wonder what to do on market failure

Miscellaneous Newbies
1

My Question:

What if market failure is nonexistant, but is instead a scapegoat for government failure? Can I critique “market failure” in my presentation?

-Eliot

Reply:

“Eliot,
Let’s stick with the assignment about addressing a market failure. You need to understand that at times, the market underallocates and/or overallocates resources or does so inefficiently. It would be too predictable for you to critique market failure – try to look at all sides and see what you come up with.
Mr. Benson”

What should I do, then?

2

Tell him that you can’t because there is no such thing as market failure. He can assign you to explain how a square circle exists, but that’s no different. The market process does not “over/underallocate” resources unless bad signals are provided by government interference. Write it about how market failure doesn’t exist. If he doesn’t like it–tough. You’re not there to please him. If you are, tell him to just give you the answers he wants so you can regurgitate it like a good little sheep. But if he wants you to actually learn, then he needs to STFU.

3

How does he mean “predictable” for you to do so? Anyway, you can give a presentation from the typical point of view, like he wants, and nonetheless argue why you think it’s wrong.

-Jon

4

I think this is how teachers view their students giving their own opinions.

-Jon

5

Yeah, that seems like the best way to do it.

On one hand you’re covered, on the other you get to say what you want.

Tough asking him for the asnwers he wants to get, like Knight suggested, could be quite funny.

6

I think you can do exactly what you planned to do. The key is how you phrase your arguments.

What you have to do is admit that the market failed – that is what the teacher wants to hear. However, you have to change your frame of reference from the free-market to the coercive-government-privilege market – which is probably what your teacher will not expect. So, in a sense, the teacher is right: the “market” does misallocate resources but in our current state of affairs, the “market” is not a free market. Rather, it is a collection of interactions whereby the government participates coercively. You have to introduce the connection between coercion and misallocation of what people want.

So, here is an example: monopolies are commonly seen as market failures by statists.

What you have to do is demonstrate that it is a misallocation of resources. Then, show how breaking up the monopoly will be more efficient – that is what your teacher wants to hear. Here comes the surprise: suggest that the monopoly be broken up by removing the government privilege. I recommend that you choose your monopoly carefully. Not all “monopolies” are the same. Choose a monopoly that benefits from government privilege, for example, patent protection. The pharmaceutical industry is a good one to expose.

You face an uphill battle because you would also be expected to present models of how the market will respond if there are no government privilege. Your teacher may simply dismiss your point of view by saying something like: “Yeah, but without patent protection we would not have innovation blah blah blah. Therefore, government privilege makes things efficient blah blah blah.” I recommend that you nip that argument in the bud in your assignment by conceding the point and suggesting that patent protection be extremely limited in duration – a statist concession, indeed. Alternatively, you can be cavalier and say that too much innovation is actually a bad thing because it leads to pollution and massive population growth and depletion of the Earth’s resources.

Furthermore, it would be interesting for you to discuss/critique the common concept of efficiency – something your teacher may not expect either.

WARNING: Be ready for a failure on your assignment.

7

i suggest just be subtle about it. refrain from titling your presentation. “market failure, never”.

accept that intervened markets, are markets, of a type.

and just analyse a regulated market, that suffers failure. maybe something simple like property (rent control.)

just leave for the final part of you talk, that the ‘failure’ of the ‘market’ was government interference.

and propose reduction of interference as the anti-dote. job done.

the discrepancy between you and mr benson seems to be over the word market. he meaning real world markets as we view them, and you meaning free market ideal which we are restrained from enjoying. thats my suggestion.

8

Sometimes students must make a choice on what is more important:

  • Earning a high grade that will lead you to greater success later

  • Wasting time and effort in trying to convince a teacher about something he won’t appreciate.

Sometime it is better just to play the game and choose another course with another professor next semester.

9

Perhaps you could address market failure by looking at a number categories of market failure and then showing that in every case the so called market failure is a result of government intervention of some sort: distorting prices; raising the barriers to entry; etc.

i.e. similar but opposite to Mark Anthony’s speech supposedly not praising the dead Julius Caesar, but in fact doing so.

The only difficulty would be in keeping you presentation down to a reasonable time!!

10

This reminds me of something:

“Tu ne cede malis sed contra audentior ito”

I say ignore your teacher, state the case for “market failure” and then criticise it as best you can. If your teacher wants to give you a bad grade for it, ask him why.

11

By “Predictable”, he thinks that I would do that, being a free market advocate.

12

Yup. However, I discovered yet another assignment on market failure.

With this assignment, you research an “externality”, say how it is an “externality” in one page you present in class, and say how government can “fix the externality” in the other page.

I thought of a great idea: present government as the externality, then show how government can solve it by abdication.[:D]

13

In Judy Jones’ An Incomplete Education “market failure” is defined as something like “when economic actors don’t act according to my models – someone else’s fault.”

Of course, while that is clever enough… in the same book, they say that Austrians are crazy for thinking big companies should be allowed to fail during recessions.

14

Brilliant!

