Tuesday, July 06, 2010

Regulation and the Theory of Market and Government Failure

Regulation and the Theory of Market and Government Failure

Nobel Prize winner (economics) Joseph Stiglitz explains that government can improve economic efficiency because real markets don't have the properties of ideal markets. Technical, but not mathematical.

Posted in the Government And Economics and Liberal Criticisms indexes.


Jeff Snipes said...

"...real markets don't have the properties of ideal markets."

And governments do?

Mike Huben said...

Snarkyness is hardly a valid response.

If you read the article, the obvious answer is that government can bring markets closer to ideal markets by, say, requiring various kinds of information. This can correct some of the more egregious failures, bringing us better market efficiency.

Libertarians tend to hate labeling laws: quite possibly because they are examples of effective government.

Joanna said...

Yes, ideal markets, final equilibriums, perfect knowledge. Equations look so good on paper. There are some minor questions, like how could anyone set up a new company in a final equilibrium? Why would anyone bother to compete if everyone had same information? Ideal market according to whom? Is "ideal" actually objective? But after all, this is math for christ's sake, and we know math is perfect, so let's go for it, let's make humans act according to the equations. If they dare to oppose, our ideal, perfect and final government will take care of them.

Mike Huben said...

Sometimes I marvel at how some people haven't a clue.

Joanna, ideal markets are MODELS. They allow us to make predictions in some domains, not all.

Ignorant scoffing such as yours just isn't an argument: it is a way of ignoring the arguments you are afraid to address.

Joanna said...

Mike, precisely, but here you don't use the models just for predictions, you want to mold society into artificial rules according to some mathematical equations. Just because someone called them "ideal"? They are artificial constructs that look "ideal" only because they are simplistic models that completely ignore the essence of entrepreneurship that actually makes any market work, so trying to implement them is _harmful_ to actual real world markets and society.