one non-governmental path to improving a market failure is to try to develop a technology to fix it.
New technology could also create new market failures, eg by enabling new kinds of collusion or creating new externalities. You could see the RealPage suit or PFOA pollution for examples.
Is your proposal to selectively direct technological progress towards techs that solve market failures and away from techs that create them? How would you do this besides...government involvement?
Is your proposal to selectively direct technological progress towards techs that solve market failures and away from techs that create them? How would you do this besides...government involvement?
No, I don’t think such a proposal needs to be made. Market failures that the market doesn’t subsequently correct aren’t a big enough problem that something “needs to be done” about them, especially given the risk that government intervention will make things worse.
I’ll note that, if there exists a positive-sum solution to a problem, then it could be done via a voluntary transaction (possibly involving transferring cash, to make it net positive for all parties), and therefore could in theory be done by the market. And the higher the net benefit, the stronger is the incentive of potential profit for someone to make it happen; transaction costs can get in the way, but only if they manage to exceed the net benefit. So these are theoretical reasons to expect market failures to either not be that bad, or to be corrected by the market after not too long.
Market failures that the market doesn’t subsequently correct aren’t a big enough problem that something “needs to be done” about them, especially given the risk that government intervention will make things worse.
So, we’re back to “giving up on improving” market failures, because you don’t think they’re actually a significant problem?
Anyway, most people disagree with you here. In the real world, you’re outvoted and will lose elections, and I guarantee the above argument won’t change most people’s minds.
Do you not count something as a market failure if the market subsequently corrects it? If so, does that mean anytime someone claims that a thing is a market failure, then I get to say “Prove that the market will never subsequently correct it, or else it doesn’t count”?
Yes, I’m defining “market failures” as things that more markets don’t solve, but macroeconomics and sociology aren’t fields where such things are mathematically proven. We have to go on empirical evidence, and my interpretation of the empirical evidence is that such market failures exist and are significant.
I googled a bit, and Investopedia gives some examples:
Private market solutions: In some instances, the solution to a market failure may emerge within the private market itself. For example, asymmetrical information could be solved by intermediaries or rating agencies such as Moody’s and Standard & Poor’s informing market participants about securities risk. Underwriters Laboratories LLC performs the same task for electronics. Negative externalities such as pollution may be solved with tort lawsuits that increase opportunity costs for the polluter. Radio broadcasts elegantly solved the non-excludable problem by packaging periodic paid advertisements with the free broadcast.
How confident can you really be that no one will come up with a market solution, especially as technology advances? As mentioned, the bigger the “failure” is, the bigger the incentive for someone to fix it. And if it stays unfixed, this raises another possibility:
In some cases, the failure, and/or the absence of a market solution to the failure, is caused by government intervention. This is amusingly true of the first example the article gives of a government solution:
Government-imposed solutions: When the solution does not come from the market itself, governments can enact legislation and take other measures as a response to a market failure. For example, if businesses hire too few low-skilled workers after a minimum wage increase, the government can create exceptions for less-skilled workers.
That’s where the problem is obviously directly caused by the intervention, and the proffered solution is to reduce the intervention. But it can be less direct, and possibly be a contributor while not necessarily being the entire cause. I would say that, in any scenario where a particular market is dominated by one or a few big companies that are all misbehaving in the same way [for example, by charging above-market prices or mistreating customers in a way not justified by reduced costs], then the ideal market solution would be “I create a new company that behaves better, and makes better profits by doing so”, and then any and all governmental barriers to entry are contributing to the problem. (And any grant of monopoly obviously 100% prevents this solution.)
I would say that, for any apparent “market failure”, the contribution to it of government interventions is usually not zero, and I suspect that, the bigger and longer-term the “failure”, the larger that contribution tends to be. (Again, because bigger failures mean bigger incentives for the market to fix it.) So any analysis of a “market failure” should specifically investigate how much it is caused by government intervention.
Is that not “giving up on improving” market failures?
