Hello,
I have some doubts after reading a chapter about market failures in an “ordinary textbook”. I know how Austrians argue against this theory in a general way, but there are some specific cases that I would like to read a rebuttal.
This is the case of ‘insurance markets’. The author says that the State provides with an insurance for farmers due to markets does not do that; also provides with unemployment insurance and medical care for old people because a lot of them could not get a medical insurance in the market.
So, why does he say that? Is there something wrong with insurance markets (I mean, I know markets are not perfect)?
And another case. What about “Consumer protection”? Would companies inform truly about their products if they were not obligated? I guess so, but I would like to see good arguments.
As to your specifics, they seem kind of vague. To the last point for consumer protection from bad products look to the existence of Underwriter’s Labs as an example of how the market answers such ‘failures’. It’s not a question of whether or not people will market bad or harmful products. They will, and they will do so under government restrictions or if there are none at all. And it’s not a question of whether or not people will be better off with access to certain information. They will be better off, but as to whether or not they will actually take advantage of that information is another matter. The question is where does the incentive lie. For a person who wants to start and grow a business, say in dietery supplements, there is no incentive to harm or kill your customers, or lie to them about what is in your products. For a person who wants to pull a fraud on people and say market an ineffective and potentially hazardous weight loss product through a fly by night company, pocket a quick buck and then slip out of the market, they will be able to do so with or without the government trying to ‘protect’ the consumer, unless of course the government essentially closes off the industry. But then that comes with its own set of problems. For example the government supposedly protects us from hazardous RX drugs using the FDA as a guard dog. However, even granting the FDA is effective toward this end, and that’s highly debatable, the process of protecting some people causes harm to others. People have to wait for potential cures or pain relief while the FDA makes sure all the requirements for new drugs are satisfied. Everyone who suffers and dies in the interim is a cost of the process, so who is being protected? Certainly not the people who died.
When people argue about market failures in instances like this, it usually boils down to them wanting to impose their marginal judgements categorically across the whole market. They want to take their risk/reward judgement that they would apply to their own decision making process and make all people abide by it. This inherrently leads to costs for those people with different priorities. Some people are willing to take a risk with a new drug, and when some are inevitably harmed, as will happen no matter what when using such new products, there is a ‘market failure’, which really boils down to, “Something happened that I deem imperfect, therefore the market failed.”
If farmers choose to not pay for insurance out of their own pockets it does not necessarily mean that they can’t afford it, it means they prefer to spend their money in other ways.
When the government deliberately directs money away from some things in favor of another they call it “correcting market failures”. But it is merely a reallocation of resources. Markets exists when people trade in order to increase their satisfaction, when government alters that process its directs resources into less productive uses. In wealth redistribution, some may receive an increase in satisfaction, but only through the immoral robbery of others.
Companies(who don’t have government monopolies) need people to willingly buy their products. If people don’t trust the company or its products, that company will not be able to sell their goods. Companies pay out of pocket for advertisement, they also pay out of pocket for consumer trust.