Sunday, 24 August 2008

No, markets are not perfect ......

they are just better than the alternative. This is my very short summary of an article at in which David Strom asks Is the Free Market Perfect?

Strom writes
The superiority of free markets to government regulation is not based upon a magical ability of businesses or even markets to operate flawlessly or at optimal efficiency at all times. Businesses often make huge mistakes, and we have known for centuries that markets are constantly fluctuating, even wildly. Recently the tech bubble and now the housing bubble show that even entire segments of the market get so out of whack that we all wind up suffering painful corrections.

Markets, though, correct. Because they are ultimately tied to basic forces such as supply and demand, customer desires, and of course competition, they are anchored to real forces within the economy as a whole. No matter how out of whack they get, the long-term trend is always going to be in the right direction. More economic growth, satisfying customer demands, better quality at lower prices, and increased productivity and efficiency.


Markets work well—not perfectly, but well—because they are not engineered from the top-down. They are chaotic. They encourage experimentation. They allow mistakes. In markets, even the mighty can fall.
It could also be added that when markets are "out of whack", government action is often the cause. Minimum wage laws lead to youth unemployment, subsidies result in wine lakes and butter mountains, ethanol mandates and subsidies have distorted markets and increased the price of food worldwide and so on.

(HT: Carpe Diem)

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