I still remember those curt words that were given after Jake McCloskey (was that his name?) invited people on this forum to comment on his blog Beer + Philosophy.
It just surprised me, because the man initially posted a topic on these forums asking people to comment on what he said in his blog. One would have thought he’d be more enthusiastic to see people take that request, but when one of the posters asked him if he could be more specific with his seemingly general usage of the word “market failure”, he seemed to have a brief loss of temper.
It went something like, “Don’t lecture me on what is or isn’t market failure! We all know people want to be happy and policy should reflect that.”
We can forgive a man for getting annoyed or irritated on the internet and momentarily lashing back because of it, but it was not a strange response. Where he could have helped by being more specific, he left it with the final generality that “people want to be happy”.
Well, on one hand, if a policymaker ever told me that he was going to give me interest free loans to go to the graduate b-school of my choice, because he thinks it would make me happy, I’d be very offended. Not the least because he thinks that my happiness rests on materialism and getting a quick ticket. It’s why the idea of making people happy by correcting supposed market failure is kinda arbitrary and assumes to many things too quickly, and demands dramatic change for those shaky assumptions.
So here’s my question to local posters: Should we stop being nosy and ask what on earth this perpetually ill-defined term like market failure means? Is it worth the risk of enraging today’s temparamental people by calling them on words that they use out of casuitry?
If it is part of an argument, it is open to a challenge, of course. It’s just that sometimes, people don’t react so well to having their basics of thought being challenged. A useful ploy is to assume a definition and ask for a clarification at the same time - “Do you mean X as in definition? If that is the case, I see the following issues: …”. The opponent can then address your arguments or make their own definition more specific (since you presumably ‘got it wrong’). You can then accept his definition, acceding to his side, and then work with it and show what is wrong with the concept.
Doesn’t always work that way, but it’s something. As long as one escapes the trap of never-ending arguments about semantics.
I don’t understand how market failure is so smugly dismissed by you all–even Peter Leeson acknowledges collective action problems, where individual rationality does not lead to optimal outcomes. That’s all market failure means: people pursuing their own satisfaction, for whatever reason, don’t achieve an outcome that could have led to even greater satisfaction as judged by themselves.
If nothing else, one can see that it is not “ill-defined”; even if one believes it never happens in the real world, the concept is still useful in game theory (e.g., Prisoners’ Dilemma). Is there confusion there? Not for me.
Once again, a market failure doesn’t mean entrepreneurial creativity will forever fail, but the concept is useful for theory, at least, and many would concede that it is applicable to data.
Do disbelievers in market failure also disbelieve in externalities?
I’ll be the first to admit that the government introduces more public-goods problems, more market failures, etc., but that’s all the more reason to frame data using that concept.
“people pursuing their own satisfaction, for whatever reason, don’t achieve an outcome that could have led to even greater satisfaction as judged by themselves.”
Maybe thats your definition. but Wikipedia defines it as “Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient.”
And the assumption, either explicit or implicit, is that the govt could and should have done better than the market by interfering.
And the prisoners dilemma and being the first one to start a mutiny, as in Leeson’s paper, is not what this highly charged phrase is about.
Just like “law and order” came to mean “down with the negro” and “love it or leave it” meant “support the current war unthinkingly”, so too “here’s anothe rmarket failure” means “Big Brother is needed badly”
And the q that annoyed the blogger was “what exactly did th emarket fail to do?”, meaning why is Big Brother needed.
SO that its not possible to meaningfully say the govt introduces market failures in the wikipedia sense of the phrase. Its like saying slavery makes freedom fail
the market failure as described in game theory is not what is it in economics. You said:
Yes, for me! In prison dilema, prisoners have not chance to communicate with each other. Or if there is a chance, then they cannot trust each other (which is not the same in free market economy). Moreover, in one-game there is not feedback, i.e. lost of trust or something similar. Hence, I don’t understand your matching between free market failure and game theory market failure.
StrangeLoop, I don’t think Prateek Sanjay’s point had to do with “market failure” per se. He’s talking about people getting uppity when others call them out on playing fast and loose with their terms.
Yes (although I was also talking about market failure).
I mean, when somebody calls you a right-wing person, you would ask, “Well, what IS a right wing person?” And if somebody calls you a left-wing person, you’d ask, “Well, what IS a left-wing person?”
The response could likely be a variant of, “You and I both know what we are talking about.” If they gave a specific definition, then, alas, you simply do not fit to either. I guess I sort of do know what you are talking about, but if I ever put any further thought into it, I’d say that I don’t know what you are talking about.
Now, the word “socialist” is thrown around a lot these days. One might ask, “What exactly IS a socialist?” If we consulted the dictionary, and saw “classless, stateless, propertyless society”, we’d object by saying that Obama can’t be a socialist since he is a head of state, owns property, and never aimed to abolish class.
Anyway, if I take what Dave cited as the Wikipedia definition of market failure, then all human action could be market failure. Charging any price for any good could be market failure, because thriftier buyers always lose out by not getting the price they would have paid. Any hotel that is not completely occupied is a market failure. Any road which has traffic delays could be a market failure and any road not on full capacity could be a market failure. It’s not because lack of intervention could fill and keep things moving in those roads and hotels, but simply the fact that reality is so. And nothing in the world can change it.
