Quote of the Day: Market Failures Does Not Justify Government Interventions

Market failure is a tricky topic even for professional economists. And when non-economists raise the examples of market failure that we discussed here, matters become even trickier. Not only do all of these terms have technical meanings that often do not match what the non-economist thinks the terms mean, but most non-economists also are unaware of the various criticisms that have been raised in the literature on these topics. Most important, non-economist critics of the market are frequently unaware of the comparative institutional analysis that public choice theory has made a necessary part of thinking about the role of government in the economy. Pointing out imperfections in the market does not ipso facto justify government intervention, and the only certain way that market "failures" are "failures" is by comparison to an unreachable theoretical idea. Market imperfections are not magic wands that make market solutions and government imperfections disappear. Real understanding of comparative political economy begins rather than ends with the recognition that markets are not always perfect.

This is the conclusion of Professors Art Carden and Steve Horwitz at the Econolog in discussing why so-called market failures in the context of externalities, public goods, asymmetric information, and market power (or monopolies) represent as “necessary—but insufficient—conditions for intervention to be justified”.