Do you believe in market failure?
I do.
"I'm not a fan of Murray Rothbard." -- David D. Friedman
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another outcome where market participants' overall gains from the new outcome outweigh their losses (even if some participants lose under the new arrangement).
The definition is nonsensical. It is a matter of opinion(Subjective valuation) how best resources can be spent more efficiently.
To argue that a system could better distribute resources more efficiently then a market is to argue omniscience. Otherwise how would you know? People who believe they have such foresight cannot really be taken seriously.
Michael J Green,
In the thread criticizing ABCT, you argue that entrepreneurs, if rational, would incorporate ABCT and not be fooled by the central bank. Well, why wouldn't entrepreneurs incorporate "market failure" theory and watch out for adverse selection and the like? I imagine you do agree that, in a freer market, they would; but why then should this be called market failure?
That's been brewing in my mind on and off today. What really gets me is how David Freidman brings up the prisoner's dilemma. When PD is played with all ("optimally") rational players where each player wants what is good for themselves and for the other player(s), everyone co-operates on every round. They reach optimality. Some people don't think rationaly, though. That's when we get "market failures".
I reject the idea that people act like this, or would come to act like this very quickly.
People who believe EMH could say "ABCT is wrong because no one believes it by now." But even if people did know ABCT and did beleive it, they still wouldn't be able to do anything about the boom-bust cycle when money/credit flows into the system. The information that the boom is coming or that we are in the boom is unavailable. This is why these actors cannot learn from this information and act on it. This is why boom/bust can't be turned into an empirical science. The data with which we could make predictions is unavailable. Likewise, ABCT doesn't predict boom/bust, and says nothing of details.
I don't think ABCT itself discredits EMH. (EMH as in, "market participants act optimally when they have information") But to believe in EMH and market failure at the same time is a bit strange to me. If everyone is rational with the information they are given (as in "optimal") then we wouldn't have market failures. And the only way to recognize a market failure is to have all the data anyways. And at that point, wouldn't the market adjust to optimality? (and what kind of optimality?)
And then there is the issue brought up by flic:
It is a matter of opinion(Subjective valuation) how best resources can be spent more efficiently.
Is one large gain worth ten small losses within a group of people?
After going through all this, I'm starting to think "market failure" means nothing at all without taking a situation and applying a certain evaluation function and finding optimality with that certain function. The problem is, as has been said, there are many ways to measure utility. And even then, what does optimizing utility have to do with realizing maximum value? I would say there is a correlation, at best.
What's happened here and in Friedman's view is a compartmentalization of the concept of a "market." Why care about market failure at all - it's not a matter of markets versus government; it's a matter of natural order versus government. In a natural order, prisoner's dilemmas get solved - yes partially by coercion - but the do get solved. For instance, common law is coercive. People's harping on about the NAP prevents them from seeing this, I think, and this is precisely what opens up AnCap to such attacks.
Why anarchy fails
You really want to win the debate? Then...
Forget the NAP, forget free markets, forget even liberty...these are fundamentally only relevant concepts within a statist context: we don't want to state to coerce, we don't want to state to intervene in peaceful market interactions, we don't want the state to deprive us of liberty, etc. Continuing to use such terms as if they are primary is to play right into the statist thought paradigm. If we accept such terminology as central we lose the debate before it even starts.
In a natural order, there is indeed much less aggression, markets are much freer, and everyone enjoys complete liberty from the state (because the state doesn't exist!) but certainly not complete liberty in any other sense (that would be equivalent to becoming God). However, a natural order is not a perfect NAP world, nor a perfectly free market world, nor an order of omnipotent beings who are free to do absolutely anything with no interference from anyone else.
Hence if we accept the framing of the argument as being about perfectly free NAP-adhering markets vs. government, we open ourselves up to criticisms such as Friedman's. However, if we make the argument about natural order vs. government we remain immune to such criticisms, because however long the natural order takes to develop into a workable system, the government will always take longer to develop into a less workable system.
If several of the individual soldiers say they will spear any fleers, that's certainly aggression, but it's not government aggression...and now we have a non-government, natural-order answer to Friedman. Not a wonderful solution, but still one that does better than government, and that is all that is needed here.
"Do you believe in market failure?" - Neoclassical
The market can't fail because the market has no specific goals. It's simply the manifestation of the various exchanges that people undertake in an effort to improve their personal well being. That process may result in ends some people don't like, say coming out with a boner pill before a cure for cancer, but there's a very big difference between saying, "I don't like that outcome," and saying, "The market has 'failed' because I don't like that outcome." Complain to the people making the choices.
filc:The definition is nonsensical. It is a matter of opinion(Subjective valuation) how best resources can be spent more efficiently.
But what if participants all agree that gains (even if subjective) could have been better given a different, realizable outcome?
Neoclassical: But what if participants all agree that gains (even if subjective) could have been better given a different, realizable outcome? Money talks , bullshit walks! | Post Points: 20
Prisoners talk, none of them walks.
"Prisoners talk, none of them walks."
If drivers could telepathically communicate and coordinate, they could all synchronously press the gas and breaks at the same time making traffic jams and delays practically impossible (up to the physical limit of the area of the given road divided by the total area of the sum of the cars).
Differential reaction time between drivers is basically your prisoners dilemma. So I guess we have a market failure! We need government to coordinate the road. Nationalize the roads!
AJ:For instance, common law is coercive
Under your definition, is there any human action that's not coercive?
How could the government eliminate the delays? It already owns the roads.
That's why there are delays.
How could the government elimate food lines and delays? It owned food production.
http://englishrussia.com/index.php/2008/01/14/lines-lines-lines/
People who are arguing with Neoclassical about state efficacy in alleviating alleged market failures must have missed the posts where he clearly explains that he isn't doing that at all....
This definition of market failure makes basically everything a market failure, and so is still nonsensical (or at least pointless).
"If only they had all stood together in our spear line, they wouldn't have lost so many people."
"If only they had pooled our capital, they could have produced more cheaply, made more profit, and supplied more to willing buyers."
"If only they hadn't have spent a decade on a dead end research path, they might have created better inventions to improve lives more."
"If only they hadn't have ratted each other out, they wouldn't have gone to prison."
None of these are damning to the market as a process. They are only damning to the individual actions taken by participants in the market.
The spear line is a great example of fabricating "market failures" by redefining rationality. It is only individually rational to run if you can guarantee that others will stay to fight. Since you can only guarantee that others will stay to fight by having a trained force that won't have people break, it is not rational to run; running alone and living isn't an available option. You may be one that dies for not breaking, but the only other available option is to run with the rest of your untrained force and have a higher chance of dying. The rational decision is to stay with your trained force and have a lower risk of death. That some armies would still break and run to their own deaths only shows that they had limited knowledge of the options and no "entrepreneur" (if you want to call State generals that in this case) had yet stepped in to fix the issue for people by properly training the army.
"How could the government eliminate the delays? It already owns the roads."
Exactly.
Zavoi: "Under your definition, is there any human action that's not coercive?"
Sure, such as sitting here typing. However, I don't think it's controversial that law enforcement is coercive. I'm not sure your intent here. I don't mean NAP-violating (nor do I mean NAP-non-violating). I mean coercive in the everyday sense of "forceful and possibly violent" (leaving aside whether such force or violence is "justified").