15

For a quick response say that the market does not fail, but that the free market does not always lead to economic prosperity. Just because there is a recession does not mean the market is not working, the market is not a single being and therefore does not consider human suffering as a failure. The real market is trying to work now. Efficiency is not always benevolence, vis a versa

16

This book might interest you. I haven’t read it myself but the name of it is certainly fitting :wink:

http://www.amazon.com/Markets-Dont-Fail-Brian-Simpson/dp/0739110349

17

I would second what Jon said, and add that you should post your assignment here as you work on it so we can critique it and make suggestions.

18

You could address it from the standpoint of the economic calculation problem.

You could admit that misallocations can occur in a free market insomuch that no participant in the market can predict the future with absolute certainty in a dynamic economy. You could address that this misallocation tends to minimized in the free market via profit and loss.

You could discuss that the alternative, central economic planning, is inferior because of the impossibility of calculating interpersonal utility and because those who suffer from misallocations in a centrally planned economy do so unjustly at someone else’s hands.

Others on here may be more familiar with relevant literature for reference. There is a wikipedia entry http://en.wikipedia.org/wiki/Economic_calculation_problem.

19

UPDATE: I am doing a presentation that Public Schools are negative externalities that need to be corrected by their abdication.

20

Public schools are a topic that has been in the media lately. In many articles, they are analyzed extensively, and showered praise, as people hear that they are great for American youth. Unfortunately, people don’t realize that public schools are a negative externality.

First of all, the costs paid by the producer are passed on to a third party. The costs of running the school are not entirely paid by the school administrators, receiving funds through donations. Instead, taxpayers, forced by the Government, have to pay property taxes in order to fund this school.

Because the school system can pass on its costs to a third party, this results in an overproduction of public schools. The schools can practically reduce tuition to zero, and attract people due to the “free” service. Too many schools are built on the land. Also, way too many teachers are hired, made possible by an increase in the amount of public schools that are supplied. In addition, private schools, finding it hard to compete with the free tuition of public schools, are underprovided. As money must be taxed away from the taxpayer, other goods that the taxpayers want more are also underprovided.

Another problem with the public school system is that there is no incentive to provide the product that the consumers of the good, the parents of the kids, want. Even if the administrators tried to please the parents by listening to their concerns, they will inevitably run into conflicts of interest. In addition, it is almost impossible, separated from concerns of profit and loss, to figure out if their system is inefficient, to evaluate whether teachers are providing a good quality service, and to find how to best serve the wants of the consumer.

As a result, the public schools are inefficient, they result in a misallocation of resources from what people wanted, and efficient schools don’t provide as much help to people.

How can government help? First, they can abolish public schools. Instead of money being used to fund an inefficient system, the wealth is used to satisfy the wants of the consumer. People are freer to use more wealth as a means to obtain the things they want.

This will also result in better private schools. They can cater to the demands of consumers much better, since they can provide their product without interference. Instead of having to compete with free schools, these schools can establish a variety of different specialties, teaching methods, and teachers to cater to what the parent wants.

The variety of the schools will be really great, and the options will be enormous. As Llewellyn H. Rockwell, Jr. said in his article, “What if Pubic Schools Were Abolished?”:

“At first, the new schools will be modeled on the public school idea. Kids will be there from 8 to 4 or 5, and all classes will be covered. But in short order, new alternatives will appear. There will be schools for half-day classes. There will be large, medium, and small schools. Some will have 40 kids per class, and others 4 or 1. Private tutoring will boom. Sectarian schools of all kinds will appear. Micro-schools will open to serve niche interests: science, classics, music, theater, computers, agriculture, etc. There will be single sex schools. Whether sports would be part of school or something completely independent is for the market to decide.

And no longer will the “elementary, middle school, high school” model be the only one. Classes will not necessarily be grouped by age alone. Some will be based on ability and level of advancement too. Tuition would range from free to super expensive. The key thing is that the customer would be in charge.

Transportation services would spring up to replace the old school-bus system. People would be able to make money by buying vans and providing transportation. In all areas related to education, profit opportunities would abound.

In short, the market for education would operate the same as any other market. Groceries, for example. Where there is a demand, and obviously people demand education for their kids, there is supply. There are large grocery stores, small ones, discount ones, premium ones, and stores for groceries on the run. It is the same for other goods, and it would be the same for education. Again, the customer would rule. In the end, what would emerge is not entirely predictable — the market never is — but whatever happened would be in accord with the wishes of the public.

… this town would emerge as one of the most desirable in the country. Educational alternatives would be unlimited. It would be the source of enormous progress, and a model for the nation. It could cause the entire country to rethink education. And then those who moved away would move back to enjoy the best schools in the country at half the price of the public schools, and those without children in the house wouldn’t have to pay a dime for education. Talk about attractive!”

Unfortunately, there are many barriers to this. For example, if a city council tried to implement this program, they would be jailed. If people tried to do this, the proponents of public education would criticize them.

However, I have hope that this externality can be corrected. Let freedom in schooling reign!