Tuesday, June 18, 2013
A Quick And Dirty Explanation Of Market Failure And Its Application To Political Economy
Mark Thoma provides several examples of market failure that are helpful in understanding several critical issues in political economy. The basic assumption is that markets are beneficial in some circumstances but that there are many situations in which markets fail to accomplish desirable outcomes. Market failure justifies government intervention in many markets. Healthcare provides a good example. It has few of the characteristics that we associate with competitive markets. That does not stop many politicians from proposing "market based" solutions for our healthcare problems. It also provides them with fodder for opposing government sponsored healthcare programs. They refuse to acknowledge that free markets are not appropriate in many circumstances. This is only one example in which the ideology of free markets is used as a protective cover for those who currently benefit from market failures. Free market ideology is used to prevent government from intervening in markets that are rife with failures. Market failures are often the source of economic rents.