There can be non-governmental actions to improve them, so, yes, it’s not the same. Also, the bigger problem was the fact that you summarized with the weaker statement “government probably won’t make things better” rather than the stronger statement “government will probably make things worse”; the former led you to the weak conclusion “Therefore we should focus on other stuff” rather than the strong conclusion “Therefore we should oppose permitting the government to touch this stuff”.
Non-governmental actions are either markets, which won’t solve market failures, or they’re non-market solutions, which are either governmental or pseudo-governmental with the same potential problems as government solutions. Or can you give an example of a solution to a true market failure that avoids the problems that government action has?
New technology, such as the internet and myriad apps based on hyperconnectivity, can enable market solutions to what were previously market failures. Innovation in legal structures (Dominant Assurance Contracts are an interesting recent idea; prediction markets seem to be expanding and carry some promise) can also enable market solutions (one could categorize this as contractual “technology”). Thus, one non-governmental path to improving a market failure is to try to develop a technology to fix it.
New technology could also create new market failures, eg by enabling new kinds of collusion or creating new externalities. You could see the RealPage suit or PFOA pollution for examples.
Is your proposal to selectively direct technological progress towards techs that solve market failures and away from techs that create them? How would you do this besides...government involvement?
No, I don’t think such a proposal needs to be made. Market failures that the market doesn’t subsequently correct aren’t a big enough problem that something “needs to be done” about them, especially given the risk that government intervention will make things worse.
I’ll note that, if there exists a positive-sum solution to a problem, then it could be done via a voluntary transaction (possibly involving transferring cash, to make it net positive for all parties), and therefore could in theory be done by the market. And the higher the net benefit, the stronger is the incentive of potential profit for someone to make it happen; transaction costs can get in the way, but only if they manage to exceed the net benefit. So these are theoretical reasons to expect market failures to either not be that bad, or to be corrected by the market after not too long.
So, we’re back to “giving up on improving” market failures, because you don’t think they’re actually a significant problem?
Anyway, most people disagree with you here. In the real world, you’re outvoted and will lose elections, and I guarantee the above argument won’t change most people’s minds.
This is probably true. Do you consider that evidence against the claim that the government’s purported solutions would make the problem worse?
Do you not count something as a market failure if the market subsequently corrects it? If so, does that mean anytime someone claims that a thing is a market failure, then I get to say “Prove that the market will never subsequently correct it, or else it doesn’t count”?
Yes, I’m defining “market failures” as things that more markets don’t solve, but macroeconomics and sociology aren’t fields where such things are mathematically proven. We have to go on empirical evidence, and my interpretation of the empirical evidence is that such market failures exist and are significant.
I googled a bit, and Investopedia gives some examples:
How confident can you really be that no one will come up with a market solution, especially as technology advances? As mentioned, the bigger the “failure” is, the bigger the incentive for someone to fix it. And if it stays unfixed, this raises another possibility:
In some cases, the failure, and/or the absence of a market solution to the failure, is caused by government intervention. This is amusingly true of the first example the article gives of a government solution:
That’s where the problem is obviously directly caused by the intervention, and the proffered solution is to reduce the intervention. But it can be less direct, and possibly be a contributor while not necessarily being the entire cause. I would say that, in any scenario where a particular market is dominated by one or a few big companies that are all misbehaving in the same way [for example, by charging above-market prices or mistreating customers in a way not justified by reduced costs], then the ideal market solution would be “I create a new company that behaves better, and makes better profits by doing so”, and then any and all governmental barriers to entry are contributing to the problem. (And any grant of monopoly obviously 100% prevents this solution.)
I would say that, for any apparent “market failure”, the contribution to it of government interventions is usually not zero, and I suspect that, the bigger and longer-term the “failure”, the larger that contribution tends to be. (Again, because bigger failures mean bigger incentives for the market to fix it.) So any analysis of a “market failure” should specifically investigate how much it is caused by government intervention.